Parkin&Bade, Microeconomics, 2nd edition

Chapter 13: Production and Cost

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1) The primary goal of a business firm is to

A) promote fairness.

B) increase its production.

C) maximise profit.

D) make a quality product.

E) promote workforce job satisfaction.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

2) John fishes for a living. Last year, he sold $100,000 worth of fish. Bait, nets and other fishing supplies cost John $10,000 and he paid $40,000 in salaries to his helpers. Depreciation on his boat and other equipment, as calculated using ATO rules, was $15,000. What was John's profit as would be calculated by an accountant?

A) $165,000

B) $65,000

C) $100,000

D) $35,000

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

3) Lauren runs a Mexican restaurant in Carlton. Her total revenue last year was $110,000. The rent on her restaurant was $48,000, her labour costs were $42,000, and her materials, food and other variable costs were $20,000. Lauren could have worked as a biologist and earned $50,000 per year. An economist calculates her implicit costs as

A) $50,000.

B) $63,000.

C) $150,000.

D) $110,000.

E) $0 because Lauren did not work as a biologist.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

4) When an economist uses the term 'cost' referring to a firm, the economist refers to the

A) implicit cost of producing a good or service, but not the explicit cost of producing a good or service.

B) explicit cost of producing a good or service, but not the implicit cost of producing a good or service.

C) opportunity cost of producing a good or service, which includes both implicit and explicit cost.

D) price of the good to the consumer.

E) cost that can be actually verified and measured.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

5) A firm has explicit costs of $110,000 and total revenue of $120,000. Which of the following is true about the firm?

A) The firm might be making an economic profit but we need more information about implicit costs to know for sure.

B) The firm is incurring an economic loss if implicit costs are $10,000.

C) The firm is definitely making an economic profit because it must be minimising its opportunity cost.

D) The firm is making a normal profit if implicit costs are $0.

E) The firm may be making an economic profit but only if implicit costs are negative.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

6) Which of the following is an explicit cost in Jim's business venture?

A) The interest Jim does not earn because he invested his savings in his business.

B) Jim's normal profit.

C) The salary Jim could have earned at another job.

D) The wages Jim pays his workers.

E) Answers A, B and D are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

7) Darryl runs a sheep station near Broken Hill. The interest on the debt he incurred to buy his sheep station totals $3,000 per year. For Darryl, the interest is

A) part of his economic profit.

B) his normal profit.

C) an implicit cost.

D) his normal cost.

E) an explicit cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

8) When Ford hires Ernst and Young Consulting to help Ford redesign its marketing, Ford's payment to Ernst and Young is classified as

A) normal profit.

B) depreciation.

C) an implicit cost.

D) an explicit cost.

E) economic profit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

9) ________ cost is defined as a cost of production that does not entail a direct monetary payment.

A) An explicit

B) A marginal

C) A fixed

D) A total

E) An implicit

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

10) Which of the following is an implicit cost?

i. Wages paid to workers

ii. The normal profit

iii. The electricity bill

A) i only

B) ii only

C) i and ii

D) ii and iii

E) Neither i, ii nor iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

11) Which of the following are correct statements about implicit and explicit costs?

i. Normal profit is an implicit cost.

ii. Economic depreciation is an explicit cost.

iii. Wages are an explicit cost.

A) i and iii

B) ii and iii

C) i, ii and iii

D) iii only

E) i only

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

12) Suppose Billy owns a hair salon in Collingwood. He has one large hair dryer for which he paid $1,000. If he can sell the dryer one year later for $800, his total economic depreciation equals

A) $800.

B) $200.

C) $1,000.

D) $1,800.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

13) Interest is considered a(n)

A) form of depreciation if the cost of borrowing increases.

B) implicit cost when the firm owner uses his or her own funds to buy capital.

C) explicit cost when the firm pays a bank to borrow money.

D) return to entrepreneurship if the firm owner uses his or her own funds to buy capital.

E) Both answers A and B are true.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

14) In economics, a 'normal profit' is the return to

A) land.

B) entrepreneurship.

