question
A Texas oil woman would like to increase the oil produced from her oil fields. Since it takes over a year to drill new wells, she opts instead for increasing labor and other variable inputs to produce more oil from existing wells. She is making a short-run production decision. T/F
answer
True
question
Economists define the long run as any production time period lasting over one year. T/F
answer
False
question
When marginal cost exceeds the average variable cost, average variable cost must be increasing. T/F
answer
True
question
The law of diminishing marginal product provides an explanation for why average total cost eventually increases as output is expanded in the short run. T/F
answer
True
question
An explicit cost is:
A. an opportunity cost for which payment is not required.
B. an out-of-pocket expense.
C. always larger than an associated implicit cost.
D. both (a) and (b)
A. an opportunity cost for which payment is not required.
B. an out-of-pocket expense.
C. always larger than an associated implicit cost.
D. both (a) and (b)
answer
B. an out-of-pocket expense.
question
When a firm makes zero economic profit, it means that:
A. the firm is covering implicit costs alone.
B. the firm is covering the total opportunity costs of its resources.
C. the firm is covering explicit costs alone.
D. the firm is running at a loss.
A. the firm is covering implicit costs alone.
B. the firm is covering the total opportunity costs of its resources.
C. the firm is covering explicit costs alone.
D. the firm is running at a loss.
answer
B. the firm is covering the total opportunity costs of its resources.
question
Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of $70,000. If he could have been paid $80,000 working for a computer company, his:
A. accounting profit equaled $10,000 and he would be rational to stop working as a contractor.
B. accounting profit equaled $50,000 and he would be rational to continue working as a contractor.
C. economic profit equaled $50,000 and he would be rational to continue working as a contractor.
D. economic profit equaled -$30,000 and he would be rational to stop working as a contractor.
A. accounting profit equaled $10,000 and he would be rational to stop working as a contractor.
B. accounting profit equaled $50,000 and he would be rational to continue working as a contractor.
C. economic profit equaled $50,000 and he would be rational to continue working as a contractor.
D. economic profit equaled -$30,000 and he would be rational to stop working as a contractor.
answer
D. economic profit equaled -$30,000 and he would be rational to stop working as a contractor.
question
Economic profits will take into account:
A. explicit costs but not implicit costs.
B. implicit costs but not explicit costs.
C. both implicit and explicit costs.
D. neither explicit nor implicit costs.
A. explicit costs but not implicit costs.
B. implicit costs but not explicit costs.
C. both implicit and explicit costs.
D. neither explicit nor implicit costs.
answer
C. both implicit and explicit costs.
question
Scarlett recently began running her husband's lumber mill. Last month she took in $5,000 in sales revenue and paid $3,400 in out-of-pocket costs. Did the lumberyard make an economic profit last month?
A. Definitely not.
B. Yes. After considering non-zero explicit and implicit costs, it is clear that her profit is exactly equal to $1,600.
C. Without knowing the magnitude of implicit costs, it is not possible to state whether the lumberyard earned an economic profit last month.
D. Yes, after factoring implicit costs, it is clear that her profit will exceed $1,600.
A. Definitely not.
B. Yes. After considering non-zero explicit and implicit costs, it is clear that her profit is exactly equal to $1,600.
C. Without knowing the magnitude of implicit costs, it is not possible to state whether the lumberyard earned an economic profit last month.
D. Yes, after factoring implicit costs, it is clear that her profit will exceed $1,600.
answer
C. Without knowing the magnitude of implicit costs, it is not possible to state whether the lumberyard earned an economic profit last month.
question
Which of the following observations is true?
A. Sunk costs are irrelevant for any future action.
B. Sunk costs should not be ignored when making decisions.
C. Sunk costs are often hidden.
D. Sunk costs can be recovered using corrective measures.
Save
A. Sunk costs are irrelevant for any future action.
B. Sunk costs should not be ignored when making decisions.
C. Sunk costs are often hidden.
D. Sunk costs can be recovered using corrective measures.
Save
answer
A. Sunk costs are irrelevant for any future action.
question
The production function describes:
A. the relationship between the quantity of inputs utilized and the quantity of output produced.
B. how inputs are most profitably used in production.
C. the most cost-effective method of combining various inputs in the production process.
D. the relationship between a firm's revenue and its level of production.
A. the relationship between the quantity of inputs utilized and the quantity of output produced.
B. how inputs are most profitably used in production.
C. the most cost-effective method of combining various inputs in the production process.
D. the relationship between a firm's revenue and its level of production.
answer
A. the relationship between the quantity of inputs utilized and the quantity of output produced.
question
The marginal product of labor can be defined as:
A. the change in profit divided by the change in labor, other factors of production held constant.
B. the change in total output divided by a one unit change in labor, other factors of production held constant.
C. the total output divided by the total labor utilized.
D. the change in labor utilized divided by the change in total output, other factors of production held constant.
A. the change in profit divided by the change in labor, other factors of production held constant.
B. the change in total output divided by a one unit change in labor, other factors of production held constant.
C. the total output divided by the total labor utilized.
D. the change in labor utilized divided by the change in total output, other factors of production held constant.
answer
B. the change in total output divided by a one unit change in labor, other factors of production held constant.
question
# of pickers total # of oranges picked
1 1,000
2 2,000
3 3,000
4 3,900
5 4,700
6 5,400
7 6,000
8 6,200
9 6,000
Refer to Exhibit 11-1. The total product of labor diminishes with the addition of the ____ picker.
