CH 7

The table below gives information on the total revenue earned and the various costs incurred by Jupiter Apparel Inc. From the given information, it can be inferred that the firm: Table 7.1. a. earns an economic profit of $82,500. b. faces an economic loss of $200,000. c. faces an economic loss of $75,500. d. earns an economic profit of $117,500.

Did not answer A or D

The table below gives information on the total revenue earned and the various costs incurred by Jupiter Apparel Inc. The firm's taxable income is determined on the basis of: Table 7.1. a. an accounting profit of $200,000. b. an economic profit of $700,000. c. an economic profit of $300,000. d. an accounting profit of $500,000.

Did not answer I think B

The table below gives information on the total revenue earned and the various costs incurred by Jupiter Apparel Inc. The firm's normal profit equals _____. Table 7.1. a. $200,000 b. $117,500 c. $0 d. $82,500

Not B. $117,500. I think it is d. $82,500

Suppose a small business takes in a monthly revenue of $200,000. Labor, rental, energy, and other purchased input costs come to a total of $170,000. The entrepreneur's monthly opportunity cost of her time invested in the business is $5,000 (this is what she could earn working elsewhere), and the entrepreneur could get a return of $5,000 each month if she sold her business and invested the net proceeds in a financial asset such as a treasury bond. Her monthly economic profit equals _____. a. $20,000 b. $190,000 c. $200,000 d. $30,000

a. $20,000

Suppose a firm earns a total revenue of $560,000. Assume that the firm purchases raw materials worth $100,000 and pays $65,000 as wages. Also assume that the firm can earn a rent of $50,000 if it gives out its building on rent and that the firm foregoes an interest of $10,000 on savings. The firm earns and accounting profit equal to _____. a. $395,000 b. $350,000 c. $460,000 d. $760,000

a. $395,000

The change in output due to a one-unit change in labor usage, the level of usage of other inputs remaining unchanged, is called: a. the marginal product of labor. b. the average product of labor. c. the total product of labor. d. the marginal revenue product.

a. the marginal product of labor.

The table below gives information on the short-run relationship between the units of labor and pounds of cotton picked per day. The marginal product corresponding to 2 units of labor equals _____. Table 7.2. a. 250 b. 150 c. 0 d. 100

b. 150

The total cost is: a. the production cost that changes as the rate of output changes. b. the sum of fixed cost and variable cost. c. the difference between fixed cost and variable cost. d. the cost that is independent of the firm's rate of output.

b. the sum of fixed cost and variable cost.

A firm's implicit costs comprise _____ by the firm. a. the health insurance expenses incurred b. the value of the entrepreneur's land used c. the payroll tax paid d. the revenue used to pay interest on loans

b. the value of the entrepreneur's land used

The table below provides information on the short-run total, marginal, and average costs for Alpha Corp, a manufacturer of Good X. The marginal cost corresponding to 24,000 units of Good X produced equals _____. Table 7.3. a. $.0313 b. $.0625 c. $.0417 d. $.0447

c. $.0417

Suppose a firm earns a total revenue of $560,000. Assume that the firm purchases raw materials worth $100,000 and pays $65,000 as wages. Also assume that the firm can earn a rent of $50,000 if it gives out its building on rent, and that the firm foregoes an interest of $10,000 on savings. The normal profit earned by the firm is: a. $295,000. b. $165,000. c. $60,000. d. $40,000.

c. $60,000.

_____ are forces that cause a reduction in a firm's average cost as the scale of operation increases in the long run. _____ are forces that cause a firm's average cost to increase as the scale of operation increases in the long run. a. Increasing returns to a factor; decreasing returns to a factor b. Decreasing returns to a factor; increasing returns to a factor c. Economies of scale; diseconomies of scale d. Diseconomies of scale; economies of scale

c. Economies of scale; diseconomies of scale

Identify a statement that is true of the short run. a. Output can be changed in the short run by altering a firm's size. b. A firm cannot hire more workers in the short run. c. Output can be changed in the short run only by adjusting variable resources. d. A firm cannot change its output.

c. Output can be changed in the short run only by adjusting variable resources.

The table below gives information on the total revenue earned and the various costs incurred by Jupiter Apparel Inc. Which of the following is a possible effect of a decrease in the firm's total revenue to $520,000? Table 7.1. a. The owner of the firm earns an accounting profit of $500,000. b. The owner of the firm incurs an economic profit. c. The owner of the firm incurs an economic loss. d. The owner of the firm earns a normal profit of $200,000.

c. The owner of the firm incurs an economic loss.

