CHAPTER 2 MACRO QUESTIONS 2

(Last Word) Which of the following sayings relates most closely to the idea of sunk costs: O A. Don't cry over spilt milk. O B. A bird in the hand is worth two in the bush. O C. He who hesitates is lost. O D. Show me the money.

A

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are: O A. $5,000. O B. $500. O C. $.50. O D. $50.

A

Refer to the above data. If the firm closed down and produced zero units of output, its total cost would be: O A. zero. O B. $50. O C. $150. O D. $100.

B

Refer to the above data. The total cost of four units of output is: O A. $260. O B. $77.50. O C. $310. O D. $215.

C

Economic profit is found by subtracting accounting costs from total revenue. O A. True O B. False

FALSE

In the short run: O A. TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate. O B. TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate. O C. TVC will increase by the same absolute amount for each additional unit of output produced. O D. one cannot generalize concerning the behavior of TVC as output increases.

A

Costs to an economist: O A. consist only of explicit costs. O B. may or may not involve monetary outlays. O C. never reflect monetary outlays. O D. always reflect monetary outlays

B

Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Entrepreneur's potential economic profit from the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's explicit costs are: O A. $286,000. O B. $150,000. O C. $94,000. O D. $156,000

B

If a technological advance reduces the amount of variable resources needed to produce any level of output, then the: O A. AVC curve will shift upward. O B. MC curve will shift downward. O C. ATC curve will shift upward. O D. AFC curve will shift downward

B

Refer to the above diagram. Minimum efficient scale: O A. occurs at some output greater than Q3. O B. is achieved at Q1. O C. is achieved at Q3. O D. cannot be identified in this diagram.

B

Refer to the above short-run production and cost data. The curves of Figures A and B suggest that: O A. marginal product and marginal cost reach their maximum points at the same output. O B. marginal cost reaches a minimum where marginal product is at its maximum. O C. marginal cost and marginal product reach their minimum points at the same output. O D. AVC cuts MC at the latter's minimum point.

B

What do wages paid to blue-collar workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common? O A. None are either implicit or explicit costs. O B. All are opportunity costs. O C. All are implicit costs. O D. All are explicit costs.

B

A fixed cost is: O A. associated with any productive resource whose price is fixed. O B. any cost which increases proportionately with output. O C. any cost which a firm would incur even if output was zero. O D. associated with all inputs whose short-run supply is perfectly inelastic.

C

Assume a firm closes down in the short run and produces no output. Under these conditions: O A. TVC is positive, but TFC and TC are zero. O B. TFC is positive, but TVC and TC are zero. O C. TFC and TC are positive, but TVC is zero. O D. TFC, TVC, and TC will all be positive

C

Fixed costs are associated with: O A. highly adjustable inputs such as labor. O B. both the short run and the long run. O C. the short run only. O D. the long run only.

C

If a firm decides to produce no output in the short run, its costs will be: O A. its marginal costs. O B. its fixed plus its variable costs. O C. its fixed costs. O D. zero

C

In the above figure, curves 1, 2, 3, and 4 represent the: O A. ATC, MC, AFC, and AVC curves respectively. O B. AFC, MC, AVC, and ATC curves respectively. O C. MC, ATC, AVC, and AFC curves respectively. O D. ATC, AVC, AFC, and MC curves respectively.

C

In the short run which of the following statements is correct? O A. The marginal cost curve intersects the average variable and average fixed cost curves at their minimum points. O B. Average variable cost declines continuously as total output is expanded. O C. Total cost will exceed variable cost. O D. If the inputs of all resources are increased by equal amounts, total output will expand by diminishing amounts.

C

Refer to the above data. Diminishing marginal returns become evident with the addition of the: O A. sixth worker. O B. fourth worker. O C. third worker. O D. second worker

C

Refer to the above diagram. Diseconomies of scale: O A. begin at output Q1. O B. occur over the Q1Q3 range of output. O C. begin at output Q3. O D. are in evidence at all output levels.

C

Refer to the above diagram. For output level Q, per unit costs of C are: O A. unobtainable and imply the inefficient use of resources. O B. unobtainable, given resource prices and the current state of technology. O C. obtainable, but imply the inefficient use of resources. O D. obtainable and imply that resources are being combined efficiently.

C

Refer to the above information. Average fixed cost is: O A. TVC - MC O B. MC/Q O C. TFC/Q O D. TVC/Q

C

Refer to the above short-run production and cost data. The curves of Figures A and B suggest that: O A. average product and average variable cost reach their maximum points at the same output. O B. AVC cuts MC at the latter's maximum point. O C. AVC reaches a minimum where AP is at its maximum. O D. AFC declines so long as output increases.

C

Average fixed cost: O A. equals marginal cost when average total cost is at its minimum. O B. may be found for any output by adding average variable cost and average total cost. O C. graphs as a U-shaped curve. O D. declines continually as output increases.

D

In comparing the changes in TC and TVC associated with an additional unit of output, we find that: O A. the change in TVC is equal to MC, while the change in TC is equal to TFC. O B. the change in TC exceeds the change in TVC. O C. the change in TVC exceeds the change in TC. O D. both are equal to MC.

D

Refer to the above data. If the firm decided to increase its output from 6 to 7 units, its total costs would rise by: O A. $87.14. O B. $80.00. O C. $6.67. O D. $120.00

D

Refer to the above information. The average total cost of 3 units of output is: O A. $65. O B. $21.67. O C. $40. O D. $35.

D

The relationship between marginal cost and average fixed cost is such that: O A. declines in MC cause AFC to decline as output increases. O B. increases in MC cause AFC to increase as output increases. O C. MC intersects AFC at that output where AFC is at a minimum. O D. MC may either rise or fall as AFC declines.

D

Which of the following is correct? O A. When total product is rising, both average product and marginal product must also be rising. O B. When marginal product is falling, total product must be falling. O C. When marginal product is falling, average product must also be falling. O D. Marginal product rises faster than average product and also falls faster than average product.

D

The law of diminishing returns explains why the long-run average total cost curve is U-shaped. O A. True O B. False

FALSE