question
explicit costs
answer
the opportunity costs of production that require a monetary payment
input costs for labor, raw materials, transportation, utilities, etc
input costs for labor, raw materials, transportation, utilities, etc
question
implicit costs
answer
the opportunity costs of production that do not require a monetary payment
where economists and accountants cost diverge; accountants do not have implicit costs
where economists and accountants cost diverge; accountants do not have implicit costs
question
profits
answer
the difference between total revenues and total costs
question
accounting profits
answer
total revenues minus total explicit costs
question
economic profits
answer
total revenues minus explicit and implicit costs
a zero economic profit is a normal profit
a zero economic profit is a normal profit
question
sunk costs
answer
costs that have been incurred and cannot be recovered
question
an explicit cost
a. is an opportunity cost
b. is an out-of pocket expense
c. does not require an outlay of money
d. is characterized by both a and b
e. is characterized by both a and c
a. is an opportunity cost
b. is an out-of pocket expense
c. does not require an outlay of money
d. is characterized by both a and b
e. is characterized by both a and c
answer
d. a and b
question
which of the following is false?
a. explicit costs are input costs that require a monetary payment
b. implicit costs do not represent an explicit outlay of money
c. both implicit and explicit costs are opportunity costs
d. sunk costs are irrelevant for any future action
e. all of the above are true
a. explicit costs are input costs that require a monetary payment
b. implicit costs do not represent an explicit outlay of money
c. both implicit and explicit costs are opportunity costs
d. sunk costs are irrelevant for any future action
e. all of the above are true
answer
e. all of the above are true
question
which of the following is false?
a. profits are a firm's total revenue minus its total costs
b. accounting profits are actual revenues minute actual expenditures of money
c. economic profits are actual revenues minus all explicit and implicit costs
d. if a firm has any implicit costs, its economic profits exceed its accounting profits
a. profits are a firm's total revenue minus its total costs
b. accounting profits are actual revenues minute actual expenditures of money
c. economic profits are actual revenues minus all explicit and implicit costs
d. if a firm has any implicit costs, its economic profits exceed its accounting profits
answer
d. if a firm has any implicit costs, its economic profits exceed its accounting profits
question
the crucial difference between how economists and accountants analyze the profitability of a business has to do with whether or not ____ are included when calculating total production costs.
a. implicit costs
b. cash payments
c. sunk costs
d. explicit costs
a. implicit costs
b. cash payments
c. sunk costs
d. explicit costs
answer
a. implicit costs
question
which of the following is true?
a. if a firm's implicit costs are zero, accounting profits equal economic profits
b. if a firm's implicit costs are positive, accounting profits exceed economic profits
c. if a firm's implicit costs are positive, economic profits exceed accounting profits
d. both a and b
e. both a and c
a. if a firm's implicit costs are zero, accounting profits equal economic profits
b. if a firm's implicit costs are positive, accounting profits exceed economic profits
c. if a firm's implicit costs are positive, economic profits exceed accounting profits
d. both a and b
e. both a and c
answer
d. both a and b
question
sunk costs
a. should be included when weighing the marginal costs of production against the marginal benefits received
b. have already been incurred and cannot be recovered
c. plus variable costs equal the total costs of production
d. are relevant to future decisions and should be carefully observed
a. should be included when weighing the marginal costs of production against the marginal benefits received
b. have already been incurred and cannot be recovered
c. plus variable costs equal the total costs of production
d. are relevant to future decisions and should be carefully observed
answer
b. have already been incurred and cannot be recovered
question
short run
answer
period too brief for some production inputs to be varied
question
long run
answer
period over which all production inputs are variable
question
production function
answer
relationship between quantity of inputs and quantity of outputs
question
total product (TP)
answer
total output of a good produced
question
marginal product (MP)
answer
change in total output of good that results from one-unit change in input
question
diminishing marginal product
answer
as variable input increases, with other inputs fixed, a point will be reached where the additions to output will decline
question
the short run
a. is too brief for any inputs to be varied
b. involves no fixed costs
c. is normally a period of one year
d. non of the above
a. is too brief for any inputs to be varied
b. involves no fixed costs
c. is normally a period of one year
d. non of the above
answer
d. none of the above
question
the long run
a. is a period in which a firm can adjust all its inputs
b. can vary in length form industry to industry
c. is a period in which all costs are variable costs
d. is characterized by all of the above
a. is a period in which a firm can adjust all its inputs
b. can vary in length form industry to industry
c. is a period in which all costs are variable costs
d. is characterized by all of the above
answer
d. all the above
question
which of the following most accurately describes the long-run period?