Diseconomies of scale result from _____, whereas diminishing marginal returns result from _____. a. a smaller firm size; using more variable resources in a firm of a given size b. a larger firm size; using more fixed resources in a firm of a given size c. a larger firm size; using more variable resources in a firm of a given size d. a smaller firm size; using more fixed resources in a firm of a given size

c. a larger firm size; using more variable resources in a firm of a given size

The figure below shows the long-run average cost curve for a firm. The firm experiences economies of scale: Figure 7.1. a. at output levels beyond B. b. between output levels A and B. c. between output levels 0 and A. d. only at output level A.

c. between output levels 0 and A.

A firm's _____ are its actual cash payments for resources. a. sunk costs b. marginal costs c. explicit costs d. implicit costs

c. explicit costs

Normal profit refers to: a. a firm's total revenue minus its explicit and implicit costs. b. the profit earned by a firm when explicit costs are deducted from its total revenue. c. the profit earned by a firm when all resources used by the firm earn their opportunity cost. d. a firm's total revenue minus its implicit costs.

c. the profit earned by a firm when all resources used by the firm earn their opportunity cost.

Accounting profit is defined as the difference between a firm's: a. explicit costs and implicit costs. b. total revenue and total cost, including both explicit and implicit costs. c. total revenue and its explicit costs. d. total revenue and its implicit costs.

c. total revenue and its explicit costs.

The table below gives information on the short-run relationship between the units of labor and pounds of cotton picked per day. The firm experiences increasing marginal returns _____. Table 7.2. a. only for the first unit b. between 5 and 7 units c. up to the first 3 units d. only after 7 units

c. up to the first 3 units

The table below provides information on the short-run total, marginal, and average costs for Alpha Corp, a manufacturer of Good X. The average variable cost corresponding to 10,000 units of Good X produced equals _____. Table 7.3. a. $.0417 b. $.0625 c. $.0313 d. $.050

d. $.050

Check My Work The table below provides information on the short-run total, marginal, and average costs for Alpha Corp, a manufacturer of Good X. The total cost corresponding to 4,000 units of Good X produced equals ______. Table 7.3. a. $450 b. $700 c. $500 d. $750

d. $750

Which of the following statements is true? a. Any economic profit in excess of a normal profit is an accounting profit. b. Accounting profit equals a firm's total revenue minus its explicit and implicit costs. c. A firm's total revenue minus its implicit costs is known as economic profit. d. Any accounting profit in excess of a normal profit is an economic profit.

d. Any accounting profit in excess of a normal profit is an economic profit.

Suppose total cost is $1,000 when output is zero, $1,200 when output is one unit, and $1,500 when output is two units, then which of the following is true? a. Average total cost is $500 when two units of output are produced. b. The marginal cost of producing the first unit of output is $1,200. c. Total fixed cost is $1,500. d. The marginal cost of producing the second unit of output is $300.

d. The marginal cost of producing the second unit of output is $300.

Identify the correct statement. a. When there are diminishing but positive marginal returns, the total product rises at an increasing rate. b. When there are negative marginal returns, the total product rises. c. When there are diminishing but positive marginal returns, the total product falls. d. When there are negative marginal returns, the total product falls but is not necessarily negative.

d. When there are negative marginal returns, the total product falls but is not necessarily negative.

Increasing marginal cost is associated with: a. increasing marginal product. b. increasing total product. c. decreasing average product. d. decreasing marginal product.

d. decreasing marginal product.

Economists define the short run as a time period in which: a. at least one input is fixed. b. the size of a firm can be varied. c. all resources are fixed. d. all resources are variable.

a. at least one input is fixed.

Total cost divided by total output yields: a. average total cost. b. marginal cost. c. sunk cost. d. opportunity cost.

a. average total cost.

Suppose a firm uses its funds to purchase a new machine. This is an example of the firm's _____. a. implicit costs b. explicit costs c. total cost d. variable cost

b. explicit costs

The table below gives information on the short-run relationship between the units of labor and pounds of cotton picked per day. The total product corresponding to 4 units of labor equals _____. Table 7.2. a. 600 b. 450 c. 700 d. 650

600

Which of the following statements is true? a. In the long run, for any output level, a firm can select a plant size that will allow it to minimize average total cost. b. In the long run, a firm is committed to a particular plant size and can only vary such resources as labor and some material inputs. c. The long-run average cost curve connects the minimum points on marginal cost curves for different plant sizes. d. In the long run, a firm is committed to a particular plant size, and thus, it cannot vary any input.

a. In the long run, for any output level, a firm can select a plant size that will allow it to minimize average total cost.

