Question 1

Diseconomies of scale arise primarily because:

Accepted Answer

A)   the short-run average total cost curve rises when marginal product is increasing.
B)   of the difficulties involved in managing and coordinating a large business enterprise.
C)   firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available.
D)   beyond some point marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital) .E) A) and B)
F) A) and D)

Question 2

If you operated a small bakery,which of the following would be a variable cost in the short run?

Accepted Answer

A)   Baking ovens.
B)   Interest on business loans.
C)   Annual lease payment for use of the building.
D)   Baking supplies (flour,salt,etc. ) .E) B) and D)
F) C) and D)

Question 3

Normal profit is:

Accepted Answer

A)   determined by subtracting implicit costs from total revenue.
B)   determined by subtracting explicit costs from total revenue.
C)   the return to the entrepreneur when economic profits are zero.
D)   the average profitability of an industry over the preceding 10 years.E) C) and D)
F) A) and B)

Question 4

Economic profit is found by subtracting accounting costs from total revenue.

Accepted Answer

A) True 
 B)False

Question 5

The basic characteristic of the short run is that:

Accepted Answer

A)   barriers to entry prevent new firms from entering the industry.
B)   the firm does not have sufficient time to change the size of its plant.
C)   the firm does not have sufficient time to cut its rate of output to zero.
D)   a firm does not have sufficient time to change the amounts of any of the resources it employs.E) A) and D)
F) B) and C)

Question 6

Which of the following represents a long-run adjustment?

Accepted Answer

A)   A farmer uses an extra dose of fertilizer on his corn crop.
B)   Unable to meet foreign competition,a U.S.watch manufacturer sells one of its branch plants.
C)   A steel manufacturer cuts back on its purchases of coke and iron ore.
D)   A supermarket hires four additional clerks.E) A) and B)
F) All of the above

Question 7

Accounting profits are typically:

Accepted Answer

A)   greater than economic profits because the former do not take explicit costs into account.
B)   equal to economic profits because accounting costs include all opportunity costs.
C)   smaller than economic profits because the former do not take implicit costs into account.
D)   greater than economic profits because the former do not take implicit costs into account.E) A) and D)
F) C) and D)

Question 8

Which of the following is not correct?

Accepted Answer

A)   Where marginal product is greater than average product,average product is rising.
B)   Where total product is at a maximum,average product is also at a maximum.
C)   Where marginal product is zero,total product is at a maximum.
D)   Marginal product becomes negative before average product becomes negative.E) A) and B)
F) A) and C)

Question 9

Other things equal,if the wage rates paid to a firm's labor inputs were to rise,we would expect the:

Accepted Answer

A)   AFC,AVC,ATC,and MC curves all to rise.
B)   AVC,ATC,and MC curves all to rise.
C)   AFC and ATC curves to fall.
D)   MP curve to fall.E) C) and D)
F) A) and B)

Question 10

Which of the following holds true?

Accepted Answer

A)   There is no relationship between AP and AVC.
B)   When MP is rising AVC is falling,and when MP is falling AVC is rising.
C)   When AP is rising AVC is falling,and when AP is falling AVC is rising.
D)   When AP is rising AVC is rising,and when AP is falling AVC is falling.E) None of the above
F) B) and C)

Question 11

(Consider This) Which of the following is an example of a sunk cost,as it relates to a firm?

Accepted Answer

A)   An expenditure on raw materials used in the production process.
B)   An expenditure on a nonrefundable,nontransferable airline ticket.
C)   An expenditure to buy a delivery van.
D)   An expenditure for a new factory.E) A) and B)
F) A) and C)

Question 12

Average fixed cost:

Accepted Answer

A)   equals marginal cost when average total cost is at its minimum.
B)   may be found for any output by adding average variable cost and average total cost.
C)   graphs as a U-shaped curve.
D)   declines continually as output increases.E) A) and C)
F) A) and B)

Question 13

Other things equal,if the fixed costs of a firm were to increase by $100,000 per year,which of the following would happen?

Accepted Answer

A)   Marginal costs and average variable costs would both rise.
B)   Average fixed costs and average variable costs would rise.
C)   Average fixed costs and average total costs would rise.
D)   Average fixed costs would rise,but marginal costs would fall.E) None of the above
F) C) and D)

Question 14

When total product is increasing at an increasing rate,marginal product is:

Accepted Answer

A)   positive and increasing.
B)   positive and decreasing.
C)   constant.
D)   negative.E) A) and C)
F) C) and D)

Question 15

The vertical distance between the total cost and the total variable cost curves differs by an amount that:

Accepted Answer

A)   initially increases,but then decreases,as output increases.
B)   is constant as output changes.
C)   decreases as output increases.
D)   increases as output increases.E) A) and B)
F) A) and C)

Question 16

When total product is increasing at a decreasing rate,marginal product is:

Accepted Answer

A)   positive and increasing.
B)   positive and decreasing.
C)   constant.
D)   negative.E) A) and B)
F) None of the above

