Microeconomics chapter 9 - Businesses and the Costs of Production

17. Refer to the above data. Creamy Crisp's accounting profit is:

17. Refer to the above data. Creamy Crisp's accounting profit is:

101. Refer to the above information. The average fixed cost of 3 units of output is:

A. $13.33.

15. Refer to the above data. Creamy Crisp's implicit costs, including a normal profit, are:

A. $136,000.

16. Refer to the above data. Creamy Crisp's total economic costs are:

A. $286,000.

63. 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.

69. Refer to the above data. The average fixed cost of producing 3 units of output is:

A. $8.

56. Refer to the above diagram. At output level Q total variable cost is:

A. 0BEQ.

21. Which of the following is a short-run adjustment?

A. A local bakery hires two additional bakers.

131. (Consider This) Susie purchased a non-refundable ticket to a soccer match for $20. It will cost her $10 worth of gas and wear and tear to drive to the match, and $5 to park her car. On the day of the match, Susie's boss offers her $100 to come to work instead. In considering what to do, which of the above would be considered a sunk cost?

A. The $20 ticket to the match.B. The $10 cost to drive to the match.

62. Marginal cost:

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.

60. Refer to the above diagram. At output level Q:

A. marginal product is falling.

47. When total product is increasing at an increasing rate, marginal product is:

A. positive and increasing.

6. Accounting profits equal total revenue minus:

A. total explicit costs.

99. Refer to the above information. The total cost of producing 3 units of output is:

B. $105.

14. Refer to the above data. Creamy Crisp's explicit costs are:

B. $150,000.

12. 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:

B. $200,000 and its economic profits were zero.

106. Refer to the above data. The average variable cost of 4 units of output is:

B. $28.50.

93. Refer to the above data. If the firm closed down in the short run and produced zero units of output, its total cost would be:

B. $50.

91. Refer to the above data. The average total cost of five units of output is:

B. $78.

82. The vertical distance between a firm's ATC and AVC curves represents:

B. AFC, which decreases as output increases.

7. An explicit cost is:

B. a money payment made for resources not owned by the firm itself.

120. Refer to the above diagram. Minimum efficient scale:

B. is achieved at Q1.

37. In the above diagram curves 1, 2, and 3 represent the:

B. marginal, average, and total product curves respectively.

118. Refer to the above diagram. Economies of scale:

B. occur over the 0Q1 range of output.

121. Refer to the above diagram. Constant returns to scale:

B. occur over the Q1Q3 range of output.

98. The short-run average total cost curve is U-shaped because:

B. of increasing and diminishing returns.

116. Diseconomies of scale arise primarily because:

B. of the difficulties involved in managing and coordinating a large business enterprise.

72. In comparing the changes in TVC and TC associated with an additional unit of output, we find that:

B. the changes in TC and TVC are equal.

20. Which of the following represents a long-run adjustment?

B. unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants

38. The above diagram suggests that:

B. when marginal product lies above average product, average product is rising.

108. Economies and diseconomies of scale explain:

B. why the firm's long-run average total cost curve is U-shaped.

105. Refer to the above data. The total cost of producing 4 units of output is:

C. $124.

102. Refer to the above information. The marginal cost of the third unit of output is:

C. $15.

92. Refer to the above data. The total cost of four units of output is:

C. $310.

107. Refer to the above data. The marginal cost of the fourth unit of output is:

C. $37.

67. Refer to the above data. The total variable cost of producing 5 units is:

C. $37.

58. Refer to the above diagram. At output level Q total cost is:

C. 0BEQ plus BCDE.

11. Which of the following definitions is correct?

C. Economic profit = accounting profit - implicit costs.

83. Refer to the above short-run production and cost data. In Figure A curve (1) is:

C. average product and curve (2) is marginal product.

119. Refer to the above diagram. Diseconomies of scale:

C. begin at output Q3.

88. Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This:

C. firm's total cost is $270.

64. Other things equal, if the prices of a firm's variable inputs were to fall:

C. marginal cost, average variable cost, and average total cost would all fall.

30. Refer to the above data. Diminishing marginal returns become evident with the addition of the:

C. third worker.

68. Refer to the above data. The average total cost of producing 3 units of output is:

D. $16.

100. Refer to the above information. The average total cost of 3 units of output is:

D. $35.

90. Refer to the above data. Total fixed cost is:

D. $50.00.

70. Refer to the above data. The marginal cost of producing the sixth unit of output is:

D. $8.

104. Refer to the above diagram. The profit-maximizing level of output for this firm:

D. cannot be determined from the information given.

129. (Consider This) Past costs that are not affected by new decisions are known as:

D. sunk costs.

28. 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.

78. If a firm wanted to know how much it would save by producing one less unit of output, it would look to:

A. MC.

43. In the above diagram, total product will be at a maximum at:

A. Q3 units of labor

85. 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.

109. In the long run:

A. all costs are variable costs.

126. 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.

27. 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.

41. Refer to the above data. The marginal product of the fourth worker:

A. is 5.

33. 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.

128. (Consider This) If the law of diminishing returns applies to study time:

A. the 10th hour of study will likely be less productive than the 3rd.

26. Marginal product is:

A. the increase in total output attributable to the employment of one more worker.

44. Refer to the above data. The average product (AP) when two units of labor are hired is:

B. 9.

95. Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the:

B. AVC, ATC, and MC curves all to rise.

3. What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

B. All are opportunity costs.

57. Refer to the above diagram. At output level Q total fixed cost is:

B. BCDE.

84. Refer to the above short-run production and cost data. In Figure B curve (3) is:

B. MC and curve (4) is AVC.

55. Which of the following is correct as it relates to cost curves?

B. Marginal cost intersects average total cost at the latter's minimum point.

111. When a firm does more of something, it gets better at it. This learning-by-doing is:

B. a source of economies of scale.

36. The law of diminishing returns results in:

B. a total product curve that eventually increases at a decreasing rate.

117. In the above diagram it is assumed that:

B. all costs are variable.

130. (Consider This) Which of the following is an example of a sunk cost, as it relates to a firm?