C) labour.

D) capital.

E) Answers B and D are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

15) A normal profit is defined as

A) the same thing as accounting profit.

B) the economic profit minus the implicit costs.

C) the return to entrepreneurship.

D) total revenue minus explicit costs.

E) total revenue minus implicit costs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

16) Normal profit is

A) the same as economic profit.

B) part of the firm's explicit costs.

C) part of the firm's opportunity costs.

D) Answers A and B are correct.

E) Answers A and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

17) Economic profit equals total revenue minus total

A) implicit costs.

B) accounting costs.

C) explicit costs.

D) entrepreneur's costs.

E) opportunity costs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

18) April quit her job as an accountant at Ernst and Young, where she was paid $45,000 per year. She started her own landscaping business. She rents machines and tools for $50,000 and pays $10,000 as wages to her help. These are her only costs. April earned total revenue of $100,000. Which of the following statements is true?

A) She has an economic loss.

B) Her accountant calculates her profit as $40,000.

C) Her explicit cost is $105,000.

D) Both answers A and B are correct.

E) Both answers A and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

19) Suppose a firm's total revenue is $1,000,000. The firm has incurred explicit costs of $750,000. There is also $50,000 of forgone wages by the owner, $10,000 of forgone interest by the owner, $3,000 worth of economic depreciation, and $20,000 worth of normal profit. What is the firm's economic profit?

A) $190,000

B) $180,000

C) $250,000

D) $200,000

E) $167,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

20) Dr. Khan starts his own dental practice after quitting his $150,000 job at The Mall Dental Clinic. His revenues for the first year are $500,000. He paid $90,000 in rent for the dental office, $60,000 for his office manager's salary, $24,000 for the dental hygienist, $150,000 for insurance, and $6,000 for other miscellaneous costs. The normal profit from running his business is $20,000. Therefore,

A) his economic profit is zero.

B) his implicit costs are $170,000.

C) his explicit costs are $330,000.

D) Only answers A and C are correct.

E) Answers A, B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

21) Bill is an economics lecturer who earns $40,000 teaching, but decides to quit his job and fulfill his dream of catering barbecues. During his first year of barbecuing he earned total revenue of $60,000. He spent $30,000 on food and supplies. He also paid his wife $10,000 to help serve food. The normal profit for an entrepreneur running a barbecue business is $3,000. He also rented an industrial grill/fry truck for $12,000. An accountant would conclude that Bill's profit was

A) $20,000.

B) $8,000.

C) -$2,000.

D) $30,000.

E) $40,000.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

22) For a business, opportunity cost measures

A) all of the firm's costs including its normal profit AND its economic profit.

B) only the cost of labour and materials.

C) only the implicit costs of the business.

D) the cost of all the factors of production the firm employs.

E) only the explicit costs the firm must pay.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

23) Which of the following is an example of an implicit cost?

A) Interest paid to a bank on a building loan.

B) Liability insurance payments made only once a year.

C) The cost of using capital an owner donates to the business.

D) Dollars paid to a supplier for materials used in production.

E) Wages paid to employees.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

24) The opportunity cost of a firm using its own capital is

A) self-ownership depreciation.

B) capital loss.

C) economic depreciation.

D) normal loss.

E) economic loss.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.1 Economic Cost and Profit

25) The short run is the time frame

A) during which all costs are implicit costs.

B) that is less than a year.

C) during which the quantities of some resources are fixed.

D) during which the quantities of all resources are fixed.

E) during which the quantities of all resources are variable.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

26) The short run is a time period that is

A) equal to a day.

B) too short to change the amount of labour hired.

C) too short to change the amount of ANY resource the firm employs.

D) too short to change the size of the firm's plant.

E) long enough to change the size of the firm's plant.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

27) Which of the following is a list of fixed inputs for a hospital?

A) The lobby, the doctors, and the electricity the hospital uses.

B) The emergency room, intensive care unit and other facilities.

C) The nurses, receptionists and other employees.

D) Bandages, casts and other materials.

