ECON EXAM QUIZ 7

Bubba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for $5 per pound. His average total cost of catching shrimp is $3 per pound. Bubba's annual total profit is a. $8,000. b. $12,000. c. $20,000. d. $32,000.

a

Economic profit a. will never exceed accounting profit. b. is most often equal to accounting profit. c. is always at least as large as accounting profit. d. is a less complete measure of profitability than accounting profit.

a

Economists normally assume that the goal of a firm is to earn (i) profits as large as possible, even if it means reducing output. (ii) profits as large as possible, even if it means incurring a higher total cost. (iii) revenues as large as possible, even if it reduces profits. a. (i) and (ii) only b. (i) and (iii) only c. (ii) and (iii) only d. (i), (ii), and (iii)

A

Economists assume that the typical person who starts her own business does so with the intention of a. donating the profits from her business to charity. b. capturing the highest number of sales in her industry. c. maximizing profits. d. minimizing costs.

C

Industrial organization is the study of a. how labor unions organize workers in industries. b. which managers are the most successful. c. how industries organize for political advantage. d. how firms' decisions regarding prices and quantities depend on the market conditions they face.

D

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product? a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers. b. The farmer is able to produce 5,800 bushels of wheat when he hires 4 workers. c. The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers. d. Any of the above could be correct.

a

The average fixed cost curve a. always declines with increased levels of output. b. always rises with increased levels of output. c. declines as long as it is above marginal cost. d. declines as long as it is below marginal cost.

a

The value of a business owner's time is an example of a. an opportunity cost. b. a fixed cost. c. an explicit cost. d. total revenue.

a

When marginal cost is greater than average cost, average cost is a. rising. b. falling. c. constant. d. The direction of change in average cost cannot be determined from this information.

a

10. The things that must be forgone to acquire a good are called a. implicit costs. b. opportunity costs. c. explicit costs. d. accounting costs.

b

A production function describes a. how a firm maximizes profits. b. how a firm turns inputs into output. c. the minimal cost of producing a given level of output. d. the relationship between cost and output.

b

A total-cost curve shows the relationship between the a. quantity of an input used and the total cost of production. b. quantity of output produced and the total cost of production. c. total cost of production and profit. d. total cost of production and total revenue.

b

At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the a. average variable cost of 21 pairs of boots is $23. b. average total cost of 21 pairs of boots is $23. c. average total cost of 21 pairs of boots is $15.09. d. marginal cost of the 20th pair of boots is $20.

b

David's firm experiences diminishing marginal product for all ranges of inputs. The total cost curve associated with David's firm a. gets flatter as output increases. b. gets steeper as output increases. c. is constant for all ranges of output. d. is unrelated to the production function.

b

Firms may experience diseconomies of scale when a. they are too small to take advantage of specialization. b. large management structures are bureaucratic and inefficient. c. there are too few employees, and managers do not have enough to do. d. average fixed costs begin to rise again.

b

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? a. the $20 million payment that the firm pays each year for accounting services b. the cost of the steel that is used in producing automobiles c. the rent that the firm pays for office space in a suburb of St. Louis d. All of the above are correct.

b

In the long run, a. inputs that were fixed in the short run remain fixed. b. inputs that were fixed in the short run become variable. c. inputs that were variable in the short run become fixed. d. variable inputs are rarely used.

b

Profit is defined as a. net revenue minus depreciation. b. total revenue minus total cost. c. average revenue minus average total cost. d. marginal revenue minus marginal cost.

b

The average-fixed-cost curve a. is constant. b. is always decreasing. c. intersects marginal cost at the minimum of average fixed cost. d. intersects marginal cost at the minimum of marginal cost.

b

The most likely explanation for economies of scale is a. coordination problems. b. specialization of labor. c. increasing marginal cost. d. decreasing marginal cost.

b

The total cost to the firm of producing zero units of output is a. zero in both the short run and the long run. b. its fixed cost in the short run and zero in the long run. c. its fixed cost in both the short run and the long run. d. its variable cost in both the short run and the long run.

b

Total revenue minus both explicit and implicit costs is called a. accounting profit. b. economic profit. c. average total cost. d. total cost.

b

When a firm is experiencing economies of scale, long-run a. average total cost is minimized. b. average total cost is greater than long-run marginal cost. c. average total cost is less than long-run marginal cost. d. marginal cost is minimized.

b

When marginal cost exceeds average total cost, a. average fixed cost must be rising. b. average total cost must be rising. c. average total cost must be falling. d. marginal cost must be falling.

b

. Diseconomies of scale occur when a firm's a. marginal costs are constant as output increases. b. long-run average total costs are decreasing as output increases. c. long-run average total costs are increasing as output increases. d. marginal costs are equal to average total costs for all levels of output.

c

. Which of the following is an example of an implicit cost? (i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm (ii) interest paid on the firm's debt (iii) rent paid by the firm to lease office space a. (ii) and (iii) only b. (i) and (iii) only c. (i) only d. (iii) only

c

Average total cost (ATC) is calculated as follows: a. ATC = (change in total cost)/(change in quantity of output). b. ATC = (change in total cost)/(change in quantity of input). c. ATC = (total cost)/(quantity of output). d. ATC = (total cost)/(quantity of input).

c

Average total cost equals a. change in total costs divided by quantity produced. b. change in total costs divided by change in quantity produced. c. (fixed costs + variable costs) divided by quantity produced. d. (fixed costs + variable costs) divided by change in quantity produced.

c

Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal a. $2. b. $4. c. $1,000. d. $2,000.

c

Diminishing marginal product suggests that the marginal a. cost of an extra worker is unchanged. b. cost of an extra worker is less than the previous worker's marginal cost. c. product of an extra worker is less than the previous worker's marginal product. d. product of an extra worker is greater than the previous worker's marginal product.

