Question 1

Jessica is a young doctor who has just started her own practice.Her previous position paid her $80,000 a year.For office space,she uses a building which she owns and which she has rented in the past for $40,000 a year.Her total revenue from her new practice is $250,000.She pays $50,000 to other firms for materials and supplies,and she pays $40,000 in wages to her office nurse.Assume that Jessica's building and equipment do not depreciate and that her normal profit is $20,000.
a.Which of Jessica's costs are explicit costs and what is their total?
b.Which of Jessica's costs are implicit costs and what is their total?
c.What is the opportunity cost of all factors of production employed by Jessica?
d.What is Jessica's economic profit?

Accepted Answer

The answer of Jessica is a young doctor who has...

Question 2

Which of the following curves are U-shaped?
i.average variable cost curve
ii.average fixed cost curve
iii.average total cost curve
A) i and ii
B) i and iii
C) ii and iii
D) i, ii, and iii
E) only ii

Accepted Answer

The answer of Which of the following curves are U-shaped?
i.average...

Question 3

Jay set up his hot dog stand near the business district.His total variable cost includes the

Accepted Answer

A)  annual insurance for the hot dog stand. 
B)  cost of buying the hot dog stand. 
C)  cost of the hot dogs and condiments. 
D)  interest he pays on the funds he borrowed to pay for advertising. 
E)  revenue he gets when he sells his first hot dog each day.

Question 4

This month,the local widget factory produced 100 widgets.The total variable cost of production was $500 and the average total cost of production was $8.
a.What is the total cost?
b.What is the total fixed cost?
c.What is the average fixed cost?
d.What is the average variable cost?

Accepted Answer

The answer of This month,the local widget factory produced 100...

Question 5

Professor Rush decided to quit teaching economics and opens a shoe store out at the mall.He gave up an annual income of $50,000 to open the store.A year after opening the shoe store,the total revenue for the year was $200,000.Rush's expenses were $30,000 for labor,rent was $18,000,and utilities were $1,200.He also had to purchase new shoes from manufacturers,at a cost of $60,000,which was financed by cashing in his savings of $60,000 that had been in a bank earning 8 percent per year.The normal profit from operating a shoe store in the mall is $20,000.Determine Professor Rush's explicit costs,implicit costs,and economic profit.

Accepted Answer

The answer of Professor Rush decided to quit teaching economics...

Question 6

-The table above shows a total product schedule.Suppose that labor costs $20 per worker and fixed costs are $60.The average variable cost of producing 80 units equals ________ per unit.

Accepted Answer

A)  $0.75 
B)  $1.00 
C)  $1.75 
D)  $20 
E)  $0.25

Question 7

A firm's fundamental goal is

Accepted Answer

A)  different for each firm. 
B)  to make a quality product. 
C)  to maximize profit. 
D)  to gain market share. 
E)  to decrease its employment of workers in order to cut its costs.

Question 8

The long-run average cost curve

Accepted Answer

A)  is an upside down U-shape. 
B)  is constructed using the short-run marginal cost curves. 
C)  shows economies and diseconomies of scale. 
D)  Both answers A and B are correct. 
E)  Both answers A and C are correct.

Question 9

When the long-run average cost curve is downward sloping,

Accepted Answer

A)  economies of scale are present. 
B)  diseconomies of scale are present. 
C)  the firm experiences constant returns to scale. 
D)  the average fixed cost curve must be upward sloping. 
E)  The premise of the question is wrong because long-run average cost curves never slope downward.

Question 10

The long run is a time period in which

Accepted Answer

A)  some of the firm's resources are fixed. 
B)  all of the firm's resources are fixed. 
C)  all of the firm's resources are variable. 
D)  the firm cannot increase its output. 
E)  all costs become explicit costs.