E) Antibiotics, pain medication and other prescription drugs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

28) The long run is defined as

A) the period of time when most resources are variable.

B) any time after one year.

C) the period of time when all resources are fixed.

D) any time after six months.

E) the period of time when all resources are variable.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

29) In the long run,

A) some resources are fixed.

B) output cannot be varied.

C) all resources are fixed.

D) all resources are variable.

E) Both answers B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

30) The total product curve shows the relationship between total product and

A) cost.

B) the marginal product.

C) the quantity of labour.

D) the average product.

E) the marginal cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

31) The marginal product of labour is the change in

A) average product from employing one more worker.

B) total revenue from employing one more worker.

C) total cost from employing one more worker.

D) total output from employing one more worker.

E) total output divided by the change in cost from employing one more worker.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

32) The marginal product of labour is

A) total product minus the quantity of labour.

B) a measure of labour.

C) total product divided by labour.

D) the change in total product divided by the increase in labour.

E) output that does not meet quality specifications.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

33) At the Punjab Bakery, two workers can decorate 14 cakes in an hour and three workers can decorate 18 cakes in an hour. The marginal product of the third worker is

A) 18 cakes, and the average product for three workers is 6 cakes.

B) 4 cakes, and the average product for three workers is 6 cakes.

C) 9 cakes and is equal to the average product.

D) 32 cakes, and the average product for three workers is 9 cakes.

E) 6 cakes, and the average product for three workers is also 6 cakes.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

34) If 9 workers can produce 1,550 units of output and 10 workers can produce 1,700 units of output, then the marginal product of the 10th worker is

A) 155 units.

B) 150 units.

C) 1,550 units.

D) 170 units.

E) 1,700 units.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

35) The table above shows the total product schedule for The X Firm. Increasing marginal returns occur until the ________ worker because ________.

A) 4th; the marginal product of the 4th worker exceeds the 3rd worker, but not the 5th worker

B) 5th; output declines with the 6th worker

C) 5th; output is maximised

D) 4th; the average product of labour is also increasing

E) 3rd; the average product of labour is also increasing

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

36) The table above shows the total product schedule for The X Firm. Decreasing marginal returns occur with the ________ worker because ________.

A) 6th; the marginal product of labour is greater than the average product of labour

B) 6th; output starts to decline

C) 5th; the marginal product of labour for the 5th worker is less than the marginal product of the 4th worker

D) 5th; the average product of labour is also declining

E) 4th; output reaches is maximum

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

37) The table above shows the total product schedule for The X Firm. The average product of labour is maximised at ________ workers because ________.

A) 3; output starts to decrease with the 4th worker

B) 5; the APL exceeds the MPL for the 5th worker

C) 5; output is maximised with the 5th worker

D) 4; the marginal product of labour is increasing with the 4th worker

E) 4; productivity is maximised when the 4th worker is employed

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

38) Increasing marginal returns to labour

A) are the result of specialisation and division of labour in the production process.

B) occur only when there are increasing marginal returns to capital.

C) describe the portion of a total product curve where the marginal product is negative.

D) mean that two workers produce less than twice the output of one worker.

E) occur when a particularly efficient worker is employed.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

39) Decreasing marginal returns occur in the short run as more labour is hired to work in a fixed sized plant because

A) the plant becomes less specialised.

B) adding more workers exhausts the possible gains from specialisation.

C) the entrepreneur does not know how to manage more workers.

D) less efficient and less productive workers are hired.

E) each worker will produce more than the worker previously hired.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

40) Jill runs a factory in Canberra that makes lie detectors. This month, Jill's 34 workers produced 680 machines. Jill's average product of labour equalled ________ lie detectors per worker.

A) 34

B) 23

C) 680

D) 20

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

41) If 10 workers can produce 1,500 units of output and 11 workers can produce 1,600 units of output, then the average product of 11 workers is

A) 136.4 units.

B) 145.5 units.

C) 100 units.

D) 1,600 units.

E) 1,500 units.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

42) Kenya owns a lawn-mowing company. His total product schedule is in the above table. The marginal product of the fourth worker is ________ lawns mowed per week.