c

For a firm, the production function represents the relationship between a. implicit costs and explicit costs. b. quantity of inputs and total cost. c. quantity of inputs and quantity of output. d. quantity of output and total cost.

c

Gwen has decided to start her own photography studio. To purchase the necessary equipment, Gwen withdrew $2,000 from her savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gwen's annual opportunity cost of the financial capital that has been invested in the business? a. $60 b. $280 c. $340 d. $660

c

If the total cost curve gets steeper as output increases, the firm is experiencing a. diseconomies of scale. b. economies of scale. c. diminishing marginal product. d. increasing marginal product.

c

In the long run a company that produces and sells covers for cell phones incurs total costs of $2,500 when output is 1,250 covers and $4,000 when output is 1,500 covers. For this range of output, the cell phone cover company exhibits a. economies of scale. b. constant returns to scale. c. diseconomies of scale. d. efficient scale.

c

Korie wants to start her own business making custom furniture. She can purchase a factory that costs $400,000. Korie currently has $500,000 in the bank earning 3 percent interest per year. If Korie purchases the factory with her own money, what is the annual implicit opportunity cost of purchasing the factory? a. $0 b. $3,000 c. $12,000 d. $15,000

c

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L=6,Q=147) and (L=7,Q=184). The marginal product of the seventh worker is a. 25 units of output. b. 27 units of output. c. 37 units of output. d. 184 units of output.

c

Some costs do not vary with the quantity of output produced. Those costs are called a. marginal costs. b. average costs. c. fixed costs. d. explicit costs.

c

Sonia opened a yoga studio where she teaches classes and sells yoga clothing. Fixed costs for Sonia's yoga studio include the cost of the (i) tank tops. (ii) wages paid to the other yoga instructors. (iii) lease on the studio space. (iv) insurance that the landlord requires Sonia to carry for the studio. a. (i) only b. (i) and (ii) only c. (iii) and (iv) only d. (i), (ii), (iii), and (iv)

c

The amount of money that a firm receives from the sale of its output is called a. total gross profit. b. total net profit. c. total revenue. d. net revenue.

c

The average-total-cost curve intersects a. average fixed cost at the minimum of average total cost. b. average variable cost at the minimum of average total cost. c. marginal cost at the minimum of average total cost. d. marginal cost at the minimum of marginal cost.

c

The efficient scale of the firm is the quantity of output that a. maximizes marginal product. b. maximizes profit. c. minimizes average total cost. d. minimizes average variable cost.

c

Total cost is the a. amount a firm receives for the sale of its output. b. fixed cost less variable cost. c. market value of the inputs a firm uses in production. d. quantity of output minus the quantity of inputs used to make a good.

c

Total revenue equals a. marginal revenue - marginal cost. b. price/quantity. c. price x quantity. d. output - input.

c

Tsintah weaves traditional Navaho rugs. She weaves and sells 50 rugs. Her average cost of production per rug is $50. She sells each rug for a price of $65. Tsintah's total revenues are a. $750. b. $2,500. c. $3,250. d. $5,750.

c

When marginal cost is less than average total cost, a. marginal cost must be falling. b. average variable cost must be falling. c. average total cost is falling. d. average total cost is rising.

c

Which of these assumptions is often realistic for a firm in the short run? a. The firm can vary both the size of its factory and the number of workers it employs. b. The firm can vary the size of its factory but not the number of workers it employs. c. The firm can vary the number of workers it employs but not the size of its factory. d. The firm can vary neither the size of its factory nor the number of workers it employs.

c

. Fixed costs can be defined as costs that a. vary inversely with production. b. vary in proportion with production. c. are incurred only when production is large enough. d. are incurred even if nothing is produced.

d

Cindy's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is a. $100. b. $200. c. $300. d. $500.

d

Constant returns to scale occur when a firm's a. marginal costs are constant as output increases. b. long-run average total costs are decreasing as output increases. c. long-run average total costs are increasing as output increases. d. long-run average total costs do not vary as output increases.

d

Economies of scale occur when a firm's a. marginal costs are constant as output increases. b. long-run average total costs are decreasing as output increases. c. long-run average total costs are increasing as output increases. d. marginal costs are equal to average total costs for all levels of output.

d

Explicit costs a. do not require an outlay of money by the firm. b. enter into the accountant's measurement of a firm's profit. c. enter into the economist's measurement of a firm's profit. d. Both b and c are correct.

d

How long does it take a firm to go from the short run to the long run? a. six months b. one year c. two years d. It depends on the nature of the firm.

d

Suppose Korie purchases the factory using $200,000 of her own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Korie's annual opportunity cost of purchasing the factory? a. $3,000 b. $6,000 c. $15,000 d. $18,000

d

The marginal product of an input in the production process is the increase in a. total revenue obtained from an additional unit of that input. b. profit obtained from an additional unit of that input. c. total revenue obtained from an additional unit of that input. d. quantity of output obtained from an additional unit of that input.

d

The marginal product of labor is equal to the a. incremental cost associated with a one unit increase in labor. b. incremental profit associated with a one unit increase in labor. c. increase in labor necessary to generate a one unit increase in output. d. increase in output obtained from a one unit increase in labor.

d

When a factory is operating in the short run, a. it cannot alter variable costs. b. total cost and variable cost are usually the same. c. average fixed cost rises as output increases. d. it cannot adjust the quantity of fixed inputs.

d

When average cost is greater than marginal cost, marginal cost must be a. rising. b. falling. c. constant. d. The direction of change in marginal cost cannot be determined from this information.

d

Which of the following can be added to profit to obtain total revenue? a. net profit b. capital profit c. operational profit d. total cost

d