ECON 300 Chapter 7 Questions

Which of the following is an example of a sunk​ cost?

*A. The amount a company originally paid for specialized equipment for a plant. B.The amount a company pays for labor to produce its product. C.The amount for which a company could rent equipment it owns to another company. D.The opportunity cost of a company​ owner's time.

Firm 1 produces product A​ only, and firm 2 produces product B only. Firm 3 produces the same amount of A as firm 1 AND the same amount of B as firm 2. All three firms use​ state-of-the-art production​ techniques, but firm​ 3's total costs are less than the sum of the other two​ firms' total costs. We can conclude that there are

*A. economies of scope in producing products A and B. B. decreasing returns to scale in producing products A and B. C. increasing returns to scale in producing products A and B. D. diseconomies of scope in producing products A and B.

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. false because accounting costs will be greater than economic costs if implicit costs exist. C. true because accounting costs will be greater than economic costs if explicit costs exist. D. true because economic costs will be greater than accounting costs if sunk costs exist. E. false because economic costs will be greater than accounting costs if depreciation exists.

Which of the following is NOT a result of learning that helps a firm reduce its costs as its cumulative output​ increases?

A. Workers become more skilled as they gain experience producing the​ firm's product. *B. The firm can negotiate with suppliers for lower input prices. C. Managers learn to schedule and organize the production process more effectively. D. Engineers develop better and more specialized tools to produce the​ firm's product.

At the point where average variable cost reaches its minimum value

A. average variable cost equals average total cost. B. marginal cost equals zero. C. marginal cost also reaches its minimum value. *D. average variable cost equals marginal cost.

Economies of scale occur when

A. doubling the inputs less than doubles output​; ​however, economies of scope occur when joint output is less costly than the sum of the costs of producing multiple outputs separately. B. doubling the inputs more than doubles output​; ​however, economies of scope occur when joint output is more costly than the sum of the costs of producing multiple outputs separately. C. doubling the inputs more than doubles output​; ​however, economies of scope occur when various combinations of two different outputs can be produced with a given set of inputs. *D. output can be doubled for less than a doubling of cost​; ​however, economies of scope occur when joint output is less costly than the sum of the costs of producing multiple outputs separately. E. the​ long-run average cost curve is​ increasing; however, economies of scope occur when the​ long-run average cost curve is decreasing.

There is no direct relationship between economies of scale and economies of scope because

A. economies of scale pertain to one input and economies of scope pertain to more than one input. B. economies of scale pertain to more than one input and economies of scope pertain to one input. C. economies of scale pertain to input and economies of scope pertain to output. D. economies of scale pertain to output and economies of scope pertain to cost. *E. economies of scale pertain to one output and economies of scope pertain to more than one output.

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 opportunity costs such as the value of the business​ owner's time. 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. false because accounting costs include explicit costs. *E. true because economic costs include opportunity costs such as the value of the business​ owner's time.

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 new wages are an implicit cost. B. false because the​ worker's time otherwise spent in unpaid household work has no value. *C. false because the​ worker's time otherwise spent in leisure activities has value. D. true because the​ worker's time otherwise has no value. E. true because the​ worker's new wages are a sunk cost.

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. increase, but we cannot determine the amount of the increase with the information given. C. increase by​ $5,000. *D. not change.

A​ firm's long-run average cost​ (LAC) curve is downward sloping. Each​ short-run average cost​ (SAC) curve will be tangent to the LAC curve at

A. the minimum point on the SAC curve. *B. a point to the left of the minimum of the SAC curve. C. the minimum point of the LAC curve. D. a point to the right of the minimum of the SAC curve.

In the short run when some inputs are​ fixed, marginal cost must eventually rise as a​ firm's output increases because

A. the prices the firm pays for​ labor, material and other variable inputs will increase. *B. there will eventually be diminishing marginal products for the​ firm's variable inputs. C. there will eventually be decreasing returns to scale. D. All of the above.

A firm uses 80 hours of labor and 6 units of capital to produce​ 10,000 gadgets per day.​ Labor's marginal product is 4 gadgets per hour and the marginal product of capital is 20 gadgets per unit. Each unit of labor costs​ $8 per hour and each unit of capital costs​ $50 per unit. If the firm wants to continue producing​ 10,000 gadgets per day at the lowest possible​ cost, it should

A. use more capital and less labor. B. use less of both inputs. C. continue using 80 hours of labor and 6 units of capital. *D. use more labor and less capital.

Joe quits his computer programming​ job, where he was earning a salary of ​$65,000 per​ year, to start his own computer software business in a building that he owns and was previously renting out for ​$27,000 per year. In his first year of business he has the following​ expenses: salary paid to​ himself, ​$35,000​; ​rent, $0; and other​ expenses, ​$10,000. Find the accounting cost and the economic cost associated with​ Joe's computer software business. ​(Enter numeric responses using an integer.​)

The accounting cost of​ Joe's business is ​$ 45000. ​(Enter your response as an integer.​) The economic cost of​ Joe's business is ​$ 102000. ​(Enter your response as an integer.​)

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? Now suppose the firm is charged a tax that is proportional to the number of items it produces.​..

With a​ lump-sum tax, the fixed cost of production will *increase*, the marginal cost of production will *remain unchanged*, and the average cost of production will *increase* With a proportional​ tax, the fixed cost of production will *remain unchanged*, the marginal cost of production will *increase*, and the average cost of production will *increase*