question
The sum of all costs to run a business is called:
answer
total cost.
Total cost is the sum of all costs to run a business.
Total cost is the sum of all costs to run a business.
question
A company has diminishing marginal returns. Total production is 10 units when the first worker is hired. Total production rises to 15 units when the second worker is hired. What happens to total production when the third worker is hired if the company continues to have diminishing marginal returns?
answer
Total production is between 16 and 19 units.
In this example, hiring the second worker yields MP = 5 and AP = 7.5. Total product between 16 to 19 units means that marginal product is between 1 to 4 units, indicating decreasing marginal returns.
In this example, hiring the second worker yields MP = 5 and AP = 7.5. Total product between 16 to 19 units means that marginal product is between 1 to 4 units, indicating decreasing marginal returns.
question
Sunk costs are:
answer
costs that have already been incurred and cannot be recovered.
Sunk costs have already been incurred and cannot be recovered.
Sunk costs have already been incurred and cannot be recovered.
question
The price per unit times quantity sold is called:
answer
total revenue.
Total revenue is the amount of money a firm receives from the sales of its products. It is equal to price per unit times quantity sold.
Total revenue is the amount of money a firm receives from the sales of its products. It is equal to price per unit times quantity sold.
question
_____ is the output per worker.
answer
Average product
Average product is calculated by dividing the total output by the number of workers. This indicated the value of output per worker.
Average product is calculated by dividing the total output by the number of workers. This indicated the value of output per worker.
question
Which of these examples is a fixed cost?
answer
property taxes for an industrial warehouse
Property taxes are considered a fixed cost because they do not change as a firm's output expands.
Property taxes are considered a fixed cost because they do not change as a firm's output expands.
question
Which of these is an implicit cost?
answer
the salary and benefits the owner could have earned in her former profession
This forgone opportunity is considered an implicit cost.
This forgone opportunity is considered an implicit cost.
question
_____ marginal returns occur when a new worker adds more to total output than the previous new worker does.
answer
Increasing
Increasing marginal returns occur when a new worker adds more to total output than the previous new worker does, so that both average and marginal products are rising.
Increasing marginal returns occur when a new worker adds more to total output than the previous new worker does, so that both average and marginal products are rising.
question
Ted's Lawn Care has total variable costs of $100,000 when output is 50,000 units. When output is increased to 100,000 units, the total variable costs increase to $175,000. What is Ted's Lawn Care's marginal cost?
answer
$1.50
Marginal cost is determined by dividing the change in total variable costs by the change in output. The equation is ($175,000 − $100,000)/(100,000 − 50,000), or 75,000/50,000, or $1.50.
Marginal cost is determined by dividing the change in total variable costs by the change in output. The equation is ($175,000 − $100,000)/(100,000 − 50,000), or 75,000/50,000, or $1.50.
question
If LMS Manufacturing sells 250,000 units and its total revenue is $1 million, what is the price per unit?
answer
$4
Total revenue equals price per unit times quantity sold. Price can be found by rearranging the total revenue formula to Price = Total revenue / Quantity. The solution is $1 million/250,000 = $4.
Total revenue equals price per unit times quantity sold. Price can be found by rearranging the total revenue formula to Price = Total revenue / Quantity. The solution is $1 million/250,000 = $4.
question
As more workers are hired, total output falls, and a business experiences:
answer
negative returns.
question
Willco Manufacturing undersells its competitors because its higher production levels have decreased its long-run average total costs. This is because of:
answer
economies of scale.
question
A company has increasing marginal returns. If the third worker adds 7 units to total production, how much must the fourth worker add to total production to keep marginal returns increasing?
answer
8 or more units
Increasing marginal returns occur when a new worker adds more to total output than the previous new worker, so that both average and marginal products are rising.
Increasing marginal returns occur when a new worker adds more to total output than the previous new worker, so that both average and marginal products are rising.
question
Suppose Jiang and his partner, Shelby, run a small coffee shop. The coffee shop sold $10,000 worth of goods last month, and it cost $3,000 to make those goods and operate the shop. During this time, Jiang could have been working at a desk job for $5,000 a month. What was Jiang's accounting profit?
answer
$7,000
Accounting profit is calculated by subtracting the explicit cost ($3,000) from total revenue ($10,000). The calculation is $10,000 - $3,000 = $7,000.
