Quiz 5

Which of the following is the best example of a short run adjustment? a) A local bakery purchases another commercial oven as part of its capacity expansion. b) Your local Wal-Mart hires two more associates. c)Smith University completed negotiations to acquire a large piece of land to build its new library. d)Toyota builds a new assembly plant in Texas.

b) Your local Wal-Mart hires two more associates.

A characteristic of the long run is a) there are fixed inputs. b) all inputs can be varied. c) plant capacity cannot be increased or decreased. d) there are both fixed and variable inputs

b) all inputs can be varied.

Diminishing marginal product of labor occurs when adding another unit of labor a) decreases output. b) changes output by an amount smaller than the output added by the previous unit of labor. c) increases output by an amount larger than the output added by the previous unit of labor. d) decreases output by an amount smaller than the output added by the previous unit of labor.

b) changes output by an amount smaller than the output added by the previous unit of labor.

Economic costs of production differ from accounting costs in that a) economic costs include expenditures for hired resources while accounting costs do not. b) economic costs add the opportunity costs of a firm using its own resources while accounting costs do not. c) accounting costs include expenditures for hired resources while economic costs do not. d) accounting costs are always larger than economic cost.

b) economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.

Jayanthi moves her yoga studio from her home to a space she rents in Oakland, California. Holding everything else constant, as a result of this move: a) her explicit cost falls and her implicit cost rises. b) her implicit cost falls and her explicit cost rises. c) her economic cost rises. d) her opportunity cost rises.

b) her implicit cost falls and her explicit cost rises.

Which of the following explains why the marginal cost curve has a U shape? a) Initially, the marginal product of labor falls, then rises. b) Initially, the average product of labor rises, then falls. c) Initially, the marginal product of labor rises, then falls. d) Initially, the average cost of production rises, then falls.

c) Initially, the marginal product of labor rises, then falls.

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true? a) The fixed cost of running the studio is $22,000. incorrect. b) The variable cost of running the studio is $22,000. c) The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost. d) The $10,000 Adam spent on equipment is the total cost of starting the business and the $12,000 he'll need to continue operations is a marginal cost.

c) The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost.

Which of the following statements is true? a)Opportunity cost = explicit cost - implicit cost. b) Total cost = fixed cost + implicit cost. c) Total cost = fixed cost + variable cost. d) Variable cost = wages + salaries + benefits.

c) Total cost = fixed cost + variable cost.

In the short run, if marginal product is at its maximum, then a) average cost is at its minimum. b) average variable cost is at its minimum. c) marginal cost is at its minimum. d) total cost is at its maximum.

c) marginal cost is at its minimum.

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her implicit costs? a) $80,000 b) $70,000 c) $42,000 d) $41,500

d) $41,500

If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is a) 60 units. b) 54 units. c) 48 units. d) 5 units.

d) 5 units.

A firm's cost of production is determined by all of the following except a) the technology used to produce its output. b) the productivity of its workers. c) the cost of raw material used in production. d) the amount of corporate taxes it must pay on its profit.

d) the amount of corporate taxes it must pay on its profit.

Which of the following is an example of a long run adjustment? a) Your university offers Saturday morning classes next fall. b) Ford Motor Company lays off 2,000 assembly line workers. c)A soybean farmer turns on the irrigation system after a month long dry spell. d)Wal-Mart builds another Supercenter.

d)Wal-Mart builds another Supercenter.

Red Stone Creamery currently hires 5 workers. When it added a 6th worker, its output actually fell. Which of the following statements is true? a) The marginal product of the sixth worker must be negative. b) The average product of the sixth worker is negative. c) The sixth worker is not as skilled as the fifth worker. d) The total product becomes negative.

a) The marginal product of the sixth worker must be negative.

Which of the following can a firm do in the long run but not in the short run? a) decrease the size of its physical plant b) reduce its rate of output by laying off workers c) increase its variable costs d) increase its use of raw materials

a) decrease the size of its physical plant

A firm has successfully adopted a positive technological change when a) it can produce more output using the same inputs. b) it produces less pollution in its production process. c) it can pay its workers less yet increase its output. d) it sees an increase in worker productivity.

a) it can produce more output using the same inputs.

The law of diminishing marginal returns states a) that at some point, adding more of a fixed input to a given amount of variable inputs will cause the marginal product of the variable input to decline. b) that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline. c) that in the presence of a fixed factor, at some point average product of labor starts to fall as more and more variable inputs are added. d) average total costs of production initially fall and after some point starts to rise at a decreasing rate as output increases.

b) that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.

The production function shows a) the total cost of producing a given quantity of output. b) the maximum output that can be produced from each possible quantity of inputs. c) the technology used to produce output. d) the incremental output gained by improving the production process.

b) the maximum output that can be produced from each possible quantity of inputs.

Implicit costs can be defined as a) accounting profit minus explicit cost. b) the non-monetary opportunity cost of using the firm's own resources. c) the deferred cost of production. d) total cost minus fixed costs.

b) the non-monetary opportunity cost of using the firm's own resources.

If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm's average fixed cost at that level of output? a) $65 b) $50 c) $15 d) It is impossible to determine without additional information.

c) $15