Econ Exam #3
The amount of money that a firm pays to buy inputs is called total cost.
True
The average fixed cost curve always declines with increased levels of output.
True
The cost of producing an additional unit of output is the firm's marginal cost.
True
The cost of producing the typical unit of output is the firm's average total cost.
True
The firm can vary the number of workers it employs, but not the size of its factory, this assumption is often realistic for a firm in the short run.
True
The firm's efficient scale is the quantity of output that minimizes average total cost.
True
The long-run average total cost curve is always flatter than the short-run average total cost curve, but not necessarily horizontal.
True
The marginal cost curve crosses the average total cost curve at the efficient scale.
True
The marginal cost of the fifth unit of output equals the total cost of five units minus the total cost of four units.
True
Total cost can be divided into two types. Those two types are fixed costs and variable costs.
True
Total revenue equals total output multiplied by price per unit of output.
True
When a firm is able to put idle equipment to use by hiring another worker, variable costs will rise.
True
When a firm is making a profit maximizing production decision, the cost of something is what you give up to get it is likely to be most important to the firm's decision.
True
The curves below reflect information about the cost structure of a firm. Use the figure to answer questions 109 through 115.
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Economic profit is equal to total revenue minus the explicit cost of producing goods and services.
False
Suppose Jan is starting up a small lemonade stand business. Variable costs for Jan's lemonade stand would include the cost of building the lemonade stand.
False
The amount by which total cost rises when the firm produces one additional unit of output is called average cost.
False
The amount of money that a firm receives from the sale of its output is called total gross profit.
False
The cost of accounting services would be regarded as an implicit cost.
False
The efficient scale of the firm is the quantity of output that maximizes marginal product.
False
The marginal product of an input in the production process is the increase in total revenue obtained from an additional unit of that input.
False
The marginal product of labor can be defined as change in profit/change in labor.
False
The marginal product of labor is equal to the incremental cost associated with a one unit increase in labor.
False
Those things that must be forgone to acquire a good are called substitutes.
False
To an economist, it is conceivable that the objective that motivates an individual entrepreneur to start a business arises from an innate love for the type of business that he or she starts.
False
Variable cost divided by quantity produced is average total cost.
False
When a factory is operating in the short run, it cannot alter variable costs.
False
When a firm is operating at an efficient scale, average variable cost is minimized.
False
When adding another unit of labor leads to an increase in output that is smaller than increases in output that resulted from adding previous units of labor, we have the property of diminishing labor.
False
When marginal cost exceeds average total cost, average fixed cost must be rising.
False
When marginal cost is less than average total cost, average total cost is rising.
False
When marginal cost is less than average total cost, marginal cost must be falling.
False
When marginal cost is rising, average variable cost must be rising.
False
The figure below depicts average total cost functions for a firm that produces automobiles. Use the figure to answer questions 174 through 178.
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(Figure)As the number of workers increases, total output increases, but at a decreasing rate.
True
(figure)Producing an additional cookie is always more costly than producing the previous cookie, this is consistent with the shape of the total cost curve.
True
(figure)The nature of the underlying production function can be described as: "output increases at a decreasing rate with additional units of input."
True
(figure)With regard to cookie production, the figure implies diminishing marginal product of workers.
True
13-112. (A) is most likely to represent marginal cost.
True
13-113. This particular firm is necessarily experiencing increasing marginal product when curve A is falling.
True
13-142. 0 is the variable cost of producing zero widgets.
True
13-143. $1.00 is the marginal cost of producing the first widget.
True
13-174.ATC (A) is most likely to characterize the short-run average total cost curve of the smallest factory.
True
13-177. This firm experiences diseconomies of scale at output levels above N.
True
13-178. At levels of output below M the firm experiences economies of scale.
True
One would expect to observe diminishing marginal product of labor when crowded office space reduces the productivity of new workers.
True
13-114. This particular firm is necessarily experiencing diminishing marginal product when
(i) A is rising. (ii) B is rising. (iii) C is rising. All are correct
Economists normally assume that the goal of a firm is to
(i) sell as much of their product as possible. (ii) set the price of their product as high as possible. (iii) maximize profit. (iii) is true
Diminishing marginal product suggests that the marginal cost of an extra worker is unchanged.
