Exam 2 Chapter 7
d. total revenue minus total costs
Economic profit is defined as _____. a. total fixed cost plus total variable cost b. total revenue minus marginal costs c. average revenue minus average variable cost d. total revenue minus total costs e. marginal revenue minus opportunity costs
c. average variable cost
Figure 7.1 Figure 7.1 shows the U-shaped cost curves for a producer. In the figure below, curve B represents _____. a. marginal cost b. average total cost c. average variable cost d. average fixed cost e. average marginal cost
c. the firm is experiencing diseconomies of scale.
If General Electric finds that doubling both its plant size and the amount of associated inputs does not double its output level, then: a. the law of diminishing returns is in effect. b. long-run average costs must be decreasing. c. the firm is experiencing diseconomies of scale. d. the firm should increase production. e. the firm is experiencing constant returns to scale.
a. True
If a firm is experiencing diminishing marginal returns, its marginal product is declining. a. True b. False
b. variable inputs
Inputs that can be increased or decreased in the short run are called _____. a. fixed inputs b. variable inputs c. economic inputs d. accounting inputs e. normal inputs
e. Accounting profit will rise.
John moved his office from a building he was renting downtown to the carriage house he owns behind his house. How will his profit change? a. Implicit costs will fall. b. Explicit costs will remain unchanged, while implicit costs will rise. c. Economic profit will fall. d. Explicit costs will rise. e. Accounting profit will rise.
d. diminishing marginal product of inputs
Marginal cost eventually increases as output increases due to the effect of _____. a. economies of scale b. increasing average cost c. increasing total cost d. diminishing marginal product of inputs e. constant fixed cost
c. is involved in calculating economic profit.
Opportunity cost usually: a. cannot be measured. b. applies to labor but not to capital. c. is involved in calculating economic profit. d. is greater than the cash payment made to a resource. e. is less than the cash payment made to a resource.
d. stay with his new firm because his economic profit is positive.
Suppose Bob leaves his $50,000-a-year job as a financial advisor to P.E.T.S. and starts his own business selling pet-care products. In the first year, his accounting profit is $70,000. Based on this level of success, Bob should: a. return to his old job because his economic profit is negative. b. return to his old job because his economic profit is smaller than his accounting profit. c. return to his old job because his economic profit is less than his old salary. d. stay with his new firm because his economic profit is positive. e. stay with his new firm because accounting profit is positive.
e. $9,500
Suppose Ernie gives up his job as financial advisor for P.E.T.S., where he earned $30,000 per year, to open up a store selling pet-care products. He invested $10,000 in the store, which were originally savings that earned 5 percent interest. This year, the revenue from the new business was $50,000 and the explicit costs were $10,000. The economic profit earned by Ernie was _____. a. $10,000 b. $50,000 c. $20,000 d. $40,000 e. $9,500
a. True
The marginal cost curve intersects the minimum point of the average variable cost curve. a. True b. False
a. includes both explicit and implicit cost.
The opportunity cost of a resource: a. includes both explicit and implicit cost. b. includes explicit cost only. c. includes implicit cost only. d. is equal to the market price of the resource. e. is not related to the market price of the resource.
b. False
The short-run average fixed cost curve is a horizontal line. a. True b. False
b. fixed cost plus variable cost
Total cost is calculated as _____. a. average fixed cost plus average variable cost b. fixed cost plus variable cost c. the additional cost of the last unit produced d. marginal cost plus variable cost e. marginal cost plus fixed cost
d. are actual cash payments.
Unlike implicit costs, explicit costs: a. reflect opportunity costs. b. include the value of the owner's time. c. are not included in a firm's accounting statements. d. are actual cash payments. e. do not change as a firm's output changes.
c. The opportunity costs of the capital owned and used by the firm
Which of the following are implicit costs for a typical firm? a. Insurance costs b. Electricity costs c. The opportunity costs of the capital owned and used by the firm d. The cost of the labor hired by the firm e. The cost of raw materials
b. False
Long-run average costs are the same as long-run total costs. a. True b. False
c. the increase in output that occurs when an additional unit of a resource is added, holding all other resources constant.
