COSTS AND PC BASICS
C
The law of decreasing returns states that as a firm uses more of a Question 10 options: A) variable input, output will begin to fall immediately. B) fixed input, with a given quantity of variable inputs, the marginal product of the fixed input eventually decreases. C) variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases. D) fixed input and a variable input, the marginal product of the fixed input and the marginal product of the variable input both decrease. E) variable input, total output will increase indefinitely.
E
A firm's total revenue minus its total opportunity cost is called its Question 3 options: A) normal profit. B) accounting profit. C) abnormal profit. D) entrepreneur's profit. E) economic profit.
D
A perfectly competitive firm definitely makes an economic profit in the short run if price is Question 25 options: A) equal to average total cost. B) equal to marginal cost. C) greater than average variable cost. D) greater than average total cost. E) greater than marginal cost.
A
A perfectly competitive firm should shut down in the short-run if price falls below the minimum of Question 23 options: A) average variable costs. B) average total cost. C) marginal cost. D) fixed costs. E) marginal revenue.
D
At the Beet Sweet Bakery, two workers can decorate 14 cakes in an hour and three workers can decorate 18 cakes in an hour. The marginal product of the third worker is Question 8 options: A) 9 cakes and is equal to the average product. B) 32 cakes and the average product for three workers is 9 cakes. C) 18 cakes and the average product for three workers is 6 cakes. D) 4 cakes and the average product for three workers is 6 cakes. E) 6 cakes and the average product for three workers is also 6 cakes.
B
Decreasing marginal returns occur in the short run as more labor is hired to work in a fixed sized plant because Question 9 options: A) less efficient and less productive workers are hired. B) adding more workers exhausts the possible gains from specialization. C) the plant becomes less specialized. D) each worker will produce more than the worker previously hired. E) the entrepreneur does not know how to manage more workers.
B
For a perfectly competitive rancher in Wyoming, if the price does not change, an economic profit could turn into an economic loss if the Question 24 options: A) average fixed cost decreases. B) average total cost curve shifts upward. C) marginal cost curve shifts downward. D) average total cost curve shifts downward. E) average total cost curve does not change.
E
If a perfectly competitive seller is maximizing profit and is making zero economic profit, which of the following will this seller do? Question 21 options: A) go to work in the next-best earning opportunity B) shut down, with a loss equal to total fixed cost C) increase production in order to make an economic profit D) remain open but decrease production in order to make an economic profit E) continue at the current output, making zero economic profit
D
If the market price is $50 per unit for a good produced in a perfectly competitive market and the firm's average total cost is $52, then the firm Question 22 options: A) incurs a total economic loss of $52. B) makes an economic profit of $2 per unit. C) makes zero economic profit. D) incurs an economic loss of $2 per unit. E) More information is needed to determine the firm's economic profit or loss per unit.
C
Marginal cost equals Question 13 options: A) the change in fixed cost that results from a one-unit increase in output. B) total cost minus total variable cost. C) the change in total cost that results from a one-unit increase in output. D) total variable cost divided by total output. E) total fixed cost divided by total output.
C
Marginal product equals Question 11 options: A) the amount of labor needed to produce an increase in production. B) total product minus the quantity of labor. C) the change in total product that results from a one-unit increase in the quantity of labor employed. D) the total product produced by a certain amount of labor. E) total product divided by the quantity of labor.
A
The U-shaped average total cost curve is Question 16 options: A) the result of average fixed cost falling and decreasing marginal returns as output increases. B) unrealistic because average total cost always increases as output increases. C) a result of increasing marginal returns. D) a result of firms' wanting to find the output level where cost is at its minimum. E) a result of constant marginal returns.
B
The average fixed cost curve Question 14 options: A) is U-shaped. B) is always negatively sloped. C) is always positively sloped. D) has an upside-down U shape. E) is horizontal.
B
The cost that does not change as output changes is Question 12 options: A) average fixed cost. B) total fixed cost. C) marginal cost. D) average variable cost. E) total variable cost.
B
The long run is defined as Question 7 options: A) the period of time when all resources are fixed. B) the period of time when all resources are variable. C) any time after six months. D) the period of time when most (more than 50 percent) resources are variable. E) any time after one year.
E
The main source of economies of scale is Question 18 options: A) decreasing marginal product. B) the ability to hire less labor. C) reductions in the price of factors of production. D) increasing average costs. E) greater specialization of both labor and capital.
E
The market supply in the short run for the perfectly competitive industry is Question 20 options: A) divided up according to each firm's selling price. B) the same as each producer's supply. C) set at the maximum price a buyer will pay for one unit. D) equal to the average of each firm's supply schedule. E) the sum of the supply schedules of all firms.
E
The primary goal of a business firm is to Question 1 options: A) make a quality product. B) promote workforce job satisfaction. C) promote fairness. D) increase its production. E) maximize profit.
E
The short run is the time frame Question 5 options: A) that is less than a year. B) during which all costs are implicit costs. C) during which the quantities of all resources are fixed. D) during which the quantities of all resources are variable. E) during which the quantities of some resources are fixed.
A
To produce more output in the short run, a firm must employ more of Question 6 options: A) its variable resources. B) the least costly resources regardless of whether they are fixed or variable. C) all its resources. D) its fixed resources. E) Firms cannot produce more output in the short run.
A
When an economist uses the term "cost" referring to a firm, the economist refers to the Question 2 options: A) opportunity cost of producing a good or service, which includes both implicit and explicit cost. B) cost that can be actually verified and measured. C) explicit cost of producing a good or service but not the implicit cost of producing a good or service. D) price of the good to the consumer. E) implicit cost of producing a good or service but not the explicit cost of producing a good or service..
B
Which of the following is true? Question 4 options: A) Economic profit ignores implicit costs. B) Profit as calculated by accountants and economic profit are not necessarily equal. C) The Internal Revenue Service taxes the firm's normal profit but not its economic profit. D) Profit as calculated by accountants is always smaller than economic profit. E) The Internal Revenue Service taxes the firm's economic profit but not its normal profit.
E
Which of the following statements is true? Question 17 options: A) In the long run, the firms' fixed costs are greater than its variable costs. B) In the long run, the total variable cost equals the total fixed cost. C) In the long run, the quantities of all inputs are fixed. D) In the long run, the average cost curve is always downward sloping. E) In the long run, all costs are variable costs.
E
If average variable costs increase as output increases, then Question 15 options: A) output must be zero. B) total cost must be constant. C) average total cost must be increasing also. D) total fixed cost must be increasing also. E) marginal cost must be greater than average variable cost.
C
One requirement for an industry to be perfectly competitive is that in the industry there Question 19 options: A) is a barrier to entry that makes the entry of new firms difficult. B) are a few firms who control the market. C) are many firms for whom the efficient scale of production is small. D) are many firms selling different products. E) is one firm that sells a product with no close substitutes.
