Question 1

If the total cost curve becomes steeper as output increases, then this reveals diminishing marginal product.

Accepted Answer

A) True 
 B)False

Question 2

An example of an implicit cost of production for a forestry company would be:

Accepted Answer

A)  the costs of planting an area with trees 
B)  the interest income that could have been earned in a bank if the company hadn't used its profit to finance a new replanting 
C)  the cost of transporting the logs to a sawmill 
D)  all of the above

Question 3

Table 13-1
Measures of Cost for Splashy Cardboard Kayak Factory.
 
-Refer to Table 13-1. The average variable cost of producing 3 kayaks is:

Accepted Answer

A)  $2 
B)  $2.33 
C)  $3 
D)  $4

Question 4

Economists and accountants agree on the inclusion of implicit costs into the cost analysis of a firm.

Accepted Answer

A) True 
 B)False

Question 5

Accounting profit:

Accepted Answer

A)  will never exceed economic profit 
B)  is a better measure of profitability than economic profit 
C)  is generally as large as economic profit 
D)  is most often equal to economic profit

Question 6

Graph 13-3
 
-Refer to Graph 13-3. If marginal cost is rising, then:

Accepted Answer

A)  marginal product must be rising 
B)  marginal product must be falling 
C)  average variable cost must be falling 
D)  average fixed cost must be rising

Question 7

Graph 13-6
  This graph depicts average total cost functions for a firm that produces automobiles. Use the graph to answer the following question(s).
-Refer to Graph 13-6. This firm experiences economies of scale at which output levels?

Accepted Answer

A)  output levels above N 
B)  output levels between M and N 
C)  output levels below M 
D)  all of the above levels if the firm is operating in the long run

Question 8

Average total cost tells us the:

Accepted Answer

A)  cost of the last unit of output if total cost does not include a fixed cost component 
B)  cost of a typical unit of output if total cost is divided evenly over all the units produced 
C)  variable cost of a firm that is producing at least one unit of output 
D)  total cost of the first unit of output if total cost is divided evenly over all the units produced

Question 9

Cost of capital can also be seen as implicit costs.

Accepted Answer

A) True 
 B)False

Question 10

What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?

Accepted Answer

The answer of What are opportunity costs? How do explicit...

Question 11

Which of the following costs do not vary with the amount of output a firm produces?

Accepted Answer

A)  marginal costs and average fixed costs 
B)  total fixed costs 
C)  average fixed costs 
D)  total fixed costs and average fixed costs

Question 12

The amount of money that a firm receives from the sale of its output is called:

Accepted Answer

A)  total revenue 
B)  total gross profit 
C)  total net profit 
D)  net revenue

Question 13

Amy owns a photo developing shop. She also does contract photography. If she takes on a contract, she cannot develop photos in that time and her customers use another firm. Suppose Amy rejects a contract to photograph a wedding. This would have been a five hour job and Amy charges $500 per hour. She spent those five hours developing photos. Her chemicals and paper cost $1250. She earned $3500 in sales.
-According to the information provided, Amy's economic profit is:

Accepted Answer

A)  -$250 
B)  $1000 
C)  $2250 
D)  $3500

Question 14

A U-shaped long-run average total cost curve can be explained by firms increasing their size to do which of the following? (i) take advantage of greater specialisation
(ii) avoid coordination problems
(iii) avoid fixed costs

Accepted Answer

A)  (i) and (ii) 
B)  (ii) and (iii) 
C)  (i) only 
D)  (i), (ii) and (iii)

Question 15

Diminishing marginal product of labour occurs when adding another unit of labour:

Accepted Answer

A)  increases output but not by as large a margin as previous units of labour 
B)  decreases output 
C)  increases output by more than the margin of previously employed labour 
D)  none of the above are true

Question 16

The average fixed cost curve:

Accepted Answer

A)  declines as long as it is above marginal cost 
B)  declines as long as it is below marginal cost 
C)  always declines with increased levels of output 
D)  always rises with increased levels of output

Question 17

Adam Smith's example of the pin factory demonstrates that economies of scale result from specialisation.

Accepted Answer

A) True 
 B)False

Question 18

One of the most important properties of cost curves is that:

Accepted Answer

A)  the average fixed cost must eventually rise 
B)  the average total cost curve first rises, then falls with increased output 
C)  for most producers, the average total cost curve must never cross the marginal cost curve 
D)  the marginal cost eventually rises with the quantity of output

Question 19

The cost to produce the typical unit of output is the firm's:

Accepted Answer

A)  average total cost 
B)  variable cost 
C)  fixed cost 
D)  marginal cost

Question 20

Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants one bag of seeds, he gets 30 watermelons. If he plants two bags of seeds, he gets 50 watermelons. If he plants three bags of seeds he gets 60 watermelons. A bag of seeds costs $100 and seeds are his only costs.
-Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorising them as fixed or variable. Which of the following costs are most likely to be considered fixed costs?

Accepted Answer

A)  hotdog buns 
B)  mustard 
C)  the cost of bookkeeping services 
D)  wages paid to workers that sell hotdogs

Exam 13: The Costs of Production

If the total cost curve becomes steeper as output increases, then this reveals diminishing marginal product.

An example of an implicit cost of production for a forestry company would be:

Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1. The average variable cost of producing 3 kayaks is:

Economists and accountants agree on the inclusion of implicit costs into the cost analysis of a firm.

Accounting profit:

Graph 13-3 -Refer to Graph 13-3. If marginal cost is rising, then:

Graph 13-6 This graph depicts average total cost functions for a firm that produces automobiles. Use the graph to answer the following question(s) . -Refer to Graph 13-6. This firm experiences economies of scale at which output levels?

Average total cost tells us the:

Cost of capital can also be seen as implicit costs.

What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?

Which of the following costs do not vary with the amount of output a firm produces?

The amount of money that a firm receives from the sale of its output is called:

A U-shaped long-run average total cost curve can be explained by firms increasing their size to do which of the following? (i) take advantage of greater specialisation (ii) avoid coordination problems (iii) avoid fixed costs

Diminishing marginal product of labour occurs when adding another unit of labour:

The average fixed cost curve:

Adam Smith's example of the pin factory demonstrates that economies of scale result from specialisation.

One of the most important properties of cost curves is that:

The cost to produce the typical unit of output is the firm's: