ECON 202 CH. 9
If a firm wanted to know how much it would save by producing one less unit of output, it would look to: A. MC. B. ATC. C. AVC. D. AFC.
A. MC.
When total product is increasing at a decreasing rate, marginal product is: A. positive and increasing. B. positive and decreasing. C. constant. D. negative.
B. positive and decreasing.
The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by only 8 percent. This means that initially it was producing: A. in the range of diseconomies of scale. B. in the range of economies of scale. C. where AP is less than MP. D. at the point of minimum efficient scale.
A. in the range of diseconomies of scale.
If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then: A. the average variable cost of 10 units is $10. B. the average variable cost of 9 units is $10. C. the marginal cost of the tenth unit is $90. D. the firm is operating in the range of increasing marginal returns.
B. the average variable cost of 9 units is $10.
In comparing the changes in TVC and TC associated with an additional unit of output, we find that: A. no generalization about the changes in TC and TVC can be made. B. the changes in TC and TVC are equal. C. the change in TC is greater than the change in TVC. D. the change in TVC is greater than the change in TC.
B. the changes in TC and TVC are equal.
Economies of scale are indicated by: A. the rising segment of the average variable cost curve. B. the declining segment of the long-run average total cost curve. C. the difference between total revenue and total cost. D. a rising marginal cost curve.
B. the declining segment of the long-run average total cost curve.
Normal profit is: A. determined by subtracting implicit costs from total revenue. B. determined by subtracting explicit costs from total revenue. C. the return to the entrepreneur when economic profits are zero. D. the average profitability of an industry over the preceding 10 years.
C. the return to the entrepreneur when economic profits are zero.
Fixed costs are associated with: A. highly adjustable inputs such as labor. B. both the short run and the long run. C. the short run only. D. the long run only.
C. the short run only.
Accounting profits equal total revenue minus: A. total explicit costs. B. total implicit costs. C. total economic costs. D. economic profits.
A. total explicit costs.
Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This: A. firm's ATC is $35. B. firm's ATC is $57. C. firm's total cost is $270. D. firm's total cost is $30.
C. firm's total cost is $270.
The short run is characterized by: A. plenty of time for firms to either enter or leave the industry. B. increasing, but not diminishing returns. C. fixed plant capacity. D. zero fixed costs.
C. fixed plant capacity.
As output increases, total variable cost: A. increases more rapidly than does total cost. B. increases continuously at a decreasing rate. C. increases at a decreasing rate and then at an increasing rate. D. increases at a constant rate.
C. increases at a decreasing rate and then at an increasing rate.
Which of the following is most likely to be a fixed cost? A. shipping charges B. property insurance premiums C. wages for unskilled labor D. expenditures for raw materials
B. property insurance premiums
Production costs to an economist: A. consist only of explicit costs. B. reflect opportunity costs. C. never reflect monetary outlays. D. always reflect monetary outlays.
B. reflect opportunity costs.
The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's implicit costs, including a normal profit, are: A. $136,000. B. $150,000. C. $94,000. D. $156,000.
A. $136,000.
The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's total economic costs are: A. $286,000. B. $150,000. C. $94,000. D. $156,000.
A. $286,000.
Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are: A. $5,000. B. $500. C. $0.50. D. $50.
A. $5,000.
Which of the following is a short-run adjustment? A. A local bakery hires two additional bakers. B. Six new firms enter the plastics industry. C. The number of farms in the United States declines by 5 percent. D. BMW constructs a new assembly plant in South Carolina.
A. A local bakery hires two additional bakers.
Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct? A. AP continues to rise so long as TP is rising. B. AP reaches a maximum before TP reaches a maximum. C. TP reaches a maximum when the MP of the variable input becomes zero. D. MP cuts AP at the maximum AP.
A. AP continues to rise so long as TP is rising.
In the short run: A. TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate. B. TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate. C. TVC will increase by the same absolute amount for each additional unit of output produced. D. one cannot generalize concerning the behavior of TVC as output increases.
A. TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.
In the long run: A. all costs are variable costs. B. all costs are fixed costs. C. variable costs equal fixed costs. D. fixed costs are greater than variable costs.
A. all costs are variable costs.
Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced: A. an upward shift in their MC, AVC, and ATC curves. B. an upward shift in their AFC, AVC, and ATC curves. C. a downward shift in their MC, AFC, and AVC curves. D. greater economies of scale.
