Micro Economics Exam 3 - Assignment Essays

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Refer to the data. The value for X is:

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The data illustrate the:

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law of diminishing marginal utility

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Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4 respectively and that the consumer's income is $18.

Refer to the data. How many units of the two products will the rational consumer purchase?

answer

2 of L and 3 of M

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Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson:

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should buy less B and more A.

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The marginal rate of substitution:

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declines as one moves southeast along an indifference curve.

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Which of the following statements is not correct?

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A reduction in money income will shift the budget line to the right.

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A product has utility if it:

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satisfies consumer wants.

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Refer to the diagram in which the downs loping lines are budget lines and I1, I2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 3, and 5 are such that:

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3 implies a higher level of utility than does 1 or 5.

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Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and Pd. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially:

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MUc/Pc > MUd/Pd

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If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium:

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are $105 and $140 respectively.

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The movement of the budget line from BB to bb in the figure suggests that income has:

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fallen and the price of Y has increased.

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Which of the following is correct?

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If marginal utility is diminishing and is a positive amount, total utility will increase.

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Refer to the data. The value for Y is:

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Refer to the budget line shown in the diagram. The absolute value of the slope of the budget line is:

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PC / PD.

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Refer to data. Marginal utility becomes negative beginning with the:

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fourth unit

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Where total utility is at a maximum, marginal utility is:

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zero

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Refer to the budget line shown in the diagram. Given the same money income, reductions in the prices of both products C and D will:

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shift the budget line to the right.

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Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2 respectively and that the consumer's income is $18.

Refer to the data. What quantities of X and Y should be purchased to maximize utility?

answer

2 of X and 5 of Y

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Marginal utility is the:

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change in total utility obtained by consuming one more unit of a good.

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If the price of A is $12 and the price of B is $3, the budget line tells us that a consumer in effect can trade:

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1 unit of A for 4 of B.

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A consumer is maximizing her utility with a particular money income when:

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MUa/Pa = MUb/Pb = MUc/Pc = . . . = MUn/Pn.

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Assume initially that the price of X (measured on the horizontal axis) is $9 and the price of Y (measured on the vertical axis) is $4. If the price of X now declines to $6, the budget line will:

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shift outward on the horizontal axis.

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The marginal rate of substitution measures the:

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consumer's willingness to substitute one product for another so that total utility will remain constant.

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An indifference map implies that:

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curves farther from the origin yield higher levels of total utility.

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Refer to the diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. If the consumer is initially at point L, he or she should:

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purchase more of Y and less of X.

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Refer to the diagram. Suppose the budget line shifts so that the consumer's equilibrium changes from point A to point B. This means that the:

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price of Y has decreased.

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Refer to the diagram. Total utility is at a maximum at _____ units of X.

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Refer to the budget line shown in the diagram. If the consumer's money income is $20, the:

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price of C is $4 and the price of D is $2.

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Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy:

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more of X and less of Y.

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Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line is:

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1/5

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The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:

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8 units of utility.

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Refer to the diagram. Total utility:

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increases at a diminishing rate, reaches a maximum, and then declines.

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What do the income effect, the substitution effect, and diminishing marginal utility have in common?

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They all help explain the downsloping demand curve.

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Refer to the diagram in which the downsloping lines are budget lines and I1, I2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 2, and 5 are such that:

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points 1, 2, and 5 yield equal amounts of utility.

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Any combination of goods lying outside of the budget line:

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is unattainable, given the consumer's income.

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Refer to the data. The value for W is:

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If a rational consumer is in equilibrium, which of the following conditions will hold true?

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The marginal utility of the last dollar spent on each good purchased will be the same.

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Refer to the diagram. Marginal utility:

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becomes negative after consuming 4 units of output.

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Refer to the diagram where XY is the relevant budget line and I1, I2, and I3 are indifference curves. The equilibrium position for the consumer is at:

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point K

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Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that:

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Mrs. Arnold should spend more on soda and less on pretzels.

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If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium:
Group of answer choices

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are $105 and $140 respectively.

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Refer to the diagram. If the budget line shifts from ab to ac, the:

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consumer will purchase more of J and less of K.

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An indifference curve shows all:

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combinations of two products yielding the same total utility to a consumer.

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Which of the following is correct?

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Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin.

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Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2 respectively and that the consumer's income is $18.

Refer to the data. If the price of X decreases to $2, then the utility-maximizing combination of the two products is:

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4 of X and 5 of Y.

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A change in the slope of a budget line is solely the result of a change in:

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the price of one good relative to the other.

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Suppose you have money income of $10, all of which you spend on Coke and popcorn. In the diagram, the prices of Coke and popcorn respectively are:

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$.50 and $1.00.

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Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2 respectively and that the consumer's income is $18.

Refer to the data. What level of total utility will the utility-maximizing consumer realize?

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96 utils.

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Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth:

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has a higher "marginal utility-to-price ratio" for the hockey game than for the play.

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Unlike newspaper dispensing devices, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. The reason is that the:

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marginal utility of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later.

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Assume a diagram in which a budget line is imposed on an indifference map. A consumer will maximize her utility:

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where the budget line is tangent to an indifference curve.

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The theory of consumer behavior assumes that consumers attempt to maximize:

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total utility

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Refer to the diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. The equilibrium position for the consumer is at:

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point K

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Refer to the diagram in which the downsloping lines are budget lines and I1, I2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 3, and 5 are such that:

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3 implies a higher level of utility than does 1 or 5.

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Total utility may be determined by:

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summing the marginal utilities of each unit consumed.

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Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?

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Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero.

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Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4 respectively and that the consumer's income is $18.

Refer to the data. What level of total utility does the rational consumer realize in equilibrium?

