Quiz 6 - Production and Costs

If there are substantial economies of scale in a market, 1) a large firm will have higher average cost than a smaller one. 2) a large firm will have lower total cost than a smaller one. 3) a large firm will have lower average cost than a smaller one.

a large firm will have lower average cost than a smaller one.

When an owner uses resources they own in a business, that usage should be considered ________. 1) an implicit cost 2) an explicit cost 3) a direct cost

an implicit cost

What economic term is used to describe it when the total cost is divided by the quantity of output produced? 1) average cost 2) fixed cost 3) variable cost 4) marginal cost

average cost

When all inputs of production can be modified by a firm, then this firm is operating in the 1) short-term. 2) long-term. 3) present; inputs can always be modified.

long-term.

Consider Jimmy's Dairy, a cheese producer. Which of the following would be more likely to be a fixed cost? 1) rent for a warehouse 2) packaging materials 3) hourly workers

rent for a warehouse

A shoe factory produces 20 units of output. Its average fixed cost (AFC) = $25, average total cost (ATC) = $35, and marginal cost (MC) = $15. The shoe factory's average variable cost (AVC) is ________. 1) $10 2) $700 3) $15

$10

A used car dealership had sales revenues of $2 million last year. It spent $1.2 million on labor, $250,000 on capital and $400,000 on materials. What was the dealership's accounting profit? 1) $50,000 2) $100,000 3) $150,000

$150,000

An web designer quits a project where she was paid $50,000 on completion of the project. She joins a new company with sales revenues of $550,000 last year, while spending $250,000 on compensation for employees (excluding the owner), $70,000 on capital, and $30,000 on materials. What was the firm's economic profit? 1) $25,000 2) $150,000 3) $100,000 4) $250,000

$150,000

A business produces 10 units of output. Its average variable cost (AVC) = $25, average fixed cost (AFC) = $5, and marginal cost (MC) = $30. The firm's average total cost (ATC) is ________. 1) $250 2) $300 3) $30

$30

As the Corner Coffee Shop becomes more popular and sells more coffee, which of the following cost is more likely to increase? 1) Insurance premiums because they are fixed costs. 2) Employee wages because they are average costs. 3) Spending on coffee beans and sugar because they are variable costs.

Spending on coffee beans and sugar because they are variable costs.

If average total cost is declining, ________. 1) the marginal cost must be greater than average total cost 2) the marginal cost must be less than average total cost 3) the average fixed cost must lie above the average variable cost 4) the total cost must also be declining

the marginal cost must be less than average total cost

Diminishing marginal returns occur when ________. 1) the marginal gain in input diminishes as each additional unit of input is added 2) the marginal gain in output diminishes as each additional unit of input is added 3) the marginal gain in input diminishes as each additional unit of output is added 4) the marginal gain in output diminishes as each additional unit of output is added

the marginal gain in output diminishes as each additional unit of input is added

Marginal product refers to 1) the quantity of additional output produced when the firm adds additional workers to the production process. 2) the quantity of output produced from a given amount of labor, holding other inputs constant. 3) the cost of producing a given quantity of output.

the quantity of additional output produced when the firm adds additional workers to the production process.

In order to maximize profit, firms will choose to 1) use the combination of available resources and technology that will minimize cost. 2) use the lowest cost resources only to minimize cost. 3) use the lowest amount of resources to minimize cost.

use the combination of available resources and technology that will minimize cost.

A firm's ________ consist of fluctuating expenditures during production that typically, over the short run, ________, as the quantity produced increases. 1) fixed costs; do not change 2) variable costs; are constantly changing 3) fixed costs; are constantly changing 4) variable costs; do not change

variable costs; are constantly changing

Capital is a factor of production that has been produced for use in the production of other goods and services. Which of the following is an example of capital? 1) lumber 2) airports 3) money

airports

Consider ADs and More, an advertising agency. Which of the following would be more likely to be a variable cost? 1) brochures for customers 2) office rent 3) insurance premiums

brochures for customers

The upward sloping portion of a long-run cost curve illustrates ________. 1) diminishing marginal returns 2) constant returns to scale 3) diseconomies of scale

diseconomies of scale

Interest payments are ________. 1) implicit costs 2) explicit costs 3) hidden costs

explicit costs

As employment of labor increases, the marginal product of labor will eventually decrease because 1) profitable firms employ better workers first. 2) there's a limit to how product individual workers can be. 3) fixed capital means additional workers are less productive than the workers who were employed before.

fixed capital means additional workers are less productive than the workers who were employed before.

Which of the following illustrates a fixed cost? 1) wages paid to a temporary worker 2) raw material expenses 3) insurance payments 4) website design costs

insurance payments

When a business has some form of sunk costs, the sunk costs should have ________. 1) a significant effect on output decisions 2) no effect on output decisions 3) a moderate effect on output decisions

no effect on output decisions

GamesVirtual uses computers, servers, programmers, graphic designers and other inputs to produce video games; this represents their 1) production function. 2) mission statement. 3) balance sheet.

production function.

Which of the following examples is consistent with short term production decisions? 1) FreshFood supermarket is analyzing the cost of opening 5 new stores in the next 5 years. 2) FreshFood supermarket is changing their strategy and specializing in frozen food over the next few years. 3) FreshFood supermarket orders more chocolate and candies in anticipation of Halloween.

FreshFood supermarket orders more chocolate and candies in anticipation of Halloween.

What is a key difference between the short run and the long run? 1) In the short run, all resources are fixed; in the long run, all resources are variable. 2) In the long run, all resources are variable; in the short run, at least one resource is fixed. 3) There are increasing returns in the long run, but diminishing returns in the short run. 4) The cost of resources is higher in the short run than it is in the long run.

In the long run, all resources are variable; in the short run, at least one resource is fixed.