A. an upward shift in their MC, AVC, and ATC curves.
The law of diminishing returns indicates that: A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. B. because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped. C. the demand for goods produced by purely competitive industries is downsloping. D. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.
A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
Marginal cost: A. equals both average variable cost and average total cost at their respective minimums. B. is the difference between total cost and total variable cost. C. rises for a time, but then begins to decline when diminishing returns set in. D. declines continuously as output increases.
A. equals both average variable cost and average total cost at their respective minimums.
To the economist, total cost includes: A. explicit and implicit costs, including a normal profit. B. neither implicit nor explicit costs. C. implicit, but not explicit, costs. D. explicit, but not implicit, costs.
A. explicit and implicit costs, including a normal profit.
Which of the following is most likely to be an implicit cost for Company X? A. forgone rent from the building owned and used by Company X B. rental payments on IBM equipment C. payments for raw materials purchased from Company Y D. transportation costs paid to a nearby trucking firm
A. forgone rent from the building owned and used by Company X
Which of the following is most likely to be a variable cost? A. fuel and power payments B. interest on business loans C. rental payments on IBM equipment D. real estate taxes
A. fuel and power payments
The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that: A. marginal product of the third worker is 9. B. the third worker has to work with poorer quality tools and raw materials. C. firm will not want to hire more than three workers. D. first worker puts forth more effort than the second and third workers.
A. marginal product of the third worker is 9.
When total product is increasing at an increasing rate, marginal product is: A. positive and increasing. B. positive and decreasing. C. constant. D. negative.
A. positive and increasing.
Marginal product is: A. the increase in total output attributable to the employment of one more worker. B. the increase in total revenue attributable to the employment of one more worker. C. the increase in total cost attributable to the employment of one more worker. D. total product divided by the number of workers employed.
A. the increase in total output attributable to the employment of one more worker.
Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased: A. total cost at first increases at a decreasing rate and then increases at an increasing rate. B. total variable cost at first increases at an increasing rate and then increases at a decreasing rate. C. average total cost at first increases and then diminishes. D. average fixed cost will rise beyond the point of diminishing returns.
A. total cost at first increases at a decreasing rate and then increases at an increasing rate.
A natural monopoly exists when: A. unit costs are minimized by having one firm produce an industry's entire output. B. several formerly competing producers merge to become the only firm in an industry. C. short-run average total cost curves are tangent to long-run average total cost curves. D. minimum efficient scale is attained at a small level of output.
A. unit costs are minimized by having one firm produce an industry's entire output.
The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's explicit costs are: A. $286,000. B. $150,000. C. $94,000. D. $156,000.
B. $150,000.
Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were: A. $100,000 and its economic profits were zero. B. $200,000 and its economic profits were zero. C. $100,000 and its economic profits were $100,000. D. zero and its economic loss was $200,000.
B. $200,000 and its economic profits were zero.
The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's total revenues exceed its total costs, including a normal profit, by: A. $150,000. B. $94,000. C. $80,000. D. $230,000.
B. $94,000.
The vertical distance between a firm's ATC and AVC curves represents: A. AFC, which increases as output increases. B. AFC, which decreases as output increases. C. marginal costs, which decrease as output decreases. D. marginal costs, which increase as output increases.
B. AFC, which decreases as output increases.
Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the: A. AFC, AVC, ATC, and MC curves all to rise. B. AVC, ATC, and MC curves all to rise. C. AFC and ATC curves to fall. D. MP curve to fall.
B. AVC, ATC, and MC curves all to rise.
What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common? A. None are either implicit or explicit costs. B. All are opportunity costs. C. All are implicit costs. D. All are explicit costs.
B. All are opportunity costs.
If a technological advance reduces the amount of variable resources needed to produce any level of output, then the: A. AVC curve will shift upward. B. MC curve will shift downward. C. ATC curve will shift upward. D. AFC curve will shift downward.
B. MC curve will shift downward.
The total output of a firm will be at a maximum where: A. MP is at a maximum. B. AP is at a minimum. C. MP is zero. D. AP is at a maximum.