The figure below shows the long-run average cost curve for a firm. The firm experiences constant average costs: Figure 7.1. a. between output levels A and B. b. between output levels 0 and A. c. at output levels beyond B. d. only at output level A.

a. between output levels A and B.

If average variable cost is falling, we know that: a. marginal cost is definitely less than average variable cost. b. marginal cost is definitely rising. c. marginal cost is definitely greater than average variable cost. d. marginal cost is definitely falling.

a. marginal cost is definitely less than average variable cost.

When a firm experiences decreasing marginal returns, _____. a. the marginal cost of output increases b. the marginal cost of output decreases c. the fixed cost increases d. the total cost of output decreases

a. the marginal cost of output increases

Which of the following statements is true? a. Economists assume that the goal of a firm is to maximize total revenue. b. Firms that strive and thrive in an industry are those that are more profitable than other firms. c. The goal of a firm is to supply a product that maximizes consumers' utility. d. Firms that strive and thrive in an industry are those that use labor-intensive means of production.

b. Firms that strive and thrive in an industry are those that are more profitable than other firms.

_____ costs represent a firm's opportunity costs of using its own resources or those provided by its owners without a corresponding cash payment. a. Explicit b. Implicit c. Sunk d. Marginal

b. Implicit

Which of the following represents the key difference between the short run and the long run? a. The short run is the period in which a firm can earn only normal profits, while the long run is the period in which the firm can earn economic profits. b. In the short run, at least one of the firm's resources is fixed, while in the long run, all resources under the firm's control are variable. c. In the long run, at least one of the firm's resources is fixed, while in the short run, all resources under the firm's control are fixed. d. In the long run, at least one of the firm's resources is fixed, while in the short run, all resources under the firm's control are variable.

b. In the short run, at least one of the firm's resources is fixed, while in the long run, all resources under the firm's control are variable.

Which of the following best describes a production function? a. The relationship between the price and quantity supplied of a product by sellers in a market. b. The relationship between the amount of resources employed and the total output produced by a firm. c. The relationship between the quantity of labor employed and total cost. d. The relationship between consumer preferences and market demand.

b. The relationship between the amount of resources employed and the total output produced by a firm.

Which of the following best describes the law of diminishing marginal returns? a. The empirical fact that positive economic profits will tend to decline over time as new firms attracted by the extra-normal profit opportunity enter the market. b. When more and more of a variable resource is added to a given amount of a fixed resource, the resulting change in output will eventually diminish and could become negative. c. The notion that as a person consumes more and more of a good, such as 12-ounce cups of lemonade, the marginal utility from each additional cup will tend to decline. d. When more and more capital per labor is used in production, the marginal product of labor eventually declines and could become negative.

b. When more and more of a variable resource is added to a given amount of a fixed resource, the resulting change in output will eventually diminish and could become negative.

A firm can experience diseconomies of scale due to: a. the use of more variable resources in a firm of a fixed size. b. a lack of coordination between different divisions of the firm. c. a decrease in the scale of operation of the firm. d. a decrease in the fixed costs incurred by the firm.

b. a lack of coordination between different divisions of the firm.

The figure below shows the long-run average cost curve for a firm. The firm experiences diseconomies of scale: Figure 7.1. a. only at output level A. b. at output levels beyond B. c. between output levels 0 and A. d. between output levels A and B.

b. at output levels beyond B.

If the long-run average cost of a firm increases as the size of the firm increases, then the firm is experiencing: a. increasing marginal returns. b. diseconomies of scale. c. diminishing marginal returns. d. economies of scale.

b. diseconomies of scale.

The general health insurance policy bought by a firm for its employees is an example of the firm's: a. implicit costs. b. explicit costs. c. sunk cost. d. variable cost.

b. explicit costs.

Economists assume that the goal of a firm is to: a. maximize total revenue. b. maximize total profit. c. maximize utility. d. minimize production.

b. maximize total profit.

Fixed cost is: a. the cost incurred on resources such as labor. b. positive in the short run even if no output is produced. c. greater than variable cost in the long run. d. inversely related to the amount of input employed.

b. positive in the short run even if no output is produced.

