economics chapter 21

21-31. Refer to Exhibit 21-2. What is the average variable cost of producing 90 units of output? Select one: a. $1.00 b. $1.17 c. $1.59 d. $1.44 e. There is not enough information provided to answer the question.

a. $1.00

21-33. Refer to Situation 21-l. What will Diane's total costs be if she sells 2,500 donuts in her first week and then goes out of business? Select one: a. $20,750 b. $10,950 c. $20,880 d. $30,500

a. $20,750

21-60. Refer to Exhibit 21-13. What dollar amounts go in blanks (K) and (L)? Select one: a. $280; $400 b. $28; $40 c. $260; $360 d. $50; $400 e. There is not enough information to answer this question.

a. $280; $400

21-06. Consider the following information about a business Diane opened last year: price = $10, quantity sold = 25,000; implicit cost = $55,000; explicit cost = $160,000. What was Diane's economic profit? Select one: a. $35,000 b. $195,000 c. -$35,000 d. $90,000 e. There is not enough information provided to answer this question.

a. $35,000

21-62. Refer to Exhibit 21-13. What dollar amounts go in blanks (V) and (W)? Select one: a. $50; $70 b. $12.50; $14 c. $140; $150 d. $82.50; $80 e. There is not enough information to answer this question.

a. $50; $70

21-20. Refer to Exhibit 21-l. The numbers that go in blanks (C) and (D) are, respectively, Select one: a. 25 and 20. b. 20 and 22. c. 25 and 24. d. 22 and 20. e. none of the above

a. 25 and 20.

21-53. Which of the following statements is false? Select one: a. If the MC curve is rising, the AVC curve must be rising. b. If MC is below ATC, ATC must be falling. c. If MC is above AVC, then AVC must be rising. d. If MC is above ATC, then ATC must be rising.

a. If the MC curve is rising, the AVC curve must be rising.

21-54. Which of the following statements is true? Select one: a. The marginal cost curve has an upward-sloping portion to it because of the law of diminishing marginal returns. b. The marginal cost curve cuts the ATC curve at its highest point. c. When marginal cost is rising, so must average total cost be rising. d. A decline in marginal cost causes the MPP (of the variable input) to decline. e. none of the above

a. The marginal cost curve has an upward-sloping portion to it because of the law of diminishing marginal returns.

21-24. In the long run, Select one: a. all costs are variable costs. b. all costs are fixed costs. c. there are no variable costs. d. b and c

a. all costs are variable costs.

21-36. If inputs are increased by 10 percent and output increases by 20 percent, then __________ are said to exist. Select one: a. economies of scale b. constant returns to scale c. diseconomies of scale d. diminishing marginal returns

a. economies of scale

21-08. If a firm earns normal profit, then it has generated revenues Select one: a. equal to the sum of implicit and explicit costs. b. greater than total opportunity costs. c. sufficient to cover explicit costs, but not implicit costs. d. sufficient to cover implicit costs, but not explicit costs.

a. equal to the sum of implicit and explicit costs.

21-01. A cost that is incurred when an actual monetary payment is made is a(n) __________ cost. Select one: a. explicit b. implicit c. positive d. expressed

a. explicit

21-27. Economies of scale are said to exist when inputs are increased by some percentage and output increases by a(n) __________ percentage, causing unit costs to __________. Select one: a. greater; fall b. smaller; fall c. greater; rise d. smaller; rise e. equal; fall

a. greater; fall

21-52. As long as there are __________ costs, __________ profit will be greater than __________ profit. Select one: a. implicit; accounting; economic b. explicit; accounting; economic c. implicit; economic; accounting d. explicit; economic; accounting

a. implicit; accounting; economic

21-22. The average-marginal rule states that if the marginal magnitude is Select one: a. less than the average magnitude, the average magnitude falls. b. greater than the average magnitude, the average magnitude falls. c. rising, the average magnitude is necessarily above it. d. falling, the average magnitude is necessarily below it. e. c and d

a. less than the average magnitude, the average magnitude falls.