Marginal product is defined as: a. the increase in revenue that occurs when an additional unit of a resource is added. b. the increase in output that occurs when all resources are increased by the same proportion. c. the increase in output that occurs when an additional unit of a resource is added, holding all other resources constant. d. the amount of additional resources needed to increase output by one unit when all resources are increased by the same amount. e. the amount of additional money needed to increase output by one unit when all resources are held constant.
c. $65,000
Table 7.1 Table 7.1 shows revenue and cost information for Sally's small business. Sally owns a small business that she operates in a building she owns. Given the information in the table below, Sally's accounting profit is equal to _____. a. $80,000 b. $50,000 c. $65,000 d. $35,000 e. $24,000
e. $24,000
Table 7.1 Table 7.1 shows revenue and cost information for Sally's small business. Sally owns a small business that she operates in a building she owns. Given the information in the table below, Sally's economic profit is equal to _____. a. $80,000 b. $50,000 c. $65,000 d. $35,000 e. $24,000
c. 20 pairs of shoes
Table 7.2 Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the average product of the fourth unit of labor? a. 5 pairs of shoes b. 10 pairs of shoes c. 20 pairs of shoes d. 50 pairs of shoes e. 80 pairs of shoes
b. 25 pairs of shoes
Table 7.2 Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the marginal product of the third unit of labor. a. 45 pairs of shoes b. 25 pairs of shoes c. 15 pairs of shoes d. 75 pairs of shoes e. 50 pairs of shoes
d. fifth
Table 7.4 Table 7.4 shows labor, total product, and marginal product for a firm. In the table below, marginal returns begin to diminish with the hiring of the _____ worker. a. second b. third c. fourth d. fifth e. sixth
d. the marginal product of labor
The additional output obtained by adding another unit of labor to the production process is called _____. a. the marginal cost of labor b. the average output of labor c. a variable cost d. the marginal product of labor e. the marginal utility of labor
c. marginal cost remains unchanged.
A firm enters into a consent decree to avoid an even greater legal setback. If the terms of the consent decree effectively double the firm's fixed costs, then: a. marginal cost more than doubles. b. marginal cost doubles. c. marginal cost remains unchanged. d. average total cost remains unchanged. e. average variable cost doubles.
d. implicit costs
A firm's opportunity costs of using resources provided by the firm's owners are called _____. a. sunk costs b. fixed costs c. explicit costs d. implicit costs e. entrepreneurial costs
b. positive and decreasing
At the point where diminishing marginal returns set in, the slope of the total product curve is _____. a. positive and increasing b. positive and decreasing c. negative and increasing d. negative and decreasing e. constant
e. long-run average cost curve
Diseconomies of scale are pictured on a graph by the upward-sloping portion of the _____. a. marginal product curve b. short-run marginal cost curve c. long-run marginal cost curve d. short-run average cost curve e. long-run average cost curve
e. economies of scale
Doubling the circumference of an oil pipeline more than doubles the volume of oil that can be pumped through. This strategy is chosen only by large firms because it results in _____. a. production inefficiency b. diminishing marginal returns c. diseconomies of scale d. constant returns to scale e. economies of scale
d. costs that do not vary as quantity produced increases.
Fixed costs are defined as: a. the total costs of a firm's production. b. the additional costs of the last unit produced. c. costs that increase proportionately as the quantity produced increases. d. costs that do not vary as quantity produced increases. e. implicit costs only.
c. The positive effect of specialization in production is being offset by the negative effect of crowding of inputs.
If a firm is experiencing diminishing marginal returns to labor, then which of the following statements is true? a. The first workers the firm hired were better than the workers hired later on. b. The firm is experiencing decreasing returns to scale. c. The positive effect of specialization in production is being offset by the negative effect of crowding of inputs. d. Output is decreasing with increasing inputs. e. The firm should buy more non-labor inputs.
b. False
If a firm is producing at its minimum efficient scale, increasing its output slightly will always lead to diseconomies of scale. a. True b. False
c. equal to the fixed cost.
If a firm shuts down in the short run and produces no output, its total cost will be: a. equal to zero. b. equal to the variable cost. c. equal to the fixed cost. d. equal to only explicit costs. e. equal to the sum of implicit and explicit costs.
c. diseconomies of scale.