A) 320

B) 25

C) 5

D) 80

E) 20

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

43) Kenya owns a lawn-mowing company. His total product schedule is in the above table. When 4 workers are employed, the average product is ________ lawns mowed per week.

A) 25

B) 80

C) 20

D) 5

E) 320

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

44) The above table shows the total product schedule for Hair Today, a hair-styling salon. The average product when four workers are hired is

A) 15 hair stylings.

B) 20 hair stylings.

C) 240 hair stylings.

D) 10 hair stylings.

E) the same as when five workers are hired.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

45) Under which of the following sets of circumstances is it DEFINITELY the case that the average product increases as more labour is hired?

A) The marginal product is equal to the average product.

B) The marginal product is less than the average product.

C) The marginal product is positive.

D) Total product increases as more labour is hired.

E) The marginal product is greater than the average product.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

46) The table above shows the total product schedule for Rick's Lawn Service, a garden-care company. Increasing marginal returns

A) occur as long as output increases.

B) occur at all levels of employment.

C) end when the second worker is hired.

D) never occur.

E) end when the fourth worker is hired.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

47) The table above shows the total product schedule for Rick's Lawn Service, a garden-care company. Decreasing marginal returns start to occur after the ________ worker is hired.

A) first

B) fifth

C) sixth

D) third

E) fourth

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

48) The table above shows the total product schedule for Rick's Lawn Service, a garden-care company. The average product of labour ________ when the 7th worker is hired.

A) equals 28 lawns mowed

B) reaches its maximum

C) equals 4 lawns mowed

D) equals 1 lawn mowed

E) equals 2 lawns mowed

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

49) The table above shows the total product schedule for Rick's Lawn Service, a garden-care company. When does the average product of labour equal the marginal product of labour?

A) Between the 5th and 6th workers.

B) At the 5th worker.

C) Between the 4th and 5th workers.

D) Between zero workers and the 3rd worker.

E) Between the 6th and 7th workers.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

50) In the short run, firms increase output

A) only by increasing the size of their plant.

B) only by increasing the amount of labour used.

C) only by decreasing the size of their plant.

D) only by decreasing the amount of labour used.

E) either increasing the amount of labour used or increasing the size of their plant.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

51) If 6 workers can wash 42 cars a day and 7 workers can wash 50 cars a day, then the marginal product of the 7th worker equals

A) 50 cars a day.

B) 7 cars a day.

C) 42 cars a day.

D) 7.1 cars a day.

E) 8 cars a day.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

52) If 25 workers can pick 100 punnets of strawberries per hour, then average product is

A) 125 punnets per hour.

B) 4 punnets per hour.

C) 75 punnets per hour.

D) 100 punnets per hour.

E) More information is needed about how many punnets 24 workers can pick.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.2 Short-Run Production

53) Chuck owns a factory that produces leather footballs. His total fixed cost equalled $86,000 last year. His total cost equalled $286,000 last year. Hence Chuck's

A) total variable cost equalled $372,000.

B) total variable cost was zero.

C) factory incurred an economic loss.

D) total variable cost equalled $200,000.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

54) If Melissa owns a software company that incurs no fixed costs, then

A) her total cost equals her total variable cost.

B) her total cost equals zero.

C) her total variable cost is less than her total cost.

D) she will earn an economic profit.

E) her marginal cost must equal zero.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

55) In the short run, a firm cannot change the amount of capital it uses. Therefore the cost of capital is a

A) variable cost.

B) marginal cost.

C) fixed cost.

D) productivity cost.

E) short-run cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

56) Which of the following costs can be positive when output is zero?

A) Marginal cost

B) Average variable cost

C) Total fixed cost

D) Total variable cost

E) None of the above because when output is zero there are no costs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head:13.3 Short-Run Costs

57) Because the amount of labour a firm employs can be changed, the cost of labour is known as

A) minimum cost.

B) an unavoidable cost.

C) fixed cost.

D) variable cost.