21-42. Refer to Exhibit 21-4. Curve A is a(n) __________ cost curve. Select one: a. marginal b. average variable c. average total d. average fixed

a. marginal

21-19. The change in output that results from changing a variable input by one unit, holding all other inputs fixed, is called the marginal __________ product of the variable input. Select one: a. physical b. value c. average d. explicit

a. physical

21-44. Refer to Exhibit 21-5. Economies of scale are present between Select one: a. points A and B. b. points A and C. c. points B and C. d. points B and D. e. points C and D.

a. points A and B.

21-23. If the average variable cost curve is falling, Select one: a. the MC curve must be below it. b. marginal cost is greater than average variable cost. c. the MC curve is necessarily falling. d. the MC curve is necessarily horizontal (neither rising nor falling). e. the MC curve is necessarily rising

a. the MC curve must be below it.

21-30. Refer to Exhibit 21-2. What is the average total cost of producing 120 units of output? Select one: a. $0.67 b. $1.83 c. $1.07 d. $12.50 e. There is not enough information provided to answer the question.

b. $1.83

21-13. At 100 units of output, total cost is $22,000 and total variable cost is $14,000. At 100 units of output, what is the value of average total cost, average variable cost, and average fixed cost, respectively? Select one: a. $22; $14; $8 b. $220; $140; $80 c. $740; $340; $400 d. $340; $740; $60 e. $400; $340: There is not enough information provided to determine the average fixed cost.

b. $220; $140; $80

21-50. If explicit costs equal $40,000, implicit costs equal $95,000, and accounting profit equals $23,000, it follows that total revenue equals __________ and economic profit equals __________. Select one: a. $75,000; $17,000 b. $63,000; -$72,000 c. $68,000; $25,000 d. $22,000; -$68,000 e. There is not enough information given to answer this question.

b. $63,000; -$72,000

21-10. Which of the following statements is true? Select one: a. The short run is always somewhere between six and twelve months. b. In the short run, changes in output can only be brought about by a change in the quantity of variable inputs. c. The long run is any period of time over one year. d. In the short run, there are variable costs but no fixed costs. e. b and d

b. In the short run, changes in output can only be brought about by a change in the quantity of variable inputs.

21-43. Refer to Exhibit 21-4. Curve C is a(n) __________ cost curve. Select one: a. marginal b. average variable c. average total d. average fixed

b. average variable

21-09. A fixed input is an input whose quantity Select one: a. can be changed as output changes in the short run. b. cannot be changed as output changes in the short run. c. cannot be changed as output changes in the long run. d. a and c e. b and c

b. cannot be changed as output changes in the short run.

21-35. If inputs are increased by 10 percent and output increases by 10 percent, then __________ are said to exist. Select one: a. economies of scale b. constant returns to scale c. diseconomies of scale d. diminishing marginal returns

b. constant returns to scale

21-17. A rising marginal cost curve is a reflection of a Select one: a. rising marginal physical product curve. b. falling marginal physical product curve. c. falling average fixed cost curve. d. rising average variable cost curve.

b. falling marginal physical product curve.

21-02. A cost of resources used in production for which no actual monetary payment is made is a(n) __________ cost. Select one: a. tacit b. implicit c. covert d. explicit

b. implicit

21-65. The __________ hand is the metaphor used to refer to market coordination, whereas the __________ hand is the metaphor used to refer to managerial coordination. Select one: a. visible; fast b. invisible; visible c. fast; lazy d. lazy; fast e. none of the above

b. invisible; visible

21-56. The long-run average total cost (LRATC) curve shows the Select one: a. lowest average variable cost at which the firm can produce any given level of output. b. lowest unit cost at which the firm can produce any given level of output. c. highest average fixed cost at which the firm can produce any given level of output. d. lowest marginal cost at which the firm can produce any given level of output. e. none of the above

b. lowest unit cost at which the firm can produce any given level of output.

21-63. The "visible hand" is a metaphor used to describe Select one: a. market coordination. b. managerial coordination. c. the separation of ownership from control. d. how price changes motivate individual coordination.

b. managerial coordination.

21-18. As the marginal physical product curve rises, Select one: a. the marginal cost curve rises. b. the marginal cost curve falls. c. the total cost curve rises. d. the total cost curve falls.

b. the marginal cost curve falls.

