Question 1

If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then

Accepted Answer

A)   it is encountering diseconomies of scale.
B)   it is encountering economies of scale.
C)   it is encountering constant returns to scale.
D)   the marginal products of all inputs are falling.E) B) and D)
F) A) and B)

Question 2

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) A) and D)
F) B) and D)

Question 3

Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced

Accepted Answer

A)   an upward shift in their MC, AVC, and ATC curves.
B)   an upward shift in their AFC, AVC, and ATC curves.
C)   a downward shift in their MC, AFC, and AVC curves.
D)   greater economies of scale.E) A) and B)
F) B) and C)

Question 4

Plant sizes get larger as you move from ATC-1 to ATC-4.  Over what range of output are economies of scale experienced by this firm?

Accepted Answer

A)   1,500 to 3,000
B)   1,500 to 3,500
C)   2,000 to 3,500
D)   2,000 to 4,000E) A) and B)
F) A) and C)

Question 5

The total output of a firm will be at a maximum where

Accepted Answer

A)   MP is at a maximum.
B)   AP is at a minimum.
C)   MP is zero.
D)   AP is at a maximum.E) B) and D)
F) B) and C)

Question 6

Answer the question on the basis of the following cost data.   Output  Total Cost 0$24133241348454561669\begin{array}{|c|c|}\hline 	ext { Output } & 	ext { Total Cost } \\hline 0 & \$ 24 \\hline 1 & 33 \\hline 2 & 41 \\hline 3 & 48 \\hline 4 & 54 \\hline 5 & 61 \\hline 6 & 69 \\hline\end{array} Output 0123456​ Total Cost $24334148546169​​  The average fixed cost of producing 3 units of output is

Accepted Answer

A)   $8.
B)   $7.40.
C)   $5.50.
D)   $6. E) B) and C)
F) None of the above

Question 7

Diseconomies of scale occur mainly because

Accepted Answer

A)   of the law of diminishing returns.
B)   firms in an industry must be relatively large in order to use the most efficient production techniques.
C)   of the inherent difficulties involved in managing and coordinating a large business enterprise.
D)   the short-run average total cost curve rises when marginal product is greater than average total cost.E) A) and B)
F) None of the above

Question 8

Assume that the only variable resource used to produce output is labor.  Refer to the provided table. When the firm hires four units of labor, the average product of labor is

Accepted Answer

A)   5 units of output.
B)   7.50 units of output.
C)   8.50 units of output.
D)   30 units of output.E) All of the above
F) A) and B)

Question 9

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) B) and C)

Question 10

Implicit and explicit costs are different in that

Accepted Answer

A)   explicit costs are opportunity costs; implicit costs are not.
B)   implicit costs are opportunity costs; explicit costs are not.
C)   the latter refer to nonexpenditure costs and the former to monetary payments.
D)   the former refer to nonexpenditure costs and the latter to monetary payments.E) None of the above
F) C) and D)

Question 11

The following is cost information for the Creamy Crisp Donut Company. Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000
Annual revenue from operations = $380,000 Payments to workers = $120,000
Utilities (electricity, water, disposal)  costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
If, other things equal, Creamy Crisp's revenue fell to $286,000,

Accepted Answer

A)   its implicit costs, including a normal profit, would exceed its explicit costs.
B)   it would earn a normal profit but not an economic profit.
C)   it would suffer an economic loss.
D)   its accounting profit would fall to $0.E) B) and D)
F) B) and C)

Question 12

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 B)
F) B) and C)

Question 13

The following is cost information for the Creamy Crisp Donut Company. Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000
Annual revenue from operations = $380,000 Payments to workers = $120,000
Utilities (electricity, water, disposal)  costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Creamy Crisp's accounting profit is

Accepted Answer

A)   $150,000.
B)   $380,000.
C)   $230,000.
D)   $294,000.E) A) and C)
F) A) and B)

Question 14

The Sunshine Corporation finds that its costs are $40 when it produces no output. Its total variable costs (TVC)  change with output as shown in the accompanying table. Use this information to answer the following question.   Output  TVC 1$302503654855110\begin{array}{|c|c|}\hline 	ext { Output } & 	ext { TVC } \\hline 1 & \$ 30 \\hline 2 & 50 \\hline 3 & 65 \\hline 4 & 85 \\hline 5 & 110 \\hline\end{array} Output 12345​ TVC $30506585110​​  The average total cost of 3 units of output is

Accepted Answer

A)   $65.
B)   $21.67.
C)   $40.
D)   $35. E) All of the above
F) B) and C)

Question 15

If marginal cost exceeds average total cost in the short run, then which is likely to be true?