E) maximum cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

58) In the short run, total variable cost

A) includes the cost of capital.

B) is positive when output is zero.

C) includes both the cost of capital and of labour.

D) does not change when production changes.

E) includes the cost of labour.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

59) The change in cost that results from a one-unit increase in output is called the

A) average cost change.

B) per-unit variable cost.

C) marginal cost.

D) per-unit total cost.

E) average fixed cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

60) If total fixed cost increases, which of the following will NOT change?

A) Average fixed cost

B) Marginal cost

C) Average total cost

D) Total cost

E) ALL costs increase when total fixed cost increases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

61) Scott owns a law-enforcement training operation in Collingwood. He employs three trainers. The last trainer Scott hired increased Scott's total cost by $466 per week even though the trainer brought in only one new client. Hence Scott's

A) total variable cost equals $466.

B) marginal cost of the last client equals $466.

C) marginal cost of the last worker equals $233.

D) total fixed cost of the last client equals $466.

E) total variable cost equals $233.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

62) The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labour costs are the only variable costs of production. What is the total cost of producing 50 bikes?

A) $100

B) $200

C) $300

D) $400

E) $500

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

63) The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labour costs are the only variable costs of production. What is the total fixed cost of producing 64 bikes?

A) $200

B) $300

C) $400

D) $500

E) $600

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

64) The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labour costs are the only variable costs of production. What is the total variable cost of producing 60 bikes?

A) $200

B) $300

C) $400

D) $500

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

65) Paulette owns a pizza parlour. Her total cost schedule is in the above table. Her total fixed cost is equal to

A) $20.

B) $79.

C) $35.

D) $85.

E) some amount, but more information is needed to determine her fixed cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

66) Paulette owns a pizza parlour. Her total cost schedule is in the above table. Her total variable cost of producing four pizzas per hour is

A) $20.

B) $71.

C) $51.

D) $49.

E) some amount, but more information is needed to determine the total variable cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

67) Paulette owns a pizza parlour. Her total cost schedule is in the above table. Her marginal cost of producing the fifth pizza is

A) between $10.01 and $14.00.

B) between $8.01 and $10.00.

C) between $14.01 and $78.00.

D) more than $78.01.

E) $8.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

68) In the above figure, curve A is the ________ curve and curve B is the ________ curve.

A) total cost; total fixed cost

B) total fixed cost; total variable cost

C) total variable cost; total cost

D) total cost; total variable cost

E) total variable cost; total fixed cost

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

69) Average total cost equals

A) average fixed cost plus average variable cost plus marginal cost.

B) total fixed cost divided by output.

C) total cost minus total variable cost.

D) the change in total cost divided by the change in output.

E) average fixed cost plus average variable cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

70) The total product is 10 units. The average total cost is $30 and the average fixed cost is $10. What is the amount of the TOTAL variable cost?

A) $300

B) $10

C) $200

D) $20

E) It is impossible to determine with the information given.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

71) If average variable costs increase as output increases, then

A) output must be zero.

B) total cost must be constant.

C) total fixed cost must be increasing also.

D) marginal cost must be greater than average variable cost.

E) average total cost must be increasing also.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

72) Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her total cost equals

A) $300.

B) $1,200.

C) $600.

D) $12.00.

E) $10.00.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

73) Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average total cost equals

A) $2,400.

B) $300.

C) $12.00.

D) $1,200.

E) $10.00.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

74) Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average variable cost equals

A) $2,400.

B) $6.00.

C) $10.00.

D) $600.

E) $300.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

75) Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average fixed cost equals

A) $2,400.

B) $7.50.

C) $10.00.

D) $600.

E) $6.00.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

76) Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 6 workers, her total cost equals

A) $2,400.

B) $7.50.

C) $10.00.

D) $300.

E) $1,800.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

77) Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 6 workers, her average total cost equals

A) $2,400.

B) $10.00.

C) $7.50.

D) $300.

E) $4,200.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

78) Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 6 workers, her average variable cost equals

A) $7.50.

B) $300.

C) $2,400.

D) $10.00.

