Question 1

What is the term for the change in total cost resulting from a one-unit increase in production?

Accepted Answer

A)   average fixed cost
B)   average opportunity cost
C)   average variable cost
D)   marginal costE) None of the above
F) B) and C)

Question 2

When marginal cost exceeds the average variable cost, average variable cost must be increasing.

Accepted Answer

A) True 
 B)False

Question 3

When marginal cost is increasing, average total cost must be increasing.

Accepted Answer

A) True 
 B)False

Question 4

What is the definition of marginal product of labour?

Accepted Answer

A)   the total output divided by the total labour utilized
B)   the change in total output divided by the change in labour, other factors of production held constant
C)   the change in profit divided by the change in labour, other factors of production held constant
D)   the change in labour utilized divided by the change in total output, other factors of production held constantE) None of the above
F) A) and B)

Question 5

FIGURE 7-4
 
-Refer to Figure 7-4. At output level 0Q, what is total cost equal to?

Accepted Answer

A)   area BEQ0
B)   area ADEB
C)   area ADFC
D)   area ADQ0E) A) and B)
F) B) and C)

Question 6

A factory producing motorcycle helmets employs six workers. At the current production level, each worker produces 20 helmets per week. Assuming that labour is the only variable input and that the weekly wage equals $600 per week, what is the average variable cost per helmet?

Accepted Answer

A)   $20
B)   $30
C)   $100
D)   $600E) A) and C)
F) A) and B)

Question 7

Explain why some costs are considered to be variable and some fixed. How does time enter into the definition?

Accepted Answer

Some factors cannot be adjusted quickly ...

Question 8

What is the definition of the marginal cost of a good?

Accepted Answer

A)   It is decreasing whenever average total cost is decreasing.
B)   It is the addition to total cost from producing one more unit of output.
C)   It is always equal to average variable cost when the firm is maximizing profit.
D)   It is the difference between average total cost and average variable cost.E) A) and D)
F) All of the above

Question 9

TABLE 7-1
 
-Refer to Table 7-1. With which additional picker does the marginal product of labour begin to diminish?

Accepted Answer

A)   the fourth
B)   the fifth
C)   the seventh
D)   the eighthE) B) and C)
F) A) and B)

Question 10

What is the impact on firms if opportunity costs are ignored?

Accepted Answer

A)   Firms experiencing economic losses may appear to be profitable.
B)   Firms will still make profit-maximizing production decisions.
C)   All firms will appear to incur economic losses.
D)   All firms will show accounting profits.E) B) and D)
F) A) and D)

Question 11

Which of the following is NOT a variable cost of production?

Accepted Answer

A)   the cost of wood used to produce furniture
B)   the cost of electricity that powers the lighting and computer systems in an office building
C)   the wages paid to nonsalaried employees
D)   the property taxes that are paid to the municipal government for the land a plant sits onE) None of the above
F) C) and D)

Question 12

Which of the following statements best describes costs in the long run?

Accepted Answer

A)   The average fixed cost curve is U-shaped.
B)   The average fixed cost exceeds the average variable cost of production.
C)   All costs are variable.
D)   All costs are fixed.E) B) and D)
F) B) and C)

Question 13

Why is the short run NOT the same length of time for all firms and industries?

Accepted Answer

A)   because the marginal product of capital begins to diminish at different levels of capital utilization across firms
B)   because the average product of labour varies across industries
C)   because the life span of capital and the extent of capital specialization will vary across firms and industries
D)   because entrepreneurs have different tastes and preferencesE) A) and B)
F) None of the above

Question 14

The period of time that is too short for the firm to change the quantity of certain resources used in production, known as fixed inputs, is called the short run.

Accepted Answer

A) True 
 B)False

Question 15

You operate a factory that produces beach towels. Your current level of output equals 2000 towels per week. Your weekly variable cost equals $8000. If your total cost each week equals $9000, what is the average total cost of production per towel?

Accepted Answer

A)   $2
B)   $4
C)   $4.50
D)   $8E) A) and B)
F) C) and D)

Question 16

What is an important and often ignored opportunity cost?