C. MP is zero.
Which of the following is correct as it relates to cost curves? A. Average variable cost intersects marginal cost at the latter's minimum point. B. Marginal cost intersects average total cost at the latter's minimum point. C. Average fixed cost intersects marginal cost at the latter's minimum point. D. Marginal cost intersects average fixed cost at the latter's minimum point.
B. Marginal cost intersects average total cost at the latter's minimum point.
Which of the following is not correct? A. Where marginal product is greater than average product, average product is rising. B. Where total product is at a maximum, average product is also at a maximum. C. Where marginal product is zero, total product is at a maximum. D. Marginal product becomes negative before average product becomes negative.
B. Where total product is at a maximum, average product is also at a maximum.
An explicit cost is: A. omitted when accounting profits are calculated. B. a money payment made for resources not owned by the firm itself. C. an implicit cost to the resource owner who receives that payment. D. always in excess of a resource's opportunity cost.
B. a money payment made for resources not owned by the firm itself.
When a firm does more of something, it gets better at it. This learning-by-doing is: A. a source of diseconomies of scale. B. a source of economies of scale. C. called the principle of natural progression. D. called "spreading the overhead."
B. a source of economies of scale.
The law of diminishing returns results in: A. an eventually rising marginal product curve. B. a total product curve that eventually increases at a decreasing rate. C. an eventually falling marginal cost curve. D. a total product curve that rises indefinitely.
B. a total product curve that eventually increases at a decreasing rate.
Introduction of the Verson Stamping Machine helped firms in the automobile industry: A. eliminate diminishing returns in production. B. achieve greater economies of scale. C. reach their minimum efficient scale at a lower level of production. D. shift their AVC, ATC, and MC curves upward.
B. achieve greater economies of scale.
Fixed cost is: A. the cost of producing one more unit of capital, for example, machinery. B. any cost which does not change when the firm changes its output. C. average cost multiplied by the firm's output. D. usually zero in the short run.
B. any cost which does not change when the firm changes its output.
In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs: A. are $2.50. B. are $1,250. C. are $750. D. are $1,100.
B. are $1,250.
In the short run it is impossible for an expansion of output to increase: A. average total cost. B. average fixed cost. C. marginal cost. D. average variable cost.
B. average fixed cost.
If a technological advance increases a firm's labor productivity, we would expect its: A. average total cost curve to rise. B. average total cost curve to fall. C. total cost curve to rise. D. average total cost curve to be unaffected.
B. average total cost curve to fall.
Marginal cost is the: A. rate of change in total fixed cost that results from producing one more unit of output. B. change in total cost that results from producing one more unit of output. C. change in average variable cost that results from producing one more unit of output. D. change in average total cost that results from producing one more unit of output.
B. change in total cost that results from producing one more unit of output.
If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that: A. technological progress has occurred. B. economies of scale are being realized. C. the firm is encountering diminishing returns. D. diseconomies of scale are being encountered.
B. economies of scale are being realized.
If you owned a small farm, which of the following would most likely be a fixed cost? A. harvest labor B. hail insurance C. fertilizer D. seed
B. hail insurance
To economists, the main difference between the short run and the long run is that: A. the law of diminishing returns applies in the long run, but not in the short run. B. in the long run all resources are variable, while in the short run at least one resource is fixed. C. fixed costs are more important to decision making in the long run than they are in the short run. D. in the short run all resources are fixed, while in the long run all resources are variable.
B. in the long run all resources are variable, while in the short run at least one resource is fixed.
The long-run average total cost curve: A. displays declining unit costs so long as output is increasing. B. indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size. C. has a shape which is the inverse of the law of diminishing returns. D. can be derived by summing horizontally the average total cost curves of all firms in an industry.
B. indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.
The vertical distance between the total cost and the total variable cost curves differs by an amount which: A. initially increases, but then decreases, as output increases. B. is constant as output changes. C. decreases as output increases. D. increases as output increases.
B. is constant as output changes.
If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then: A. it is encountering diseconomies of scale. B. it is encountering economies of scale. C. the law of diminishing returns is taking hold. D. the firm's long-run ATC curve will be rising.
B. it is encountering economies of scale.
The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. If, other things equal, Creamy Crisp's revenue fell to $286,000: A. its implicit costs, including a normal profit, would exceed its explicit costs. B. it would earn a normal profit but not an economic profit. C. it would suffer an economic loss. D. its accounting profit would fall to zero.