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51 units

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Diminishing marginal utility explains why:

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demand curves are downsloping.

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A budget line shows the:

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alternative combinations of two goods that a consumer can purchase with a given money income.

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Refer to the diagram. The total utility yielded by 4 units of X is:

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Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K.
Refer to the data. If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing:

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4 units of J and 5 units of K.

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Marginal utility can be:

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positive, negative, or zero

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The shift of the budget line from cd to ab in the figure is consistent with:

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a decrease in money income

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The law of diminishing marginal utility states that:

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beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

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To maximize utility, a consumer should allocate money income so that the:

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marginal utility obtained from the last dollar spent on each product is the same.

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The movement of the budget line from BB to bb in the figure suggests that income has

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fallen and the price of Y has increased

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Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K.

Refer to the data. If the consumer's money income were cut from $52 to $28, and the prices of J and K remain at $8 and $4 respectively, she would maximize her satisfaction by purchasing:

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2 units of J and 3 units of K

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The theory of consumer behavior assumes that:

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consumers behave rationally, attempting to maximize their satisfaction.

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Increases in product prices shift the consumer's:

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budget line to the left

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At each point on an indifference curve:

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total utility is the same

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The fact that most medical care purchases are financed through insurance:

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increases the amount of health care consumed by reducing the price of additional units of care.

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The law of diminishing marginal utility explains why:

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demand curves slope downward

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The utility of a good or service:

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is the satisfaction or pleasure one gets from consuming it.

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A consumer who has a limited budget will maximize utility or satisfaction when the:

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ratios of the marginal utility of each product purchased divided by its price are equal

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Refer to the diagram. The marginal utility of the third unit of X is:

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An increase in the price of product A will:

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decrease the marginal utility per dollar spent on A

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The slope of a budget line reflects the:

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price ration of the two products.

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Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is:

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negative

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The budget line shows:

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all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

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Utility refers to the:

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satisfaction that a consumer derives from a good or service

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The ability of a good or service to satisfy wants is called:

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utility

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Newspaper dispensing devices seemingly "trust" people to take only a single paper, but the devices actually rely on the law of:

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diminishing marginal utility

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If money income increases and the prices of products A and B both increase, then the budget line:
Group of answer choices

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may shift either to the right or the left, or not at all

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The marginal utility of the last unit of apples consumed is 12 and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

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$6 and $4

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Refer to the diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. At point K:

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MRS=PxIPy

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If the budget line shifts from BB to bb in the diagram, we can infer that the:

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price of Y has increased and the price of X has decreased

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In moving along a given budget line:

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the prices of both products and money income are assumed to be constant

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Refer to the diagram. If the budget line shifts from ab to ac, the:

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price of K has increased

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A consumer's demand curve for a product is downsloping because:

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marginal utility diminishes as more of a product is consumed

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In the diagram:

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the consumer is indifferent between points A and B, but neither point maximizes his utility

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An indifference curve:

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is downsloping and convex to the origin

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The budget line shift from ab to cd in the figure is consistent with:

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an increase in the price of M and a decrease in the price of N

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In introducing the opportunity cost of time into the theory of consumer behavior, we find that, all else equal:

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one should consume less of time-intensive goods

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Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that:

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their marginal utilities are the same

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If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then:

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it is encountering economies of scale.

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Which of the following is a short-run adjustment?

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A local bakery hires two additional bakers.

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If you operated a small bakery, which of the following would be a variable cost in the short run?

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Baking supplies (flour, salt, etc.).

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Refer to the diagram. At output level Q total variable cost is:

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0BEQ

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Which of the following is not correct?

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Where total product is at a maximum, average product is also at a maximum.

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The diagram shows the short-run average total cost curves for five different plant sizes of a firm. If in the long run the firm should produce output x, as shown in the graph, it should do it with a plant of size:

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In the short run:

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VC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.

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The amount of calendar time associated with the long run:

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varies from industry to industry.

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For most producing firms:

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average total costs decline as output is carried to a certain level, and then begin to rise.

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As output increases, total variable cost:

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increases at a decreasing rate and then at an increasing rate.

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The Sunshine Corporation finds that its costs are $40 when it produces no output. Its total variable costs (VC) change with output as shown in the accompanying table. Use this information to answer the following question.

Refer to the information. The average total cost of 3 units of output is:

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$35

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Answer the question on the basis of the following cost data:

Refer to the data. The average total cost of producing 3 units of output is:

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$16

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Other things equal, if the prices of a firm's variable inputs were to fall:

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marginal cost, average variable cost, and average total cost would all fall.

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In the diagram it is assumed that:

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all costs are variable.

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Answer the question on the basis of the following cost data:

Refer to the data. The average total cost of five units of output

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$78

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Refer to the diagram. This firm's average fixed costs are:

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the vertical distance between AVC and ATC.

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Answer the question on the basis of the following information:

FC = Total Fixed Cost
Q = Quantity of Output
MC = Marginal Cost
P = Product Price
VC = Total Variable Cost

Refer to the information. Average total cost is:

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(FC + VC) / Q

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To economists, the main difference between the short run and the long run is that:

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in the long run all resources are variable, while in the short run at least one resource is fixed.

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If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that:

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economies of scale are being realized.

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Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

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Use of savings to pay operating expenses instead of generating interest income.

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Marginal product is:

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the increase in total output attributable to the employment of one more worker.

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Refer to the short-run production and cost data. The curves of Figures A and B suggest that:

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marginal cost reaches a minimum where marginal product is at its maximum.

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Which of the following is most likely to be an implicit cost for Company X?

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Forgone rent from the building owned and used by Company X.

