100A Chapter 7

remain unchanged, increase, increase

Now suppose the firm is charged a tax that is proportional to the number of items it produces.​ Again, how does this tax affect the​ firm's fixed,​ marginal, and average​ costs? With a proportional​ tax, the fixed cost of production will _________ ​; the marginal cost of production will ______ ​; and the average cost of production will ______ .

A

A company wants to determine the annual opportunity cost of using equipment it owns and has already paid for. Which of the following would NOT be useful for that​ purpose? A. The amount the company originally paid to purchase the equipment. B. The profit the company could earn during the year by employing the equipment in some other use. C. The amount for which the equipment could be rented to another company during the year. D. The estimated market value of the equipment at the beginning of the year and at the end of the year.

B

A firm that has positive accounting profit does not necessarily have positive economic profit. This statement is A. false because accounting costs will be greater than economic costs if implicit costs exist. B. true because economic costs will be greater than accounting costs if implicit costs exist. C. true because economic costs will be greater than accounting costs if sunk costs exist. D. true because accounting costs will be greater than economic costs if explicit costs exist. E. false because economic costs will be greater than accounting costs if depreciation exists.

A

A firm that has positive accounting profit does not necessarily have positive economic profit. This statement is A. true because economic costs will be greater than accounting costs if implicit costs exist. B. true because accounting costs will be greater than economic costs if explicit costs exist. C. true because economic costs will be greater than accounting costs if sunk costs exist. D. false because economic costs will be greater than accounting costs if depreciation exists. E. false because accounting costs will be greater than economic costs if implicit costs exist.

D

How does a change in the price of one input change the​ firm's long-run expansion​ path? If the price of an input​ changes, then the A. slope of the isoquants will​ change, and the firm will substitute away from the relatively more expensive input ​, pivoting the expansion path toward the axis of the relatively cheaper input. B. isocost lines will shift in a parallel​ fashion, and the firm will substitute away from both​ inputs, shifting the expansion path in a parallel fashion. C. isoquants will shift in a parallel​ fashion, and the firm will substitute toward the relatively cheaper input ​, pivoting the expansion path toward the axis of the relatively cheaper input. D. slope of the isocost lines will​ change, and the firm will substitute toward the relatively cheaper input ​, pivoting the expansion path toward the axis of the relatively cheaper input. E. slope of the isocost lines will​ change, and the firm will substitute away from the relatively more expensive input ​, pivoting the expansion path toward the axis of the relatively more expensive input.

B

If a firm enjoys economies of scale up to a certain output​ level, and cost then increases proportionally with​ output, what can you say about the shape of the​ long-run average cost​ curve? The​ long-run average cost curve A. is horizontal. B. decreases initially and then is horizontal. C. is increasing. D. is​ U-shaped. E. is decreasing.

E

If a firm hires a currently unemployed​ worker, the opportunity cost of utilizing the​ worker's services is zero. This statement is A. false because the​ worker's time otherwise spent in unpaid household work has no value. B. false because the​ worker's new wages are an implicit cost. C. true because the​ worker's new wages are a sunk cost. D. true because the​ worker's time otherwise has no value. E. false because the​ worker's time otherwise spent in leisure activities has value.

A

If a firm hires a currently unemployed​ worker, the opportunity cost of utilizing the​ worker's services is zero. This statement is A. false because the​ worker's time otherwise spent in unpaid household work has value. B. false because the​ worker's time otherwise spent in leisure activities has no value. C. true because the​ worker's time otherwise has no value. D. false because the​ worker's new wages are an implicit cost. E. true because the​ worker's new wages are a sunk cost.

E

If the firm wanted to minimize the average total​ cost, would it choose to be very large or very​ small? Explain. A. very large because the average variable cost of production falls with output. B. very small because the average total cost of production rises with output. C. very small because the total cost of production rises with output. D. very small because the marginal cost of production rises with output. E. very large because the average total cost of production falls with output.

D

If the owner of a business pays himself no​ salary, then the accounting cost is​ zero, but the economic cost is positive. This statement is A. false because accounting costs include explicit costs. B. true because economic costs include opportunity costs such as expenditures that cannot be recovered. C. false because economic costs include the same costs as accounting costs. D. true because economic costs include opportunity costs such as the value of the business​ owner's time. E. false because accounting costs include opportunity costs such as the value of the business​ owner's time.

E

If the owner of a business pays himself no​ salary, then the accounting cost is​ zero, but the economic cost is positive. This statement is A. false because accounting costs include implicit costs such as the value of the business​ owner's time. B. false because accounting costs include explicit costs. C. false because economic costs include the same costs as accounting costs. D. true because economic costs include opportunity costs such as expenditures that cannot be recovered. E. true because economic costs include opportunity costs such as the value of the business​ owner's time.

A

If the​ firm's average cost curves are​ U-shaped, why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost​ curve? The average variable cost curve will achieve its minimum at a lower level of output than the average total cost curve because A. average total cost equals average variable cost plus average fixed​ cost, and the average fixed cost curve continues to fall as more output is produced. B. average total cost equals average variable cost plus average fixed​ cost, and the average fixed cost of production is constant . C. average total cost equals average variable cost minus average fixed​ cost, and the average fixed cost of production reaches its minimum at a higher level of output than the average variable cost curve . D. average total cost equals average variable cost plus average fixed​ cost, and the decrease in average fixed costs with output is always larger than eventual increases in average variable costs with output. E. average total cost equals average variable cost plus marginal​ cost, and the marginal cost curve continues to fall as more output is produced.

B

Jose rents office space for​ $20,000 per year. He uses the office to fill out tax returns for​ 1,000 clients per year. If the office rent increases to​ $25,000 per​ year, the marginal cost of filling out tax returns will A. increase by​ $5. B. not change. C. increase by​ $5,000. D. ​increase, but we cannot determine the amount of the increase with the information given.

increase, remain unchanged, increase

Suppose a firm must pay an annual​ tax, which is a fixed​ sum, independent of whether it produces any output. How does this tax affect the​ firm's fixed,​ marginal, and average​ costs? With a​ lump-sum tax, the fixed cost of production will _____ ​; the marginal cost of production will _______ ​; and the average cost of production will _______ .

D

When the cost minimizing combination of inputs is being used and there is no corner​ solution, A. the marginal products of the inputs are equal to each other. B. the marginal product of each input is equal to its cost. C. the costs of the inputs are equal to each other. D. the isoquant line is tangent to the isocost line. E. All of the above.

D

Which of the following is an example of a sunk​ cost? A. The amount a company pays for labor to produce its product. B. The amount for which a company could rent equipment it owns to another company. C. The opportunity cost of a company​ owner's time. D. The amount a company originally paid for specialized equipment for a plant.

D

Why might learning by doing decrease the​ long-run average cost of​ production? A. As cumulative output​ increases, engineers gain experiences that decrease costs with increasing defects. B. As output​ increases, the production process begins to exhibit diseconomies of scale. C. As cumulative output​ increases, managers become unable to schedule the production process as efficiently. D. As cumulative output​ increases, workers become more​ adept, and the speed at which they produce increases. E. As output​ increases, firms begin to experience increasing returns to scale.

D

correct, Concept Question 5.6 If a firm experiences diseconomies of​ scope, then it A. experiences economies of scale for at least one output . B. experiences constant returns to scale for one of the outputs . C. experiences diseconomies of scale for at least one output . D. can experience either economies of scale or diseconomies of scale for all outputs. E. experiences increasing returns to scale for at least one output .