Question 11

-The table above shows the total product schedule for Rick's Lawn Service,a yard care company.The total product schedule shows

Accepted Answer

A)  increasing marginal returns when the 6th worker is hired. 
B)  decreasing marginal returns when the 1st worker is hired. 
C)  first increasing and then decreasing marginal returns. 
D)  output first increases then increases. 
E)  only decreasing marginal returns.

Question 12

Diseconomies of scale can occur as a result of which of the following?

Accepted Answer

A)  increasing marginal returns as the firm increases its size 
B)  lower total fixed cost as the firm increases its size 
C)  management difficulties as the firm increases its size 
D)  greater specialization of labor and capital as the firm increases its size 
E)  increases in the labor force not matched by increases in the plant

Question 13

Scott owns a law-enforcement training operation in Boise,Idaho.He employs three trainers.The last trainer Scott hired increased Scott's total cost by $466 per week even though the trainer brought in only one new client.Hence Scott's

Accepted Answer

A)  total variable cost equals $466. 
B)  marginal cost of the last client equals $466. 
C)  marginal cost of the last worker equals $233. 
D)  total variable cost equals $233. 
E)  total fixed cost of the last client equals $466.

Question 14

-The table above shows the total product schedule for The X Firm.The average product of labor is maximized at ________ workers because ________.

Accepted Answer

A)  4; productivity is maximized when the 4th worker is employed 
B)  3; output starts to decrease with the 4th worker 
C)  5; output is maximized with the 5th worker 
D)  4; the marginal product of labor is increasing with the 4th worker 
E)  5; the APL exceeds the MPL for the 5th worker

Question 15

Which of the following variables do you need to know to calculate marginal cost?
i.change in total cost
ii.marginal product of labor
iii.change in quantity of labor used
iv.change in output

Accepted Answer

A)  i and ii 
B)  i and iv 
C)  ii and iv 
D)  i, iii, and iv 
E)  Only ii

Question 16

Denise owns a plant that produces watch parts in Ohio.Denise noticed that when she hired the last worker,that worker's marginal product exceeded the marginal product of the previous worker.As a result,when the last worker was hired,Denise's average product of labor

Accepted Answer

A)  decreased. 
B)  increased. 
C)  did not change. 
D)  perhaps changed, but there is not enough information to determine whether or not it did change. 
E)  equals the marginal product of labor.

Question 17

An increase in the price of labor (a variable resource)shifts

Accepted Answer

A)  all cost curves upward. 
B)  the variable cost curves upward but leaves the fixed cost curves unchanged. 
C)  the fixed cost curves upward but leaves the variable cost curves unchanged. 
D)  the marginal cost curve rightward. 
E)  none of the cost curves.

Question 18

The figure above shows some of a firm's cost curves.
-A firm's rent is a fixed cost.If the rent increases,then in the figure above ________ upward.

Accepted Answer

A)  only curve A shifts 
B)  only curve B shifts 
C)  only curve C shifts 
D)  both curves A and C shift 
E)  both curves B and C shift

Question 19

Marginal product equals

Accepted Answer

A)  the total product produced by a certain amount of labor. 
B)  the change in total product that results from a one-unit increase in the quantity of labor employed. 
C)  total product divided by the quantity of labor. 
D)  the amount of labor needed to produce an increase in production. 
E)  total product minus the quantity of labor.

Question 20

Lauren runs a chili restaurant in San Francisco.Her total revenue last year equaled $111,000.The rent on her restaurant totaled $48,000.Her labor costs totaled $43,000.Her materials,food and other variable costs totaled $19,000.To Lauren's accountant,Lauren

Accepted Answer

A)  incurred a loss of $1,000. 
B)  earned a profit of $1,000. 
C)  incurred a loss of $111,000. 
D)  earned a profit of $111,000. 
E)  had a total cost equal to $91,000.

Exam 14: Production and Cost

Which of the following curves are U-shaped? i.average variable cost curve ii.average fixed cost curve iii.average total cost curve A) i and ii B) i and iii C) ii and iii D) i, ii, and iii E) only ii