Production and Cost – Chapter 14 Test Bank 9e - Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade by Robin Bade. DOCX document preview.
View Product website:
https://selldocx.com/docx/production-and-cost-chapter-14-test-bank-9e-1225
Foundations of Microeconomics, 9e (Bade)
Chapter 14 Production and Cost
14.1 Economic Cost and Profit
1) The primary goal of a business firm is to
A) promote fairness.
B) make a quality product.
C) promote workforce job satisfaction.
D) maximize profit.
E) increase its production.
Topic: Firm's goal
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
2) As a firm, Apple's goal is to
A) maximize profit.
B) develop new products.
C) maximize sales.
D) maximize revenue.
E) maximize production.
Topic: Firm's goal
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Application of knowledge
3) A firm's fundamental goal is
A) different for each firm.
B) to make a quality product.
C) to maximize profit.
D) to gain market share.
E) to decrease its employment of workers in order to cut its costs.
Topic: Firm's goal
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
4) Accountants calculate
A) economic depreciation as part of the firm's cost.
B) depreciation using Internal Revenue Service rules.
C) the opportunity cost of all the resources the firm uses.
D) all the firm's implicit costs but only a few of its explicit costs.
E) All of the above answers are correct.
Topic: Accounting cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
5) John fishes for a living. Last year, he sold $100,000 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 IRS rules, was $15,000. What was John's profit as would be calculated by an accountant?
A) $165,000
B) $100,000
C) $65,000
D) $35,000
E) None of the above answers is correct.
Topic: Accounting profit
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
6) Lauren runs a chili restaurant in San Francisco. Her total revenue last year equaled $111,000. The rent on her restaurant totaled $48,000. Her labor costs totaled $43,000. Her materials, food and other variable costs totaled $19,000. To Lauren's accountant, Lauren
A) incurred a loss of $1,000.
B) earned a profit of $1,000.
C) incurred a loss of $111,000.
D) earned a profit of $111,000.
E) had a total cost equal to $91,000.
Topic: Accounting cost
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
7) Lauren runs a chili restaurant in San Francisco. Her total revenue last year was $110,000. The rent on her restaurant was $48,000, her labor 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) $150,000.
B) $63,000.
C) $50,000.
D) $110,000.
E) $0 because Lauren did not work as a biologist.
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
8) When an economist uses the term "cost" referring to a firm, the economist refers to the
A) price of the good to the consumer.
B) explicit cost of producing a good or service but not the implicit cost of producing a good or service.
C) implicit cost of producing a good or service but not the explicit cost of producing a good or service.
D) opportunity cost of producing a good or service, which includes both implicit and explicit cost.
E) cost that can be actually verified and measured.
Topic: Opportunity cost
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
9) From a firm's viewpoint, opportunity cost is the
A) best alternative use customers can find for the firm's output.
B) cost the firm must pay for the factors of production it employs to attract them from their best alternative use.
C) accounting cost of resources.
D) price a firm can charge for its output.
E) cost of acquiring the opportunity to sell to its customers.
Topic: Opportunity cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
10) 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 definitely making an economic profit because it must be minimizing its opportunity cost.
C) The firm is incurring an economic loss if implicit costs are $10,000.
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.
Topic: Economic profit
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
11) The cost that a firm pays in money to hire a resource is referred to as ________ cost.
A) a minimized
B) a maximized
C) an explicit
D) an implicit
E) a total
Topic: Explicit cost
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
12) A cost paid in money is
A) not an opportunity cost.
B) an implicit cost and an opportunity cost.
C) an explicit cost and an opportunity cost.
D) not an accounting cost.
E) an explicit cost but not an opportunity cost.
Topic: Explicit cost
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
13) Which of the following is an explicit cost in Jim's business venture?
A) the salary Jim could have earned at another job
B) the interest Jim does not earn because he invested his savings in his business
C) the wages Jim pays his workers
D) Jim's normal profit
E) Answers A, B, and D are correct.
Topic: Explicit cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
14) Darryl runs a ranch in Jackson, Wyoming. The interest on the debt he incurred to buy his ranch totals $3,000 per year. For Darryl, the interest is
A) an implicit cost.
B) an explicit cost.
C) his normal cost.
D) his normal profit.
E) part of his economic profit.
Topic: Explicit cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
15) Which of the following is an explicit cost of production?
A) wages paid to workers
B) the electric bill
C) purchases of raw material
D) Only answers A and B are explicit costs because the purchases of raw material is only an opportunity cost.
E) Answers A, B, and C are all correct.
Topic: Explicit cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
16) When Ford hires Ernst and Young Consulting to help Ford redesign its marketing, Ford's payment to Ernst and Young is classified as
A) an explicit cost.
B) depreciation.
C) an implicit cost.
D) normal profit.
E) economic profit.
Topic: Explicit cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
17) A cost incurred in the production of a good or service and for which the firm does not need to make a direct monetary payment, is referred to as ________ cost.
A) a minimized
B) a maximized
C) an explicit
D) an implicit
E) an invisible
Topic: Implicit cost
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
18) ________ cost is defined as a cost of production that does not entail a direct money payment.
A) An explicit
B) An implicit
C) A total
D) A fixed
E) A marginal
Topic: Implicit cost
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
19) If a business owner decided to expand her business but rather than borrowing money from a bank used her own funds, then
A) she would be unable to earn a normal profit.
B) there is no cost associated with the expansion.
C) she would forego the opportunity to earn interest on the money.
D) the amount of her funds she used is an explicit cost.
E) the amount of her funds she used is part of her normal profit.
Topic: Implicit cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
20) Which of the following is an implicit cost?
i. wages paid to workers
ii. the normal profit
iii. the electric bill
A) i only
B) ii only
C) i and ii
D) ii and iii
E) Neither i, ii, nor iii
Topic: Implicit cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
21) Which of the following is an example of an implicit cost?
A) rent on a building
B) the cost of fertilizer for a farmer
C) the economic depreciation of capital equipment the business owns
D) the cost of fuel and materials.
E) wages paid to workers
Topic: Implicit cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
22) Which of the following is an implicit cost in Jim's business venture?
i. the salary Jim could have earned at another job
ii. the interest Jim must pay on the loan he incurred to help open his business
iii. the interest Jim lost when he used his savings to help open his business
A) i only
B) ii only
C) iii only
D) i and iii
E) ii and iii
Topic: Implicit cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
23) 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) ii and iii
B) i and iii
C) iii only
D) i, ii, and iii
E) i only
Topic: Implicit cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
24) The opportunity cost of owning and using a firm's capital is defined as the capital's
A) variable cost.
B) fixed cost.
C) economic depreciation.
D) nonpayment depreciation.
E) explicit cost.
Topic: Economic depreciation
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
25) Economic depreciation is the
A) fall in value of the firm's capital, calculating using IRS rules.
B) opportunity cost of owning and using the firm's capital, measured as the change in market value.
C) decrease in the value of finished goods and services that are held in inventories prior to being sold.
D) term given to a fall in a company's stock price.
E) name given to how accountants calculate the depreciation of the company's capital.
Topic: Economic depreciation
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
26) Suppose Billy owns a hair salon in Dallas. 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) $1,000.
B) $200.
C) $800.
D) $1,800.
E) None of the above answers is correct.
Topic: Economic depreciation
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
27) A firm pays $50,000 for a machine that is used in production for one year, after which it is sold for $40,000 to another firm. The $10,000 difference is
A) an explicit cost of production.
B) economic depreciation, an implicit cost of production.
C) normal profit.
D) not counted as an economic cost of production.
E) not an opportunity cost because it is not actually paid.
Topic: Economic depreciation
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
28) Interest is considered a(n)
A) explicit cost when the firm pays a bank to borrow money.
B) implicit cost when the firm owner uses his or her own funds to buy capital.
C) return to entrepreneurship if the firm owner uses her own funds to buy capital.
D) form of depreciation if the cost of borrowing increases.
E) Both answers A and B are true.
Topic: Interest
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Application of knowledge
29) Normal profit is a(n) ________ cost because ________.
A) implicit; it represents the cost of not running another firm
B) explicit; a firm must pay income taxes on its profit
C) implicit; it represents the cost of economic depreciation
D) accounting; wages are considered an explicit cost
E) depreciation; the equipment the firm owns wears out over time
Topic: Normal profit
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Application of knowledge
30) In economics, a "normal profit" is the return to
A) labor.
B) capital.
C) land.
D) entrepreneurship.
E) Answers B and D are correct.
Topic: Normal profit
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
31) The return to entrepreneurship is known as
A) economic profit.
B) normal profit.
C) opportunity revenue.
D) normal revenue.
E) explicit profit.
Topic: Normal profit
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
32) A normal profit is defined as
A) total revenue minus explicit costs.
B) the same thing as accounting profit.
C) the return to entrepreneurship.
D) total revenue minus implicit costs.
E) the economic profit minus the implicit costs.
Topic: Normal profit
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
33) Normal profit is
A) part of the firm's opportunity costs.
B) the same as economic profits.
C) part of the firm's explicit costs.
D) Answers A and B are correct.
E) Answers A and C are correct.
Topic: Normal profit
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
34) A normal profit is
A) part of a firm's opportunity cost.
B) equal to total revenue minus total opportunity cost.
C) the same as economic profit.
D) the same as accounting profit.
E) almost always zero if the company is run efficiently.
Topic: Normal profit
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
35) A firm's total revenue minus its total opportunity cost is called its
A) accounting profit.
B) normal profit.
C) economic profit.
D) abnormal profit.
E) entrepreneur's profit.
Topic: Economic profit
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
36) Economic profit equals total revenue minus total
A) explicit costs.
B) opportunity costs.
C) implicit costs.
D) accounting costs.
E) entrepreneur's costs.
Topic: Economic profit
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
37) Which of the following is TRUE?
A) Profit as calculated by accountants and economic profit are not necessarily equal.
B) Profit as calculated by accountants is always smaller than economic profit.
C) Economic profit ignores implicit costs.
D) The Internal Revenue Service taxes the firm's economic profit but not its normal profit.
E) The Internal Revenue Service taxes the firm's normal profit but not its economic profit.
Topic: Economic profit
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
38) 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.
A) Her accountant calculates her profit as $40,000.
B) She has an economic loss.
C) Her explicit cost is $105,000.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
Topic: Economic profit
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
39) Jennifer owns a pig farm near Salina, Kansas. Last year she earned $39,000 in total revenue while incurring $38,000 in explicit costs. She could have earned $27,000 as a teacher in Salina. These are all her revenue and costs. Therefore Jennifer earned an
A) accounting profit of $1,000 but incurred an economic loss of $26,000.