a. the long run is a period of time in which a firm is unable to vary some of its factors of production
b. in long run, a firm can expand output by utilizing additional workers and raw materials, but not physical capital
c. long run is of sufficient length to allow a firm to alter its plant capacity and all other factors of production
d. long run is of sufficient length to allow a firm to transform economic losses into economic profits
e. both a and b most accurately describe the long run
a. the long run is a period of time in which a firm is unable to vary some of its factors of production
b. in long run, a firm can expand output by utilizing additional workers and raw materials, but not physical capital
c. long run is of sufficient length to allow a firm to alter its plant capacity and all other factors of production
d. long run is of sufficient length to allow a firm to transform economic losses into economic profits
e. both a and b most accurately describe the long run
answer
c. long run is of sufficient length to allow a firm to alter its plant capacity and all other factors of production
question
production in the short run
a. is subject to the law of diminishing marginal product
b. involves some fixed factors
c. can be increased by employing another unit of a variable input, as long as the marginal product of that input is positive
d. all of the above
e. none of the above
a. is subject to the law of diminishing marginal product
b. involves some fixed factors
c. can be increased by employing another unit of a variable input, as long as the marginal product of that input is positive
d. all of the above
e. none of the above
answer
d. all of the above
question
a production function shows the relationship between
a. variable inputs and fixed inputs
b. variable inputs and output
c. costs and output
d. inputs and costs
e. production and sales revenue
a. variable inputs and fixed inputs
b. variable inputs and output
c. costs and output
d. inputs and costs
e. production and sales revenue
answer
b. variable inputs and output
question
diminishing marginal productivity in a company means that
a. hiring additional workers causes total output to fall
b. hiring additional workers does not change the total output
c. hiring additional workers adds fewer and fewer to the total output
d. average total cost of production must be decreasing
a. hiring additional workers causes total output to fall
b. hiring additional workers does not change the total output
c. hiring additional workers adds fewer and fewer to the total output
d. average total cost of production must be decreasing
answer
c. hiring additional workers adds fewer and fewer to the total output
question
fixed cost
answer
costs that do not vary with output level
question
total fixed cost
answer
sum of firm's fixed costs
question
variable costs
answer
costs that vary with the level of output
question
total variable costs
answer
sum of the firm's variable costs
question
total cost
answer
sum of TFC and TVC
question
average total cost
answer
per unit cost of operation; total cost divided by output
question
average fixed cost
answer
fixed costs over output
question
average variable cost
answer
variable costs over output
question
marginal cost
answer
change in total costs from a one-unit output change
refer to pg 297 for diagram of cost calculations
refer to pg 297 for diagram of cost calculations
question
total fixed costs
a. do not vary with level of output
b. cannot be avoided in the short run without going out of business
c. do not exist in the long run
d. are characterized by all of the above
a. do not vary with level of output
b. cannot be avoided in the short run without going out of business
c. do not exist in the long run
d. are characterized by all of the above
answer
d. all the above
question
which of the following is most likely a variable cost for a business?
a. the loan payment on funds borrowed when a new building is constructed
b. payments for electricity
c. lease payment on a warehouse used by a business
d. contracted shipments of materials
a. the loan payment on funds borrowed when a new building is constructed
b. payments for electricity
c. lease payment on a warehouse used by a business
d. contracted shipments of materials
answer
b. payments for electricity
question
the change in total cost that results from the production of one additional unit of output is called
a. marginal revenue
b. average variable cost
c. marginal cost
d. average total cost
e. average fixed cost
a. marginal revenue
b. average variable cost
c. marginal cost
d. average total cost
e. average fixed cost
answer
c. marginal cost
question
which short run curve typically declines continuously as output expands?
a. average variable cost
b. average total cost
c. average fixed cost
d. marginal cost
e. none of the above
a. average variable cost
b. average total cost
c. average fixed cost
d. marginal cost
e. none of the above
answer
c. average fixed cost
question
which of the following is true?
a. the short run ATC exceeds the short run AVC at any given level of output
b. if the short run ATC curve is rising, the short run AVC curve is also rising
c. the short run AFC is always falling with increased output, whether the short run MC curve is greater or less than short run AFC
d. if short run MC is less than short run AVC, short run AVC is falling
e. all of the above
a. the short run ATC exceeds the short run AVC at any given level of output
b. if the short run ATC curve is rising, the short run AVC curve is also rising
c. the short run AFC is always falling with increased output, whether the short run MC curve is greater or less than short run AFC
d. if short run MC is less than short run AVC, short run AVC is falling
e. all of the above
answer
e. all of the above
question
which of the following is true in the short run?