Accepted Answer

A)   Average total cost is increasing.
B)   Average variable cost is decreasing.
C)   Average total cost is less than average variable cost.
D)   Marginal cost is less than average variable cost.E) A) and C)
F) A) and B)

Question 16

The vertical distance between the TC curve and TVC curve is equal to

Accepted Answer

A)   ATC.
B)   AVC.
C)   TFC.
D)   MC.E) A) and B)
F) All of the above

Question 17

A given level of consumer demand will support a large number of producers in an industry if

Accepted Answer

A)   minimum efficient scale (MES)  is very large.
B)   the long-run ATC curve decreases as output levels increase.
C)   diseconomies of scale are already encountered even at low levels of output.
D)   exclusive patents and high government license fees are prevalent in the industry.E) None of the above
F) C) and D)

Question 18

The law of diminishing returns describes the

Accepted Answer

A)   relationship between total costs and total revenues.
B)   profit-maximizing position of a firm.
C)   relationship between resource inputs and product outputs in the short run.
D)   relationship between resource inputs and product outputs in the long run.E) None of the above
F) C) and D)

Question 19

Normal profits are

Accepted Answer

A)   the profits reported by accountants on a firm's annual financial statement.
B)   identical to economic profits.
C)   determined by subtracting total costs from total revenues.
D)   considered an implicit cost by economists.E) C) and D)
F) B) and C)

Question 20

The minimum efficient scale of a firm

Accepted Answer

A)   is realized somewhere in the range of diseconomies of scale.
B)   occurs where marginal product becomes zero.
C)   is in the middle of the range of constant returns to scale.
D)   is the smallest level of output at which long-run average total cost is minimized.E) A) and B)
F) A) and C)

Exam 9: Businesses and the Costs of Production

The law of diminishing returns describes the

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

Correct Answer
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The total output of a firm will be at a maximum where

Correct Answer
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If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then

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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Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced

Correct Answer
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Correct Answer
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Plant sizes get larger as you move from ATC-1 to ATC-4. Over what range of output are economies of scale experienced by this firm?

Correct Answer
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The minimum efficient scale of a firm

Correct Answer
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Assume that the only variable resource used to produce output is labor. Refer to the provided table. When the firm hires four units of labor, the average product of labor is

Correct Answer
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The basic characteristic of the short run is that

Correct Answer
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Diseconomies of scale occur mainly because

Correct Answer
verified

A given level of consumer demand will support a large number of producers in an industry if

Correct Answer
verified

Implicit and explicit costs are different in that

Correct Answer
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Normal profits are

Correct Answer
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The vertical distance between the TC curve and TVC curve is equal to

Correct Answer
verified

Correct Answer
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If marginal cost exceeds average total cost in the short run, then which is likely to be true?

Correct Answer
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Exam 9: Businesses and the Costs of Production

The law of diminishing returns describes the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The total output of a firm will be at a maximum where

Correct AnswerverifiedShow Answer

If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Plant sizes get larger as you move from ATC-1 to ATC-4. Over what range of output are economies of scale experienced by this firm?

Correct AnswerverifiedShow Answer

The minimum efficient scale of a firm

Correct AnswerverifiedShow Answer

Assume that the only variable resource used to produce output is labor. Refer to the provided table. When the firm hires four units of labor, the average product of labor is

Correct AnswerverifiedShow Answer

The basic characteristic of the short run is that

Correct AnswerverifiedShow Answer

Diseconomies of scale occur mainly because

Correct AnswerverifiedShow Answer

A given level of consumer demand will support a large number of producers in an industry if

Correct AnswerverifiedShow Answer

Implicit and explicit costs are different in that

Correct AnswerverifiedShow Answer

Normal profits are

Correct AnswerverifiedShow Answer

The vertical distance between the TC curve and TVC curve is equal to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If marginal cost exceeds average total cost in the short run, then which is likely to be true?

Correct AnswerverifiedShow Answer

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