B) accounting profit of $1,000 but incurred an economic loss of $65,000.
C) accounting profit of $1,000 but incurred an economic loss of $38,000.
D) economic profit of $1,000.
E) None of the above answers is correct.
Topic: Economic profit
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
40) 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) $250,000
B) $200,000
C) $190,000
D) $167,000
E) $180,000
Topic: Economic profit
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
41) 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.
A) His accounting profit is $350,000.
B) His economic profit is $150,000.
C) His economic profit is zero.
D) His accounting profit is zero.
E) None of the above answers is correct.
Topic: Economic profit
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
42) 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.
A) His explicit costs are $330,000.
B) His implicit costs are $170,000.
C) His economic profit is zero.
D) Only answers A and C are correct.
E) Answers A, B, and C are correct.
Topic: Economic profit
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
43) Suppose that a firm earned $500,000 in total revenue. At the same time, it incurred labor costs of $200,000; economic depreciation of $50,000; normal profit of $75,000; interest paid to the bank of $25,000; and used other factors of production that cost $100,000. The economic profit earned by the firm equals
A) $275,000.
B) $175,000.
C) $50,000.
D) $200,000.
E) $500,000.
Topic: Economic profit
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
44) Bill is an economics professor who earns $40,000 teaching but decides to leave 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) $30,000.
B) $20,000.
C) $8,000.
D) -$2,000.
E) $40,000.
Topic: Accounting profit
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
45) Bill is an economics professor who earns $37,000 teaching but decides to leave and fulfill his dream of catering barbecues. During his 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. Bill also rented an industrial grill/fry truck for $12,000. Bill had an economic
A) profit of $20,000.
B) loss of -$32,000.
C) loss of -$42,000.
D) profit of $28,000.
E) profit of zero.
Topic: Economic loss
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
46) The paramount goal of a firm is to
A) maximize profit.
B) maximize sales.
C) maximize total revenue.
D) minimize costs.
E) force its competitors into bankruptcy.
Topic: Firm's goal
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
47) For a business, opportunity cost measures
A) only the cost of labor and materials.
B) only the implicit costs of the business.
C) the cost of all the factors of production the firm employs.
D) only the explicit costs the firm must pay.
E) all of the firm's costs including its normal profit and its economic profit.
Topic: Opportunity cost
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
48) Costs paid in money to hire a resource is
A) normal profit.
B) an implicit cost.
C) an explicit cost.
D) an alternative-use cost.
E) economic profit.
Topic: Explicit cost
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
49) Which of the following is an example of an implicit cost?
A) wages paid to employees
B) interest paid to a bank on a building loan
C) the cost of using capital an owner donates to the business
D) dollars paid to a supplier for materials used in production
E) liability insurance payments made only once a year
Topic: Implicit cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
50) The opportunity cost of a firm using its own capital is
A) economic depreciation.
B) self ownership depreciation.
C) economic loss.
D) normal loss.
E) capital loss.
Topic: Normal profit
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
51) The difference between a firm's total revenue and its total cost is its ________ profit.
A) explicit
B) normal
C) economic
D) accounting
E) excess
Topic: Economic profit
Skill: Level 1: Definition
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
14.2 Short-Run Production
1) The short run is the time frame
A) during which the quantities of all resources are fixed.
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 variable.
E) during which all costs are implicit costs.
Topic: Short run
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
2) The short run is
A) less than one year.
B) the time frame in which all resources are fixed.
C) the time frame in which some resources are fixed.
D) the time frame in which output is fixed.
E) a time frame short enough so that some costs are explicit costs.
Topic: Short run
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
3) Austin owns the Fruit Bowl food truck. Which of the following would be short run decisions for Austin?
i. how much fruit to buy
ii. how many workers to hire
iii. installing a new stove in his truck
A) i and ii
B) i, ii and iii
C) i only
D) ii only
E) ii and iii only
Topic: Short-run decisions
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Application of knowledge
4) The short run is a time period that is
A) equal to a day.
B) too short to change the amount of labor hired.
C) too short to change the size of the firm's plant.
D) long enough to change the size of the firm's plant.
E) too short to change the amount of any resource the firm employs.
Topic: Short run
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
5) To produce more output in the short run, a firm must employ more of
A) all its resources.
B) its fixed resources.
C) its variable resources.
D) the least costly resources regardless of whether they are fixed or variable.
E) Firms cannot produce more output in the short run.
Topic: Short run
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
6) Which of the following is a list of fixed inputs for a hospital?
A) bandages, casts, and other materials
B) antibiotics, pain medication, and other prescription drugs
C) the emergency room, intensive care unit, and other facilities
D) the nurses, receptionists, and other employees
E) the lobby, the doctors, and the electricity it uses
Topic: Fixed input
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
7) The long run is a time period that is
A) five years or longer.
B) long enough to change the amount of labor employed.
C) long enough to change the size of the firm's plant and all other inputs.
D) long enough to change the amount of labor employed but not to change the size of the plant.
E) None of the above answers describes the long run.
Topic: Long run
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
8) The long run is defined as
A) any time after six months.
B) any time after one year.
C) the period of time when all resources are fixed.
D) the period of time when most (more than 50 percent) resources are variable.
E) the period of time when all resources are variable.
Topic: Long run
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
9) The long run is a time period in which
A) some of the firm's resources are fixed.
B) all of the firm's resources are fixed.
C) all of the firm's resources are variable.
D) the firm cannot increase its output.
E) all costs become explicit costs.
Topic: Long run
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
10) In the long run,
A) some resources are fixed.
B) all resources are variable.
C) output cannot be varied.
D) all resources are fixed.
E) Both answers B and C are correct.
Topic: Long run
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
11) In the long run, the firm ________ change the number of workers it employs and ________ change the size of its plant.
A) can; can
B) can; cannot
C) cannot; can
D) cannot; cannot
E) In order to answer the question, more information is needed about how long the long run is.
Topic: Long run
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
12) The total product curve shows the relationship between total product and
A) cost.
B) the quantity of labor.
C) the average product.
D) the marginal product.
E) the marginal cost.
Topic: Total product curve
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
13) Moving along the total product curve, which of the following is held constant?
A) quantity of labor
B) total product
C) technology
D) total cost
E) None of the above answers is correct.
Topic: Total product curve
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
14) Which of the following statements correctly describes a total product curve?
A) Points above the total produce curve are efficient.
B) The curve shows that output always increases as labor employed increases.
C) The curve separates attainable outputs from unattainable outputs.
D) The curve shows minimum levels of output.
E) The curve first falls, reaches a minimum, and then rises.
Topic: Total product curve
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
15) The figure shows the total product curve for the Fruit Bowl food truck. When labor increases from 1 worker to 2 workers, total product increases to ________ meals and marginal product equals ________ bowls.
A) 10; 5
B) 5; 10
C) 2; 2
D) 10; 2
E) 2; 5
Topic: Total product curve
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Application of knowledge
16) The figure shows the total product curve for the Fruit Bowl food truck. If the food truck increases production from 10 to 17 meals per hour, the marginal product is in the range where it ________ and the marginal product is ________ the average product.
A) increases; greater than
B) increases; less than
C) decreases; greater than
D) increases; is equal to
E) does not change; is equal to
Topic: Marginal product and average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
17) The figure shows the total product curve for the Fruit Bowl food truck. If production increases from 19 to 20 meals per hour, the marginal product is in the range where it ________ and the marginal product ________ the average product.
A) decreases; is greater than
B) increases; is less than
C) increases; is greater than
D) reaches a maximum; equals
E) decreases; is less than
Topic: Marginal product and average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
18) The figure shows the total product curve for the Fruit Bowl food truck. As the food truck hires ________ workers, the marginal product(s) ________.
A) up to 3; are increasing
B) up to 3; are decreasing
C) between 3 and 5; are increasing
D) between 3 and 5; equal to the average product
E) over 4; are greater than the average product
Topic: Marginal product and average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
19) The marginal product of labor is the change in
A) total cost from employing one more worker.
B) total revenue from employing one more worker.
C) average product 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.
Topic: Marginal product
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
20) The marginal product of labor equals the change in ________ from a one-unit increase in the quantity of labor.
A) total product
B) average product
C) total cost
D) the slope of the average product curve
E) the wage rate
Topic: Marginal product
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
21) The marginal product of labor is
A) total product divided by labor.
B) the change in total product divided by the increase in labor.
C) a measure of labor.
D) output that does not meet quality specifications.
E) total product minus the quantity of labor.
Topic: Marginal product
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
22) When the slope of the total product curve is steep, the marginal product is
A) zero.
B) negative.
C) high.
D) low.
E) not defined.
Topic: Marginal product
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
23) 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) 9 cakes and is equal to the average product.
C) 4 cakes, and the average product for three workers is 6 cakes.
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.
Topic: Marginal product
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
24) Jill runs a factory that makes lie detectors in Little Rock, Arkansas. This month, Jill's 34 workers produced 690 machines. Suppose Jill adds one more worker and, as a result, her factory's output increases to 700. Jill's marginal product of labor from the last worker hired equals
A) 10.
B) 20.
C) 690.
D) 700.
E) None of the above answers is correct.
Topic: Marginal product
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
25) 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) 1,700 units.
B) 1,550 units.
C) 150 units.
D) 170 units.
E) 155 units.
Topic: Marginal product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
26) Increasing marginal returns always occurs when the
A) marginal product of an additional worker exceeds the marginal product of the previous worker.
B) average product of an additional worker exceeds the average product of the previous worker.
C) marginal product of an additional worker is less than the marginal product of the previous worker.
D) average product of an additional worker is less than the average product of the previous worker.
E) marginal product of an additional worker exceeds the average product of the previous worker.
Topic: Increasing marginal returns
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
Quantity of Labor (workers) | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
Total Product (units per hour) | 0 | 2 | 5 | 9 | 15 | 18 | 17 |
27) 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 is maximized
C) 5th; output declines with the 6th worker
D) 3rd; the average product of labor is also increasing
E) 4th; the average product of labor is also increasing
Topic: Increasing marginal returns
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
28) The table above shows the total product schedule for The X Firm. Decreasing marginal returns occur with the ________ worker because ________.