B. it would earn a normal profit but not an economic profit.
The short-run average total cost curve is U-shaped because: A. average fixed costs decline continuously as output increases. B. of increasing and diminishing returns. C. of economies and diseconomies of scale. D. minimum efficient scale is encountered.
B. of increasing and diminishing returns.
Diseconomies of scale arise primarily because: A. the short-run average total cost curve rises when marginal product is increasing. B. of the difficulties involved in managing and coordinating a large business enterprise. C. firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available. D. beyond some point marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).
B. of the difficulties involved in managing and coordinating a large business enterprise.
The basic characteristic of the short run is that: A. barriers to entry prevent new firms from entering the industry. B. the firm does not have sufficient time to change the size of its plant. C. the firm does not have sufficient time to cut its rate of output to zero. D. a firm does not have sufficient time to change the amounts of any of the resources it employs.
B. the firm does not have sufficient time to change the size of its plant.
Daily newspapers have been rising in price in recent years because: A. wages in the newspaper industry have risen dramatically. B. the overhead costs have recently been spread over a shrinking number of buyers. C. capital has replaced virtually all labor used to produce a newspaper. D. long-standing government subsidizes have been removed in most major cities.
B. the overhead costs have recently been spread over a shrinking number of buyers.
Which of the following represents a long-run adjustment? A. a farmer uses an extra dose of fertilizer on his corn crop B. unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants C. a steel manufacturer cuts back on its purchases of coke and iron ore D. a supermarket hires four additional clerks
B. unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants
The amount of calendar time associated with the long run: A. is less than that associated with the immediate market period. B. varies from industry to industry. C. is the same for all firms. D. is, by definition, any length of time greater than one year.
B. varies from industry to industry.
Economies and diseconomies of scale explain: A. the profit-maximizing level of production. B. why the firm's long-run average total cost curve is U-shaped. C. why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point. D. the distinction between fixed and variable costs.
B. why the firm's long-run average total cost curve is U-shaped.
The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's accounting profit is: A. $150,000. B. $380,000. C. $230,000. D. $294,000.
C. $230,000.
Which of the following best expresses the law of diminishing returns? A. Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output. B. Population growth automatically adjusts to that level at which the average product per worker will be at a maximum. C. As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline. D. Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output.
C. As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline.
Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen? A. Marginal costs and average variable costs would both rise. B. Average fixed costs and average variable costs would rise. C. Average fixed costs and average total costs would rise. D. Average fixed costs would rise, but marginal costs would fall.
C. Average fixed costs and average total costs would rise.
Which of the following definitions is correct? A. Accounting profit + economic profit = normal profit. B. Economic profit - accounting profit = explicit costs. C. Economic profit = accounting profit - implicit costs. D. Economic profit - implicit costs = accounting profits.
C. Economic profit = accounting profit - implicit costs.
Assume a firm closes down in the short run and produces no output. Under these conditions: A. TVC is positive, but TFC and TC are zero. B. TFC is positive, but TVC and TC are zero. C. TFC and TC are positive, but TVC is zero. D. TFC, TVC, and TC will all be positive.
C. TFC and TC are positive, but TVC is zero.
In the short run, which of the following statements is correct? A. The marginal cost curve intersects the average variable and average fixed cost curves at their minimum points. B. Average variable cost declines continuously as total output is expanded. C. Total cost will exceed variable cost. D. If the inputs of all resources are increased by equal amounts, total output will expand by diminishing amounts.
C. Total cost will exceed variable cost.
Which of the following holds true? A. There is no relationship between AP and AVC. B. When MP is rising AVC is falling, and when MP is falling AVC is rising. C. When AP is rising AVC is falling, and when AP is falling AVC is rising. D. When AP is rising AVC is rising, and when AP is falling AVC is falling.
C. When AP is rising AVC is falling, and when AP is falling AVC is rising.
Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that: A. the long-run average total cost curve is upsloping. B. a 10 percent increase in all inputs will increase output by less than 10 percent. C. a 10 percent increase in all inputs will increase output by more than 10 percent. D. the firm is encountering problems of managerial bureaucracy because of its size.
