Chapter 7 Homework

Staci's Sign Shoppe makes signs for businesses. Staci is currently producing 210 signs per week with three employees. She hires an additional worker and total output per week rises to 328 signs. The marginal product of the last worker is _____ signs. A) 118 B) 82 C) 378 D) 210

A) 118

If the average variable cost for ten pens with the company logo on them is $0.40 and the average variable cost for eleven pens is $0.42, the marginal cost for the eleventh pen is $0.02. A) False B) True

A) False

Why should a firm never hire a worker when negative marginal returns exist? A) Hiring an additional worker will cause production to decrease. B) Hiring an additional worker will increase marginal returns. C) Hiring an additional worker will cause production to increase at a slower rate. D) Hiring an additional worker will cause production costs to increase.

A) Hiring an additional worker will cause production to decrease.

Fracking is the process by which oil is extracted from underground using a high-pressure water mixture. This procedure has led to accusations that it causes earthquakes as a result of the wastewater that is injected back underground. Subsequently, several cities and states have banned fracking operations while others have proposed regulations on how fracking should be conducted. How do new regulations affect the costs of doing business? A) New regulations can increase the cost of doing business because the business owner may have to modify the production of the goods and services. B) New regulations decrease the cost of doing business because the regulation will not affect the way businesses produce goods and services. C) New regulations benefit businesses because the business owner increases the prices of the goods and services, which can increase the profitability of the business. D) New regulations do not increase the cost of doing business.

A) New regulations can increase the cost of doing business because the business owner may have to modify the production of the goods and services.

Marginal cost is the addition to total cost derived from the production of one additional unit. A) True B) False

A) True

Justin owns a home entertainment installation company. One employee can complete two installations per month; two employees can complete 5 installations, three employees can complete 9 installations, four employees can complete 12 installations, and five employees can complete 11 installations. Diminishing marginal returns begin with the _____ worker. A) fourth B) second C) third D) fifth

A) fourth

All of the following are considered implicit costs EXCEPT: A) paying rent on an existing building. B) forgone entrepreneurial income. C) the wages the entrepreneur could have earned if he or she chose to pursue a career in corporate America. D) interests that could have been earned from a savings account if money was not used on an existing business.

A) paying rent on an existing building.

Suppose you pay $10 to watch a movie at the local Cineplex and afterward you sneak into the next theater to watch a second movie without paying. What is your marginal cost of watching the second movie? A) $15 B) $0 C) $5 D) $10

B) $0

David earns three hits in the first baseball game, one hit in the second game, and five hits in the third. What was his average number of hits based on these three games? A) 4 B) 3 C) 5 D) 2

B) 3

Which statement is NOT a characteristic of a corporation? A) It produces more value of goods and services than any other type of business structure. B) It has the ability to issue stock to raise capital. C) Its investors face unlimited liability. D) It usually consists of many owners (in some cases, tens of thousands of owners or more).

C) Its investors face unlimited liability.

The total product curve: A) relates average cost to variable cost. B) is fixed in the long run. C) is a relationship between total output and input. D) is negatively sloped in the early stages of production.

C) is a relationship between total output and input.

If the Clearwater Cotton Candy Company hypothetically lays off its workers and shuts down, it incurs costs of $30,000. If it produces at full capacity, it incurs costs of $90,000. One would conclude that: A) fixed costs are $60,000. B) fixed costs are $90,000. C) the costs of variable inputs at full capacity is $60,000. D) variable costs at half capacity are $45,000.

C) the costs of variable inputs at full capacity is $60,000.

Which of the following is NOT considered an explicit cost? A) paying rent on a building B) paying employees C) the entrepreneur's forgone wages D) purchasing capital goods

C) the entrepreneur's forgone wages Explicit costs are those out-of-pocket expenses paid to others, while implicit costs are opportunity costs. Economic profits are profits after both explicit and implicit costs are deducted, while accounting profits typically do not have implicit costs deducted. The four concepts are related in how they are defined, with implicit costs playing an important role.

If the total variable cost of producing three wickets is $30, while the average fixed cost of producing three wickets is $25, then the total cost of producing three wickets is: A) $55. B) $115. C) $165. D) $105.

D) $105.

AJ plans to attend a retreat on mindfulness. He paid a $500 nonrefundable registration fee, made a reservation at a hotel that costs $200, and budgeted $150 for gas and food. Two days before the retreat, he becomes ill. Assuming he is able to cancel the hotel without penalty, AJ's sunk cost equals: A) $650 B) $850 C) $150 D) $500

D) $500

Why should sunk costs be ignored for decision making? A) Sunk costs represent costs that will never be used by the business owner. B) Sunk costs should only be ignored if the cost is over $100. C) Sunk costs are implicit costs only, which do not represent a monetary value. D) Sunk costs can never be recovered.

D) Sunk costs can never be recovered.

Colorado was the first state to legalize recreational marijuana in 2012. Since then, several states have followed, leading to a boom in the number of growers and shops selling marijuana. A problem, however, is that federal law still prohibits the sale of marijuana, though in practice state laws have been respected. Still, many shop owners choose to conduct transactions only in cash to avoid leaving an evidence trail from credit card transactions, which reduces the risk of prosecution but raises the risk of theft or loss. With so much retail competition along with added risk, why do many choose to venture into this business? A) Many enjoy the risks imposed with running a marijuana business. B) Business owners are protected and they feel the risk of opening a marijuana business is minimal. C) Business owners are competitive in nature and will do what it takes to actively compete in a growing market. D) The high demand for marijuana produces the opportunity for businesses to earn profits from the sale.

D) The high demand for marijuana produces the opportunity for businesses to earn profits from the sale.

Which statement describes a situation in which negative returns to labor occur. A) The average product of labor begins to fall. B) The total product of labor peaks. C) The marginal product of labor begins to fall. D) The marginal product of labor falls below zero.

D) The marginal product of labor falls below zero.

The long run is characterized as: A) a period of time in which the plant capacity of the firm is fixed. B) anything over 6 calendar months. C) anything over 12 calendar months. D) a period of time in which the plant capacity of the firm is variable.

D) a period of time in which the plant capacity of the firm is variable.

In the short run, if output is declining: A) average variable costs must be declining. B) average variable costs must be rising. C) average total costs must be declining. D) average fixed costs must be rising.

D) average fixed costs must be rising.

Which cost is a fixed cost for the first year of production? A) the cost of additional temporary workers in case production B) the cost of plastic that increases as production increases C) the cost of electrical utilities each month D) property taxes on a storage facility

D) property taxes on a storage facility