A. fifth
B. seventh
C. eighth
D. ninth
1 1,000
2 2,000
3 3,000
4 3,900
5 4,700
6 5,400
7 6,000
8 6,200
9 6,000
Refer to Exhibit 11-1. The total product of labor diminishes with the addition of the ____ picker.
A. fifth
B. seventh
C. eighth
D. ninth
answer
D. ninth
question
# of pickers total # of oranges picked
1 1,000
2 2,000
3 3,000
4 3,900
5 4,700
6 5,400
7 6,000
8 6,200
9 6,000
Refer to Exhibit 11-1. The marginal product of labor begins to diminish with the addition of the ____ picker.
A. fourth
B. fifth
C. seventh
D. eighth
1 1,000
2 2,000
3 3,000
4 3,900
5 4,700
6 5,400
7 6,000
8 6,200
9 6,000
Refer to Exhibit 11-1. The marginal product of labor begins to diminish with the addition of the ____ picker.
A. fourth
B. fifth
C. seventh
D. eighth
answer
A. fourth
question
Which of the following is a reason that marginal product will eventually begin to fall?
A. effective use of fixed inputs
B. decrease in demand
C. increased specialization
D. limited amounts of fixed inputs
A. effective use of fixed inputs
B. decrease in demand
C. increased specialization
D. limited amounts of fixed inputs
answer
D. limited amounts of fixed inputs
question
When marginal product is rising, marginal costs will:
A. rise.
B. remain unchanged.
C. fall.
D. rise by an equal value.
A. rise.
B. remain unchanged.
C. fall.
D. rise by an equal value.
answer
C. fall.
question
A factory producing CD players finds that its output varies with the number of workers employed each week in the following way:
# of workers employed per week Output (CD players)
1 10
2 38
3 68
4 94
5 112
6 122
Refer to Exhibit 11-3. Marginal product begins to diminish with the ____ worker employed.
A. first
B. second
C. third
D. fourth
E. fifth
# of workers employed per week Output (CD players)
1 10
2 38
3 68
4 94
5 112
6 122
Refer to Exhibit 11-3. Marginal product begins to diminish with the ____ worker employed.
A. first
B. second
C. third
D. fourth
E. fifth
answer
D. fourth
question
The marginal cost of a good is:
A. the difference between average total cost and average variable cost.
B. the addition to total cost from producing one more unit of output.
C. decreasing whenever average total cost is decreasing.
D. always equal to average variable cost when the firm is maximizing profit.
A. the difference between average total cost and average variable cost.
B. the addition to total cost from producing one more unit of output.
C. decreasing whenever average total cost is decreasing.
D. always equal to average variable cost when the firm is maximizing profit.
answer
B. the addition to total cost from producing one more unit of output.
question
The short run is that period in which firms:
A. are free to vary all inputs.
B. are able to vary some, but not all, inputs.
C. can vary inputs, but only by varying all inputs in equal proportion.
D. cannot increase production at all.
A. are free to vary all inputs.
B. are able to vary some, but not all, inputs.
C. can vary inputs, but only by varying all inputs in equal proportion.
D. cannot increase production at all.
answer
B. are able to vary some, but not all, inputs
question
Kelly, who grows geraniums to sell, is currently producing a level of output at which her marginal cost equals her average variable cost. What must be true about Kelly's average variable cost at this level of output?
A. It is at a minimum.
B. It is at a maximum.
C. It is neither at its maximum nor its minimum.
D. It is greater than the average total cost.
A. It is at a minimum.
B. It is at a maximum.
C. It is neither at its maximum nor its minimum.
D. It is greater than the average total cost.
answer
A. It is at a minimum.
question
If AVC is subtracted from the ATC, the result is:
A. economic profit.
B. accounting profit.
C. average fixed cost.
D. marginal cost.
A. economic profit.
B. accounting profit.
C. average fixed cost.
D. marginal cost.
answer
C. average fixed cost.
question
units of output: 0 1 2 3 4 5 6
variable cost: 0 30 50 60 80 105 150
total cost: 40 70 90 100 120 145 190
marginal cost 30 20 10 20 25 45
Refer to Exhibit 11-2. How much are total fixed costs (in dollars)?
A. 20
B. 30
C. 40
D. 50
variable cost: 0 30 50 60 80 105 150
total cost: 40 70 90 100 120 145 190
marginal cost 30 20 10 20 25 45
Refer to Exhibit 11-2. How much are total fixed costs (in dollars)?