A) 5th; the marginal product of labor for the 5th worker is less than the marginal product of the 4th worker
B) 5th; the average product of labor is also declining
C) 4th; output reaches is maximum
D) 6th; output starts to decline
E) 6th; the marginal product of labor is greater than the average product of labor
Topic: Decreasing marginal returns
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
29) The table above shows the total product schedule for The X Firm. The average product of labor is maximized at ________ workers because ________.
A) 4; productivity is maximized when the 4th worker is employed
B) 3; output starts to decrease with the 4th worker
C) 5; output is maximized with the 5th worker
D) 4; the marginal product of labor is increasing with the 4th worker
E) 5; the APL exceeds the MPL for the 5th worker
Topic: Average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
30) Jeremiah runs a bullfrog farm in Frogville, Oklahoma. Jeremiah notices that each additional worker he employs adds more to the total output than does the previous worker. Jeremiah must be
A) experiencing increasing marginal returns to labor.
B) producing at a point where the average product of labor decreases as more workers are employed.
C) producing at a point below his total product curve.
D) mistaken because the law of decreasing returns points out that it cannot be the case that the marginal product increases as more workers are employed.
E) producing at a point where the average product of labor exceeds the marginal product of labor.
Topic: Increasing marginal returns
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
31) Increasing marginal returns to labor
A) occur when a particularly efficient worker is employed.
B) describe the portion of a total product curve where the marginal product is negative.
C) mean that two workers produce less than twice the output of one worker.
D) are the result of specialization and division of labor in the production process.
E) occur only when there are increasing marginal returns to capital.
Topic: Increasing marginal returns
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
32) When the marginal product of an additional worker is less than the marginal product of the previous worker, there are ________ returns to labor.
A) increasing total
B) decreasing total
C) increasing marginal
D) decreasing marginal
E) constant average
Topic: Decreasing marginal returns
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
33) Decreasing marginal returns
A) can be avoided if a firm watches costs.
B) affect all firms, but at different production levels.
C) affect all firms at the same level of production.
D) disappear when the firm produces a large enough level of output.
E) mean that the average product of labor starts as a negative number and then becomes positive.
Topic: Decreasing marginal returns
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
34) Decreasing marginal returns occur in the short run as more labor is hired to work in a fixed sized plant because
A) less efficient and less productive workers are hired.
B) adding more workers exhausts the possible gains from specialization.
C) the entrepreneur does not know how to manage more workers.
D) each worker will produce more than the worker previously hired.
E) the plant becomes less specialized.
Topic: Decreasing marginal returns
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
35) The law of decreasing returns states that as a firm uses more of a
A) fixed input, with a given quantity of variable inputs, the marginal product of the fixed input eventually decreases.
B) variable input, total output will increase indefinitely.
C) variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases.
D) variable input, output will begin to fall immediately.
E) fixed input and a variable input, the marginal product of the fixed input and the marginal product of the variable input both decrease.
Topic: Law of decreasing returns
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
36) Average product is equal to
A) marginal product + total product.
B) total product ÷ marginal product.
C) total product ÷ quantity of labor.
D) total product × quantity of labor.
E) marginal product × quantity of labor.
Topic: Average product
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
37) Jill runs a factory that makes lie detectors in Little Rock, Arkansas. This month, Jill's 34 workers produced 680 machines. Jill's average product of labor equaled ________ lie detectors per worker.
A) 680
B) 34
C) 23
D) 20
E) None of the above answers is correct.
Topic: Average product
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
38) 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) 1,600 units.
B) 1,500 units.
C) 145.5 units.
D) 100 units.
E) 136.4 units.
Topic: Average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
39) Denise owns a plant that produces watch parts in Ohio. Denise noticed that when she hired the last worker, that worker's marginal product exceeded the marginal product of the previous worker. As a result, when the last worker was hired, Denise's average product of labor
A) decreased.
B) increased.
C) did not change.
D) perhaps changed, but there is not enough information to determine whether or not it did change.
E) equals the marginal product of labor.
Topic: Average product
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
40) 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) 80
B) 25
C) 20
D) 5
E) 320
Topic: Marginal product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
41) 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) 80
B) 25
C) 20
D) 5
E) 320
Topic: Average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
42) Kenya owns a lawn mowing company. His total product schedule is in the above table. Decreasing marginal returns first occur with the
A) first worker.
B) second worker.
C) third worker.
D) fourth worker.
E) fifth worker.
Topic: Decreasing marginal returns
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
43) The above table shows the total product schedule for Hair Today, a hair styling salon. Based on the table, the marginal product for Hair Today
A) never reaches a maximum.
B) decreases after the 1st worker.
C) reaches a maximum with the 4th worker.
D) reaches a maximum with the 3rd worker.
E) reaches a maximum with the 5th worker.
Topic: Marginal product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
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) 10 hair stylings.
B) 15 hair stylings.
C) 20 hair stylings.
D) 240 hair stylings.
E) the same as when five workers are hired.
Topic: Average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
45) Which of the following is correct about marginal and average products?
A) When the marginal product is increasing, the average product must be increasing.
B) When the marginal product exceeds the average product, the average product must be increasing.
C) When the average product is increasing, the marginal product must be decreasing.
D) When the marginal product is decreasing, the average product must be decreasing.
E) When the marginal product is increasing, the average product must be decreasing.
Topic: Marginal and average product
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
46) When the average product is at its maximum
A) the marginal product is increasing as output increases.
B) the marginal product is negative.
C) it is equal to the marginal product.
D) total product is also at its maximum.
E) total product is at its minimum.
Topic: Marginal and average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
47) Under which of the following sets of circumstances is it definitely the case that the average product increases as more labor is hired?
A) Total product increases as more labor is hired.
B) The marginal product is equal to the average product.
C) The marginal product is positive.
D) The marginal product is greater than the average product.
E) The marginal product is less than the average product.
Topic: Marginal and average product
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
48) The average product is the greatest in the short run when the
A) total product is maximized.
B) marginal product is equal to zero.
C) marginal product is maximized.
D) marginal product is equal to the average product.
E) marginal product is greater than the average product.
Topic: Marginal and average product
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
49) The table above shows the total product schedule for Rick's Lawn Service, a yard care company. The total product schedule shows
A) increasing marginal returns when the 6th worker is hired.
B) decreasing marginal returns when the 1st worker is hired.
C) first increasing and then decreasing marginal returns.
D) output first increases then increases.
E) only decreasing marginal returns.
Topic: Total product schedule
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
50) The table above shows the total product schedule for Rick's Lawn Service, a yard care company. Increasing marginal returns
A) end when the fourth worker is hired.
B) occur at all levels of employment.
C) occur as long as output increases.
D) end when the second worker is hired.
E) never occur.
Topic: Increasing marginal returns
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
51) The table above shows the total product schedule for Rick's Lawn Service, a yard care company. Decreasing marginal returns start to occur after the ________ worker is hired.
A) first
B) fourth
C) fifth
D) sixth
E) third
Topic: Decreasing marginal returns
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
52) The table above shows the total product schedule for Rick's Lawn Service, a yard care company. When the 4th worker is hired, the ________ product of labor equals ________ lawns mowed.
A) average; 60
B) average; 3.75
C) marginal; 3.75
D) marginal; 0
E) marginal; 15
Topic: Average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
53) The table above shows the total product schedule for Rick's Lawn Service, a yard care company. The average product of labor ________ when the 7th worker is hired.
A) reaches its maximum
B) equals 1 lawn mowed
C) equals 28 lawns mowed
D) equals 4 lawns mowed
E) equals 2 lawns mowed
Topic: Average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
54) The table above shows the total product schedule for Rick's Lawn Service, a yard care company. When the ________ worker is hired, the average product of labor ________ the marginal product of labor.
A) 4th; exceeds
B) 5th; exceeds
C) 6th; exceeds
D) 7th; is less than
E) 7th; equals
Topic: Marginal and average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
55) The table above shows the total product schedule for Rick's Lawn Service, a yard care company. When does the average product of labor equal the marginal product of labor?
A) between the 4th and 5th workers
B) at the 5th worker
C) between the 5th and 6th workers
D) between the 6th and 7th workers
E) between 0 workers and the 3rd worker
Topic: Marginal and average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
56) The short run is a time period during which
A) some of the firm's resources are fixed.
B) all of the firm's resources are fixed.
C) all of the firm's resources are variable.
D) the fixed cost equals zero.
E) the firm cannot increase its output.
Topic: Short run
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
57) In the short run, firms increase output
A) only by increasing the size of their plant.
B) only by decreasing the size of their plant.
C) only by increasing the amount of labor used.
D) only by decreasing the amount of labor used.
E) either increasing the amount of labor used or increasing the size of their plant.
Topic: Short run
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
58) Which of the following is correct?
A) The short run for a firm can be longer than the long run for the same firm.
B) The short run is the same for all firms.
C) The long run is the time frame in which the quantities of all resources can be varied.
D) The long run is the time frame in which all resources are fixed.
E) The long run does not exist for some firms.
Topic: Long run
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
59) Marginal product equals
A) the total product produced by a certain amount of labor.
B) the change in total product that results from a one-unit increase in the quantity of labor employed.
C) total product divided by the quantity of labor.
D) the amount of labor needed to produce an increase in production.
E) total product minus the quantity of labor.
Topic: Marginal product
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
60) 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) 7.1 cars a day.
B) 7 cars a day.
C) 42 cars a day.
D) 50 cars a day.
E) 8 cars a day.
Topic: Marginal product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
61) Increasing marginal returns occur when the
A) average product of an additional worker is less than the average product of the previous worker.
B) marginal product of an additional worker exceeds the marginal product of the previous worker.
C) marginal product of labor is less than the average product of labor.
D) total output of the firm is at its maximum.
E) total product curve is horizontal.
Topic: Increasing marginal returns
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
62) If 25 workers can pick 100 flats of strawberries per hour, then average product is
A) 100 flats per hour.
B) 125 flats per hour.
C) 75 flats per hour.
D) 4 flats per hour.
E) More information is needed about how many flats 24 workers can pick.
Topic: Average product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
14.3 Short-Run Cost
1) Total cost includes
A) the cost of variable resources only.
B) the cost of fixed resources only.
C) the cost of both variable and fixed resources.
D) the cost of neither variable nor fixed resources.
E) all explicit costs and all the implicit costs that actually must be paid using money.
Topic: Total cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
2) Chuck owns a factory that produces leather footballs. His total fixed cost equaled $86,000 last year. His total cost equaled $286,000 last year. Hence Chuck's
A) total variable cost was zero.
B) incurred an economic loss.
C) total variable cost equaled $200,000.