a. MC equals ATC at the lowest point of ATC
b. MC equals AVC at the lowest point of AVC
c. when AVC is at its minimum point, ATC is falling
d. when ATC is at its minimum point, AVC is rising
e. all of the above
a. MC equals ATC at the lowest point of ATC
b. MC equals AVC at the lowest point of AVC
c. when AVC is at its minimum point, ATC is falling
d. when ATC is at its minimum point, AVC is rising
e. all of the above
answer
e. all of the above
question
which of the following is always true?
a. when marginal cost is less than average total cost, average total cost is increasing
b. when average fixed cost is falling, marginal cost must be less than average fixed cost
c. when average variable cost is falling, marginal cost must be greater than average variable cost
d. when marginal cost is greater than average total cost, average total cost is increasing
a. when marginal cost is less than average total cost, average total cost is increasing
b. when average fixed cost is falling, marginal cost must be less than average fixed cost
c. when average variable cost is falling, marginal cost must be greater than average variable cost
d. when marginal cost is greater than average total cost, average total cost is increasing
answer
d. when marginal cost is greater than average total cost, average total cost is increasing
question
when marginal product is increasing,
a. marginal cost is increasing
b. marginal cost is decreasing
c. average variable cost is increasing
d. average total cost is increasing
e. total cost is decreasing
a. marginal cost is increasing
b. marginal cost is decreasing
c. average variable cost is increasing
d. average total cost is increasing
e. total cost is decreasing
answer
b. marginal cost is decreasing
question
if a taxi service is operating in the region of diminishing marginal product and more taxi service is added in the short run, what will happen to the marginal cost of providing additional service?
a. impossible to say
b. marginal cost will decrease
c. marginal cost will increase
d. marginal cost will stay the same
a. impossible to say
b. marginal cost will decrease
c. marginal cost will increase
d. marginal cost will stay the same
answer
c. marginal cost will increase
question
economies of scale
answer
occur in an output range where LRATC (long run avg total cost) falls as output increases
can be caused by: larger scale of working, more specialized labor, large initial setup costs like with oligopolies, larger firms can purchase inputs at lower costs than smaller firms
can be caused by: larger scale of working, more specialized labor, large initial setup costs like with oligopolies, larger firms can purchase inputs at lower costs than smaller firms
question
diseconomies of scale
answer
occur in an output range where LRATC rises as output expands
occur when there is an increase in firm's long run average costs as output expands; difficulties with large production
occur when there is an increase in firm's long run average costs as output expands; difficulties with large production
question
constant returns to scale
answer
occur in an output range where LRATC does not change as output varies
question
minimum efficient scale
answer
the output level where economies of scale are exhausted and constant returns to scale begin
question
if a firm's ATC is falling in the long run, then
a. it is subject to economies of scale over that output
b. it is subject to diseconomies of scale
c. it is subject to constant return to scale
d. it has reached the minimum efficient scale of production
e. both c and d
a. it is subject to economies of scale over that output
b. it is subject to diseconomies of scale
c. it is subject to constant return to scale
d. it has reached the minimum efficient scale of production
e. both c and d
answer
a. it is subject to economies of scale over that output
question
when a firm experiences economies of scale in production,
a. long run average total cost declines as output expands
b. long run average total cost increases as output expands
c. marginal cost increases as output expands
d. the marginal product of an input diminishes with increased utilization
a. long run average total cost declines as output expands
b. long run average total cost increases as output expands
c. marginal cost increases as output expands
d. the marginal product of an input diminishes with increased utilization
answer
a. long run average total cost declines as output expands
question
in the long run,
a. the average fixed cost curve is U-shaped
b. average fixed cost exceeds the average variable cost of production
c. all costs are variable
d. all costs are fixed
e. none of the above
a. the average fixed cost curve is U-shaped
b. average fixed cost exceeds the average variable cost of production
c. all costs are variable
d. all costs are fixed
e. none of the above
answer
c. all costs are variable
question
the lowest level of output at which a firm's goods are produced at minimum long run average total cost is called
a. the point of zero marginal cost
b. the point of diminishing returns
c. the minimum total product
d. the minimum efficient scale
e. plant capacity
a. the point of zero marginal cost
b. the point of diminishing returns
c. the minimum total product
d. the minimum efficient scale
e. plant capacity
answer
d. the minimum efficient scale
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