Accounting profit is calculated by subtracting the explicit cost ($3,000) from total revenue ($10,000). The calculation is $10,000 - $3,000 = $7,000.
question
If Carolyn owns $10,000 worth of stock in Omega Construction and Omega loses a lawsuit for $50 million, what is the greatest amount that Carolyn can lose in that suit?
answer
$10,000
In a corporation, the stockholders' risk is limited to loss of their investment.
In a corporation, the stockholders' risk is limited to loss of their investment.
question
Ted's Lawn Care has total costs of $500,000 and an output of 50,000 units. What is Ted's Lawn Care's average total cost?
answer
$10
Average total cost is determined by dividing the total costs by the output. The equation is $500,000/50,000 = $10.
Average total cost is determined by dividing the total costs by the output. The equation is $500,000/50,000 = $10.
question
In 1906, Will Keith Kellogg founded the Battle Creek Toasted Corn Flake Company, better known today as Kellogg's. From a company with only 44 employees, Kellogg's has grown to have thousands of stockholders. Kellogg's is a:
answer
corporation.
Kellogg's is a corporation.
Kellogg's is a corporation.
question
In August 2009, Kansas-based Brooke Corporation was facing a multimillion-dollar lawsuit. The company used to be one of the largest providers of insurance services that small banks could sell to their customers. Suppose you owned $5,000 worth of Brooke stock. What would be the maximum you could lose if the suit went against Brooke?
answer
$5,000
If you own stock in a corporation, your risk is limited to the amount of your investment, in this case $5,000.
If you own stock in a corporation, your risk is limited to the amount of your investment, in this case $5,000.
question
Ted's Lawn Care has made the decision to increase output. As output increases, average total cost will:
answer
decrease to a certain point and then increase.
Average total costs decrease to a certain point and then begin to increase as more output is produced.
Average total costs decrease to a certain point and then begin to increase as more output is produced.
question
Willco Manufacturing has made the decision to increase output. What will happen to the average fixed cost as the output increases?
answer
It will decrease.
Average fixed costs decrease continuously as more output is produced.
Average fixed costs decrease continuously as more output is produced.
question
Sullivan Landscaping had a profit of $20,000 in 2009. If its total revenue was $540,000, what was its total cost?
answer
$520,000
Profit equals total revenue minus total costs. The equation is TR − Profit = TC, or $540,000 − $20,000 = $520,000.
Profit equals total revenue minus total costs. The equation is TR − Profit = TC, or $540,000 − $20,000 = $520,000.
question
Marginal revenue is calculated as:
answer
ΔTR/ΔQ.
Marginal revenue is the change in total revenue when one more unit of output is sold.
Marginal revenue is the change in total revenue when one more unit of output is sold.
question
What is the shape of the long-run supply curve in a constant cost industry?
answer
horizontal
The long-run supply curve in a constant cost industry is represented by a horizontal line.
The long-run supply curve in a constant cost industry is represented by a horizontal line.
question
The electric company in Alice's neighborhood is the only firm from which Alice can receive electricity for her home. This is an example of which type of market structure?
answer
monopoly
A monopoly is a market structure in which there is only a single firm.
A monopoly is a market structure in which there is only a single firm.
question
The graph below represents a perfectly competitive firm. What is the profit-maximizing level of output?
answer
70
The quantity at which marginal revenue equals marginal cost is 70.
The quantity at which marginal revenue equals marginal cost is 70.
question
The following diagram shows a typical firm's short-run output in a competitive market. What is likely to happen in the long run?
answer
The firm's output will stay the same.
When the typical firm in a competitive market is producing at minimum average total cost, there is no pressure for firms to leave or enter the market.
When the typical firm in a competitive market is producing at minimum average total cost, there is no pressure for firms to leave or enter the market.
question
The commercial airliner manufacturing industry tends to have very little competition because it is prohibitively expensive to start a new company in this industry. This is an example of:
answer
barriers to entry.
Prohibitively expensive start-up costs are considered a barrier to entry when performing a market structure analysis.
Prohibitively expensive start-up costs are considered a barrier to entry when performing a market structure analysis.
question
Ocean Magic is a surfboard company that sells surfboards in a perfectly competitive market. If it sells surfboards for $400 each and it sells a total of 20 surfboards, what is its marginal revenue?
answer
$400
Price equals marginal revenue in competitive markets, so marginal revenue is $400.
Price equals marginal revenue in competitive markets, so marginal revenue is $400.
question
In the long run, which factor of production can a firm NOT adjust?
answer
All factors of production can be adjusted in the long run.
