Ch 5 Practice Problems

In the short run, a manufacturer should produce the next unit of output as long as marginal cost is greater than price. price is greater than total cost. price is greater or equal than marginal cost. price equals total cost.

price is greater or equal than marginal cost

If government policies to increase productivity are successful, then the production function will shift upward. marginal cost curve will shift upward. average total cost curve will shift upward. variable cost curve will shift upward.

production function will shift upward

If price is greater than marginal cost for the last unit produced profit is increasing as output rises. profit is decreasing as output rises. only economic costs are being covered. average total cost is covered.

profit is increasing as output rises

If more of an input factor is used, while holding other inputs constant, a firm will eventually experience diminishing returns. falling marginal cost. rising marginal physical product. rising consumer demand.

diminishing returns

Total cost is equal to _____ cost at an output level of zero. variable fixed economic marginal

fixed

Which of the following is equivalent to total cost? fixed costs plus variable costs variable costs plus marginal costs economic costs plus accounting costs marginal costs plus implicit costs

fixed cost plus variable cost

The main difference to an economist between "short run" and "long run" is that variable costs are short-run investment decisions whereas fixed costs are long-run production decisions. in the short run, all resources are fixed whereas in the long run all resources are variable. in the long run, all resources are variable whereas in the short run at least one resource is fixed. fixed costs are more important than variable costs in the short run.

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

Which of the following would cause a firm's production function to shift upward? an increase in production by the firm hiring more workers increased investment in capital an increase in wages

increased investment in capital

Which of the following is most likely a variable cost in the short run? labor payments property taxes rent payments a business license fee

labor payments

Improvements in technology shift the production function downward. marginal cost curve downward. average total cost curve upward. fixed cost curve upward.

marginal cost curve downward

Marginal cost will increase with greater output if marginal physical product is decreasing. marginal physical product is increasing. total variable cost is decreasing. total fixed cost is increasing.

marginal physical product is decreasing

When a firm produces a level of output on the production function marginal physical product is zero. maximum efficiency is achieved. opportunity cost for resources is at a maximum. profits are maximized.

maximum efficiency is achieved

Economic costs are greater than accounting costs only if implicit costs are greater than zero. only if explicit costs are greater than implicit costs. only in the long run. in the short run but not the long run.

only if implicit costs are greater than zero

Assume a toy company hires an additional worker to assemble toys, and the size of the factory and amount of equipment remain constant. As a result, the level of output increases but by a smaller amount than when the previous additional worker was hired. This is an example of the law of poor planning. the law of diminishing returns. Say's Law. the law of substitution.

the law of diminishing returns

During the long run output is limited by the law of diminishing returns. the firm can build or lease any size factory. some inputs are fixed and some are variable. there are no economic costs.

the firm can build or lease any size factory

If an additional unit of labor costs $25 and has a marginal physical product of 40 units of output, the marginal cost is: $0.63. $1.60. $25.00. $1,000.00.

$0.63

Suppose a firm incurred explicit costs of $900 and implicit costs of $200 during a day. If that day the firm sold 8 units at $300 per unit its accounting profits are $1,500 and its economic profits are $1,700. $1,500 and its economic profits are $1,300. $1,300 and its economic profits are $1,700. $1,300 and its economic profits are $1,300.

$1500 and its economic profits are $1300

If the first, second, third, and fourth worker employed by the firm add 15, 21, 12, and 8 units of total product respectively, we can conclude that the marginal product of all four workers is 14. the total product of two workers is 42. after the second worker marginal product declines. adding a fourth worker will cause total product to decline.

after the second worker marginal product declines

Which of the following is the best explanation of why the law of diminishing returns does not apply in the long run? All inputs to production are variable in the long run. The marginal physical product does not change in the long run. In the long run, firms have enough time to find more qualified workers. All inputs to production are fixed in the long run.

all inputs to production are variable in the long run

It is impossible to: Determine total costs in the short run. Identify variable costs in the long run. Identify variable costs in the short run. Avoid fixed costs in the short run.

avoid fixed costs in the short run

Economic profit is equal to total revenue minus explicit costs. implicit costs. both implicit costs and explicit costs. marginal costs.

both implicit and explicit costs

Which of the following definitions is correct? Economic Costs + Accounting Costs = Profit Economic Profit = Accounting Profit - Implicit Costs. Economic Profit - Implicit Costs = Accounting Profits. Economic Costs + Explicit Costs = Implicit Costs.

economic profit = accounting profit - implicit costs

In defining costs, economists recognize explicit and implicit costs, while accountants recognize only implicit costs. explicit and implicit costs, while accountants recognize only explicit costs. only explicit costs, while accountants recognize only implicit costs. only explicit costs, while accountants recognize explicit and implicit costs.

explicit and implicit costs, while accountants recognize only explicit costs

Rising marginal costs result from rising marginal physical product. falling prices of variable inputs. falling marginal physical product. rising prices of fixed inputs.