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Refer to the diagram. Diseconomies of scale:

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begin at output Q3.

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The short run is characterized by:

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fixed plant capacity.

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The diagram shows the short-run average total cost curves for five different plant sizes of a firm. The position of these five curves in relation to one another reflects:

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economies and diseconomies of scale.

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Refer to the diagram. At output level Q average fixed cost:

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is measured by both QF and ED.

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Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10:

Refer to the data. The total cost of producing 4 units of output is:

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$124

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Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10:

Refer to the data. The average variable cost of 4 units of output is:

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$28.50.

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If a technological advance reduces the amount of variable resources needed to produce any level of output, then the:

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MC curve will shift downward.

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Refer to the short-run production and cost data. In Figure B curve (3) is:

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MC and curve (4) is AVC.

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The following is cost information for the Creamy Crisp Donut Company:

Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000

Refer to the data. Creamy Crisp:

answer

is earning an economic profit.

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If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that:

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both relatively small and relatively large firms can be viable in the industry.

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Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's:

answer

total cost is $270.

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answer

$13.33.

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If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then:

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it is encountering constant returns to scale.

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Average fixed cost:

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declines continually as output increases.

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Refer to the diagram. Constant returns to scale:

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occur over the Q1 to Q3 range of output.

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Answer the question on the basis of the following cost data:

Refer to the data. The total cost of four units of output is:

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$310.

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Answer the question on the basis of the following information:

Refer to the data. The marginal product of the fourth worker:

answer

is 5.

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As the firm in the diagram expands from plant size #1 to plant size #3, it experiences:

answer

economies of scale.

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Answer the question on the basis of the following cost data:

Refer to the data. The average fixed cost of producing 3 units of output is:

answer

$8.

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Refer to the graph. Which one of the following would cause a move from point b on short-run average total cost curve ATC1 to point e on short-run average cost curve ATC2?

answer

An increase in the wage rate.

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Economies of scale are indicated by:

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the declining segment of the long-run average total cost curve.

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If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes:

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the law of diminishing returns.

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Which of the following holds true?

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When AP is rising AVC is falling, and when AP is falling AVC is rising.

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Average fixed costs for a given level of output can be determined graphically by:

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the vertical distance between ATC and AVC.

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Marginal product:

answer

may initially increase, then diminish, and ultimately become negative.

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Use the following data to answer the question:

Refer to the data. Diminishing returns begin to occur with the hiring of the _________ unit of labor.

answer

third

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Refer to the short-run production and cost data. In Figure A curve (1) is:

answer

average product and curve (2) is marginal product.

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In the diagram, total product will be at a maximum at:

answer

Q3 units of labor.

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Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed.

Refer to the data. The marginal product of the sixth worker is:

answer

15 units of output.

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The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the data. Creamy Crisp's accounting profit is:

answer

$230,000.

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Use the following data to answer the question:

Refer to the data. The average product (AP) when two units of labor are hired is:

answer

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Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that:

answer

a 10 percent increase in all inputs will increase output by more than 10 percent.

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When a firm does more of something, it gets better at it. This learning-by-doing is:

answer

a source of economies of scale.

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The law of diminishing returns results in:

answer

a total product curve that eventually increases at a decreasing rate.

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Answer the question on the basis of the following information:
FC = Total Fixed Cost
Q = Quantity of Output
MC = Marginal Cost
P = Product Price
VC = Total Variable Cost

Refer to the information. Average total cost is:

answer

(FC + VC) / Q

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In the diagram, curves 1, 2, and 3 represent the:

answer

marginal, average, and total product curves respectively.

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If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then:

answer

the average variable cost of 9 units is $10.

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Accounting profits are typically:

answer

greater than economic profits because the former do not take implicit costs into account.

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Answer the question on the basis of the following information:

Refer to the data. When two workers are employed:

answer

total product is 18.

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Answer the question on the basis of the following cost data:

Refer to the data. The marginal cost of the fifth unit of output is:

answer

$80.

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What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

answer

All are opportunity costs.

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Production costs to an economist:

answer

reflect opportunity costs.

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answer

$136,000

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Refer to the diagram. For output level Q, per unit costs of B are:

answer

attainable and imply least-cost production of this level of output.

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The law of diminishing returns describes the:

answer

relationship between resource inputs and product outputs in the short run.

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Fixed cost is:

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any cost that does not change when the firm changes its output.

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The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Refer to the data. Creamy Crisp's explicit costs are:

answer

$150,000

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Which of the following best expresses the law of diminishing returns?

answer

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

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An explicit cost is:

answer

a money payment made for resources not owned by the firm itself.

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As the firm in the diagram expands from plant size #3 to plant size #5, it experiences:

answer

diseconomies of scale.

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The minimum efficient scale of a firm:

answer

is the smallest level of output at which long-run average total cost is minimized.

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Answer the question on the basis of the following cost data:

Refer to the data. The marginal cost curve would intersect the average variable cost curve at about:

answer

4 units of output.

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Normal profit is:

answer

the return to the entrepreneur when economic profits are zero.

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The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by only 8 percent. This means that initially it was producing:

answer

in the range of diseconomies of scale.

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Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. Marginal cost will be at a minimum for this firm when it is hiring:

answer

Q1 workers.

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In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs:

answer

are $1,250.

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The short-run average total cost curve is U-shaped because:

answer

of increasing and diminishing returns.

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In the short run, which of the following statements is correct?

answer

Total cost will exceed variable cost.

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Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10:

Refer to the data. The marginal cost of the fourth unit of output is:

answer

$37.

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The diagram suggests that:

answer

when marginal product lies above average product, average product is rising.