In the long run, firms can adjust all factors, even to the point of leaving an industry.
In the long run, firms can adjust all factors, even to the point of leaving an industry.
question
Able Pads, Inc., sells plain white printer paper in a perfectly competitive market. What does its individual demand curve look like?
answer
horizontal line
Although the market demand curve in a perfectly competitive market is downward-sloping, the individual demand curve is a horizontal line.
Although the market demand curve in a perfectly competitive market is downward-sloping, the individual demand curve is a horizontal line.
question
Ocean Magic is a surfboard company that sells surfboards in a competitive market. If it sells surfboards for $400 each and each surfboard has an average total cost of $325, what is the average profit per unit (APU)?
answer
$75
Average profit per unit is equal to price minus average total cost, so the equation looks like: APU = $400 − 325, APU = $75.
Average profit per unit is equal to price minus average total cost, so the equation looks like: APU = $400 − 325, APU = $75.
question
Ocean Magic is a surfboard company that sells surfboards in a perfectly competitive market. If at its optimal level of output marginal revenue is $300 per surfboard and the price of each surfboard is $300, what is the marginal cost of each surfboard?
answer
$300
In a perfectly competitive market, marginal revenue equals price, and the firm will produce at the level of output at which marginal revenue equals marginal cost.
In a perfectly competitive market, marginal revenue equals price, and the firm will produce at the level of output at which marginal revenue equals marginal cost.
question
Allocative efficiency occurs when goods and services are produced and sold to consumers not only at marginal cost but also at:
answer
minimum average total cost.
Allocative efficiency occurs when goods and services are produced and sold to consumers not only at marginal cost but also at minimum average total cost.
Allocative efficiency occurs when goods and services are produced and sold to consumers not only at marginal cost but also at minimum average total cost.
question
If the price is $1 and quantity sold is 55, average revenue is equal to:
answer
$1.
Average revenue is calculated by dividing total revenue by the number of units sold.
Average revenue is calculated by dividing total revenue by the number of units sold.
question
_____ occurs when goods and services are produced and sold to consumers not only at marginal cost but also at minimum average total cost.
answer
Allocative efficiency
Allocative efficiency occurs when goods and services are produced and sold to consumers not only at marginal cost but also at minimum average total cost.
Allocative efficiency occurs when goods and services are produced and sold to consumers not only at marginal cost but also at minimum average total cost.
question
For more than two decades, the global commercial airliner manufacturing industry was dominated by Boeing (an American company) and Airbus (a European company). More recently, Embraer (from Brazil) and Bombardier (from Canada) have been gaining market share. With these new entrants, the commercial airliner manufacturing industry is an example of which type of market structure?
answer
oligopoly
An oligopoly is an industry in which there are only a small number of large firms.
An oligopoly is an industry in which there are only a small number of large firms.
question
_____ occurs when goods and services are produced and sold to consumers at their lowest opportunity cost.
answer
Production efficiency
Production efficiency occurs when goods and services are produced and sold to consumers at their lowest resource cost.
Production efficiency occurs when goods and services are produced and sold to consumers at their lowest resource cost.
question
Foods sold on the street in developing countries are an example of perfectly competitive markets. If a vendor sells an item for the equivalent of $4 each and sells a total of 25, then his or her total revenue is:
answer
$100.
Total revenue equals price multiplied by quantity, so total revenue is $100.
Total revenue equals price multiplied by quantity, so total revenue is $100.
question
Ocean Magic is a surfboard company that sells surfboards in a competitive market. If it sells surfboards for $400 each and the average total cost for each surfboard is $250, what is the average profit (AP)?
answer
$150
Average profit is equal to price minus average total cost, so the equation looks like AP = $400 − $250, or AP = $150.
Average profit is equal to price minus average total cost, so the equation looks like AP = $400 − $250, or AP = $150.
question
The cable TV company in Taryn's neighborhood is the only firm from which Taryn can get cable TV for her home. This is an example of which type of market structure?
answer
monopoly
A monopoly is a market structure in which there is only one firm.
A monopoly is a market structure in which there is only one firm.
question
Production efficiency occurs when products are produced and sold to consumers at their lowest _____ cost.
answer
opportunity
Production efficiency occurs when goods and services are produced and sold to consumers at their lowest opportunity cost.
Production efficiency occurs when goods and services are produced and sold to consumers at their lowest opportunity cost.
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