D) total variable cost equaled $372,000.
E) None of the above answers is correct.
Topic: Total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
3) If Melissa owns a software company that incurs no fixed costs, then
A) her total cost equals her total variable cost.
B) she will earn an economic profit.
C) her total variable cost is less than her total cost.
D) her total cost equals zero.
E) her marginal cost must equal zero.
Topic: Total cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
4) In the short run, a firm cannot change the amount of capital it uses. Therefore the cost of capital is a
A) short-run cost.
B) variable cost.
C) productivity cost.
D) fixed cost.
E) marginal cost.
Topic: Total fixed cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
5) The cost that does NOT change as output changes is
A) total fixed cost.
B) average fixed cost.
C) total variable cost.
D) average variable cost.
E) marginal cost.
Topic: Total fixed cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
6) Which of the following costs can be positive when output is zero?
A) average variable cost
B) total variable cost
C) marginal cost
D) total fixed cost
E) None of the above because when output is zero there are no costs.
Topic: Total fixed cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
7) Which of the following is a fixed cost for ACME manufacturing?
A) wages paid to labor
B) the annual fire and theft insurance premiums
C) the utility bill
D) raw material costs
E) the cost of shipping its product to market
Topic: Total fixed cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
8) Because the amount of labor a firm employs can be changed, the cost of labor is known as
A) minimum cost.
B) variable cost.
C) maximum cost.
D) fixed cost.
E) an unavoidable cost.
Topic: Total variable cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
9) If a firm does NOT produce any output, its
A) total fixed cost must be zero.
B) economic profit must be positive.
C) total variable cost must be zero.
D) total costs must be zero.
E) marginal cost must be zero.
Topic: Total variable cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
10) In the short run, total variable cost
A) includes the cost of capital.
B) includes the cost of labor.
C) includes both the cost of capital and of labor.
D) does not change when production changes.
E) is positive when output is zero.
Topic: Total variable cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
11) The total variable cost curve ________ because ________ as output increases.
A) slopes upward; variable cost increases
B) slopes upward; marginal cost increases
C) slopes downward; variable cost increases
D) slopes downward; marginal cost increases
E) is horizontal; fixed cost does not change
Topic: Total variable cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
12) Marginal cost equals
A) total cost minus total variable cost.
B) total fixed cost divided by total output.
C) total variable cost divided by total output.
D) the change in total cost that results from a one-unit increase in output.
E) the change in fixed cost that results from a one-unit increase in output.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
13) The change in cost that results from a one-unit increase in output is called the
A) average fixed cost.
B) per-unit variable cost.
C) per-unit total cost.
D) marginal cost.
E) average cost change.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
14) As a typical firm increases its output, its marginal cost
A) is constant.
B) decreases at first and then increases.
C) increases at first and then decreases.
D) decreases.
E) is negative at first and then positive.
Topic: Marginal cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
15) When marginal cost is positive, total cost is ________ as output increases.
A) increasing
B) decreasing
C) constant
D) negative
E) undefined
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
16) If total fixed cost increases, which of the following will NOT change?
A) total cost
B) average fixed cost
C) marginal cost
D) average total cost
E) ALL costs increase when total fixed cost increases.
Topic: Marginal cost
Skill: Level 4: Applying models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
17) Scott owns a law-enforcement training operation in Boise, Idaho. 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 variable cost equals $233.
E) total fixed cost of the last client equals $466.
Topic: Marginal cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
OUTPUT | Total Cost | Fixed Cost | Variable Cost | Average Variable Cost | Average Total Cost |
0 | $100 | $100 | |||
1 | $140 | $100 | $40 | $40 | $140 |
2 | $160 | $100 | $60 | $30 | $80 |
3 | $200 | $100 | $100 | $33.33 | $67 |
4 | $240 | $100 | $140 | $35 | $60 |
5 | $330 | $100 | $230 | $46 | $66 |
18) The table above gives the cost schedule for The X Firm. The data show that The X Firm's ________ curve is ________.
A) ATC; U-shaped because the firm fixed costs are spread over larger amounts of output and the firm experiences decreasing marginal returns
B) AFC; U-shaped because the firm spreads its fixed costs over larger and large amounts of output
C) AVC; always declining because costs are divided across ever-increasing amounts of output
D) MC; U-shaped because explicit costs exceed implicit costs
E) ATC; U-shaped because output increases as costs increase
Topic: Average total cost curve
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
Labor (workers) | Output (bikes) | Total fixed costs (dollars) | Total variable cost (dollars) | Total cost (dollars) |
0 | 0 | 200 | ||
1 | 20 | 100 | ||
2 | 50 | |||
3 | 60 | |||
4 | 64 |
19) 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. Labor 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
Topic: Total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
20) 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. Labor 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
Topic: Total fixed cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
21) 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. Labor 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 are correct.
Topic: Total variable cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
22) The Jerry-Berry Ice Cream Shoppe's total cost schedule is in the above table. Based on the table, which of the following is correct?
A) The total fixed cost is $1.
B) The average fixed cost of 1 gallon is $1.00.
C) The average variable cost of 2 gallons of ice cream is $1.00 per gallon.
D) Only answers A and B are correct.
E) Answers A, B, and C are correct.
Topic: Costs
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
23) The Jerry-Berry Ice Cream Shoppe's total cost schedule is in the above table. Based on the table, the marginal cost of producing the fourth gallon of ice cream is
A) $2.
B) $3.
C) $5.
D) $8.
E) $32.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
24) Paulette owns a pizza parlor. Her total cost schedule is in the above table. Her total fixed cost is equal to
A) $20.
B) $35.
C) $79.
D) $85.
E) Some amount, but more information is needed to determine her fixed cost.
Topic: Total fixed cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
25) Paulette owns a pizza parlor. Her total cost schedule is in the above table. Her total variable cost of producing four pizzas per hour is
A) $20.
B) $49.
C) $51.
D) $71.
E) Some amount, but more information is needed to determine this total variable cost.
Topic: Total fixed cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
26) Paulette owns a pizza parlor. Her total cost schedule is in the above table. Her marginal cost of producing the fifth pizza is
A) $8.
B) between $8.01 and $10.00.
C) between $10.01 and $14.00.
D) between $14.01 and $78.00.
E) more than $78.01.
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
27) In the above figure, curve A is the ________ curve and curve B is the ________ curve.
A) total variable cost; total fixed cost
B) total cost; total fixed cost
C) total fixed cost; total variable cost
D) total cost; total variable cost
E) total variable cost; total cost
Topic: Total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
28) In the above figure, curve A is the ________ curve and curve C is the ________ curve.
A) total variable cost; total fixed cost
B) total cost; total fixed cost
C) total fixed cost; total variable cost
D) total cost; total variable cost
E) total variable cost; total cost
Topic: Total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
29) Average variable cost equals
A) fixed cost divided by output.
B) total variable cost divided by output.
C) marginal cost divided by output.
D) marginal cost plus fixed cost.
E) marginal cost multiplied by output.
Topic: Average variable cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
30) The graph shows the total cost for Phil's Phone Repair. The average total cost to repair ________ phones is ________.
A) 5; $24.88
B) 5; $21.33
C) 5; $6.80
D) 4; $6.33
E) 4; $24.88
Topic: Average total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Application of knowledge
31) The graph shows the total cost curve for Phil's Phone Repair. The total fixed cost of repairing ________ phones is ________.
A) 5; $90
B) 6; $3
C) 5; $128
D) 5; $24.88
E) More information is needed to answer the question.
Topic: Total fixed cost
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Application of knowledge
32) Average total cost is equal to
A) average fixed cost + average variable cost.
B) total cost ÷ quantity.
C) the change in total cost when output changes by one unit.
D) Answers A and B are correct.
E) Answers A and C are correct.
Topic: Average total cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
33) The figure shows the cost curves for Phil's Phone Repair, a cell phone repair firm. When output is ________ repaired phones, average total cost is ________.
A) below 12; increasing
B) more than 12; increasing
C) between 10 and 12; less than marginal cost
D) greater than 5; constant
E) less than 5; increasing
Topic: Average total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Application of knowledge
34) The figure shows the cost curves for Phil's Phone Repair, a cell phone repair firm. The figure shows marginal cost ________ which explains why ________.
A) is decreasing up until 5 units; average total cost decreases
B) is less than average total cost up until 12 units; average total cost decreases
C) is greater than average total cost; average variable cost decreases
D) is greater than average total cost when more than 12 phones are repaired; average total cost increases
E) both B and D are correct
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Application of knowledge
35) The figure shows the cost curves for Phil's Phone Repair, a cell phone repair firm. If Phil increases his workers' wages, ________ curve(s) will shift ________.
A) the MC, ATC and AVC; upward
B) only the MC; upward
C) only the AVC; upward
D) the AVC and ATC; downward as production falls
E) the MC, AVC and ATC; downward as production falls
Topic: Cost curves
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Application of knowledge
36) The figure shows the cost curves for Phil's Phone Repair, a cell phone repair firm. Using this information, we know that the average product of repairing phones reaches
A) a minimum when 10 phones are repaired each hour.
B) equals the average of cost of repairing phones.
C) a maximum when 10 phones are repaired each hour.
D) a minimum when between 5 and 10 phones are repaired.
E) a maximum when more that 12 phones are repaired.
Topic: Average product
Skill: Level 5: Critical thinking
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
37) Average total cost equals
A) the change in total cost divided by the change in output.
B) total fixed cost divided by output.
C) average fixed cost plus average variable cost.
D) total cost minus total variable cost.
E) average fixed cost plus average variable cost plus marginal cost.
Topic: Average total cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
38) Which of the following always decreases when output increases?
A) total fixed cost
B) marginal cost
C) average variable cost
D) average fixed cost
E) total cost
Topic: Average fixed cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
39) The average fixed cost curve
A) is always positively sloped.
B) is U-shaped.
C) has an upside-down U shape.
D) is always negatively sloped.
E) is horizontal.
Topic: Average fixed cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
40) 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) $20
B) $200
C) $300
D) $10
E) It is impossible to determine with the information given.
Topic: Average variable cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
41) If average variable costs increase as output increases, then
A) total fixed cost must be increasing also.
B) marginal cost must be greater than average variable cost.
C) total cost must be constant.
D) output must be zero.
E) average total cost must be increasing also.
Topic: MC and AVC
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
42) An insurance agent rents a building and has a three-year lease. An increase in the rent for the building increases the agent's
A) total cost and average variable cost.
B) total variable cost and average variable cost.
