Chapter 11 Quiz

What do foregone interest on money invested in a firm, wages paid to production workers, interest paid on bank loans, and the purchase of parts for assembly have in common? (a)All are opportunity costs (b)All are explicit costs. (c)None are opportunity costs. (d)All are implicit costs

a

​Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of $70,000. If he could have been paid $80,000 working for a computer company, his accounting profit as a contractor was ____ and his economic profit was ____. (a)$50,000; -$30,000 (b) ​$10,000; $50,000 (c)$50,000; $40,000 (d)$40,000; $50,000

a

​Campbell recently began running his brother's lumber mill. Last month he took in $10,000 in sales revenue and paid $6,800 in out-of-pocket costs. He made an economic profit last month if his implicit costs were: (a)$2000 (b)$3200 (c)$6600 (d)$4800

a

​Cassie produces and sells 400 jars of homemade jelly each month for $3 each. Each month, she pays $200 for jars, $150 for ingredients, and uses her own time, with an opportunity cost of $300. Her economic profits each month are: (a)$550 (b)$850 (c)$700 (d)$900

a

​If the marginal cost is less than average total cost, average total cost will decrease. (a)true (b)false

a

Economic profits are: (a)greater than accounting profits even if implicit costs are zero. (b)less than accounting profits if implicit costs are greater than zero. (c)less than accounting profits even if implicit costs are zero. (d) ​greater than accounting profits if implicit costs are greater than zero.

b

Refer to Exhibit 11-10. At output level 0Q, total variable cost equals: (a)area CFQ0 (b)area BEQ0 (c)area ADEB (d)area ADQ0

b

Which of the following most accurately describes the long-run period? (a)In the long run, the firm is able to expand output by utilizing additional workers and raw materials, but not physical capital. (b)The long run is of sufficient length to allow a firm to alter its plant capacity and all other factors of production (c)The long run is of sufficient length to allow a firm to transform economic losses into economic profits. (d)The long run is a period of time in which a firm is unable to vary some of its factors of production.

b

​Refer to Exhibit 11-2. The marginal product of labor begins to diminish with the addition of the ____ picker. (a)seventh (b)fourth (c)fifth (d)eighth

b

​Rose, who grows geraniums to sell, is currently producing a level of output at which her marginal cost equals her average variable cost. What must be true about Rose's average total cost at this level of output? (a)It is at a minimum. (b)It is falling with increased output. (c)It is at a maximum. (d)It is equal to average variable cost.

b

If average total costs are $40 and average variable cost are $20 at 10 units of output and the marginal cost of the 11th unit is $30, what is the average total cost of 11 units? (a)$20.09 (b)$30.00 (c)$39.09 (d)$23.00

c

​As quantity increases, which of the following must be true if average total costs are rising? (a)Average fixed cost must be increasing. (b)Average fixed cost must be less than average variable cost. (c) ​Marginal cost must be greater than average total cost. (d)Marginal cost must be less than average total cost.

c

​Refer to Exhibit 11-10. At output level 0Q, average variable cost equals: (a)FE (b)QF (c)QE (d)QD

c

A firm has $300 million in revenues and explicit costs of $100 million. If its owners have invested $150 million in the company at an opportunity cost of 10 percent a year, the firm's accounting profit is: (a)$50 million. (b)$185 million. (c)$150 million. (d)$200 million.

d

A firm is operating at a scale where diseconomies of scale are present. Which of the following could help explain what that means? (a)The firm is operating at a scale where total fixed costs are not minimized. (b)The firm is operating at a scale where average total cost is constant as output expands. (c)The firm is operating at a scale where the average total cost of production is falling as output expands. (d)The firm has grown so large that average total cost increases as output expands.

d

A firm replaces a machine by hiring 3 hourly production workers instead. (a) ​Both its fixed and variable costs will rise. (b)Its fixed costs will rise and its variable costs will fall. (c)Both its fixed and variable costs will fall. (d)Its fixed costs will fall and its variable costs will rise.

d

Which of the following factors of production is not variable in the long run? (a)land (b)highly skilled labor (c)the size of the firm's plant (d)all of the factors are variable in the long run

d