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Which of the following is most likely to be a variable cost?

answer

Fuel and power payments.

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Refer to the diagram. If labor is the only variable input, the marginal product of labor is at a:

answer

maximum at point a.

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Answer the question on the basis of the following cost data:

Refer to the data. If the firm closed down in the short run and produced zero units of output, its total cost would be:

answer

$50

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Assume a firm closes down in the short run and produces no output. Under these conditions:

answer

FC and TC are positive, but VC is zero.

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Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

answer

Average fixed costs and average total costs would rise.

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Refer to the diagram. The vertical distance between ATC and AVC reflects:

answer

the average fixed cost at each level of output.

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In the long run:

answer

all costs are variable costs.

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In the diagram, curves 1, 2, and 3 represent:

answer

total fixed cost, total variable cost, and total cost respectively.

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Accounting profits equal total revenue minus:

answer

total explicit costs.

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When total product is increasing at a decreasing rate, marginal product is:

answer

positive and decreasing.

question

Answer the question on the basis of the following information:
FC = Total Fixed Cost
Q = Quantity of Output
MC = Marginal Cost
P = Product Price
VC = Total Variable Cost

Refer to the information. Average fixed cost is:

answer

FC / Q

question

Refer to the diagram. The per unit costs at output level Q that are both attainable and imply the least-cost production for this level of output:

answer

are B.

question

When total product is increasing at an increasing rate, marginal product is:

answer

positive and increasing.

question

The long run is characterized by:

answer

the ability of the firm to change its plant size.

question

Which of the following is correct as it relates to cost curves?

answer

Marginal cost intersects average total cost at the latter's minimum point.

question

Answer the question on the basis of the following cost data:

Refer to the data. The marginal cost of producing the sixth unit of output is:

answer

question

Refer to the diagram. If labor is the only variable input, the average product of labor is at a:

answer

maximum at point b.

question

If marginal cost is:

answer

rising, then average total cost could be either falling or rising.

question

Which of the following definitions is correct?

answer

Economic profit = accounting profit - implicit costs.

question

The total output of a firm will be at a maximum where:

answer

MP is zero.

question

In the figure, curves 1, 2, 3, and 4 represent the:

answer

MC, ATC, AVC, and AFC curves respectively.

question

If in the short run a firm's total product is increasing, then its:

answer

marginal product could be either increasing or decreasing.

question

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:

answer

$200,000 and its economic profits were zero.

question

Refer to the diagram. Minimum efficient scale:

answer

is achieved at Q1

question

Refer to the diagram. Economies of scale:

answer

develop over the 0 to Q1 range of output.

question

Fixed costs are associated with:

answer

the short run only.

question

In the diagram, the range of diminishing marginal returns is:

answer

Q1 to Q3.

question

If you owned a small farm, which of the following would most likely be a fixed cost?

answer

Hail insurance.

question

Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?

answer

AP continues to rise so long as TP is rising.

question

The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Refer to the data. If, other things equal, Creamy Crisp's revenue fell to $286,000:

answer

it would earn a normal profit but not an economic profit.

question

The basic difference between the short run and the long run is that:

answer

at least one resource is fixed in the short run, while all resources are variable in the long run.

question

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:

answer

profits were zero and its economic losses were $500,000.

question

answer

$15.

question

Use the following data to answer the question:

Refer to the data. Marginal product becomes negative with the hiring of the __________ unit of labor.

answer

seventh

question

Refer to the diagram. At output level Q:

answer

marginal product is falling.

question

A natural monopoly exists when:

answer

unit costs are minimized by having one firm produce an industry's entire output.

question

If a firm wanted to know how much it would save by producing one less unit of output, it would look to:

answer

MC.

question

Refer to the diagram. At output level Q total fixed cost is:
(Hint: Even though there is an AFC line in the graph, don't use it... How else can you calculate total fixed costs without the AFC line?)

answer

BCDE.

question

Marginal cost is the:

answer

change in total cost that results from producing one more unit of output.

question

If a firm decides to produce no output in the short run, its costs will be:

answer

its fixed costs.

question

Refer to the diagram. For output level Q, per unit costs of C are:

answer

attainable, but imply the inefficient use of resources.

question

Which of the following is correct?

answer

When MP is rising MC is falling, and when MP is falling MC is rising.

question

The law of diminishing returns indicates that:

answer

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

question

The long-run average total cost curve:

answer

indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.

question

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are:

answer

$5,000.

question

The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Refer to the data. Creamy Crisp's total economic costs are:

answer

$286,000.

question

The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Refer to the data. Creamy Crisp's economic profit is:

answer

$94,000.

question

Economies and diseconomies of scale explain:

answer

why the firm's long-run average total cost curve is U-shaped.

question

Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the:

answer

AVC, ATC, and MC curves all to rise.

question

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand:

answer

if a labor force in excess of Q3 is employed.

question

Diseconomies of scale arise primarily because:

answer

of the difficulties involved in managing and coordinating a large business enterprise.

question

Refer to the diagram. At output level Q total cost is:

answer

0BEQ + BCDE.

question

Production costs to an economist:

answer

reflect opportunity costs.

question

Total fixed cost (FC):

answer

does not change as total output increases or decreases.

question

Which of the following is not a source of economies of scale?

answer

Inelastic resource supply curves.

question

Economic profits are calculated by subtracting:

answer

explicit and implicit costs from total revenue.

question

Which of the following is most likely to be a fixed cost?

answer

Property insurance premiums.

question

The vertical distance between the total cost and the total variable cost curves differs by an amount that:

answer

is constant as output changes.

question

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that:

answer

marginal product of the third worker is 9.

question

The basic characteristic of the short run is that:

answer

the firm does not have sufficient time to change the size of its plant.

question

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. Average variable cost will be at a minimum when the firm is hiring:

answer

Q2 workers.

question

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed.