C) total fixed cost and total variable cost.
D) total fixed cost and average fixed cost.
E) total variable cost and total cost.
Topic: Average costs
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
43) The table above shows a total product schedule. Suppose that labor costs $20 per worker and fixed costs are $60. The total variable cost of producing 80 units equals
A) less than $50.
B) more than $50 and less than $70.
C) more than $70 and less than $90.
D) more than $90 and less than $120.
E) more than $120.
Topic: Total variable cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
44) The table above shows a total product schedule. Suppose that labor costs $20 per worker and fixed costs are $60. The total cost of producing 80 units equals
A) less than $5.
B) more than $5 and less than $110.
C) more than $110 and less than $120.
D) more than $120 and less than $150.
E) more than $150.
Topic: Total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
45) The table above shows a total product schedule. Suppose that labor costs $20 per worker and fixed costs are $60. The average variable cost of producing 80 units equals ________ per unit.
A) $0.75
B) $1.00
C) $1.75
D) $20
E) $0.25
Topic: Average variable cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
46) The table above shows a total product schedule. Suppose that labor costs $20 per worker and fixed costs are $60. The average total cost of producing 80 units equals ________ per unit.
A) $0.75
B) $1.00
C) $1.75
D) $60
E) $0.25
Topic: Average total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
47) Anna owns a dog grooming salon in Brunswick, Georgia. 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) $1,200.
B) $300.
C) $10.00.
D) $12.00.
E) $600.
Topic: Total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
48) Anna owns a dog grooming salon in Brunswick, Georgia. 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) $10.00.
D) $12.00.
E) $1,200.
Topic: Average total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
49) Anna owns a dog grooming salon in Brunswick, Georgia. 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) $300.
C) $6.00.
D) $10.00.
E) $600.
Topic: Average variable cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
50) Anna owns a dog grooming salon in Brunswick, Georgia. 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) $600.
B) $6.00.
C) $7.50.
D) $10.00.
E) $2,400.
Topic: Average fixed cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
51) Anna owns a dog grooming salon in Brunswick, Georgia. 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) $300.
C) $7.50.
D) $10.00.
E) $1,800.
Topic: Total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
52) Anna owns a dog grooming salon in Brunswick, Georgia. 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) $300.
C) $7.50.
D) $10.00.
E) $4,200.
Topic: Average total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
53) Anna owns a dog grooming salon in Brunswick, Georgia. 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) $2,400.
B) $300.
C) $7.50.
D) $10.00.
E) $1,800.
Topic: Average variable cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
54) Anna owns a dog grooming salon in Brunswick, Georgia. 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) $600.
B) $2.50.
C) $7.50.
D) $10.00.
E) $6.00.
Topic: Average fixed cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
Labor (workers) | Output (frijoles) | Total cost (dollars) |
0 | 0 | 1,000 |
5 | 1,000 | 3,000 |
10 | 3,000 | 5,000 |
15 | 4,000 | 7,000 |
20 | 4,500 | 9,000 |
55) The above table gives some production and cost information for Flaming Fernando's, a restaurant that sells Fiery Frijoles. What is the total fixed cost of producing 4,500 frijoles?
A) $1,000
B) $8,000
C) $9,000
D) $2,000
E) More information is needed to determine the answer.
Topic: Total fixed cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
56) The above table gives some production and cost information for Flaming Fernando's, a restaurant that sells Fiery Frijoles. Between what two levels of output does the marginal cost of producing Fiery Frijoles first begin to rise?
A) 0 and 1,000
B) 1,000 and 3,000
C) 3,000 and 4,000
D) 4,000 and 4,500
E) None of the above answers is correct.
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
57) The above table gives some production and cost information for Flaming Fernando's, a restaurant that sells Fiery Frijoles. What is the average variable cost of producing 1,000 frijoles?
A) $1
B) $2
C) $3
D) $3,000
E) More information is needed to determine the answer.
Topic: Average variable cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
58) The above table gives some production and cost information for Flaming Fernando's, a restaurant that sells Fiery Frijoles. What is the average total cost of producing 4,500 frijoles?
A) $2
B) $225
C) $9,000
D) $8,000
E) More information is needed to determine the answer.
Topic: Average total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
59) The production and cost information provided in the table above for Flaming Fernando's, a restaurant that sells Fiery Frijoles, is for the
A) short run because there are no variable costs.
B) short run because there is a fixed cost.
C) long run because there are no variable costs.
D) long run because there are no fixed costs.
E) short run and long run because the total cost increases as production increases.
Topic: Short run and long run
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
60) The vertical distance between total cost curve and total variable cost curve is equal to
A) average fixed cost.
B) total fixed cost.
C) average variable cost.
D) average total cost.
E) marginal cost.
Topic: Cost curves
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
61) The U-shaped average total cost curve is
A) a result of firms' wanting to find the output level where cost is at its minimum.
B) unrealistic because average total cost always increases as output increases.
C) the result of average fixed cost falling and decreasing marginal returns as output increases.
D) a result of constant marginal returns.
E) a result of increasing marginal returns.
Topic: Cost curves
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
62) The U-shape of the average variable, average total, and marginal cost curves reflects
A) increasing marginal returns.
B) decreasing marginal returns.
C) both increasing and decreasing marginal returns.
D) decreasing marginal product.
E) the point that implicit costs become a smaller fraction of total cost as output increases.
Topic: Cost curves
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
63) The short-run average total cost, average variable cost, and marginal cost curves are all U-shaped because of
i. constant total fixed cost.
ii. increasing and then decreasing marginal returns as more labor is hired.
iii. economies and diseconomies of scale as the plant size increases.
A) only i
B) only ii
C) i and iii
D) ii and iii
E) i, ii, and iii
Topic: Cost curves
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
64) In a graph of a typical firm's AFC, ATC, and AVC curves, the
A) AVC curve lies above the ATC curve.
B) ATC curve lies below the AFC curve.
C) distance between the ATC curve and the AVC curve equals the AFC.
D) distance between the AVC curve and the AFC curve equals the ATC.
E) AVC curve crosses the MC curve at the point where the MC is at its minimum.
Topic: Cost curves
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
65) As we observe the cost curves graph, we see that the
A) MC curve intersects the ATC curve at its maximum.
B) MC curve cannot be U-shaped.
C) ATC curve always has a negative slope.
D) MC curve intersects the AVC curve and ATC curve at their minimums.
E) MC constantly falls as output increases.
Topic: Cost curves
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
66) In a figure showing the average total cost curve and the average variable cost curve, the vertical distance between the two curves is equal to the
A) marginal cost.
B) average fixed cost.
C) total fixed cost.
D) total variable cost.
E) average marginal cost.
Topic: Cost curves
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
67) The vertical distance between the total cost curve and the total variable cost curve ________ as output increases and the vertical distance between the average total cost curve and average variable cost curve ________ as output increases.
A) is constant; decreases
B) decreases; is constant
C) increases; decreases
D) decreases; increases
E) decreases; decreases
Topic: Cost curves
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
68) The marginal cost curve is U-shaped. Over the range of output for which the marginal cost is falling as output increases, the marginal product is
A) increasing.
B) decreasing.
C) constant.
D) probably changing, but there is no stable relationship between the marginal cost and the marginal product.
E) not defined.
Topic: MC and MP
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
69) The relationship between the MP and MC curves is
A) over the range where the MP curve has a negative slope, the MC curve also 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) that the MP is not defined when the MC curve has a negative slope.
Topic: MC and MP
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
70) If marginal cost increases when output increases, then
A) marginal product must decrease when output increases.
B) average fixed cost is constant.
C) total cost is constant.
D) average variable cost must increase when output increases.
E) average total cost must decrease when output increases.
Topic: MC and MP
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
71) If another worker is hired with a marginal product greater than the previously hired worker, which of the following will be TRUE?
A) total costs will decrease
B) fixed costs will decrease
C) marginal cost will increase
D) marginal cost will decrease
E) average fixed costs will increase
Topic: MC and MP
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
72) When the marginal product is increasing as the quantity increases, then as the quantity increases the
A) average product is decreasing.
B) marginal cost is decreasing.
C) total cost is decreasing.
D) total product is decreasing.
E) fixed cost is increasing.
Topic: MC and MP
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
73) If we know the amount of total cost, average total cost, average variable cost, and marginal cost for each level of output, how can we find the level of output where the marginal product is the greatest?
A) It is the output for which the marginal cost equals average variable cost.
B) It is the output for which the total cost is maximized.
C) It is the output for which the marginal cost is minimized.
D) It is the output for which the marginal cost equals average total cost.
E) There is no way to find where marginal product is the greatest knowing only cost data.
Topic: MC and MP
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
74) Cost curves shift if
i. technology changes.
ii. the prices of factors of production change.
iii. productivity changes.
A) only i
B) i and iii
C) only ii
D) i and ii
E) i, ii, and iii
Topic: Shifts in the cost curves
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
75) An increase in the price of labor (a variable resource) shifts
A) all cost curves upward.
B) the variable cost curves upward but leaves the fixed cost curves unchanged.
C) the fixed cost curves upward but leaves the variable cost curves unchanged.
D) the marginal cost curve rightward.
E) none of the cost curves.
Topic: Shifts in the cost curves, prices of factors of production
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
76) Total cost is equal to the sum of
A) total revenue and total cost.
B) total variable cost and total product.
C) total variable cost and total fixed cost.
D) total fixed cost and total product.
E) the marginal cost plus the total fixed cost plus the total variable cost.
Topic: Total cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
77) Total fixed cost is the cost of
A) labor.
B) production.
C) a firm's fixed factors of production.
D) only implicit factors of production.
E) only explicit factors of production.
Topic: Total fixed cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
78) Jay set up his hot dog stand near the business district. His total variable cost includes the
A) annual insurance for the hot dog stand.
B) cost of buying the hot dog stand.
C) cost of the hot dogs and condiments.
D) interest he pays on the funds he borrowed to pay for advertising.
E) revenue he gets when he sells his first hot dog each day.
Topic: Total variable cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
79) Marginal cost is equal to
A) the total cost of a firm's production.
B) total cost minus fixed cost.
C) a cost that is not related to the quantity produced.
D) the change in total cost that results from a one-unit increase in output.
E) the change in fixed cost that results from a one-unit increase in output.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
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) $8.
B) $9.
C) $80.
D) $99.
E) $19.
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
81) Average total cost equals
A) marginal cost divided by output.
B) average fixed cost plus average variable cost.
C) total fixed cost plus total variable cost.