E) $1,800.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

79) Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 6 workers, her average fixed cost equals

A) $10.00.

B) $2.50.

C) $600.

D) $7.50.

E) $6.00.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

80) The vertical distance between the total cost curve and the total variable cost curve is equal to

A) marginal cost.

B) average fixed cost.

C) total fixed cost.

D) average variable cost.

E) average total cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

81) The U-shaped average total cost curve is

A) a result of constant marginal returns.

B) a result of firms' wanting to find the output level where cost is at its minimum.

C) a result of increasing marginal returns.

D) unrealistic because average total cost always increases as output increases.

E) the result of average fixed cost falling and decreasing marginal returns as output increases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

82) In a graph of a typical firm's AFC, ATC, and AVC curves, the

A) AVC curve crosses the MC curve at the point where the MC is at its minimum.

B) distance between the ATC curve and the AVC curve equals the AFC.

C) AVC curve lies above the ATC curve.

D) ATC curve lies below the AFC curve.

E) distance between the AVC curve and the AFC curve equals the ATC.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

83) As we observe the cost curves graph, we see that the

A) MC constantly falls as output increases.

B) ATC curve always has a negative slope.

C) MC curve cannot be U-shaped.

D) MC curve intersects the ATC curve at its maximum.

E) MC curve intersects the AVC curve and ATC curve at their minimums.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

84) The relationship between the MP and MC curves is

A) that the MP is not defined when the MC curve has a negative slope.

B) there is no predictable relationship.

C) over the range where the MC curve has a positive slope, the MP curve also has a positive slope.

D) over the range where the MP curve has a positive slope, the MC curve has a negative slope.

E) over the range where the MP curve has a negative slope, the MC curve also has a negative slope.

Diff: 0 Type: MC

A-Head: 13.3 Short-Run Costs

AACSB: Reflective thinking

85) If marginal cost increases when output increases, then

A) average total cost must decrease when output increases.

B) total cost is constant.

C) average variable cost must increase when output increases.

D) average fixed cost is constant.

E) marginal product must decrease when output increases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

86) When the marginal product is increasing as the quantity increases, then, as the quantity increases, the

A) total cost is decreasing.

B) fixed cost is increasing.

C) average product is decreasing.

D) total product is decreasing.

E) marginal cost is decreasing.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

87) Cost curves shift if

i. technology changes.

ii. the prices of factors of production change.

iii. productivity changes.

A) Only i

B) i and ii

C) Only ii

D) i and iii

E) i, ii and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

78) Total cost is equal to the sum of

A) total variable cost and total product.

B) the marginal cost plus the total fixed cost plus the total variable cost.

C) total variable cost and total fixed cost.

D) total fixed cost and total product.

E) total revenue and total cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

79) Jay set up his hot dog stand near the business district. His total variable cost includes the

A) interest he pays on the funds he borrowed to pay for advertising.

B) annual insurance for the hot dog stand.

C) cost of the hot dogs and condiments.

D) revenue he gets when he sells his first hot dog each day.

E) cost of buying the hot dog stand.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

80) To produce 10 shirts, the total cost is $80; to produce 11 shirts, the total cost is $99. The marginal cost of the 11th shirt is equal to

A) $80.

B) $19.

C) $99.

D) $9.

E) $8.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

81) To produce 10 shirts, the total cost is $80; to produce 11 shirts, the total cost is $99. The average total cost of the 11th shirt is equal to

A) $19.

B) $9.

C) $8.

D) $80.

E) $99.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.3 Short-Run Costs

82) Which of the following is FALSE?

A) In the long run, the firm has no fixed inputs.

B) In the long run, both the amount of capital and labour used by the firm can be changed.

C) Fixed costs increase in the long run.

D) As a firm produces more output, eventually it experiences diseconomies of scale.

E) Long-run average variable costs equal long-run average total costs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

83) In the long run,

A) total variable cost cannot be changed.

B) all inputs are fixed.

C) all inputs can be varied.

D) some inputs are variable and other inputs are fixed.