Refer to the data. Diminishing marginal returns become evident with the addition of the:

answer

third worker.

1 of 239

question

Refer to the data. The value for X is:

answer

question

The data illustrate the:

answer

law of diminishing marginal utility

question

answer

2 of L and 3 of M

question

answer

should buy less B and more A.

question

The marginal rate of substitution:

answer

declines as one moves southeast along an indifference curve.

question

Which of the following statements is not correct?

answer

A reduction in money income will shift the budget line to the right.

question

A product has utility if it:

answer

satisfies consumer wants.

question

answer

3 implies a higher level of utility than does 1 or 5.

question

answer

MUc/Pc > MUd/Pd

question

If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium:

answer

are $105 and $140 respectively.

question

The movement of the budget line from BB to bb in the figure suggests that income has:

answer

fallen and the price of Y has increased.

question

Which of the following is correct?

answer

If marginal utility is diminishing and is a positive amount, total utility will increase.

question

Refer to the data. The value for Y is:

answer

question

Refer to the budget line shown in the diagram. The absolute value of the slope of the budget line is:

answer

PC / PD.

question

Refer to data. Marginal utility becomes negative beginning with the:

answer

fourth unit

question

Where total utility is at a maximum, marginal utility is:

answer

zero

question

Refer to the budget line shown in the diagram. Given the same money income, reductions in the prices of both products C and D will:

answer

shift the budget line to the right.

question

answer

2 of X and 5 of Y

question

Marginal utility is the:

answer

change in total utility obtained by consuming one more unit of a good.

question

If the price of A is $12 and the price of B is $3, the budget line tells us that a consumer in effect can trade:

answer

1 unit of A for 4 of B.

question

A consumer is maximizing her utility with a particular money income when:

answer

MUa/Pa = MUb/Pb = MUc/Pc = . . . = MUn/Pn.

question

Assume initially that the price of X (measured on the horizontal axis) is $9 and the price of Y (measured on the vertical axis) is $4. If the price of X now declines to $6, the budget line will:

answer

shift outward on the horizontal axis.

question

The marginal rate of substitution measures the:

answer

consumer's willingness to substitute one product for another so that total utility will remain constant.

question

An indifference map implies that:

answer

curves farther from the origin yield higher levels of total utility.

question

Refer to the diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. If the consumer is initially at point L, he or she should:

answer

purchase more of Y and less of X.

question

Refer to the diagram. Suppose the budget line shifts so that the consumer's equilibrium changes from point A to point B. This means that the:

answer

price of Y has decreased.

question

Refer to the diagram. Total utility is at a maximum at _____ units of X.

answer

question

Refer to the budget line shown in the diagram. If the consumer's money income is $20, the:

answer

price of C is $4 and the price of D is $2.

question

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy:

answer

more of X and less of Y.

question

answer

1/5

question

answer

8 units of utility.

question

Refer to the diagram. Total utility:

answer

increases at a diminishing rate, reaches a maximum, and then declines.

question

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

answer

They all help explain the downsloping demand curve.

question

answer

points 1, 2, and 5 yield equal amounts of utility.

question

Any combination of goods lying outside of the budget line:

answer

is unattainable, given the consumer's income.

question

Refer to the data. The value for W is:

answer

question

If a rational consumer is in equilibrium, which of the following conditions will hold true?

answer

The marginal utility of the last dollar spent on each good purchased will be the same.

question

Refer to the diagram. Marginal utility:

answer

becomes negative after consuming 4 units of output.

question

Refer to the diagram where XY is the relevant budget line and I1, I2, and I3 are indifference curves. The equilibrium position for the consumer is at:

answer

point K

question

answer

Mrs. Arnold should spend more on soda and less on pretzels.

question

If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium:
Group of answer choices

answer

are $105 and $140 respectively.

question

Refer to the diagram. If the budget line shifts from ab to ac, the:

answer

consumer will purchase more of J and less of K.

question

An indifference curve shows all:

answer

combinations of two products yielding the same total utility to a consumer.

question

Which of the following is correct?

answer

Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin.

question

Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2 respectively and that the consumer's income is $18.

Refer to the data. If the price of X decreases to $2, then the utility-maximizing combination of the two products is:

answer

4 of X and 5 of Y.

question

A change in the slope of a budget line is solely the result of a change in:

answer

the price of one good relative to the other.

question

Suppose you have money income of $10, all of which you spend on Coke and popcorn. In the diagram, the prices of Coke and popcorn respectively are:

answer

$.50 and $1.00.

question

Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2 respectively and that the consumer's income is $18.

Refer to the data. What level of total utility will the utility-maximizing consumer realize?

answer

96 utils.

question

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth:

answer

has a higher "marginal utility-to-price ratio" for the hockey game than for the play.

question

Unlike newspaper dispensing devices, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. The reason is that the:

answer

marginal utility of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later.

question

Assume a diagram in which a budget line is imposed on an indifference map. A consumer will maximize her utility:

answer

where the budget line is tangent to an indifference curve.

question

The theory of consumer behavior assumes that consumers attempt to maximize:

answer

total utility

question

Refer to the diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. The equilibrium position for the consumer is at:

answer

point K

question

Refer to the diagram in which the downsloping lines are budget lines and I1, I2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 3, and 5 are such that:

answer

3 implies a higher level of utility than does 1 or 5.

question

Total utility may be determined by:

answer

summing the marginal utilities of each unit consumed.

question

Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?

answer

Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero.

question

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4 respectively and that the consumer's income is $18.