A. 20
B. 30
C. 40
D. 50
answer
C. 40
question
units of output: 0 1 2 3 4 5 6
variable cost: 0 30 50 60 80 105 150
total cost: 40 70 90 100 120 145 190
marginal cost 30 20 10 20 25 45
Refer to Exhibit 11-2. How much are average fixed costs (in dollars) at 4 units of output?
A. 10
B. 20
C. 30
D. 40
variable cost: 0 30 50 60 80 105 150
total cost: 40 70 90 100 120 145 190
marginal cost 30 20 10 20 25 45
Refer to Exhibit 11-2. How much are average fixed costs (in dollars) at 4 units of output?
A. 10
B. 20
C. 30
D. 40
answer
A. 10
question
Graph
Refer to Exhibit 11-5. At a quantity of five units of output, ____ represents total cost, ____ represents total fixed cost, and ____ represents total variable cost.
A. X; Y; Z
B. Y; Z; X
C. X; Z; Y
D. Z; Y; X
Refer to Exhibit 11-5. At a quantity of five units of output, ____ represents total cost, ____ represents total fixed cost, and ____ represents total variable cost.
A. X; Y; Z
B. Y; Z; X
C. X; Z; Y
D. Z; Y; X
answer
C. X; Z; Y
question
A firm is producing 200 units of output at a total cost of $1,000. The firm's average variable cost equals $4 per unit. Total fixed cost:
A. equals $1,000.
B. equals $800.
C. equals $200.
D. equals $2.
A. equals $1,000.
B. equals $800.
C. equals $200.
D. equals $2.
answer
C. equals $200.
question
Which of the following must be true if the short-run average total cost curve is declining?
A. Marginal cost is less than average total cost.
B. Marginal cost is less than average variable cost.
C. Marginal cost is greater than average total cost.
D. Marginal cost equals average total cost.
A. Marginal cost is less than average total cost.
B. Marginal cost is less than average variable cost.
C. Marginal cost is greater than average total cost.
D. Marginal cost equals average total cost.
answer
A. Marginal cost is less than average total cost.
question
Quantity of Bicycles 0 1 2 3 4 5 6
(in thousands)
Total Cost of Production
(in thousands) $5 $8 $12 $16.5 $20 $27.5 $36
Refer to Exhibit 11-9. At what level of output (in thousands) is average total cost minimized?
A. 1
B. 2
C. 3
D. 4
(in thousands)
Total Cost of Production
(in thousands) $5 $8 $12 $16.5 $20 $27.5 $36
Refer to Exhibit 11-9. At what level of output (in thousands) is average total cost minimized?
A. 1
B. 2
C. 3
D. 4
answer
D. 4
question
Quantity of Bicycles 0 1 2 3 4 5 6
(in thousands)
Total Cost of Production
(in thousands) $5 $8 $12 $16.5 $20 $27.5 $36
Refer to Exhibit 11-9. What is the level of the firm's total fixed cost (in thousands)?
A. $0
B. $5
C. $8
D. $25
(in thousands)
Total Cost of Production
(in thousands) $5 $8 $12 $16.5 $20 $27.5 $36
Refer to Exhibit 11-9. What is the level of the firm's total fixed cost (in thousands)?
A. $0
B. $5
C. $8
D. $25
answer
B. $5
question
Graph
Refer to Exhibit 11-7. At output level 0Q, total fixed cost equals:
A. area ADQ0.
B. area ADEB.
C. area ADFC.
D. area BEQ0.
Refer to Exhibit 11-7. At output level 0Q, total fixed cost equals:
A. area ADQ0.
B. area ADEB.
C. area ADFC.
D. area BEQ0.
answer
B. area ADEB.
question
Refer to Exhibit 11-7. At output level 0Q, average variable cost equals:
A. QF.
B. FE.
C. QD.
D. QE.
A. QF.
B. FE.
C. QD.
D. QE.
answer
D. QE.
question
The short-run average total cost curve eventually turns upward to form a U shape because:
A. of diminishing marginal cost.
B. of increasing average fixed cost.
C. all factors can be varied in the long run.
D. of diminishing marginal productivity.
A. of diminishing marginal cost.
B. of increasing average fixed cost.
C. all factors can be varied in the long run.
D. of diminishing marginal productivity.
answer
D. of diminishing marginal productivity.
question
As quantity increases, which of the following must be true if average total costs are rising?
A. Marginal cost must be greater than average total cost.
B. Marginal cost must be less than average total cost.
C. Average fixed cost must be increasing.
D. Average fixed cost must be less than average variable cost.
A. Marginal cost must be greater than average total cost.
B. Marginal cost must be less than average total cost.
C. Average fixed cost must be increasing.
D. Average fixed cost must be less than average variable cost.
answer
A. Marginal cost must be greater than average total cost.
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