falling marginal physical product

Which of the following is equivalent to average total cost? fixed cost plus variable cost fixed cost and variable cost added together and then divided by output the change in total cost divided by the change in output marginal cost plus variable cost

fixed cost and variable cost added together then divided by output

In the long run, a company will stay in business as long as price is greater than or equal to marginal costs. equal to variable costs. equal to marginal physical product. greater than or equal to average total costs.

greater than or equal to average total costs

The law of diminishing returns can explain why marginal cost eventually increases in the short run as more output is produced. the demand curve is typically downward-sloping. the average fixed-cost curve declines as long as output increases. marginal cost decreases as more output is produced.

marginal cost eventually increases in the short run as more output is produced

Based on the law of diminishing returns, if the number of workers increases and capital investments do not keep pace then, ceteris paribus, marginal physical product of labor will increase. marginal physical product of labor will decrease. the production function will definitely shift upward. the average total cost curve will definitely decrease.

marginal physical product of labor will decrease

When producing jeans, which of the following are not a variable cost in the short run? wage payments to labor zipper costs for each jean rent paid for the use of a factory denim material costs for each jean

rent paid for the use of a factory

Which of the following is most true about the short run? Some inputs are fixed. It is less than one year. It is one to two years. All inputs are variable.

some inputs are fixed

Marginal physical product is equal to the average output of a worker. the additional utility a consumer gets from the last unit of a product. the additional output from using one more unit of labor. equal to the total product of labor.

the additional output from using one more unit of labor

Assume a restaurant hires an additional chef who is as qualified as the current chefs. As a result, the level of output increases but by a smaller amount than when the previous additional chef was hired. Which of the following best explains this occurrence? The chefs are working with a fixed amount of space and equipment and they get in each other's way. The additional wages cause profit to decrease. The amount of food available for preparation is limited so output decreases. The two chefs do not agree on food preparation and spend too much time arguing.

the chefs are working with a fixed amount of space and equipment and they get in each other's way

Rising marginal costs are the result of increasing returns to scale. rising marginal physical product. the law of variable returns. the law of diminishing returns.

the law of diminishing returns

The maximum output that can be produced from a set of inputs is measured by the production function. the demand schedule. fixed costs. marginal costs.

the production function

Economic cost is equal to explicit costs minus implicit costs. the same as dollar costs. equal to the accounting cost minus implicit costs. the value of all resources, both explicit and implicit, used to produce a good or service.

the value of all resources, both explicit and implicit, used to produce a good or service

Average total cost is defined as total cost divided by the quantity produced. the change in total cost because of a one-unit increase in output. the change in total output divided by the change in total cost. total output times total cost.

total cost divided by the quantity produced

When a firm makes an investment decision, it views all inputs as variable over the long run. variable over the short run. fixed over the long run. fixed over the short run.

variable over the long run

Flour costs = $900, electricity = $550, employee wages = $4500, other ingredients = $400, rent = $1200, the usual standard city service fees = $60. The bakery produces and sells 6000 loaves of bread during the month of September. c. What are the average fixed costs per loaf of bread? $7,610 $1.27 $0.21 $1.06

0.21

Flour costs = $900, electricity = $550, employee wages = $4500, other ingredients = $400, rent = $1200, the usual standard city service fees = $60. The bakery produces and sells 6000 loaves of bread during the month of September. d. What are the average variable costs per loaf of bread? $7,610 $1.27 $0.21 $1.06

1.06

Flour costs = $900, electricity = $550, employee wages = $4500, other ingredients = $400, rent = $1200, the usual standard city service fees = $60. The bakery produces and sells 6000 loaves of bread during the month of September. b. What are the average total costs per loaf of bread? $7,610 $1.27 $0.21 $1.06

1.27

Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600. What are the daily accounting costs for the firm described above? $320 $390 $470 $540

470

Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600. What are the daily explicit costs for the firm described above? $320 $390 $400 $470

470

Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600. What are the daily implicit costs for the firm described above? $70 $80 $150 $220

70

Given the following production costs for a bakery for September 2018: Flour costs = $900, electricity = $550, employee wages = $4500, other ingredients = $400, rent = $1200, the usual standard city service fees = $60. The bakery produces and sells 6000 loaves of bread during the month of September. a. What is the total cost of producing 6000 loaves of bread this month? $7,610 $1.27 $0.21 $1.06

7610

Which of the following statements concerning the relationship between total product (TP) and marginal physical product (MPP) is not correct? TP will continue to rise even though MPP is falling but greater than zero. TP is increasing at an increasing rate if MPP is increasing. TP will fall if MPP is negative. TP will fall if MPP is falling.

TP will fall if MPP is falling

If an additional unit of labor costs $30 and has an marginal physical product of 50 units of output per worker, the marginal cost is $0.60 per unit. $1.66 per unit. $15.00 per unit. $1500.00 per unit.

$0.60 per unit