Refer to the data. What level of total utility does the rational consumer realize in equilibrium?

answer

51 units

question

Diminishing marginal utility explains why:

answer

demand curves are downsloping.

question

A budget line shows the:

answer

alternative combinations of two goods that a consumer can purchase with a given money income.

question

Refer to the diagram. The total utility yielded by 4 units of X is:

answer

question

answer

4 units of J and 5 units of K.

question

Marginal utility can be:

answer

positive, negative, or zero

question

The shift of the budget line from cd to ab in the figure is consistent with:

answer

a decrease in money income

question

The law of diminishing marginal utility states that:

answer

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

question

To maximize utility, a consumer should allocate money income so that the:

answer

marginal utility obtained from the last dollar spent on each product is the same.

question

The movement of the budget line from BB to bb in the figure suggests that income has

answer

fallen and the price of Y has increased

question

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K.

Refer to the data. If the consumer's money income were cut from $52 to $28, and the prices of J and K remain at $8 and $4 respectively, she would maximize her satisfaction by purchasing:

answer

2 units of J and 3 units of K

question

The theory of consumer behavior assumes that:

answer

consumers behave rationally, attempting to maximize their satisfaction.

question

Increases in product prices shift the consumer's:

answer

budget line to the left

question

At each point on an indifference curve:

answer

total utility is the same

question

The fact that most medical care purchases are financed through insurance:

answer

increases the amount of health care consumed by reducing the price of additional units of care.

question

The law of diminishing marginal utility explains why:

answer

demand curves slope downward

question

The utility of a good or service:

answer

is the satisfaction or pleasure one gets from consuming it.

question

A consumer who has a limited budget will maximize utility or satisfaction when the:

answer

ratios of the marginal utility of each product purchased divided by its price are equal

question

Refer to the diagram. The marginal utility of the third unit of X is:

answer

question

An increase in the price of product A will:

answer

decrease the marginal utility per dollar spent on A

question

The slope of a budget line reflects the:

answer

price ration of the two products.

question

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is:

answer

negative

question

The budget line shows:

answer

all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

question

Utility refers to the:

answer

satisfaction that a consumer derives from a good or service

question

The ability of a good or service to satisfy wants is called:

answer

utility

question

Newspaper dispensing devices seemingly "trust" people to take only a single paper, but the devices actually rely on the law of:

answer

diminishing marginal utility

question

If money income increases and the prices of products A and B both increase, then the budget line:
Group of answer choices

answer

may shift either to the right or the left, or not at all

question

answer

$6 and $4

question

Refer to the diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. At point K:

answer

MRS=PxIPy

question

If the budget line shifts from BB to bb in the diagram, we can infer that the:

answer

price of Y has increased and the price of X has decreased

question

In moving along a given budget line:

answer

the prices of both products and money income are assumed to be constant

question

Refer to the diagram. If the budget line shifts from ab to ac, the:

answer

price of K has increased

question

A consumer's demand curve for a product is downsloping because:

answer

marginal utility diminishes as more of a product is consumed

question

In the diagram:

answer

the consumer is indifferent between points A and B, but neither point maximizes his utility

question

An indifference curve:

answer

is downsloping and convex to the origin

question

The budget line shift from ab to cd in the figure is consistent with:

answer

an increase in the price of M and a decrease in the price of N

question

In introducing the opportunity cost of time into the theory of consumer behavior, we find that, all else equal:

answer

one should consume less of time-intensive goods

question

Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that:

answer

their marginal utilities are the same

question

If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then:

answer

it is encountering economies of scale.

question

Which of the following is a short-run adjustment?

answer

A local bakery hires two additional bakers.

question

If you operated a small bakery, which of the following would be a variable cost in the short run?

answer

Baking supplies (flour, salt, etc.).

question

Refer to the diagram. At output level Q total variable cost is:

answer

0BEQ

question

Which of the following is not correct?

answer

Where total product is at a maximum, average product is also at a maximum.

question

answer

question

In the short run:

answer

VC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.

question

The amount of calendar time associated with the long run:

answer

varies from industry to industry.

question

For most producing firms:

answer

average total costs decline as output is carried to a certain level, and then begin to rise.

question

As output increases, total variable cost:

answer

increases at a decreasing rate and then at an increasing rate.

question

answer

$35

question

Answer the question on the basis of the following cost data:

Refer to the data. The average total cost of producing 3 units of output is:

answer

$16

question

Other things equal, if the prices of a firm's variable inputs were to fall:

answer

marginal cost, average variable cost, and average total cost would all fall.

question

In the diagram it is assumed that:

answer

all costs are variable.

question

Answer the question on the basis of the following cost data:

Refer to the data. The average total cost of five units of output

answer

$78

question

Refer to the diagram. This firm's average fixed costs are:

answer

the vertical distance between AVC and ATC.

question

answer

(FC + VC) / Q

question

To economists, the main difference between the short run and the long run is that:

answer

in the long run all resources are variable, while in the short run at least one resource is fixed.

question

If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that:

answer

economies of scale are being realized.

question

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

answer

Use of savings to pay operating expenses instead of generating interest income.

question

Marginal product is:

answer

the increase in total output attributable to the employment of one more worker.

question

Refer to the short-run production and cost data. The curves of Figures A and B suggest that:

answer

marginal cost reaches a minimum where marginal product is at its maximum.

question

Which of the following is most likely to be an implicit cost for Company X?

answer

Forgone rent from the building owned and used by Company X.

question

Refer to the diagram. Diseconomies of scale:

answer

begin at output Q3.

question

The short run is characterized by:

answer

fixed plant capacity.