C. a 10 percent increase in all inputs will increase output by more than 10 percent.
The basic difference between the short run and the long run is that: A. all costs are fixed in the short run, but all costs are variable in the long run. B. the law of diminishing returns applies in the long run, but not in the short run. C. at least one resource is fixed in the short run, while all resources are variable in the long run. D. economies of scale may be present in the short run, but not in the long run.
C. at least one resource is fixed in the short run, while all resources are variable in the long run.
For most producing firms: A. marginal cost rises as output is carried to a certain level, and then begins to decline. B. total costs rise as output is carried to a certain level, and then begin to decline. C. average total costs decline as output is carried to a certain level, and then begin to rise. D. average total costs rise as output is carried to a certain level, and then begin to decline.
C. average total costs decline as output is carried to a certain level, and then begin to rise.
If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that: A. technology precludes both economies and diseconomies of scale. B. the industry will be a natural monopoly. C. both relatively small and relatively large firms can be viable in the industry. D. the industry will be comprised of a very large number of small firms.
C. both relatively small and relatively large firms can be viable in the industry.
In which of the following industries are economies of scale exhausted at relatively low levels of output? A. aircraft production B. automobile manufacturing C. concrete mixing D. newspaper printing
C. concrete mixing
The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp: A. has lower implicit costs, including a normal profit, than its explicit costs. B. is earning a normal profit but not an economic profit. C. is earning an economic profit. D. is suffering an economic loss, when implicit costs are considered.
C. is earning an economic profit.
If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then: A. it is encountering diseconomies of scale. B. it is encountering economies of scale. C. it is encountering constant returns to scale. D. the marginal products of all inputs are falling.
C. it is encountering constant returns to scale.
If a firm decides to produce no output in the short run, its costs will be: A. its marginal costs. B. its variable costs. C. its fixed costs. D. zero.
C. its fixed costs.
Other things equal, if the prices of a firm's variable inputs were to fall: A. one could not predict how unit costs of production would be affected. B. marginal cost, average variable cost, and average fixed cost would all fall. C. marginal cost, average variable cost, and average total cost would all fall. D. average variable cost would fall, but marginal cost would be unchanged.
C. marginal cost, average variable cost, and average total cost would all fall.
If in the short run a firm's total product is increasing, then its: A. marginal product must also be increasing. B. marginal product must be decreasing. C. marginal product could be either increasing or decreasing. D. average product must also be increasing.
C. marginal product could be either increasing or decreasing.
Marginal product: A. diminishes at all levels of production. B. may initially increase, then diminish, but never become negative. C. may initially increase, then diminish, and ultimately become negative. D. is always less than average product.
C. may initially increase, then diminish, and ultimately become negative.
Economic cost can best be defined as: A. any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers. B. any contractual obligation to labor or material suppliers. C. payments that must be received by resource owners to insure the resources' continued supply. D. all costs exclusive of payments to fixed factors of production.
C. payments that must be received by resource owners to insure the resources' continued supply.
The law of diminishing returns describes the: A. relationship between total costs and total revenues. B. profit-maximizing position of a firm. C. relationship between resource inputs and product outputs in the short run. D. relationship between resource inputs and product outputs in the long run.
C. relationship between resource inputs and product outputs in the short run.
If marginal cost is: A. falling, then average total cost must also be falling. B. rising, then average total cost must also be rising. C. rising, then average total cost could be either falling or rising. D. falling, then average total cost could be either falling or rising.
C. rising, then average total cost could be either falling or rising.
If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes: A. economies and diseconomies of scale. B. X-inefficiency. C. the law of diminishing returns. D. the law of diminishing marginal utility.
C. the law of diminishing returns.
When diseconomies of scale occur: A. the long-run average total cost curve falls. B. marginal cost intersects average total cost. C. the long-run average total cost curve rises. D. average fixed costs will rise.
C. the long-run average total cost curve rises.
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company? A. payments of wages to its office workers B. rent paid for the use of equipment owned by the Schultz Machinery Company C. use of savings to pay operating expenses instead of generating interest income D. economic profits resulting from current production
C. use of savings to pay operating expenses instead of generating interest income
The long run is characterized by: A. the relevance of the law of diminishing returns. B. at least one fixed input. C. insufficient time for firms to enter or leave the industry. D. the ability of the firm to change its plant size.