If a firm triples all of its inputs and its output doubles, it is said to be experiencing: a. diminishing marginal returns. b. increasing marginal returns. c. diseconomies of scale. d. economies of scale. e. constant average costs.
b. False
If a firm's accounting profit is positive, its economic profit must also be positive. a. True b. False
b. economic profit is zero.
If a pizza joint earns only a normal profit this year, its: a. economic profit is equal to its accounting profit. b. economic profit is zero. c. economic profit is equal to the average accounting profit in other industries. d. accounting profit is zero. e. accounting profit is less than its economic profit.
a. True
If all the savings of an owner are invested in his consulting company, an increase in the interest rate increases his implicit costs. a. True b. False
b. False
If marginal product is negative, total product must be negative. a. True b. False
b. False
If the marginal product of an input is negative, the total product must also be negative. a. True b. False
d. $40
If total cost at Quantity = 0 is $100 and total cost at Quantity = 10 is $500, then average variable cost at Quantity = 10 is _____. a. $500 b. $400 c. $50 d. $40 e. $10
a. True
In the long run, all of a firm's inputs are variable. a. True b. False
c. $45,000
Maryann and Don want to open their own deli. To do so, Maryann must give up her job, where she earns $20,000 per year, and Don must give up his part-time job, where he earns $10,000 per year. They must liquidate their money market fund, which earns $1,000 interest annually. The rent on the building is $10,000 per year, and the expenses of such necessities as utilities, corned beef, and pickles are $35,000 annually. _____ is the explicit cost per year of operating the deli. a. $10,000 b. $35,000 c. $45,000 d. $31,000 e. $76,000
a. $5,000
Suppose a soccer coach has been making $25,000 per year but gives up his coaching job in order to make soccer shoes. If his revenue from the sale of these shoes is $50,000 and his materials cost $20,000, then his economic profit is equal to _____. a. $5,000 b. $25,000 c. $30,000 d. $50,000 e. $80,000
c. as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes.
The law of diminishing marginal returns states that: a. long-run average cost declines as output increases. b. if the marginal product is above the average product, the average will rise. c. as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes. d. as a person consumes more of a good, the marginal satisfaction from that good eventually diminishes. e. if marginal product is positive, total product rises.
a. at the ATC curve's minimum point.
The marginal cost curve intersects the average total cost (ATC) curve: a. at the ATC curve's minimum point. b. only when the ATC curve is sloping upward. c. at the ATC curve's maximum point. d. only when the ATC curve is sloping downward. e. when the ATC curve intersects the fixed cost curve.
a. lowest rate of output at which long-run average cost is at a minimum.
The minimum efficient scale for a firm is the: a. lowest rate of output at which long-run average cost is at a minimum. b. lowest rate of output at which short-run average total cost is at a minimum. c. lowest rate of output at which short-run average variable cost is at a minimum. d. average of the rates of output at which long-run average cost is at a minimum. e. average of the rates of output at which short-run average total cost is at a minimum.
e. produce at minimum long-run average cost.
To achieve the minimum efficient scale in the long run, a firm must: a. charge the highest price possible. b. produce where demand is unit elastic. c. sell the most output possible. d. minimize the cost of producing any given amount of output. e. produce at minimum long-run average cost.
a. Marginal cost equals average total cost.
Which of the following is true in the short run at the output level where average total cost is at its minimum? a. Marginal cost equals average total cost. b. Average variable cost equals fixed cost. c. Marginal cost equals average variable cost. d. Average total cost equals average fixed cost. e. Average total cost equals average variable cost.
d. It is positive and decreasing.
Which of the following is true of marginal cost when marginal returns are increasing? a. It is negative and increasing. b. It is negative and decreasing. c. It is positive and increasing. d. It is positive and decreasing. e. It is positive and has a constant slope.
c. It intersects both the ATC and the AVC curves at their minimums.
Which of the following is true of the MC curve? a. It intersects the ATC curve at its minimum, but it does not intersect the AVC curve at its minimum. b. It intersects the AVC curve at its minimum, but it does not intersect the ATC curve at its minimum. c. It intersects both the ATC and the AVC curves at their minimums. d. It intersects both the ATC and the AFC curves at their minimums. e. It intersects both the AVC and the AFC curves at their minimums.