What are explicit costs?
a. the payments made for labour only
b. the payments made by the firm to others
c. the opportunity cost of resources owned by the firm
d. the same opportunity as accounting profit
Which of the following are costs that are generally monetary payments?
a. Long-run costs.
b. Implicit costs.
c. Sunk costs.
d. Explicit costs.
Which of the following best describes normal profits?
a. The minimum amount of profit that will keep the firm's owner in the current line of business.
b. The maximum amount of profit that will keep the firm's owner in the current line of business.
c. The amount of revenue over and above the sum of explicit and implicit costs provided it is positive.
d. The difference between revenue and the sum of explicit, implicit, and sunk costs.
Which of the following is an implicit cost for the Green Car Company?
a. the tires it buys from Goodyear
b. the salary it pays to its assemblers
c. the research and development costs of developing efficient batteries
d. the forgone interest on its working capital
What is the goal of a firm?
a. to maximize sales
b. to minimize costs
c. to maximize productivity
d. to maximize economic profit
A firm has $200 million in revenues and explicit costs of $50 million. Its owners have invested $100 million in the company, which they could have invested at an interest rate of 10 percent per year. What is the firm's economic profit?
a. $140 million
b. $150 million
c. $160 million
d. $170 million
What is a firm's accounting profit if it has revenues of $80 million, explicit costs of $60 million, and implicit costs of $10 million?
a. $10 million
b. $20 million
c. $70 million
d. $80 million
An automobile company invests $20 million into the research and development of a new electric car but discovers that it does not work and abandons the project. What kind of costs has the company incurred?
a. sunk costs
b. fixed costs
c. variable costs
d. average variable costs
What is a production function?
a. the relationship between physical inputs and the cost of the inputs
b. the relationship between the quantity of inputs used to make a good and the quantity of that good produced
c. the sociological relationship between society and the environment impacted by production
d. the same relationship as the law of variable proportions
According to diminishing marginal product, what eventually happens as additional labour is hired?
a. output turns negative
b. marginal product becomes negative
c. marginal product will fall
d. less and less capital is used in production
A firm has hired a new worker, who gets in the way of the other workers and prevents them from doing their jobs efficiently. Hiring this person has actually decreased total production. What concept does this situation illustrate?
a. diminishing marginal product
b. increasing marginal product
c. negative marginal product
d. positive marginal product
What type of cost fluctuates in the short run as output is altered?
a. a variable cost
b. an accounting cost
c. an economic cost
d. fixed cost
Which of the following best describes fixed costs?
a. They are always associated with capital.
b. They are costs that do not vary with output in the long run.
c. They are costs that do not vary with input.
d. They decline as output expands.
What is marginal cost?
a. the cost a firm pays in the margin of its accounts
b. the change in total cost that comes from a change in output
c. total cost divided by output
d. total cost multiplied by output
Which of the following statements is correct if marginal cost (MC) is falling?
a. Average variable cost (AVC) is also falling.
b. Average fixed cost (AFC) is rising.
c. Marginal product (MP) is falling.
d. Average total cost (ATC) must be at its minimum.
What can be said about the marginal product if the marginal cost is at its lowest point?
a. It is increasing.
b. It is decreasing.
c. It is also at its lowest point.
d. It is at its highest point.
What do we know about the average total cost when marginal cost exceeds it?
a. The average total cost is rising.
b. The average total cost is at its maximum point.
c. The average total cost is at its minimum point.
d. The average total cost is falling.
Which of the following statements is correct if marginal cost (MC) is rising?
a. Average variable cost (AVC) is also falling.
b. Average fixed cost (AFC) is rising.
c. Marginal product (MP) is falling.
d. Average total cost (ATC) must be at its minimum.
Which of the following statements is correct?
a. When marginal cost is greater than average total cost, average total cost is falling.
b. When marginal cost is less than average total cost, average total cost is increasing.
c. When average total cost is at its maximum, marginal cost is equal to average total cost.
d. When average total cost is at its minimum, marginal cost is equal to average total cost.
Which of the following best describes why the marginal cost (MC) curve intersects the average total cost (ATC) curve at its minimum point?
a. The MC curve of the next unit of output affects the ATC curve—if MC is greater than ATC it pulls the ATC down and vice versa. Since MC starts out below the ATC curve and at some point diminishing MP will cause the MC to decrease and approach the minimum point of the ATC curve where they are both equal to each other.
b. The MC curve of the next unit of output affects the ATC curve—if MC is less than ATC it pulls the ATC down and vice versa. Since MC starts out below the ATC curve and at some point diminishing MP will cause the MC to increase and approach the minimum point of the ATC curve where they are both equal to each other.
c. The MC curve of the next unit of output affects the ATC curve—if MC is less than ATC it pulls the ATC up and vice versa. Since MC starts out above the ATC curve and at some point diminishing MP will cause the MC to decrease and approach the minimum point of the ATC curve where they are both equal to each other.
d. The MC curve of the next unit of output affects the ATC curve—if MC is greater than AFC it pulls the AFC up and vice versa. Since MC starts out above the AFC curve and at some point diminishing MP will cause the MC to increase and approach the minimum point of the ATC curve where they are both equal to each other.
Which of the following is an example of economies of scale?
a. A car company invests $10 million into research and development for hybrid cars so it can make a higher profit in the future.
b. An international firm is having problems with global communications. As a result, its costs are increasing.
c. A technology firm increases production of mobile phones to decrease the average total cost of production.
d. An oil company decides to build a new refinery so it can meet the future needs of its customers.
Which of the following statements is correct in regards to the nature of costs in the long run?
a. They are forecasted to be mostly fixed although some might vary with output.
b. Overtime sunk costs begin to comprise a great portion of total costs.
c. All costs are implicit as opportunity costs rise over time.
d. All costs vary with output.
Which of the following examples would cause the average total cost curve to shift downwards?
a. an increase in the price of gas paid by a courier company
b. an increase in the wages paid to assembly workers
c. an increase in the technology used to produce computer chips
d. an increase in an environmental tax placed on a steel mill
Which of the following best describes a firm's costs in the long run?
a. All costs can vary.
b. The firm has both fixed costs and variable costs.
c. The firm has only fixed costs.
d. Firms cannot respond to price signals.
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