B. an expenditure on a nonrefundable, nontransferable airline ticket.

49. Fixed cost is:

B. any cost which does not change when the firm changes its output.

87. 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:

B. are $1,250.

52. Marginal cost is the:

B. change in total cost that results from producing one more unit of output.

113. If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that:

B. economies of scale are being realized.

22. To economists, the main difference between the short run and the long run is that:

B. in the long run all resources are variable, while in the short run at least one resource is fixed.

122. The long-run average total cost curve:

B. indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.

81. The vertical distance between the total cost and the total variable cost curves differs by an amount which:

B. is constant as output changes.

123. If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then:

B. it is encountering economies of scale.

48. When total product is increasing at a decreasing rate, marginal product is:

B. positive and decreasing.

50. Which of the following is most likely to be a fixed cost?

B. property insurance premiums

2. Production costs to an economist:

B. reflect opportunity costs.

61. Refer to the above diagram. The vertical distance between ATC and AVC reflects:

B. the average fixed cost at each level of output.

112. Economies of scale are indicated by:

B. the declining segment of the long-run average total cost curve.

19. The basic characteristic of the short run is that:

B. the firm does not have sufficient time to change the size of its plant.

40. Refer to the above data. When two workers are employed:

B. total product is 18.

94. Refer to the above data. The marginal cost of the fifth unit of output is:

C. $80.

31. Refer to the above data. The marginal product of the sixth worker is:

C. 15 units of output.

29. Which of the following best expresses the law of diminishing returns?

C. As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

65. Other things equal, if the fixed costs of a firm were to increase by $100,000 per year,

C. Average fixed costs and average total costs would rise.

39. The total output of a firm will be at a maximum where:

C. MP is zero.

96. Assume a firm closes down in the short run and produces no output. Under these conditions:

C. TFC and TC are positive, but TVC is zero.

73. In the short run, which of the following statements is correct?

C. Total cost will exceed total variable cost.

79. Which of the following holds true?

C. When AP is rising AVC is falling, and when AP is falling AVC is rising.

125. Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that:

C. a 10 percent increase in all inputs will increase output by more than 10 percent.

23. The basic difference between the short run and the long run is that:

C. at least one resource is fixed in the short run, while all resources are variable in the long run.

53. For most producing firms:

C. average total costs decline as output is carried to a certain level, and then begin to rise.

115. If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that:

C. both relatively small and relatively large firms can be viable in the industry.

24. The short run is characterized by:

C. fixed plant capacity.

86. As output increases, total variable cost:

C. increases at a decreasing rate and then at an increasing rate

59. Refer to the above diagram. At output level Q average fixed cost:

C. is measured by both QF and ED.

124. If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then:

C. it is encountering constant returns to scale.

66. If a firm decides to produce no output in the short run, its costs will be:

C. its fixed costs.

35. If in the short run a firm's total product is increasing, then its:

C. marginal product could be either increasing or decreasing.

1. Economic cost can best be defined as:

C. payments that must be accounted for to obtain and retain the services of a resource.

97. If marginal cost is:

C. rising, then average total cost could be either falling or rising.

34. If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes:

C. the law of diminishing returns.

110. When diseconomies of scale occur:

C. the long-run average total cost curve rises.

10. Normal profit is:

C. the return to the entrepreneur when economic profits are zero.

75. Fixed costs are associated with:

C. the short run only.

103. Refer to the above diagram. This firm's average fixed costs are:

C. the vertical distance between AVC and ATC.

45. Refer to the above data. Diminishing returns begin to occur with the hiring of the _________ unit of labor.

C. third

76. In the above diagram curves 1, 2, and 3 represent:

C. total fixed cost, total variable cost, and total cost respectively.

18. Refer to the above data. Creamy Crisp's economic profit is:

D. $94,000.

42. In the above diagram the range of diminishing marginal returns is:

D. Q1Q3.

77. Which of the following is correct?

D. When MP is rising MC is falling, and when MP is falling MC is rising.

51. If you operated a small bakery, which of the following would be a variable cost in the short run?

D. baking supplies (flour, salt, etc.)

71. Refer to the above data. The profit-maximizing output for this firm:

D. cannot be determined from the information given.

54. Average fixed cost:

D. declines continually as output increases.

74. Total fixed cost (TFC):

D. does not change as total output increases or decreases.

9. Economic profits are calculated by subtracting:

D. explicit and implicit costs from total revenue.

127. Which of the following types of firms are least likely to have their MC, AVC, and ATC curves affected by fluctuations in gasoline prices?

D. firms like iTunes that distribute their products over the Internet.

8. Accounting profits are typically:

D. greater than economic profits because the former do not take implicit costs into account.

114. The minimum efficient scale of a firm:

D. is the smallest level of output at which long-run average total cost is minimized.

13. 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:

D. profits were zero and its economic losses were $500,000.

46. Refer to the above data. Marginal product becomes negative with the hiring of the __________ unit of labor.

D. seventh

25. The long run is characterized by:

D. the ability of the firm to change its plant size.

89. In comparing the changes in TC and TVC associated with an additional unit of output, we find that:

D. the change in both are equal to MC.

5. Implicit and explicit costs are different in that:

D. the former refer to non-expenditure costs and the latter to monetary payments.

80. Average fixed costs can be determined graphically by:

D. the vertical distance between ATC and AVC.

32. Refer to the above data. Average product is at a maximum when:

D. two workers are hired.