D) marginal cost plus opportunity cost.
E) marginal cost multiplied by the quantity of output.
Topic: Average total cost
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
82) 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) $8.
B) $9.
C) $80.
D) $99.
E) $19.
Topic: Average total cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
83) One of the major reasons for the U-shaped average total cost curve is the fact that
A) there are increasing returns from labor regardless of the number of workers employed.
B) there eventually are decreasing returns from labor as more workers are employed.
C) prices fall as output increases.
D) the average fixed cost increases as more output is produced.
E) the variable cost decreases as more output is produced.
Topic: Cost curves
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
14.4 Long-Run Cost
1) Which of the following statements is TRUE?
A) In the long run, the average cost curve is always downward sloping.
B) In the long run, the quantities of all inputs are fixed.
C) In the long run, the firm's fixed costs are greater than its variable costs.
D) In the long run, all costs are variable costs.
E) In the long run, the total variable cost equals the total fixed cost.
Topic: Long run
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
2) Which of the following is FALSE?
A) Long-run average variable costs equal long-run average total costs.
B) Fixed costs increase in the long run.
C) As a firm produces more output, eventually it experiences diseconomies of scale.
D) In the long run, both the amount of capital and labor used by the firm can be changed.
E) In the long run, the firm has no fixed inputs.
Topic: Long run
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
3) In the long run
A) all inputs can be varied.
B) all inputs are fixed.
C) some inputs are variable and other inputs are fixed.
D) output is fixed.
E) total variable cost cannot be changed.
Topic: Long run
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
4) Which of the following is TRUE in the long run?
A) Total cost equals fixed cost.
B) Total cost is constant.
C) All costs are variable.
D) Marginal cost equals zero.
E) None of the above is true in the long run.
Topic: Long-run average cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
5) When a firm's long-run average total cost falls as its output increases, the firm is experiencing
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) decreasing marginal returns.
E) decreasing cost of marginal returns.
Topic: Economies of scale
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
6) As output increases, economies of scale occur when the
A) long-run average cost increases.
B) long-run average cost decreases.
C) short-run average total cost decreases.
D) long-run average cost stays constant.
E) long-run fixed cost decreases.
Topic: Economies of scale
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
7) 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) economies of scale
D) random luck
E) decreasing cost of marginal returns
Topic: Economies of scale
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
8) The main source of economies of scale is
A) reductions in the price of factors of production.
B) greater specialization of both labor and capital.
C) increasing average costs.
D) decreasing marginal product.
E) the ability to hire less labor.
Topic: Economies of scale
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
9) The main sources of economies of scale are
A) increasing marginal cost and decreasing marginal product.
B) specialization of resources such as labor and capital.
C) caused by the difficulty of coordinating and controlling large enterprises.
D) decreasing marginal cost and increasing marginal product.
E) an increase in a firm's bargaining power to lower the wage rate and the cost of capital as the firm's output increases.
Topic: Economies of scale
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
10) Economies of scale can occur as a result of which of the following?
A) increasing marginal returns as the firm increases its size
B) lower fixed cost as the firm increases its size
C) management difficulties as the firm increases its size
D) greater specialization of labor and capital as the firm increases its size
E) increased total cost when the firm increases its size
Topic: Economies of scale
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
11) In the long run, if 1,000 units are produced at a cost of $8,000 and 1,200 units at a cost of $9,200, then over this range of output there are
A) constant economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) economies of scale.
E) constant diseconomies of scale.
Topic: Economies of scale
Skill: Level 3: Using models
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
12) Diseconomies of scale is
A) a short run phenomenon.
B) the result of decreasing marginal returns.
C) a long run phenomenon.
D) the result of increasing marginal returns.
E) possible only when the firm's plant size is fixed.
Topic: Diseconomies of scale
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
13) A firm decreases its scale of operation and discovers that its long-run average costs decrease. Which of the following does this indicate?
A) Labor's marginal product has increased.
B) Diseconomies of scale were absent in the larger plant.
C) The firm's scale initially was so large that it experienced diseconomies of scale.
D) The firm's scale initially was too small to experience economies of scale.
E) Its long-run marginal cost was smaller with the larger plant than with the smaller plant.
Topic: Diseconomies of scale
Skill: Level 3: Using models
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
14) Diseconomies of scale is a result of
A) mismanagement.
B) difficulties of coordinating and controlling a large enterprise.
C) specialization of labor, capital, and management.
D) technological progress.
E) larger fixed costs as the firm's production increases.
Topic: Diseconomies of scale
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
15) When a firm becomes so large it is difficult to coordinate and control, it is most likely that
A) economies of scale have begun.
B) diseconomies of scale have begun.
C) average total cost begins to fall.
D) long-run average costs become negative.
E) there are increasing marginal returns to increasing the firm's plant size.
Topic: Diseconomies of scale
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
16) The long run average cost curve
A) is the sum of a firm's short run average cost curves.
B) shows the lowest average cost facing a firm as it increases output changing both its plant and labor force.
C) initially rises when output increases and then falls when output increases.
D) always falls as output increases.
E) always rises as output increases.
Topic: Long-run average cost curve
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
17) What does the long-run average cost curve show?
A) the interaction between average fixed cost and marginal cost
B) the lowest average cost to produce each output level in the long run
C) the distinction between long-run fixed and long-run variable costs
D) the lowest average marginal cost of producing each output level at any time.
E) Answers A, B, and C are correct.
Topic: Long-run average cost curve
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
18) The long-run average cost curve is U-shaped because of which of the following?
A) decreasing marginal returns as more labor is hired
B) constant fixed costs as output is increased
C) economies and diseconomies of scale
D) increasing marginal returns as more labor is hired
E) decreasing average fixed costs as output is increased
Topic: Long-run average cost curve
Skill: Level 3: Using models
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
19) The long-run average cost curve
A) is an upside down U-shape.
B) is constructed using the short-run marginal cost curves.
C) shows economies and diseconomies of scale.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
Topic: Long-run average cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
20) 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 total cost increases.
C) marginal cost increases.
D) marginal cost decreases.
E) average variable cost is constant and the average fixed cost decreases.
Topic: Long-run average cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
21) If a company triples its output and its average cost decreases, then the firm is definitely experiencing
A) diseconomies of scale.
B) decreasing marginal returns.
C) increasing marginal returns.
D) economies of scale.
E) Both answers C and D are correct.
Topic: Long-run average cost curve
Skill: Level 3: Using models
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
22) When the long-run average cost curve is downward sloping
A) economies of scale are present.
B) diseconomies of scale are present.
C) the firm experiences constant returns to scale.
D) the average fixed cost curve must be upward sloping.
E) The premise of the question is wrong because long-run average cost curves never slope downward.
Topic: Long-run average cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
23) The main source of economies of scale is
A) better management.
B) constant returns to plant size.
C) specialization.
D) long-run cost curves eventually sloping downward.
E) increases in the labor force not matched by increases in the plant size.
Topic: Economies of scale
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
24) 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) management difficulties as the firm increases its size
D) greater specialization of labor and capital as the firm increases its size
E) increases in the labor force not matched by increases in the plant
Topic: Diseconomies of scale
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
25) In the long run, constant returns to scale necessarily occur when the firm increases its production and the firm's
A) total cost increases.
B) total cost does not change.
C) average total cost increases.
D) average total cost does not change.
E) production increases by more than does the firm's total cost.
Topic: Constant returns to scale
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
26) 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 labor force and its plant.
A) highest; sufficient
B) lowest; sufficient
C) lowest; insufficient
D) highest; insufficient
E) average; sufficient
Topic: Long-run average cost curve
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
27) Economies of scale and diseconomies of scale explain
A) cost behavior in the short run.
B) profit maximization in the long run.
C) the U-shape of the long-run average cost curve.
D) the U-shape of the short-run average total cost curve.
E) the U-shape of the marginal cost curves.
Topic: Long-run average cost curve
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
28) Consider a Walmart supercenter and a 7-Eleven store. In the long run
A) Walmart or 7-Eleven may have economies of scale depending on how many customers are served.
B) Walmart will definitely have lower average costs because supercenters serve many more customers.
C) The 7-Eleven store will definitely have lower average costs because their small stores are cheaper to build.
D) Walmart's average total cost will decline faster than the 7-Eleven store and experience diseconomies of scale.
E) The 7-Eleven store's average total cost will be lower than Walmart's and always experience economies of scale.
Topic: Eye on Retailers' Cost
Skill: Level 4: Applying models
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
29) The graph shows long run costs for a firm. The firm experiences economies of scale
A) up until 1,000 units are produced.
B) once production exceeds 9,000 units.
C) once production exceeds 5,000 units.
D) only after 1,000 units are produced.
E) when average costs are minimized at 5,000 units.
Topic: Economies of scale
Skill: Level 3: Using models
Section: Checkpoint 14.4
Status: Old
AACSB: Application of knowledge
30) The graph shows long run costs for a firm. If the firm produces ________ units, it will experience ________.
A) less than 1,000; diseconomies of scale; average costs decrease
B) 5,000; diseconomies of scale because average variable costs decrease
C) more than 9,000; diseconomies of scale because managing larger firms results in higher costs
D) more than 9,000; economies of scale because fixed costs are spread over large quantities
E) less than 9,000; a diminishing marginal product of labor
Topic: Diseconomies of scale
Skill: Level 4: Applying models
Section: Checkpoint 14.4
Status: Old
AACSB: Application of knowledge
14.5 Chapter Figures
The figure above shows a firm's total product curve.
1) Which of the points show efficient production points?
A) all points above the TP curve
B) all points on the TP curve
C) all the darkened points below the TP curve
D) all the points above and on the TP curve
E) all the darkened points below and on the TP curve
Topic: Total product curve
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
The figure above shows some of a firm's cost curves.
2) Based on the figure above, curve A is the firm's
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) total variable cost curve.
E) total fixed cost curve.
Topic: Total cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
3) Based on the figure above, curve B is the firm's
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) total variable cost curve.
E) total fixed cost curve.
Topic: Total cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
4) Based on the figure above, curve C is the firm's
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) total variable cost curve.
E) total fixed cost curve.
Topic: Total cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
The figure above shows some of a firm's cost curves.
5) Based on the figure above, curve A is the firm's
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) average variable cost curve.
E) average fixed cost curve.
Topic: Average total cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
6) Based on the figure above, curve B is the firm's
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) average variable cost curve.
E) average fixed cost curve.
Topic: Average variable cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
7) Based on the figure above, curve C is the firm's
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) average variable cost curve.
