Question 1

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year.If the firm sold 4,000 units of its output at $300 per unit,its accounting profits were:

Accepted Answer

A)   $100,000 and its economic profits were zero.
B)   $200,000 and its economic profits were zero.
C)   $100,000 and its economic profits were $100,000.
D)   zero and its economic loss was $200,000.Total revenue is 4,000 * $300 = $1,200,000 and explicit costs were $1,000,000.Accounting profits were $200,000,but implicit costs of $200,000 mean economic profit was zero.E) A) and D)
F) A) and C)

Question 2

Refer to the above data.The marginal cost of producing the sixth unit of output is:

Accepted Answer

A)   $24.
B)   $12.
C)   $16.
D)   $8.The marginal cost of the sixth unit of output is $8 .E) B) and C)
F) C) and D)

Question 3

Refer to the above data.Diminishing marginal returns become evident with the addition of the:

Accepted Answer

A)   sixth worker.
B)   fourth worker.
C)   third worker.
D)   second worker.The second worker added 50 (90 - 40) units to output,whereas the third worker added 36 (126 - 90) units.Thus,marginal returns diminished with the third worker.E) A) and C)
F) All of the above

Question 4

Other things equal,if the prices of a firm's variable inputs were to fall:

Accepted Answer

A)   one could not predict how unit costs of production would be affected.
B)   marginal cost,average variable cost,and average fixed cost would all fall.
C)   marginal cost,average variable cost,and average total cost would all fall.
D)   average variable cost would fall,but marginal cost would be unchanged.E) All of the above
F) None of the above

Question 5

Which of the following statements concerning the relationships between total product (TP) ,average product (AP) ,and marginal product (MP) is not correct?

Accepted Answer

A)   AP continues to rise so long as TP is rising.
B)   AP reaches a maximum before TP reaches a maximum.
C)   TP reaches a maximum when the MP of the variable input becomes zero.
D)   MP cuts AP at the maximum AP.E) A) and C)
F) A) and B)

Question 6

Refer to the above data.Average product is at a maximum when:

Accepted Answer

A)   five workers are hired.
B)   four workers are hired.
C)   three workers are hired.
D)   two workers are hired.Average product at two workers is 90/2 = 45.This is the highest average product of all worker levels.E) A) and B)
F) A) and C)

Question 7

A natural monopoly exists when:

Accepted Answer

A)   unit costs are minimized by having one firm produce an industry's entire output.
B)   several formerly competing producers merge to become the only firm in an industry.
C)   short-run average total cost curves are tangent to long-run average total cost curves.
D)   minimum efficient scale is attained at a small level of output.E) All of the above
F) None of the above

Question 8

In the long-run average total cost curve below,the:

Accepted Answer

A)   movement from A to B reflects diseconomies of scale.
B)   movement from B to C reflects diseconomies of scale.
C)   realization of economies of scale would shift the entire curve downward.
D)   movement from B to C reflects the law of diminishing returns.E) None of the above
F) C) and D)

Question 9

Diseconomies of scale are caused by the law of diminishing marginal returns.

Accepted Answer

A) True 
 B)False

Question 10

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) A) and C)

Question 11

Which of the following is correct?

Accepted Answer

A)   A person who purchases a corporate bond is borrowing money from a corporation.
B)   A person who purchases a corporate stock is buying ownership in the corporation.
C)   A person who purchases a corporate bond is guaranteed to earn dividends from the stock.
D)   A person who purchases a corporate stock gets the option to buy other shares at lower prices.E) C) and D)
F) A) and B)

Question 12

The principal-agent problem arises in corporations because the interests of the owners or stockholders are aligned with the chief executives who run the corporations for the owners.

Accepted Answer

A) True 
 B)False

Question 13

The issue of the separation of ownership and control is concerned with the fact that:

Accepted Answer

A)   politicians pass laws to control corporations,but since corporations cannot vote,they cannot protest such control.
B)   major decisions in large corporations are generally made by professional managers rather than the owners of the corporation.
C)   most farms are owned by landlords who do not live on the farms.
D)   many small proprietorships are actually controlled by large corporations.E) C) and D)
F) A) and D)

Question 14

In the long run:

Accepted Answer

A)   all costs are variable costs.
B)   all costs are fixed costs.
C)   variable costs equal fixed costs.
D)   fixed costs are greater than variable costs.E) C) and D)
F) B) and D)

Question 15

Refer to the above data.When two workers are employed:

Accepted Answer

A)   total product is 20.
B)   total product is 18.
C)   average product is 10.
D)   total product cannot be determined from the information given.The second worker's marginal product is 10 and the total product before he was added equaled 8,so total product is 18.E) A) and B)
F) A) and C)

Question 16

Refer to the above data.The average fixed cost of producing 3 units of output is:

Accepted Answer

A)   $8.
B)   $7.40.
C)   $5.50.
D)   $6.Total fixed costs are $24 (i.e. ,costs where output level is zero) .Average fixed costs at 3 units of output is $24/3 = $8.E) A) and B)
F) A) and C)

Question 17

The long run is characterized by:

Accepted Answer

A)   the relevance of the law of diminishing returns.
B)   at least one fixed input.
C)   insufficient time for firms to enter or leave the industry.
D)   the ability of the firm to change its plant size.E) None of the above
F) B) and D)

Question 18

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 to rise.
B)   AVC,ATC,and MC to rise.
C)   AFC and ATC to fall.
D)   MP to fall.E) None of the above
F) A) and D)

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The ability of Intel to spread product development costs over a larger number of units of output arises from:

Accepted Answer

A)   economies of scale.
B)   diseconomies of scale.
C)   minimum efficient scale.
D)   constant returns to scale.E) All of the above
F) A) and C)

Exam 6: Businesses and Their Costs

A natural monopoly exists when:

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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:

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Which of the following is correct?

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

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The principal-agent problem arises in corporations because the interests of the owners or stockholders are aligned with the chief executives who run the corporations for the owners.

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Refer to the above data.The marginal cost of producing the sixth unit of output is:

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In the long-run average total cost curve below,the:

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In the long run:

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Refer to the above data.Average product is at a maximum when:

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Refer to the above data.Diminishing marginal returns become evident with the addition of the:

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Other things equal,if the prices of a firm's variable inputs were to fall:

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The issue of the separation of ownership and control is concerned with the fact that:

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The ability of Intel to spread product development costs over a larger number of units of output arises from:

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Which of the following statements concerning the relationships between total product (TP) ,average product (AP) ,and marginal product (MP) is not correct?

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The long run is characterized by:

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Diseconomies of scale are caused by the law of diminishing marginal returns.

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

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Refer to the above data.The average fixed cost of producing 3 units of output is:

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Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year.If the firm sold 4,000 units of its output at $300 per unit,its accounting profits were:

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Refer to the above data.When two workers are employed:

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