Unit 6 Econ

When total revenue minus total economic cost is greater than zero, the firm is earning higher than normal profits. earning the normal profit rate. making economic losses. earning economic profit but accounting losses.

earning higher than normal profits.

The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's economic profit. accounting profit. opportunity cost of capital. long-run average total cost.

economic profit.

Long-run economies of scale exist when the long-run average cost curve rises. remains constant. falls. does not exist.

falls.

When the marginal product of labor diminishes, average fixed cost rises. average variable cost is constant. marginal cost rises. average total cost must rise. total cost rises at a diminishing rate.

marginal cost rises.

If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then the law of diminishing returns is in effect. long-run average costs must be decreasing. the firm is experiencing diseconomies of scale. the firm should increase production. the firm is experiencing constant returns to scale.

the firm is experiencing diseconomies of scale.

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because larger firms always have lower per-unit costs than smaller firms. at small output rates, average fixed costs (AFC) will be high, while at large output rates, marginal cost (MC) will be high. diminishing returns will be present when output is small, while high AFC will push average total cost to high levels when output is large. diseconomies of scale will be present at both small and large output rates.

at small output rates, average fixed costs (AFC) will be high, while at large output rates, marginal cost (MC) will be high.

If a firm increases its output and finds that its average total cost decreases as a result, this implies that marginal cost exceeds average total cost. the cost of producing an additional unit of output is more than the average total cost. average fixed cost is increasing. average total cost exceeds marginal cost.

average total cost exceeds marginal cost.

Whenever average total cost exceeds marginal cost, average total cost is rising. average total cost is falling. marginal cost is rising. marginal cost is falling.

average total cost is falling.

During the short-run period of the production process, a firm will be unable to vary any of its factors of production. able to vary only some of its factors of production. able to vary all of its factors of production. able to vary the size of its plant.

able to vary only some of its factors of production.

A homeowner will be away from her house for six months. The monthly mortgage payment on the house is $1,000. The owner's cost of utilities is $100 if the house is unoccupied but $300 if the owner rents it out. If the owner wishes to minimize her losses from the house while away, she should rent the house for as much as the market will bear, as long as monthly rent is greater than which of the following? (Assume wear and tear to be zero regardless of whether the house is occupied.) $200 $300 $1,100 $1,300

200

Use the table below to answer the following question. Units of Output Total Fixed Cost Total Variable (dollars) (dollars) Cost 1 150 50 2 150 96 3 150 140 4 150 180 What is the marginal cost of producing the third unit of output? $20 $44 $70 This cannot be determined from the data.

44

As output is expanded, if marginal cost (MC) is less than average total cost (ATC), ATC must be at its minimum. ATC must be at its maximum. ATC must be decreasing. the firm must be earning economic profit.

ATC must be decreasing.

Which of the following would cause a firm's cost curves to shift upward? A reduction in resource prices. A decrease in taxes. An improvement in technology. An increase in government regulations.

An increase in government regulations.

Which of the following provides the best explanation for diseconomies of scale? The firm is too small to take advantage of specialization. Large management structures may be bureaucratic and inefficient. If there are too many employees, the work place becomes crowded and people become less productive. Average fixed costs are rising.

Large management structures may be bureaucratic and inefficient.

Which of the following about costs is true? The difference between the ATC and AVC curves will decline as output expands. The AFC will remain constant as output increases. If ATC is increasing, then AVC must be greater than ATC. Implicit costs and fixed costs are always the same.

The difference between the ATC and AVC curves will decline as output expands.

Which of the following about costs is always true? When marginal costs are less than average total costs, average total costs will be decreasing. When average fixed costs are falling, marginal costs must be less than average fixed costs. When average fixed costs are rising, marginal costs must be greater than average total costs. When marginal costs are greater than average total costs, average total costs will be decreasing.

When marginal costs are less than average total costs, average total costs will be decreasing.

For most firms, the major difference between accounting profit and economic profit is that explicit and implicit costs are included in the accounting profit while only explicit costs are included in economic profit. accounting profit omits the salaries of managers, and therefore, it is generally greater than economic profit. accounting profit is based on opportunity cost, whereas economic profit is based on market transactions. accounting profit does not consider the opportunity cost of the firm's equity capital and, therefore, generally overstates economic profit.

accounting profit does not consider the opportunity cost of the firm's equity capital and, therefore, generally overstates economic profit.

The increase in total output that results from a unit increase in the employment of a variable input is equal to the input's total product. marginal product. average product. marginal cost.

marginal product.

The most important implicit cost generally omitted from the accounting statement of a firm is the rental cost of machinery. cost of compliance with government regulations. opportunity cost of the equity capital invested by the owners. accounting cost incurred as the result of tax compliance.

opportunity cost of the equity capital invested by the owners.

Economists refer to historical costs (irreversible costs already incurred) as implicit costs. sunk costs. opportunity costs. variable costs.

sunk cost

Marginal cost is best defined as a cost that does not vary with the rate of output. the difference between fixed and variable cost at any level of output. the amount added to total cost when one more unit of output is produced. the difference between price and average total cost at the profit-maximizing level of output.

the amount added to total cost when one more unit of output is produced.

The marginal cost of a good is lower for competitive firms than for monopolists. the cost of an additional unit. equal to fixed cost at high output levels. equal to variable cost when the firm is maximizing profit

the cost of an additional unit.

An airline can increase its profit by offering standby customers an unsold seat at a substantial discount just before takeoff because additional passengers are needed to balance the load. the marginal cost of additional passengers is very small. additional passengers add little to fixed costs. such passengers add more to profits than do those with reserved seats.

the marginal cost of additional passengers is very small.

The normal rate of return on equity capital is also known as the explicit cost of capital. the marginal cost of capital. economic profit. the opportunity cost of capital.

the opportunity cost of capital.

The sum of the explicit and implicit costs incurred in the production process is called fixed cost. sunk cost. marginal cost. total cost.

total cost