21-32. Refer to Exhibit 21-2. What is the average variable cost of producing 120 units of output? Select one: a. $0.67 b. $1.17 c. $1.00 d. $1.44 e. There is not enough information provided to answer the question

c. $1.00

21-59. Refer to Exhibit 21-13. What dollar amounts go in blanks (G) and (H)? Select one: a. $100; $30 b. $400; $50 c. $200; $30 d. $40; $20 e. There is not enough information to answer this question.

c. $200; $30

21-14. Which of these statements is false? Select one: a. There are no fixed costs in the long run. b. Total costs are equal to total fixed costs plus total variable costs. c. In the short run, all inputs are fixed inputs. d. A fixed cost is a cost that does not change as output changes.

c. In the short run, all inputs are fixed inputs.

21-04. Five months ago Wilson opened up a health club. Which of the following is an implicit cost related to the health club? Select one: a. Wilson paid $120 for an outside laundry service to clean the towels used at the club. b. Wilson paid $100 for the pest control exterminator to spray the health club. c. Wilson previously worked as an accountant, earning $3,000 a month. d. Wilson usually eats four hamburgers a day, priced at $3 each.

c. Wilson previously worked as an accountant, earning $3,000 a month.

21-40. The short run is Select one: a. a period of time in which all inputs are fixed. b. a period of time in which all inputs are variable. c. a period of time in which some inputs are fixed. d. always less than a year. e. a and d

c. a period of time in which some inputs are fixed.

21-12. Costs that do not change with output are called __________ costs. Select one: a. marginal b. average c. fixed d. variable

c. fixed

21-51. Accounting profit equals economic profit if __________ equals __________. Select one: a. explicit costs; implicit costs b. total revenue; marginal cost c. implicit costs; zero d. explicit costs; zero e. unit cost; marginal cost

c. implicit costs; zero

21-34. Refer to Situation 21-l. What will Diane's approximate average fixed costs be if she sells 36,500 donuts in one year? Select one: a. $0.30 b. $0.088 c. $0.138 d. $0.55

d. $0.55

21-47. Refer to Exhibit 21-7. The average total cost of producing 4 units of output is Select one: a. $11.25. b. $5.00. c. $3.50. d. $27.50. e. There is not enough information to answer this question.

d. $27.50.

21-49. Refer to Exhibit 21-7. The marginal cost of producing the seventh unit of output is Select one: a. $85.00. b. $12.14. c. $21.00. d. $5.00.

d. $5.00.

1-48. Refer to Exhibit 21-7. The average fixed cost of producing 5 units of output is Select one: a. $16.25. b. $4.00. c. $11.15. d. $6.00. e. There is not enough information to answer this question.

d. $6.00.

21-46. Refer to Exhibit 21-7. The total variable cost of producing 3 units is Select one: a. $31.00. b. $51.00. c. $17.00. d. $60.00. e. There is not enough information to answer this question.

d. $60.00.

21-58. Refer to Exhibit 21-13. What dollar amounts go in blanks (C) and (D)? Select one: a. $100; $50 b. $25; $68 c. $200; $200 d. $66.67; $50 e. There is not enough information to answer this question.

d. $66.67; $50

21-07. Consider the following information about a business Diane opened last year: price = $10, quantity sold = 25,000; implicit cost = $55,000; explicit cost = $160,000. What was Diane's accounting profit? Select one: a. $35,000 b. $195,000 c. -$35,000 d. $90,000 e. There is not enough information provided to answer this question

d. $90,000

21-61. Refer to Exhibit 21-13. What dollar amounts go in blanks (P) and (Q)? Select one: a. $120; $125 b. $10; 95 c. $30; $80 d. $93.33; $82.50 e. There is not enough information to answer this question.

d. $93.33; $82.50

21-39. If the "minimum efficient scale" in an industry is at 25 percent of market sales, what is the maximum number of efficient firms the economy can support in this industry? Select one: a. 75 b. 25 c. 10 d. 4

d. 4

21-03. Which of the following statements is true? Select one: a. Costs are always explicit, never implicit. b. Costs are always implicit, never explicit. c. George runs a stationery shop; he paid Frank $5,000 for the carpet he installed in the shop. The $5,000 for carpet is an implicit cost. d. An implicit cost is a cost that represents the value of resources used in production for which no actual monetary payment is made. e. none of the above

d. An implicit cost is a cost that represents the value of resources used in production for which no actual monetary payment is made.