E) output is fixed.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

84) When a firm's long-run average total cost falls as its output increases, the firm is experiencing

A) constant returns to scale.

B) decreasing marginal returns.

C) economies of scale.

D) decreasing cost of marginal returns.

E) diseconomies of scale.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

85) If a firm increases its output and its average cost decreases, the firm is experiencing which of the following?

A) Increasing marginal returns

B) Diseconomies of scale

C) Decreasing cost of marginal returns

D) Random luck

E) Economies of scale

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

86) The main sources of economies of scale are

A) decreasing marginal cost and increasing marginal product.

B) caused by the difficulty of coordinating and controlling large enterprises.

C) an increase in a firm's bargaining power to lower the wage rate and the cost of capital as the firm's output increases.

D) increasing marginal cost and decreasing marginal product.

E) specialisation of resources such as labour and capital.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

87) Diseconomies of scale is

A) a short-run phenomenon.

B) a long-run phenomenon.

C) the result of decreasing marginal returns.

D) possible only when the firm's plant size is fixed.

E) the result of increasing marginal returns.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

88) A firm decreases its scale of operation and discovers that its long-run average costs decrease. Which of the following does this indicate?

A) The firm's scale initially was too small to experience economies of scale.

B) Its long-run marginal cost was smaller with the larger plant than with the smaller plant.

C) Labour's marginal product has increased.

D) The firm's scale initially was so large that it experienced diseconomies of scale.

E) Diseconomies of scale were absent in the larger plant.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

89) When a firm becomes so large it is difficult to coordinate and control, it is most likely that

A) there are increasing marginal returns to increasing the firm's plant size.

B) average total cost begins to fall.

C) long-run average costs become negative.

D) economies of scale have begun.

E) diseconomies of scale have begun.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

90) The long-run average cost curve

A) always falls as output increases.

B) is the sum of a firm's short-run average cost curves.

C) shows the lowest average cost facing a firm as it increases output changing both its plant and labour force.

D) always rises as output increases.

E) initially rises when output increases and then falls when output increases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

91) The long-run average cost curve is U-shaped because of which of the following?

A) Constant fixed costs as output is increased.

B) Decreasing average fixed costs as output is increased.

C) Economies and diseconomies of scale.

D) Decreasing marginal returns as more labour is hired.

E) Increasing marginal returns as more labour is hired.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

92) The portion of the long-run average cost curve in which economies of scale are experienced shows that, as output increases, the

A) average total cost decreases.

B) average variable cost is constant and the average fixed cost decreases.

C) average total cost increases.

D) marginal cost decreases.

E) marginal cost increases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

93) When the long-run average cost curve is downward sloping,

A) economies of scale are present.

B) diseconomies of scale are present.

C) the average fixed cost curve must be upward sloping.

D) the firm experiences constant returns to scale.

E) The premise of the question is wrong because long-run average cost curves never slope downward.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

94) Diseconomies of scale can occur as a result of which of the following?

A) Increasing marginal returns as the firm increases its size.

B) Lower total fixed cost as the firm increases its size.

C) Greater specialisation of labour and capital as the firm increases its size.

D) Management difficulties as the firm increases its size.

E) Increases in the labour force not matched by increases in the plant.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

95) A firm's long-run average cost curve shows the ________ average cost at which it is possible to produce each output when the firm has had ________ time to change both its labour force and its plant.

A) lowest; sufficient

B) lowest; insufficient

C) highest; sufficient

D) average; sufficient

E) highest; insufficient

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs

96) Consider a Coles hypermaket and a 7-Eleven store. In the long run,

A) the 7-Eleven store will definitely have lower average costs because their small stores are cheaper to build.

B) Coles or 7-Eleven may have economies of scale depending on how many customers are served.

C) Coles average total cost will decline faster than the 7-Eleven store and experience diseconomies of scale.

D) Coles will definitely have lower average costs because hypermarkets serve many more customers.

E) the 7-Eleven store's average total cost will be lower than Coles and always experience economies of scale.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 13.4 Long-Run Costs