D. the ability of the firm to change its plant size.
The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's economic profit is: A. $150,000. B. $80,000. C. $230,000. D. $94,000.
D. $94,000.
Which of the following statements is correct? A. Average total cost is the difference between average variable cost and average fixed cost. B. Marginal cost measures the cost per unit of output associated with any level of production. C. When marginal product rises, marginal cost must also rise. D. Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.
D. Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.
Which of the following is correct? A. When total product is rising, both average product and marginal product must also be rising. B. When marginal product is falling, total product must be falling. C. When marginal product is falling, average product must also be falling. D. Marginal product rises faster than average product and also falls faster than average product.
D. Marginal product rises faster than average product and also falls faster than average product.
Which of the following is correct? A. There is no relationship between MP and MC. B. When AP is rising MC is falling, and when AP is falling MC is rising. C. When MP is rising MC is rising, and when MP is falling MC is falling. D. When MP is rising MC is falling, and when MP is falling MC is rising.
D. When MP is rising MC is falling, and when MP is falling MC is rising.
If you operated a small bakery, which of the following would be a variable cost in the short run? A. baking ovens B. interest on business loans C. annual lease payment for use of the building D. baking supplies (flour, salt, etc.)
D. baking supplies (flour, salt, etc.)
In comparing the changes in TC and TVC associated with an additional unit of output, we find that: A. the change in TVC is equal to MC, while the change in TC is equal to TFC. B. the change in TC exceeds the change in TVC. C. the change in TVC exceeds the change in TC. D. both are equal to MC.
D. both are equal to MC.
Average fixed cost: A. equals marginal cost when average total cost is at its minimum. B. may be found for any output by adding average variable cost and average total cost. C. graphs as a U-shaped curve. D. declines continually as output increases.
D. declines continually as output increases.
Total fixed cost (TFC): A. falls as the firm expands output from zero, but eventually rises. B. falls continuously as total output expands. C. varies directly with total output. D. does not change as total output increases or decreases.
D. does not change as total output increases or decreases.
Economic profits are calculated by subtracting: A. explicit costs from total revenue. B. implicit costs from total revenue. C. implicit costs from normal profits. D. explicit and implicit costs from total revenue.
D. explicit and implicit costs from total revenue.
Which of the following types of firms are least likely to have their MC, AVC, and ATC curves affected by fluctuations in gasoline prices? A. firms like UPS that use a fleet of gasoline-powered vehicles. B. taxi cab and limousine companies. C. companies that operate bus tours to popular vacation destinations. D. firms like iTunes that distribute their products over the Internet.
D. firms like iTunes that distribute their products over the Internet.
Accounting profits are typically: A. greater than economic profits because the former do not take explicit costs into account. B. equal to economic profits because accounting costs include all opportunity costs. C. smaller than economic profits because the former do not take implicit costs into account. D. greater than economic profits because the former do not take implicit costs into account.
D. greater than economic profits because the former do not take implicit costs into account.
Which of the following is not a source of economies of scale? A. learning-by-doing. B. labor specialization. C. use of larger machines. D. inelastic resource supply curves.
D. inelastic resource supply curves.
The minimum efficient scale of a firm: A. is realized somewhere in the range of diseconomies of scale. B. occurs where marginal product becomes zero. C. is in the middle of the range of constant returns to scale. D. is the smallest level of output at which long-run average total cost is minimized.
D. is the smallest level of output at which long-run average total cost is minimized.
Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting: A. profits were $100,000 and its economic profits were zero. B. losses were $500,000 and its economic losses were zero. C. profits were $500,000 and its economic profits were $1 million. D. profits were zero and its economic losses were $500,000.
D. profits were zero and its economic losses were $500,000.
Implicit and explicit costs are different in that: A. explicit costs are opportunity costs; implicit costs are not. B. implicit costs are opportunity costs; explicit costs are not. C. the latter refer to non-expenditure costs and the former to monetary payments. D. the former refer to non-expenditure costs and the latter to monetary payments.
D. the former refer to non-expenditure costs and the latter to monetary payments.
Average fixed costs can be determined graphically by: A. summing the marginal costs of any number of units of output and dividing the sum by that output. B. the vertical distance between TC and TVC. C. the vertical distance between AVC and MC. D. the vertical distance between ATC and AVC.
D. the vertical distance between ATC and AVC.
