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Exam 13: The Costs of Production

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Question 151

True/False

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Adam Smith describes a visit to a car factory when discussing economies of scale in his book An Inquiry into the Nature and Causes of the Wealth of Nations.

A) True
B) False

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Question 152

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Industrial organization is the study of

A) how labor unions organize workers in industries.
B) which managers are the most successful.
C) how industries organize for political advantage.
D) how firms' decisions regarding prices and quantities depend on the market conditions they face.

E) A) and D)
F) B) and C)

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Question 153

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A firm's opportunity costs of production are equal to its

Economies of scale often arise because higher production levels allow specialization among workers.

Figure 13-2 -Refer to Figure 13-2. As the number of workers increases,

When a factory is operating in the short run,

The difference between accounting profit and economic profit relates to

Scenario 13-3 Kachina is a senior majoring in graphic design at Awesome University (AU) . While she has been attending college, Kachina started a computer consulting business to help senior citizens learn how to use their iPads. Kachina charges $25 per hour for her consulting services. She also works 5 hours a week for the Economics Department to maintain that department's Web page. The Economics Department pays Kachina $20 per hour. -Refer to Scenario 13-3. Which of the following statements is correct?

Describe how an accounting firm could experience diseconomies of scale.

Scenario 13-8 Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. -Refer to Scenario 13-8. What are Wanda's total economic costs per glass?

A firm's total profit equals its marginal revenue minus its marginal cost.

Table 13-17 Consider the following table of long-run total cost for four different firms: -Refer to Table 13-17. Which firm has diseconomies of scale over the entire range of output?

Table 13-1 -Refer to Table 13-1. What is total output when 3 workers are hired?

Table 13-5 -Refer to Table 13-5. The marginal product of the fourth worker is

Total revenue minus only explicit costs is called

Figure 13-2 -Refer to Figure 13-2. The graph illustrates a typical

If the marginal cost of producing the fifth unit of output is higher than the marginal cost of producing the fourth unit of output, then at five units of output, average total cost must be rising.

When comparing short-run average total cost with long-run average total cost at a given level of output,

Table 13-20 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-20. Firm C is experiencing economies of scale.

Scenario 13-13 Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie jars is $90,000. The annual explicit costs of the materials used to make the cookie jars are $54,000. -Refer to Scenario 13-13. Christine used $5,000 from her personal savings account to buy pottery tools for her business. The savings account paid 1% annual interest. Christine could earn $6,000 per year as a tax preparer. What is the annual accounting profit of her cookie jar business?