According to the law of diminishing marginal returns, as more of a variable input is combined with fixed amounts of other resources, _____. a. the additions to output will become constant b. the additions to output will eventually decrease c. the additions to output cannot increase d. total output will initially decrease and then increase

b. the additions to output will eventually decrease

Calculate the value of the total cost incurred by a firm if its variable cost is $1,000 and its fixed cost is $3,250. a. The total cost incurred by the firm is $1,000. b. The total cost incurred by the firm is $2,250. c. The total cost incurred by the firm is $4,250. d. The total cost incurred by the firm is $3,250.

c. The total cost incurred by the firm is $4,250.

Which of the following is an explicit cost? a. The opportunity cost of an entrepreneur's time invested in a firm. b. The opportunity cost of the money a business owner has invested in a firm. c. The wages a firm pays to its workers. d. The price of the entrepreneur's land used for constructing a factory and a warehouse.

c. The wages a firm pays to its workers.

The table below gives information on the short-run relationship between the units of labor and pounds of cotton picked per day. Suppose the total product and marginal product curves were drawn on the basis of the given information. In this case, the _____. Table 7.2. a. total product curve will be horizontal after 6 units of labor hired b. marginal product curve will be upward sloping between 4 and 7 units of labor hired c. marginal product curve will lie below the horizontal axis after 7 units of labor hired d. total product curve will be downward sloping between 0 and 3 units of labor hired

c. marginal product curve will lie below the horizontal axis after 7 units of labor hired

Once decreasing marginal returns set in a production process, _____ declines. a. total product b. total revenue c. average product d. marginal product

d. marginal product

The cost curve that shows the lowest per-unit cost of producing any given level of output is called: a. the long-run marginal cost curve. b. the fixed cost curve. c. the variable cost curve. d. the long-run average cost curve.

d. the long-run average cost curve.

The rising marginal cost curve intersects: a. the minimum point of the total cost curve. b. the average total cost curve at its downward-sloping portion. c. the average variable cost curve and the average total cost curve when they are upward sloping. d. the minimum points of both the average variable cost and average total cost curves.

d. the minimum points of both the average variable cost and average total cost curves.

Economic profit is defined as the difference between: a. explicit costs and implicit costs. b. total revenue and total explicit cost. c. total revenue and total implicit cost. d. total revenue and total costs, both explicit and implicit.

d. total revenue and total costs, both explicit and implicit.

The table below provides information on the short-run total, marginal, and average costs for Alpha Corp, a manufacturer of Good X. The average total cost corresponding to 30,000 units of Good X produced equals _____. Table 7.3. a. $.0667 b. $.0625 c. $.0694 d. $.050

not b. $.0625

The table below gives information on the short-run relationship between the units of labor and pounds of cotton picked per day. _____, the total product of the firm increases at a decreasing rate. Table 7.2. a. Between 4 and 7 units of labor hired b. Between 1 and 3 units of labor hired c. After 7 units of labor hired d. At 0 units of labor hired

not b. Between 1 and 3 units of labor hired

Which of the following is a way in which firms can achieve economies of scale? a. Increasing the scale of operation. b. Producing different products in the same plant. c. Using more workers than are actually needed. d. Product differentiation.

not b. Producing different products in the same plant.

The table below provides information on the short-run total, marginal, and average costs for Alpha Corp, a manufacturer of Good X. The total fixed cost equals: Table 7.3. a. $250 for 4,000 units of Good X produced. b. $500 for all levels of Good X produced. c. $0 for 0 units of Good X produced. d. $62.5 for each unit of Good X produced.

not c. $0 for 0 units of Good X produced.

Which of the following best describes marginal cost? a. The sum of fixed cost and variable cost. b. Change in total cost resulting from a one-unit change in output. c. Total cost divided by the quantity of output produced. d. Variable cost divided by the quantity of output produced.

not c. Total cost divided by the quantity of output produced.

The figure below shows the long-run average cost curve for a firm. The firm: Figure 7.1. a. reaches its minimum efficient scale at output level A. b. reaches its maximum efficient scale between output levels A and B. c. reaches its maximum efficient scale beyond output level B. d. reaches its minimum efficient scale at output level B.

not d. reaches its minimum efficient scale at output level B. I think C

The table below provides information on the short-run total, marginal, and average costs for Alpha Corp, a manufacturer of Good X. The marginal cost curve for the given firm will be: Table 7.3. a. upward sloping from the output level of 30,000 units. b. downward sloping till the output level of 18,000 units. c. downward sloping till the output level of 28,000 units. d. upward sloping from the output level of 10,000 units.

not d. upward sloping from the output level of 10,000 units.