False
Economists normally assume that the goal of a firm is to.
(i) make profit as large as possible even if it means reducing output. (ii) make profit as large as possible even if it means incurring a higher total cost. (iii) make revenue as large as possible. (i) and (ii) is true
An example of a fixed cost would be:
(i) raw materials supplied at a government -regulated price. (ii) rent paid on a factory. (iii) machine maintenance. (i) and (ii) are true.
(figure)All are true of the production function (not pictured) that underlies this total cost function.
(i) Total output increases as the quantity of inputs increases, but at a decreasing rate. (ii) Marginal product is diminishing for all levels of input usage. (iii) The slope of the production function decreases as the quantity of inputs increases. True
Economic profit is equal to:
(i) total revenue - (explicit costs + implicit costs). (ii) total revenue - opportunity costs. (iii) accounting profit + implicit costs.(i) and (ii) are true
Accounting profit is equal to.
(i) total revenue - implicit costs. (ii) total revenue - opportunity costs. (iii) economic profit + implicit costs. True answer: (iii) only
Use the following information to answer questions 138 through 144.
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(figure)The changing slope of the total cost curve reflects decreasing average variable cost.
False
13-109. (A) is most likely to represent average total cost.
False
13-111. (A) is most likely to represent average variable cost.
False
13-138. The average fixed cost of producing five widgets is $1.00.
False
13-139. The average variable cost of producing four widgets is $2.00.
False
13-140. The average total cost of producing one widget is $1.00.
False
13-141. The marginal cost of producing the sixth widget is $1.00.
False
13-144. $13.00 is the variable cost of producing five widgets.
False
13-175.ATC (A) represents the longrun average total cost.
False
13-176. In the long run, the firm can operate on ATC (A).
False
13-87. Average total cost will be always rising.
False
13-88. Average fixed cost will be always rising.
False
A total-cost curve shows the relationship between the quantity of an input used and the total cost of production.
False
Accounting profit is equal to marginal revenue minus marginal cost.
False
An example of an explicit cost of production would be the cost of forgone labor earnings for an entrepreneur.
False
Average fixed costs do not vary with the amount of output a firm produces.
False
Average total cost is equal to output/total cost.
False
Average total cost is increasing whenever total cost is increasing.
False
Average total cost is very high when a small amount of output is produced because average variable cost is high.
False
Average total cost tells us the total cost of the first unit of output, if total cost is divided evenly over all the units produced.
False
Diminishing marginal product suggests that additional units of output become less costly as more output is produced.
False
Fixed costs can be defined as costs that vary inversely with production.
False
Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. The cost of mustard are most likely to be considered fixed costs.
False
If a firm produces nothing, total costs will be zero.
False
If marginal cost is below average total cost, then average total cost is constant.
False
If marginal cost is rising, average variable cost must be falling.
False
In the long run, inputs that were fixed in the short run remain fixed.
False
John owns a shoe-shine business. His accountant most likely includes wages John could earn washing windows.
False
Marginal cost is equal to average total cost when average variable cost is falling.
False
Marginal cost must rise as the quantity of output increases.
False
Marginal cost tells us the value of all resources used in a production process
False
Net profit can be added to profit to obtain total revenue.
False
One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run, output is not variable.
False
One of the most important properties of cost curves is that for most producers , the average total cost curve never crosses the marginal cost curve.
False
Profit is defined as net revenue minus depreciation.
False
Some costs do not vary with the quantity of output produced. Those costs are called marginal costs.
False
A production function is a relationship between inputs and quantity of output.
True
Accountants are primarily interested in the flow of money into and out of firms.
True
An example of an implicit cost of production would be the income an entrepreneur could have earned working for someone else.
True
Assume a certain firm regards the number of workers it employs as variable, and that it regards the size of its factory as fixed. This assumption is often realistic in the short run, but not in the long run.
True
At all levels of production beyond the point where the marginal cost curve crosses the average variable cost curve, average variable cost rises.
True
Economic profit will never exceed accounting profit.
True
Explicit costs require an outlay of money by the firm.
True
For a firm that uses labor to produce output, the production function depicts the relationship between the quantity of labor and the quantity of output.
True
For questions 87 through 90, assume that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level.
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