Principle of Microeconomics TEST 3

1. Economists normally assume that the goal of a firm is to
(i) sell as much of their products as possible
(ii) set the price of their product as high as possible
(iii) maximize profit
a.) (i) and (ii)
b.) (ii) and (iii)
c.) (iii) only
d.) All are correct

2. An example of an implicit cost of production would be
a.) the income an entrepreneur could have earned working for someone else
b.) the cost of raw materials for producing bread in a bakery
c.) the cost of a delivery truck in a business that rarely makes deliveries
d.) all above are correct

**3. Economic profit is equal to
(i) total revenue - (explicit +implicit costs)
(ii) total revenue - opportunity costs
(iii) accounting profit + implicit costs

a.) (i)
b.) (i) and (iii)
c.) (ii) and (iii)
d.) all above

4. Picture
refer to figure 13-1. As the number of workers increases,
a. total output increases, but at a decreasing rate
b. marginal product increases, but a decreasing rate
c. total output decreases
d. marginal product increases at an increasing rate

5. Picture
Refer to figure 13-1. With regard to cookie production, the figure implies
a. diminishing marginal product of workers
b. decreasing cost of cookie production
c. increasing marginal product of workers
d. diminishing marginal cost of cookie production

6. The marginal product of an input in the production process is the increase in
a.) total revenue obtained from an additional unit of the input
b.) quantity of output obtained from an additional unit of the input
c.) total revenue obtained from an additional unit of that input
d.) profit obtained from an additional unit of that input

**7. Marginal cost tells us the
a.) amount by which output rises when labor is increased by one unit
b.) marginal increment to profitability when price is constant
c.) value of all resources used in a production process
d.) amount by which total cost rises when ouput is increased by one unit

8. Variable cost divided by quantity produced by
a.) average total cost
b.) marginal cost
c.) profit
d.) none of the above is correct

**9. A total cost curve shows the relationship between the
a.) quantity of an input used & the total cost of production
b.) quantity of output produced & the total cost of production
c.) total cost of production and profit
d.) total cost of production and total revenue

10. If a firm produces nothing, which of the following costs will be zero?
a.) variable cost
b.) opportunity cost
c.) fixed cost
d.) total cost

11. Average total cost tells us the
a.) variable cost of a firm that is producing at least one unit of output
b.) total cost of the first unit of output, if total cost is divided evenly over all the units produced
c.) cost of the last unit of output, if total cost does not include a fixed cost component.
d.) cost of a typical unit of output, if total cost is divided evenly over all the units produced

** 12. Picture
REfer to figure 13-5. Which of the curves is most likely to represent average total cost?
a. C
b. D
c. B
d. A

**13. Picture
Refer to figure 13-5. which of the curves is most likely to represent aver variable cost>
a. B
b. A
c. C
d. D

**14. Picture
Refer to figure 13-5. Which of the curves is most likely to represent marginal cost?
a. A
b. D
c. B
d. C

**15. Picture
Refer to figure 13-5. This particular firm is necessarily experiencing increasing marginal product when curve
a. d is falling
b. a is falling
c. c is falling
d. b is falling

16. Total cost can be divided into two types, Those two types are
a.) variable costs and marginal costs
b.) fixed and variable costs
c.) fixed and marginal costs
d.) average and marginal costs

17. Some costs do not vary with the quantity of output produced. Those costs are called
a.) fixed costs
b.) marginal costs
c.) average costs
d.) incurred costs

18. Which of the following statements about costs is correct?
a.) when marginal cost is less than average total cost, average total cost is rising
b.) the total cost curve is U-shaped
c.) as the quantity of output increases, marginal cost eventually rises
d.) all are correct

19. The firms efficient scale is the quantity of output that minimizes
a.) marginal cost
b.) average variable cost
c.) average fixed cost
d.) average total cost

**20. One of the most important properties of cost curves is that
a.) the average fixed cost curve must eventually rise
b.) the marginal cost curve eventually rises w. the quantity of output
c.) the average total cost curve first rises, then falls with increased output
d.) for most producers, the average total cost curve never crosses the marginal cost curve

21. When the factory is operating in the short run
A.) it cannot adjust the quantity of fixed inputs
B.) average fixed cost rises as output increases
C.) it cannot alter variable costs
D.) total cost and variable cost are usually the same

22. The long run average total cost curve is always
a.) rising as output increases
b.) falling as output increases
c.) horizontal
d.) flatter than the short run average total cost curve, but not necessarily horizontal

23. The length of the short run
a.) can never exceed 3 years
b.) can never exceed 1 year
c.) is different for different types of firms
d.) is always less than 6 month

**24. Economies of scale occur when
a.) average fixed costs are constant
b.) long run average total costs rise as output increases
c.) long run average total costs fall as output increases
d.) average fixed costs are falling

25. Specialization among workers occur when
a.) quality management allows workers to switch from one task to another
b.) each worker is allowed to perfect on particular task
c.) each worker is responsible for a # of different tasks
d.) all are correct

26. Economists normally assume that people start their own businesses to help society maximize its income

**27. When economist speak of a firms costs, they are usually excluding the opportunity costs

28. Accountants keep track of the money that flows into and out of firms

**29. Accountants often ignore implicit costs

30. When trying to understand the decision making process of different firms, economists assume that people think at the margin

31. The shape of the total cost curve is unrelated to the shape of the production function

**32. Diminishing marginal product exists when the total cost curve becomes flatter as outputs increases

**33. diminishing marginal product exists when the production function becomes flatter as input increase

34. Fixed costs are incurred even when a firm does not produce anything

35. Variable costs usually change as the firm alters the quantity of output produced

36. The cost of producing an additional unit of a good is not the same as the average cost of the good

37. Average variable cost is equal to total variable cost divided by quantity of output

38. The average total cost curve is unaffected by diminishing marginal product

**39. IF the marginal cost curve is rising, so is the average total cost curve

40. The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost curve

41. Average total cost and marginal cost are merely ways to express info that is already contained in a firms total cost

42. Average total cost reveals how much total cost will change as the firm alters its level of production

43. The shape of the marginal cost curve tells a producer something abot the marginal product of her workers

44. Variable costs equal fixed costs when nothing is produced

45. When average total cost rises if a producer either increases or decreases production, the the firm is said to be operating at efficient scale

**46. Fixed costs are those costs that remain fixed no matter how long the time horizon is

**47. Diseconomies of scale often arise because higher production levels allow specialization among workers

48. The fact that many decisions are fixed in the short run but variable in the long run has little impact on the firms cost curves

49. As a firm moves along its long run average cost curve, it is adjusting the size of its factory to the quantity of production

50. Because of the greater flexibility that firms have in the long run, all short run cost curves lie on or above the long run curve