E) average fixed cost curve.
Topic: Average total cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
8) Based on the figure above, curve D is the firm's
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) average variable cost curve.
E) average fixed cost curve.
Topic: Marginal cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
9) A firm's rent is a fixed cost. If the rent increases, then in the figure above ________ upward.
A) only curve A shifts
B) only curve B shifts
C) only curve C shifts
D) both curves A and C shift
E) both curves B and C shift
Topic: Average total cost
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
10) A firm's utility bill is a variable cost. If the cost of utilities increases, then in the figure above ________ upward.
A) only curve A shifts
B) only curve B shifts
C) only curve C shifts
D) both curves A and C shift
E) both curves B and C shift
Topic: Average total cost
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
The figure above shows a firm's average total cost and marginal cost curves.
11) Based on the figure above, the firm's marginal product curve slopes upward at levels of output between ________ and the firm's average product curve slopes upward at levels of output between ________.
A) 4.0 and 7.0; 4.0 and 7.0
B) 0 and 7.0; 4.0 and 7.0
C) 4.0 and 7.0; 0 and 4.0
D) 0 and 4.0; 0 and 7.0
E) More information is needed to answer the question.
Topic: Cost curves
Skill: Level 4: Applying models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
14.6 Integrative Questions
1) The table above shows
A) a total product schedule.
B) the market for labor.
C) a production possibility frontier.
D) a supply schedule.
E) a demand for labor schedule.
Topic: Integrative
Skill: Level 1: Definition
Section: Integrative
Status: Old
AACSB: Reflective thinking
2) Which of the following variables do you need to know to calculate marginal cost?
i. change in total cost
ii. marginal product of labor
iii. change in quantity of labor used
iv. change in output
A) i and ii
B) i and iv
C) ii and iv
D) i, iii, and iv
E) only ii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
3) The average product curve
A) initially falls then rises.
B) rises as average variable cost increases.
C) initially rises and then falls.
D) shows how productivity changes as output changes.
E) intersects the marginal cost curve when the average product curve is at its maximum.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
4) Which of the following contributes to increasing marginal returns?
A) decreasing implicit costs
B) increasing explicit costs
C) specialization of labor
D) Both answers A and B are correct.
E) Both answers A and C are correct.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
5) The law of decreasing returns applies to
A) the long-run average cost curve.
B) average total cost.
C) diseconomies of scale.
D) changes in a variable input with a given quantity of fixed inputs.
E) changes in a fixed input with a given quantity of variable inputs.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
6) Once production has reached the maximum average product of labor, if production increases then
A) average fixed cost rises.
B) total costs decrease.
C) total product decreases.
D) decreasing marginal returns occur.
E) the plant size must be increased.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
7) As output increases, average total cost decreases
A) constantly.
B) as the average product of labor decreases.
C) initially and then starts to increase.
D) in the long run and the short run.
E) as long as average fixed cost decreases.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
8) Marginal cost
A) is the difference between total cost and total fixed cost.
B) increases as the marginal product of labor increases.
C) decreases as the average product of labor increases.
D) is the change in total cost arising from a one-unit increase in output.
E) equals the change in variable cost divided by the change in fixed cost when output increases by one unit.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
9) Which of the following curves are U-shaped?
i. average variable cost curve
ii. average fixed cost curve
iii. average total cost curve
A) i and ii
B) i and iii
C) ii and iii
D) i, ii, and iii
E) only ii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
10) The marginal cost curve intersects the ________ curves at their ________ points.
A) average total cost and average fixed cost; minimum
B) average product and marginal product; maximum
C) average variable cost and total variable cost; maximum
D) average total cost and average variable cost; minimum
E) average product and marginal product; minimum
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
11) If the average product of labor curve is rising
i. the average variable cost curve is falling.
ii. the marginal cost curve is definitely falling.
iii. the marginal product curve has reached its maximum.
A) i and iii
B) i only
C) ii and iii
D) i, ii, and iii
E) ii only
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
14.7 Essay: Economic Cost and Profit
1) Jake opens a pig farm in Idaho. To start his farm, he uses his entire $50,000 of savings from his savings account. The bank was paying him $2,500 interest on his saving. Explain why the $2,500 is one of Jake's costs.
Topic: Implicit cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Written and oral communication
2) What is a normal profit? Is it part of the firm's opportunity costs, total revenue, or neither?
Topic: Normal profit
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Reflective thinking
3) What is the difference between a normal profit and an economic profit?
Topic: Economic profit
Skill: Level 2: Using definitions
Section: Checkpoint 14.1
Status: Old
AACSB: Written and oral communication
4) Professor Rush decided to quit teaching economics and opens a shoe store out at the mall. He gave up an annual income of $50,000 to open the store. A year after opening the shoe store, the total revenue for the year was $200,000. Rush's expenses were $30,000 for labor, rent was $18,000, and utilities were $1,200. He also had to purchase new shoes from manufacturers, at a cost of $60,000, which was financed by cashing in his savings of $60,000 that had been in a bank earning 8 percent per year. The normal profit from operating a shoe store in the mall is $20,000. Determine Professor Rush's explicit costs, implicit costs, and economic profit.
Topic: Costs and economic profit
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
5) Jessica is a young doctor who has just started her own practice. Her previous position paid her $80,000 a year. For office space, she uses a building which she owns and which she has rented in the past for $40,000 a year. Her total revenue from her new practice is $250,000. She pays $50,000 to other firms for materials and supplies, and she pays $40,000 in wages to her office nurse. Assume that Jessica's building and equipment do not depreciate and that her normal profit is $20,000.
a. Which of Jessica's costs are explicit costs and what is their total?
b. Which of Jessica's costs are implicit costs and what is their total?
c. What is the opportunity cost of all factors of production employed by Jessica?
d. What is Jessica's economic profit?
a. Jessica's explicit costs are the wages and the amount she paid to other firms for material and supplies. Hence her explicit costs equal $40,000 + $50,000 = $90,000.
b. Jessica's implicit costs are her forgone wages, the forgone rent on her building, and her normal profit. Hence her implicit costs equal $80,000 + $40,000 + $20,000 = $140,000.
c. The opportunity cost equals the sum of explicit costs plus implicit costs, so Jessica's opportunity cost equals $90,000 + $140,000 = $230,000.
d. Economic profit equals total revenue minus total opportunity cost, or $250,000 - $230,000 = $20,000.
Topic: Costs and economic profit
Skill: Level 3: Using models
Section: Checkpoint 14.1
Status: Old
AACSB: Analytical thinking
14.8 Essay: Short-Run Production
1) What resources can a firm change in the short run? In the long run?
Topic: Short run and long run
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Written and oral communication
2) What do economists mean when they say that a firm's plant is fixed?
Topic: Short run, plant
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Written and oral communication
3) What is the difference between decreasing marginal returns and negative marginal returns?
Topic: Marginal returns
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Written and oral communication
4) What does the average product of labor equal?
Topic: Average product
Skill: Level 1: Definition
Section: Checkpoint 14.2
Status: Old
AACSB: Reflective thinking
5) "If the marginal product of labor curve slopes downward, then the average product of labor curve necessarily must slope downward." Explain whether the previous statement is correct or incorrect?
Topic: Marginal product and average product
Skill: Level 2: Using definitions
Section: Checkpoint 14.2
Status: Old
AACSB: Written and oral communication
6) The above table has the total product schedule for Jesse's Lawn Service.
a. In the figure, label the axes and then graph the total product curve.
b. Find the average product for the different amounts of employment.
a. The figure graphs the total product curve.
b. The average product when 1 worker is employed is 3 lawns mowed per day; when 2 workers are employed, it is 4 lawns per day; when 3 workers are employed, it is 5 lawns per day; when 4 workers are employed, it is 5 lawns per day; and when 5 workers are employed, it is 4.2 lawns per day.
Topic: Total product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
7) Ajax Manufacturing has a fixed scale of plant with the levels of total product given in the table for different levels of labor. Complete the table by calculating the average product and marginal product.
The completed table is above.
Topic: Short-run production
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
8) The above table shows the total product schedule for Hair Today, a hair styling salon.
a. What is the first worker's marginal product? The second worker? The third worker? The fourth worker? The fifth worker?
b. Over what range of workers is there increasing marginal returns? Over what range is there decreasing marginal returns?
a. The first worker's marginal product is 10 hair stylings. The second worker's marginal product is 15 hair stylings. The third worker's marginal product is 20 hair stylings. The fourth worker's marginal product is 15 hair stylings. The fifth worker's marginal product is 10 hair stylings.
b. There are increasing marginal returns for the first 3 workers. After the third worker, there are decreasing marginal returns.
Topic: Marginal product
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
14.9 Essay: Short-Run Cost
1) Jake is a corn farmer in Nebraska. He rents his land on a long-term lease for $250,000 a year. He pays his farm hands $128,000 a year. Is his rent a fixed cost or a variable cost? Are the wages he pays his workers a fixed cost or a variable cost? Briefly explain your answers.
Topic: Fixed cost, variable cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
2) "In the short run, even when output is zero, the firm still has some variable costs it must pay." Is the statement correct or incorrect? Briefly explain your answer.
Topic: Fixed cost, variable cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
3) When plotted against the total output, what does the total fixed cost curve look like?
Topic: Fixed cost curve
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
4) Downsizing is the practice of laying off workers in an attempt to decrease average total cost. Can laying off workers decrease average total cost? Is it possible for the firm to downsize and have its average total cost increase? Explain your answer.
Topic: Average total cost curve
Skill: Level 4: Applying models
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
5) How do we calculate average fixed cost and why does average fixed cost fall as output increases?
Topic: Average fixed cost
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
6) The average total cost curve is U-shaped. At the quantity of output where average total cost is at its minimum, is the marginal cost curve above the average total cost curve, below the average total cost curve, or intersecting the average total cost curve?
Topic: Marginal cost and average total cost curve
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
7) Which average cost curves are U-shaped?
Topic: Why the average total cost curve is U-shaped
Skill: Level 1: Definition
Section: Checkpoint 14.3
Status: Old
AACSB: Reflective thinking
8) What is the relationship between the marginal product of labor and the marginal cost?
Topic: MP and MC
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
9) Explain how new technologies, which increase productivity, affect the average variable cost, average total cost, and marginal cost curves.
Topic: Shifts in the cost curves, technology
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
10) When the Rent-A-Limo Company negotiates its new labor contract it finds that the wages it must pay drivers have increased. How does this wage hike affect the Rent-A-Limo Company's average fixed cost, average variable cost, average total cost, and marginal cost?