question

The diagram shows the short-run average total cost curves for five different plant sizes of a firm. The position of these five curves in relation to one another reflects:

answer

economies and diseconomies of scale.

question

Refer to the diagram. At output level Q average fixed cost:

answer

is measured by both QF and ED.

question

answer

$124

question

answer

$28.50.

question

If a technological advance reduces the amount of variable resources needed to produce any level of output, then the:

answer

MC curve will shift downward.

question

Refer to the short-run production and cost data. In Figure B curve (3) is:

answer

MC and curve (4) is AVC.

question

answer

is earning an economic profit.

question

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that:

answer

both relatively small and relatively large firms can be viable in the industry.

question

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's:

answer

total cost is $270.

question

answer

$13.33.

question

If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then:

answer

it is encountering constant returns to scale.

question

Average fixed cost:

answer

declines continually as output increases.

question

Refer to the diagram. Constant returns to scale:

answer

occur over the Q1 to Q3 range of output.

question

Answer the question on the basis of the following cost data:

Refer to the data. The total cost of four units of output is:

answer

$310.

question

Answer the question on the basis of the following information:

Refer to the data. The marginal product of the fourth worker:

answer

is 5.

question

As the firm in the diagram expands from plant size #1 to plant size #3, it experiences:

answer

economies of scale.

question

Answer the question on the basis of the following cost data:

Refer to the data. The average fixed cost of producing 3 units of output is:

answer

$8.

question

Refer to the graph. Which one of the following would cause a move from point b on short-run average total cost curve ATC1 to point e on short-run average cost curve ATC2?

answer

An increase in the wage rate.

question

Economies of scale are indicated by:

answer

the declining segment of the long-run average total cost curve.

question

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes:

answer

the law of diminishing returns.

question

Which of the following holds true?

answer

When AP is rising AVC is falling, and when AP is falling AVC is rising.

question

Average fixed costs for a given level of output can be determined graphically by:

answer

the vertical distance between ATC and AVC.

question

Marginal product:

answer

may initially increase, then diminish, and ultimately become negative.

question

Use the following data to answer the question:

Refer to the data. Diminishing returns begin to occur with the hiring of the _________ unit of labor.

answer

third

question

Refer to the short-run production and cost data. In Figure A curve (1) is:

answer

average product and curve (2) is marginal product.

question

In the diagram, total product will be at a maximum at:

answer

Q3 units of labor.

question

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed.

Refer to the data. The marginal product of the sixth worker is:

answer

15 units of output.

question

The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the data. Creamy Crisp's accounting profit is:

answer

$230,000.

question

Use the following data to answer the question:

Refer to the data. The average product (AP) when two units of labor are hired is:

answer

question

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that:

answer

a 10 percent increase in all inputs will increase output by more than 10 percent.

question

When a firm does more of something, it gets better at it. This learning-by-doing is:

answer

a source of economies of scale.

question

The law of diminishing returns results in:

answer

a total product curve that eventually increases at a decreasing rate.

question

Answer the question on the basis of the following information:
FC = Total Fixed Cost
Q = Quantity of Output
MC = Marginal Cost
P = Product Price
VC = Total Variable Cost

Refer to the information. Average total cost is:

answer

(FC + VC) / Q

question

In the diagram, curves 1, 2, and 3 represent the:

answer

marginal, average, and total product curves respectively.

question

If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then:

answer

the average variable cost of 9 units is $10.

question

Accounting profits are typically:

answer

greater than economic profits because the former do not take implicit costs into account.

question

Answer the question on the basis of the following information:

Refer to the data. When two workers are employed:

answer

total product is 18.

question

Answer the question on the basis of the following cost data:

Refer to the data. The marginal cost of the fifth unit of output is:

answer

$80.

question

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

answer

All are opportunity costs.

question

Production costs to an economist:

answer

reflect opportunity costs.

question

answer

$136,000

question

Refer to the diagram. For output level Q, per unit costs of B are:

answer

attainable and imply least-cost production of this level of output.

question

The law of diminishing returns describes the:

answer

relationship between resource inputs and product outputs in the short run.

question

Fixed cost is:

answer

any cost that does not change when the firm changes its output.

question

The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Refer to the data. Creamy Crisp's explicit costs are:

answer

$150,000

question

Which of the following best expresses the law of diminishing returns?

answer

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

question

An explicit cost is:

answer

a money payment made for resources not owned by the firm itself.

question

As the firm in the diagram expands from plant size #3 to plant size #5, it experiences:

answer

diseconomies of scale.

question

The minimum efficient scale of a firm:

answer

is the smallest level of output at which long-run average total cost is minimized.

question

Answer the question on the basis of the following cost data:

Refer to the data. The marginal cost curve would intersect the average variable cost curve at about:

answer

4 units of output.

question

Normal profit is:

answer

the return to the entrepreneur when economic profits are zero.

question

The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by only 8 percent. This means that initially it was producing:

answer

in the range of diseconomies of scale.

question

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. Marginal cost will be at a minimum for this firm when it is hiring:

answer

Q1 workers.

question

In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs:

answer

are $1,250.

question

The short-run average total cost curve is U-shaped because:

answer

of increasing and diminishing returns.

question

In the short run, which of the following statements is correct?

answer

Total cost will exceed variable cost.

question

answer

$37.

question

The diagram suggests that:

answer

when marginal product lies above average product, average product is rising.

question

Which of the following is most likely to be a variable cost?

answer

Fuel and power payments.

question

Refer to the diagram. If labor is the only variable input, the marginal product of labor is at a:

answer

maximum at point a.

question

Answer the question on the basis of the following cost data:

Refer to the data. If the firm closed down in the short run and produced zero units of output, its total cost would be:

answer

$50

question

Assume a firm closes down in the short run and produces no output. Under these conditions:

answer

FC and TC are positive, but VC is zero.

question

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

answer

Average fixed costs and average total costs would rise.

question

Refer to the diagram. The vertical distance between ATC and AVC reflects:

answer

the average fixed cost at each level of output.

question

In the long run:

answer

all costs are variable costs.

question

In the diagram, curves 1, 2, and 3 represent:

answer

total fixed cost, total variable cost, and total cost respectively.

question

Accounting profits equal total revenue minus:

answer

total explicit costs.

question

When total product is increasing at a decreasing rate, marginal product is:

answer

positive and decreasing.

question

Answer the question on the basis of the following information:
FC = Total Fixed Cost
Q = Quantity of Output
MC = Marginal Cost
P = Product Price
VC = Total Variable Cost

Refer to the information. Average fixed cost is:

answer

FC / Q

question

Refer to the diagram. The per unit costs at output level Q that are both attainable and imply the least-cost production for this level of output:

answer

are B.

question

When total product is increasing at an increasing rate, marginal product is:

answer

positive and increasing.

question

The long run is characterized by:

answer

the ability of the firm to change its plant size.

question

Which of the following is correct as it relates to cost curves?

answer

Marginal cost intersects average total cost at the latter's minimum point.

question

Answer the question on the basis of the following cost data:

Refer to the data. The marginal cost of producing the sixth unit of output is:

answer

question

Refer to the diagram. If labor is the only variable input, the average product of labor is at a:

answer

maximum at point b.

question

If marginal cost is:

answer

rising, then average total cost could be either falling or rising.

question

Which of the following definitions is correct?

answer

Economic profit = accounting profit - implicit costs.

question

The total output of a firm will be at a maximum where:

answer

MP is zero.

question

In the figure, curves 1, 2, 3, and 4 represent the:

answer

MC, ATC, AVC, and AFC curves respectively.

question

If in the short run a firm's total product is increasing, then its:

answer

marginal product could be either increasing or decreasing.

question

answer

$200,000 and its economic profits were zero.

question

Refer to the diagram. Minimum efficient scale:

answer

is achieved at Q1

question

Refer to the diagram. Economies of scale:

answer

develop over the 0 to Q1 range of output.

question

Fixed costs are associated with:

answer

the short run only.

question

In the diagram, the range of diminishing marginal returns is:

answer

Q1 to Q3.

question

If you owned a small farm, which of the following would most likely be a fixed cost?

answer

Hail insurance.

question

Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?

answer

AP continues to rise so long as TP is rising.

question

The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Refer to the data. If, other things equal, Creamy Crisp's revenue fell to $286,000:

answer

it would earn a normal profit but not an economic profit.

question

The basic difference between the short run and the long run is that:

answer

at least one resource is fixed in the short run, while all resources are variable in the long run.

question

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:

answer

profits were zero and its economic losses were $500,000.

question

answer

$15.

question

Use the following data to answer the question:

Refer to the data. Marginal product becomes negative with the hiring of the __________ unit of labor.

answer

seventh

question

Refer to the diagram. At output level Q:

answer

marginal product is falling.

question

A natural monopoly exists when:

answer

unit costs are minimized by having one firm produce an industry's entire output.

question

If a firm wanted to know how much it would save by producing one less unit of output, it would look to:

answer

MC.

question

Refer to the diagram. At output level Q total fixed cost is:
(Hint: Even though there is an AFC line in the graph, don't use it... How else can you calculate total fixed costs without the AFC line?)

answer

BCDE.

question

Marginal cost is the:

answer

change in total cost that results from producing one more unit of output.

question

If a firm decides to produce no output in the short run, its costs will be:

answer

its fixed costs.

question

Refer to the diagram. For output level Q, per unit costs of C are:

answer

attainable, but imply the inefficient use of resources.

question

Which of the following is correct?

answer

When MP is rising MC is falling, and when MP is falling MC is rising.

question

The law of diminishing returns indicates that:

answer

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

question

The long-run average total cost curve:

answer

indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.

question

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are:

answer

$5,000.

question

The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Refer to the data. Creamy Crisp's total economic costs are:

answer

$286,000.

question

The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Refer to the data. Creamy Crisp's economic profit is:

answer

$94,000.

question

Economies and diseconomies of scale explain:

answer

why the firm's long-run average total cost curve is U-shaped.

question

Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the:

answer

AVC, ATC, and MC curves all to rise.

question

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand:

answer

if a labor force in excess of Q3 is employed.

question

Diseconomies of scale arise primarily because:

answer

of the difficulties involved in managing and coordinating a large business enterprise.

question

Refer to the diagram. At output level Q total cost is:

answer

0BEQ + BCDE.

question

Production costs to an economist:

answer

reflect opportunity costs.

question

Total fixed cost (FC):

answer

does not change as total output increases or decreases.

question

Which of the following is not a source of economies of scale?

answer

Inelastic resource supply curves.

question

Economic profits are calculated by subtracting:

answer

explicit and implicit costs from total revenue.

question

Which of the following is most likely to be a fixed cost?

answer

Property insurance premiums.

question

The vertical distance between the total cost and the total variable cost curves differs by an amount that:

answer

is constant as output changes.

question

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that:

answer

marginal product of the third worker is 9.

question

The basic characteristic of the short run is that:

answer

the firm does not have sufficient time to change the size of its plant.

question

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. Average variable cost will be at a minimum when the firm is hiring:

answer

Q2 workers.

question

answer

third worker.

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