21-26. The marginal cost curve passes through the __________ curve at its lowest point. Select one: a. average variable cost b. average total cost c. average fixed cost d. a and b e. a, b, and c

d. a and b

21-55. Unit cost refers to Select one: a. average variable cost. b. average fixed cost. c. marginal cost. d. average total cost. e. c or d

d. average total cost.

21-16. "As additional units of a variable input are added to a fixed input, eventually the marginal physical product of the variable input will decline." This is a statement of the Select one: a. law of supply. b. average-marginal rule. c. law of diminishing marginal utility. d. law of diminishing marginal returns.

d. law of diminishing marginal returns.

21-38. Minimum efficient scale refers to the Select one: a. smallest plant size a firm can utilize and still maintain production. b. lowest point on a given SRATC curve. c. output level at which the LRATC curve touches each SRATC curve. d. lowest output level at which average total costs are minimized.

d. lowest output level at which average total costs are minimized.

21-15. The change in total cost that results from a change in output is __________ cost. Select one: a. average fixed b. average variable c. average total d. marginal

d. marginal

21-28. Diseconomies of scale are said to exist when inputs are increased by some percentage and output increases by a(n) __________ percentage, causing unit costs to __________. Select one: a. greater; fall b. smaller; fall c. greater; rise d. smaller; rise e. equal; fall

d. smaller; rise

21-05. Economic profit is the difference between total revenue and Select one: a. explicit costs. b. implicit costs. c. sunk costs. d. the sum of explicit and implicit costs.

d. the sum of explicit and implicit costs.

21-64. Economists Alchian and Demsetz suggest that firms are formed when Select one: a. the sum of what individuals can produce alone is greater than what they can produce as a team. b. someone wants to earn profits. c. someone comes up with the idea that customers will buy a new product. d. the sum of what individuals can produce as a team is greater than the sum of what they can produce alone.

d. the sum of what individuals can produce as a team is greater than the sum of what they can produce alone.

21-21. If labor is the variable input, then marginal cost equals Select one: a. MPP divided by the wage rate. b. average variable (labor) costs divided by MPP. c. average variable (labor) costs multiplied by MPP. d. the wage rate divided by MPP. e. the wage rate multiplied by MPP.

d. the wage rate divided by MPP.

21-29. Refer to Exhibit 21-2. The dollar amounts that go in blanks (C) and (D) are, respectively, Select one: a. $10.00 and $1.00. b. $30.00 and $34.00. c. $3.00 and $4.00. d. $6.67 and $10.00. e. $1.00 and $1.50.

e. $1.00 and $1.50.

21-11. Average fixed cost Select one: a. is greater at lower levels of output than at higher levels. b. does not change as output changes. c. exists only in the short run. d. is usually greater at higher levels of output than at lower levels of output. e. a and c

e. a and c

21-37. Average variable cost equals Select one: a. average total cost minus average fixed cost. b. total variable cost divided by the change in output. c. total variable cost divided by output. d. price of the variable input times the quantity of the variable input. e. a and c

e. a and c

21-57. If the government places a $2 tax on each unit of good X that is produced by Firm A, it follows that the tax will not affect __________ cost, but will affect __________ cost. Select one: a. variable; fixed b. fixed; variable c. average fixed; average variable d. marginal; fixed e. b and c

e. b and c

21-25. Which of the following statements is true? Select one: a. In the short run, there are no fixed costs, only variable costs. b. In the short run, there are fixed and variable costs, but in the long run there are only fixed costs. c. In the short run, there are fixed and variable costs, but fixed costs are the only costs a firm is concerned with. d. In the long run, there are no costs, fixed or variable. e. none of the above

e. none of the above

21-45. Refer to Exhibit 21-5. Diseconomies of scale are present between Select one: a. points A and B. b. points A and C. c. points B and C. d. points B and D. e. points C and D.

e. points C and D.

21-41. The law of diminishing marginal returns Select one: a. is a short run concept. b. is a long run concept. c. is both a short run and a long run concept. d. does not hold in the real world.

s a short run concept.