Topic: Shifts in the cost curves, prices of factors of production
Skill: Level 2: Using definitions
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
11) The table above has the total product schedule for an imaginary good called a widget. Each unit of labor costs $25 and the total cost of capital is $100.
a. Use this information to complete the table. In the table, TFC is the total fixed cost, TVC is the total variable cost, TC is the total cost, AFC is the average fixed cost, AVC is the average variable cost, ATC is the average total cost, and MC is the marginal cost.
b. Suppose that labor becomes twice as expensive (so that one unit of labor now costs $50) but nothing else changes. Complete the above table with the new cost schedules. If you plotted the cost curves, how would the increased wage rate affect the cost curves?
a. The completed table is above. All the costs in dollars.
b. The completed table is above. All the costs are in dollars. There would be no change in the total fixed and average fixed cost curves because the fixed cost did not change. The total cost, total variable cost, average total cost, average variable cost, and marginal cost curves would all shift upward.
Topic: Short-run costs
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
12) This month, the local widget factory produced 100 widgets. The total variable cost of production was $500 and the average total cost of production was $8.
a. What is the total cost?
b. What is the total fixed cost?
c. What is the average fixed cost?
d. What is the average variable cost?
a. Total cost can be calculated as average total cost times output, which is $8 × 100 = $800.
b. Total fixed cost equals total cost minus total variable cost. The total cost from part (a) is $800. The total variable cost is $500. Therefore the total fixed cost is $800 - $500 = $300.
c. Average fixed cost equals total fixed cost divided by output, which is $300 ÷ 100 = $3.
d. Average variable cost equals total variable cost divided by output. The total variable cost from part (b) is $500, so the average variable cost is $500 ÷ 100 = $5.
Topic: Short-run costs
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
13) Acme produces rocket shoes for use by slow coyotes. Acme's total cost schedule is given in the table below. Acme's total fixed cost is $12. Complete the table. (In the table, TFC is the total fixed cost, TVC is the total variable cost, AFC is the average fixed cost, AVC is the average variable cost, and ATC is the average total cost.)
The completed table is above.
Topic: Short-run costs
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
14) Rufus runs a skunk-skinning service in West Virginia. He employs skinners at a wage rate of $240 a week for each one. He leases the shack where his workers work for $200 per week. The rent is fixed for the next two years. Last week his 10 employees managed to skin a total of 300 skunks.
a. What is the average product of labor for Rufus's company?
b. What is Rufus' total variable cost per week?
c. What is the average variable cost for Rufus's company?
d. If Rufus adds his brother Jethro to his staff, at a wage rate of $240 a week, and his company can now skin 310 skunks per week, what is Rufus's new average variable cost?
a. The average product of labor is 30 skunks skinned per worker.
b. The total variable cost per week is $2,400.
c. The average variable cost is $8 per skunk skin.
d. The new total variable cost is $2,640. Hence the new average variable cost is $8.52 per skunk skin.
Topic: Short-run costs
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
15) The above table gives the total cost schedule for oil changes at the local Jiffy Lube.
a. What is Jiffy Lube's total fixed cost?
b. What is the total variable cost of 2 oil changes?
c. What is the average variable cost of 4 oil changes?
d. What is the average fixed cost of 2 oil changes?
e. What is the marginal cost of the 3rd oil change?
a. The total fixed cost is $10. At zero output, the total variable cost is $0, so the entire cost, $10, must be the fixed cost.
b. The total variable cost of 2 oil changes is $25. The total cost, TC, is $35 and from part (a) the total fixed cost, TFC, is $10. The total variable cost, TVC, is equal to TC - TFC or $35 - $10 = $25.
c. The average variable cost for 4 oil changes is $17.50. Start similarly to part (b) by calculating that the total variable cost, TVC, for 4 oil changes is $70. Then, the average variable cost, AVC, equals the total variable cost divided by output, or TVC ÷ Q. In this case, the AVC is equal to $70 ÷ 4 = $17.50.
d. The average fixed cost of 2 oil changes is $5. The average fixed cost, AFC, equals the total fixed cost divided by output, or TFC ÷ Q. From part (a), the total fixed cost is $10, so the average fixed cost equals $10 ÷ 2 = $5.
e. The marginal cost is $15. Marginal cost is defined as the change in the total cost that results from a one-unit increase in output. The total cost of 2 oil changes is $35 and the total cost of 3 oil changes is $50. Therefore the change in the total cost is $15, which is the marginal cost.
Topic: Short-run costs
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
16) Suppose the local newspaper hires students to fold and bag newspapers for delivery and pays them $20 per shift. Five students can fold and bag 300 newspapers per shift. The fourth student added 50 newspapers to total output. The cost of the capital the firm uses is fixed at $50 per shift.
a. Is the newspaper operating in the long run or short run? Why?
b. What is the average product of 5 students?
c. Calculate the total fixed cost, total variable cost, and total costs of folding and bagging 300 newspapers.
d. Calculate the average fixed cost, average variable cost, and average total costs of folding and bagging 300 newspapers.
e. What is the marginal cost of one of the 50 newspapers folded and bagged by the fourth student?
a. The firm is operating in the short run because its capital cost is fixed.
b. Average product equals 300 ÷ 5 = 60 newspapers per shift.
c. Total fixed cost = $50, total variable cost = 5 × $20 = $100, and so total cost = $50 + $100 = $150.
d. Average fixed cost = $50 ÷ 300 = $0.17, average variable cost = $100 ÷ 300 = $0.33, and average total cost = $150 ÷ 300 = $0.50 (alternatively, average total cost = average fixed cost + average variable cost = $0.17 + $0.33 = $0.50).
e. Marginal cost = change in total cost divided by change in output, or $20 ÷ 50 = $0.40.
Topic: Production and cost
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
17) Draw an average total cost curve, an average variable cost, and a marginal cost curve all on the same graph. Make sure to correctly label the axes. What relationship must exist between the marginal cost curve and the average total cost and average variable cost curves?
Typical cost curves are above. The average variable cost curve, AVC, and average total cost curve, ATC, are U-shaped. The marginal cost curve, MC, intersects the AVC curve and ATC curve at their minimum points.
Topic: Short-run cost curves
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
14.10 Essay: Long-Run Cost
1) In the long run all costs are variable costs. Why?
Topic: Long-run costs
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Written and oral communication
2) Which curve shows the lowest average total cost at which it is possible to produce each output when the firm has time to change both its labor force and plant size?
Topic: Long-run average cost curve
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
3) What is the long-run average cost curve? What are the three ranges of output and in what order do they occur? Briefly define each of the three ranges.
Topic: Long-run average cost curve
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Written and oral communication
4) Are the short-run average total cost curve and the long-run average cost both U-shaped for the same reasons? If so, carefully explain these reasons. If not, explain why each curve is U-shaped.
In the long run, both labor and capital are variable. As a firm expands its use of both resources and thereby increases its output, gains from specialization of both labor and capital cause average total costs to fall. Eventually, however, the business becomes so large it is difficult to coordinate and control. When this happens, long-run average total cost begins to rise.
Thus the short-run average total cost is U-shaped because more workers must make do with the same amount of plant. The long-run average cost curve is U-shaped because the very scale of the firm's operations makes it difficult to control efficiently and effectively.
Topic: Long-run and short-run average cost curves
Skill: Level 4: Applying models
Section: Checkpoint 14.4
Status: Old
AACSB: Written and oral communication
5) What are economies of scale? What is the main source of economies of scale?
Topic: Economies of scale
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Written and oral communication
6) What are diseconomies of scale and why might they occur?
Topic: Diseconomies of scale
Skill: Level 1: Definition
Section: Checkpoint 14.4
Status: Old
AACSB: Written and oral communication
7) A firm increases its output and its average total costs remain unchanged. Is the firm experiencing increasing returns to scale, constant returns to scale, or decreasing returns to scale?
Topic: Constant returns to scale
Skill: Level 2: Using definitions
Section: Checkpoint 14.4
Status: Old
AACSB: Reflective thinking
8) Jones Production started business with a small scale plant. Fortunately for Smith, the owner of Jones Production, the business grew rapidly. The table below gives the total costs and the associated output for each year.
a. Complete the table by finding the average cost for each scale.
b. Over what range of total product (output) did Jones Production experience economies of scale, constant returns to scale, and diseconomies of scale?
a. The completed table is above.
b. There are economies of scale from 100 to 500 units of output, constant returns to scale from 500 to 1,000 units of output, and diseconomies of scale from 1,000 to 2,500 units of output.
Topic: Long-run average cost
Skill: Level 3: Using models
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
9) Ayanna grows herbs. Last year she grew 2,000 pounds of herbs in a year while using 250 square feet of land and 1 worker. This year she doubled her land to 500 square feet, doubled her workers to 2, and grew 4,500 pounds of herbs. She sells her rare, organic herbs for $50 a pound. She pays her a worker $25,000 a year and rents her land for $100 per square foot for a year. These are her only costs.
a. What was Ayanna's total cost last year and this year?
b. What was Ayanna's average total cost last year and this year?
c. Did Ayanna experience economies or diseconomies of scale?
a. Ayanna's total cost last year was $50,000 and her total cost this year is $100,000.
b. Ayanna's average total cost last year was $25 a pound and her average total cost this year is $22.22 a pound.
c. Ayanna's average total cost decreased so she experienced economies of scale.
Topic: Economies of scale
Skill: Level 3: Using models
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
10) The above figure represents the average total cost curves of a wheat farmer.
a. Which average total cost curve has the lowest average total cost of producing 30,000 bushels of wheat?
b. Over what range of output is the farmer experiencing economies of scale?
c. Over what range of output is the farmer experiencing diseconomies of scale?
d. Which average total cost curve has the lowest possible average cost of production?
e. Which average total cost curve represents the largest plant?
a. ATC3 has the lowest average total cost to produce 30,000 bushels of wheat.
b. The farmer is experiencing economies of scale between 0 to 30,000 bushels of wheat.
c. The farmer is experiencing diseconomies of scale for more than 30,000 bushels of wheat.
d. ATC3 has the lowest possible average total cost, which occurs at 30,000 bushels of wheat.
e. ATC4 represents the largest plant.
Topic: Long-run average cost curve
Skill: Level 3: Using models
Section: Checkpoint 14.4
Status: Old
AACSB: Analytical thinking
Document Information
Connected Book
Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade
By Robin Bade