Question 17

Answer the question on the basis of the following cost data:  Output‾12345678AverageFixedCost ‾$50.0025.0016.6712.5010.008.377.146.25AverageVariableCost ‾$100.0080.0066.6765.0068.0073.3380.0087.50\begin{array}{c}\begin{array}{c}\\\underline{	ext {Output}}\1 \2 \3 \4 \5 \6 \7 \8\end{array}\begin{array}{c}	ext {Average}\	ext {Fixed}\\underline{	ext {Cost }}\\$ 50.00  \25.00 \16.67 \12.50 \10.00 \8.37 \7.14 \6.25\end{array}\begin{array}{c}	ext {Average}\	ext {Variable}\\underline{	ext {Cost }}\ \$ 100.00  \80.00 \66.67 \65.00 \68.00 \73.33 \80.00 \87.50\end{array}\end{array}Output​12345678​AverageFixedCost ​$50.0025.0016.6712.5010.008.377.146.25​AverageVariableCost ​$100.0080.0066.6765.0068.0073.3380.0087.50​​ 
 Refer to the data.The total cost of four units of output is:

Accepted Answer

A)   $260.
B)   $77.50.
C)   $310.
D)   $215. E) B) and C)
F) A) and B)

Question 18

What do wages paid to factory workers,interest paid on a bank loan,forgone interest,and the purchase of component parts have in common?

Accepted Answer

A)   None are either implicit or explicit costs.
B)   All are opportunity costs.
C)   All are implicit costs.
D)   All are explicit costs.E) B) and C)
F) A) and B)

Question 19

Suppose that,when producing 10 units of output,a firm's AVC is $22,its AFC is $5,and its MC is $30.This firm's:

Accepted Answer

A)   ATC is $35.
B)   ATC is $57.
C)   total cost is $270.
D)   total cost is $30.E) A) and B)
F) C) and D)

Question 20

(Consider This) If the law of diminishing returns applies to study time:

Accepted Answer

A)   the tenth hour of study will likely be less productive than the third.
B)   this implies that longer lectures are less productive than shorter ones.
C)   there is no benefit to studying a subject more than five hours in any given day.
D)   people with less intelligence necessarily experience diminishing returns sooner than those with greater intelligence.E) All of the above
F) A) and C)

Exam 9: Businesses and the Cost of Production

Economic profit is found by subtracting accounting costs from total revenue.

Correct Answer
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(Consider This) Which of the following is an example of a sunk cost,as it relates to a firm?

Correct Answer
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Which of the following represents a long-run adjustment?

Correct Answer
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The vertical distance between the total cost and the total variable cost curves differs by an amount that:

Correct Answer
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Suppose that,when producing 10 units of output,a firm's AVC is $22,its AFC is $5,and its MC is $30.This firm's:

Correct Answer
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When total product is increasing at a decreasing rate,marginal product is:

Correct Answer
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The basic characteristic of the short run is that:

Correct Answer
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Other things equal,if the fixed costs of a firm were to increase by $100,000 per year,which of the following would happen?

Correct Answer
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Diseconomies of scale arise primarily because:

Correct Answer
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Other things equal,if the wage rates paid to a firm's labor inputs were to rise,we would expect the:

Correct Answer
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(Consider This) If the law of diminishing returns applies to study time:

Correct Answer
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If you operated a small bakery,which of the following would be a variable cost in the short run?

Correct Answer
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Which of the following is not correct?

Correct Answer
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Which of the following holds true?

Correct Answer
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Average fixed cost:

Correct Answer
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Normal profit is:

Correct Answer
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Correct Answer
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When total product is increasing at an increasing rate,marginal product is:

Correct Answer
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What do wages paid to factory workers,interest paid on a bank loan,forgone interest,and the purchase of component parts have in common?

Correct Answer
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Accounting profits are typically:

Correct Answer
verified

Exam 9: Businesses and the Cost of Production

Economic profit is found by subtracting accounting costs from total revenue.

Correct AnswerverifiedShow Answer

(Consider This) Which of the following is an example of a sunk cost,as it relates to a firm?

Correct AnswerverifiedShow Answer

Which of the following represents a long-run adjustment?

Correct AnswerverifiedShow Answer

The vertical distance between the total cost and the total variable cost curves differs by an amount that:

Correct AnswerverifiedShow Answer

Suppose that,when producing 10 units of output,a firm's AVC is $22,its AFC is $5,and its MC is $30.This firm's:

Correct AnswerverifiedShow Answer

When total product is increasing at a decreasing rate,marginal product is:

Correct AnswerverifiedShow Answer

The basic characteristic of the short run is that:

Correct AnswerverifiedShow Answer

Other things equal,if the fixed costs of a firm were to increase by $100,000 per year,which of the following would happen?

Correct AnswerverifiedShow Answer

Diseconomies of scale arise primarily because:

Correct AnswerverifiedShow Answer

Other things equal,if the wage rates paid to a firm's labor inputs were to rise,we would expect the:

Correct AnswerverifiedShow Answer

(Consider This) If the law of diminishing returns applies to study time:

Correct AnswerverifiedShow Answer

If you operated a small bakery,which of the following would be a variable cost in the short run?

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Which of the following holds true?

Correct AnswerverifiedShow Answer

Average fixed cost:

Correct AnswerverifiedShow Answer

Normal profit is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When total product is increasing at an increasing rate,marginal product is:

Correct AnswerverifiedShow Answer

What do wages paid to factory workers,interest paid on a bank loan,forgone interest,and the purchase of component parts have in common?

Correct AnswerverifiedShow Answer

Accounting profits are typically:

Correct AnswerverifiedShow Answer

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