Accepted Answer

A)   the cost of missed market opportunities when funds are invested in a firm
B)   the cost of utilities used by the firm
C)   the cost of accounting services
D)   the cost of interest paid to bondholders by the firmE) A) and D)
F) A) and C)

Question 17

FIGURE 7-2
 
-Refer to Figure 7-2. The diagram above shows two cost curves representing short-run total cost and total fixed cost. Which letter represents the total cost curve and the total fixed cost curve?

Accepted Answer

A)   X is the total cost curve, and Y is the total fixed cost curve.
B)   Y is the total cost curve, and X is the total fixed cost curve.
C)   Y is the total cost curve, and Z is the total fixed cost curve.
D)   X is the total cost curve, and Z is the total fixed cost curve.E) A) and B)
F) All of the above

Question 18

FIGURE 7-3
 
-Refer to Figure 7-3. Which is the short-run average total cost curve?

Accepted Answer

A)   the curve labelled A
B)   the curve labelled B
C)   the curve labelled C
D)   the curve labelled DE) None of the above
F) B) and C)

Question 19

You operate a factory that produces beach towels. Your current level of output equals 2000 towels per week. Your weekly variable cost equals $8000. If your total cost each week equals $9000, what can you conclude about the fixed costs of production?

Accepted Answer

A)   that the total cost equals $17 000
B)   that the total fixed cost equals $8 per towel
C)   that the average fixed cost equals 50 cents per towel
D)   that the average fixed cost equals $1000E) A) and D)
F) C) and D)

Question 20

There are two types of costs associated with production. Which of the following statements best describes the monetary payment associated with these costs?

Accepted Answer

A)   Implicit costs require monetary payments while explicit costs do not.
B)   Both implicit and explicit costs require monetary payments.
C)   Explicit costs require monetary payments while implicit costs do not.
D)   Neither implicit nor explicit costs require monetary payments.E) C) and D)
F) B) and D)

Exam 7: Production and Costs

TABLE 7-1 -Refer to Table 7-1. With which additional picker does the marginal product of labour begin to diminish?

Correct AnswerverifiedShow Answer

A factory producing motorcycle helmets employs six workers. At the current production level, each worker produces 20 helmets per week. Assuming that labour is the only variable input and that the weekly wage equals $600 per week, what is the average variable cost per helmet?

Correct AnswerverifiedShow Answer

What is the term for the change in total cost resulting from a one-unit increase in production?

Correct AnswerverifiedShow Answer

You operate a factory that produces beach towels. Your current level of output equals 2000 towels per week. Your weekly variable cost equals $8000. If your total cost each week equals $9000, what can you conclude about the fixed costs of production?

Correct AnswerverifiedShow Answer

FIGURE 7-3 -Refer to Figure 7-3. Which is the short-run average total cost curve?

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What is the impact on firms if opportunity costs are ignored?

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Why is the short run NOT the same length of time for all firms and industries?

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Which of the following is NOT a variable cost of production?

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There are two types of costs associated with production. Which of the following statements best describes the monetary payment associated with these costs?

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FIGURE 7-4 -Refer to Figure 7-4. At output level 0Q, what is total cost equal to?

Correct AnswerverifiedShow Answer

Explain why some costs are considered to be variable and some fixed. How does time enter into the definition?

Correct AnswerverifiedSome factors cannot be adjusted quickly ...View AnswerShow Answer

What is the definition of the marginal cost of a good?

Correct AnswerverifiedShow Answer

The period of time that is too short for the firm to change the quantity of certain resources used in production, known as fixed inputs, is called the short run.

Correct AnswerverifiedShow Answer

You operate a factory that produces beach towels. Your current level of output equals 2000 towels per week. Your weekly variable cost equals $8000. If your total cost each week equals $9000, what is the average total cost of production per towel?

Correct AnswerverifiedShow Answer

When marginal cost exceeds the average variable cost, average variable cost must be increasing.

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When marginal cost is increasing, average total cost must be increasing.

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What is the definition of marginal product of labour?

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Which of the following statements best describes costs in the long run?

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What is an important and often ignored opportunity cost?

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FIGURE 7-2 -Refer to Figure 7-2. The diagram above shows two cost curves representing short-run total cost and total fixed cost. Which letter represents the total cost curve and the total fixed cost curve?

Correct AnswerverifiedShow Answer

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Some factors cannot be adjusted quickly ...
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