Question 1

Economic profit is greater than or equal to accounting profit.

Accepted Answer

A) True 
 B)False

Question 2

Scenario 13-2
Chelsea wants to start her own Christmas ornament business. She can purchase a suitable factory that costs $100,000. Chelsea currently has $150,000 in the bank earning 3 percent interest per year.
-Refer to Scenario 13-2.Suppose Chelsea purchases the factory using her own money.What is Chelsea's annual implicit opportunity cost of purchasing the factory?

Accepted Answer

A)   $2,000
B)   $3,000
C)   $4,500
D)   $5,000E) A) and B)
F) B) and C)

Question 3

A firm produces 400 units of output at a total cost of $1,200.If fixed costs are $200,

Accepted Answer

A)   average fixed cost is $2.
B)   average variable cost is $2.50.
C)   average total cost is $4.
D)   average total cost is $5.E) None of the above
F) A) and B)

Question 4

Table 13-2
 
-Refer to Table 13-2.What is the marginal product of the fourth worker?

Accepted Answer

A)   250 units
B)   200 units
C)   150 units
D)   50 unitsE) None of the above
F) B) and D)

Question 5

Marginal costs are costs that do not vary with the quantity of output produced.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following measures of cost is best described as "the increase in total cost that arises from an extra unit of production?"

Accepted Answer

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

Question 7

Suppose that a firm has only one variable input,labor,and firm output is zero when labor is zero.When the firm hires 6 workers the firm produces 90 units of output.Fixed costs of production are $6 and the variable cost per unit of labor is $10.The marginal product of the seventh unit of labor is 4.Given this information,what is the average total cost of production when the firm hires 7 workers?

Accepted Answer

A)   $10.06
B)   $9.64
C)   81 cents
D)   70 centsE) A) and D)
F) All of the above

Question 8

Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business.To invest in his painting business,he withdrew $20,000 from his savings,which paid 3 percent interest,and borrowed $30,000 from his uncle,whom he pays 3 percent interest per year.Last year Walter paid $25,000 for supplies and had revenue of $60,000.Walter asked Tyler the accountant and Greg the economist to calculate his painting business's profit.

Accepted Answer

A)   Tyler says his profit is $25,900, and Greg says his profit is $66,500.
B)   Tyler says his profit is $35,000, and Greg says he lost $5,900.
C)   Tyler says his profit is $34,100, and Greg says he lost $6,500.
D)   Tyler says his profit is $34,100, and Greg says his profit is $34,100.E) A) and C)
F) A) and D)

Question 9

Which of the following statements is not correct?

Accepted Answer

A)   In the long run, there are no fixed costs.
B)   Marginal cost is independent of fixed costs.
C)   Economies of scale is a short-run concept.
D)   Diminishing marginal product explains increasing marginal cost.E) A) and C)
F) None of the above

Question 10

Economies of scale arise when

Accepted Answer

A)   an economy is self-sufficient in production.
B)   individuals in a society are self-sufficient.
C)   fixed costs are large relative to variable costs.
D)   workers are able to specialize in a particular task.E) A) and C)
F) None of the above

Question 11

Total revenue equals

Accepted Answer

A)   price x quantity.
B)   price/quantity.
C)   (price x quantity)  - total cost.
D)   output - input.E) C) and D)
F) A) and D)

Question 12

Scenario 13-8
Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500.
-Refer to Scenario 13-8.Ellie's annual accounting costs will equal

Accepted Answer

A)   $55,200.
B)   $75,200.
C)   $80,500.
D)   $165,700.E) B) and D)
F) B) and C)

Question 13

Average total cost is increasing whenever

Accepted Answer

A)   total cost is increasing.
B)   marginal cost is increasing.
C)   marginal cost is less than average total cost.
D)   marginal cost is greater than average total cost.E) A) and B)
F) A) and C)

Question 14

Which of the following statements is correct?

Accepted Answer

A)   Assuming that explicit costs are positive, economic profit is greater than accounting profit.
B)   Assuming that implicit costs are positive, accounting profit is greater than economic profit.
C)   Assuming that explicit costs are positive, accounting profit is equal to economic profit.
D)   Assuming that implicit costs are positive, economic profit is positive.E) All of the above
F) B) and C)

Question 15

Table 13-3
 
-Refer to Table 13-3.At which number of workers does diminishing marginal product begin?

Accepted Answer

A)   1
B)   2
C)   3
D)   4E) A) and B)
F) A) and C)

Question 16

Scenario 13-10
Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each.
-Refer to Scenario 13-10.An economist would calculate the total cost for one birdhouse to be

Accepted Answer

A)   $5.
B)   $8.
C)   $9.
D)   $13.E) A) and B)
F) A) and C)

Question 17

Table 13-8
 
-Refer to Table 13-8.What is the shape of the marginal cost curve for this firm?

Accepted Answer

A)   constant
B)   upward-sloping
C)   downward-sloping
D)   U-shapedE) A) and B)
F) A) and C)

Question 18

Firms may experience diseconomies of scale when

Accepted Answer

A)   they are too small to take advantage of specialization.
B)   large management structures are bureaucratic and inefficient.
C)   there are too few employees, and managers do not have enough to do.
D)   average fixed costs begin to rise again.E) B) and D)
F) B) and C)

Question 19

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

Accepted Answer

A)   marginal product decreases.
B)   total output decreases.
C)   marginal product increases but at a decreasing rate.
D)   Both a and b are correct.E) B) and C)
F) A) and D)

Question 20

David's firm experiences diminishing marginal product for all ranges of inputs.The total cost curve associated with David's firm

Accepted Answer

A)   gets flatter as output increases.
B)   gets steeper as output increases.
C)   is constant for all ranges of output.
D)   is unrelated to the production function.E) All of the above
F) B) and C)

Exam 13: The Costs of Production.

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Total revenue equals

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Marginal costs are costs that do not vary with the quantity of output produced.

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Which of the following statements is not correct?

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Firms may experience diseconomies of scale when

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Table 13-2 -Refer to Table 13-2.What is the marginal product of the fourth worker?

Correct Answer
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Which of the following statements is correct?

Correct Answer
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David's firm experiences diminishing marginal product for all ranges of inputs.The total cost curve associated with David's firm

Correct Answer
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Economic profit is greater than or equal to accounting profit.

Correct Answer
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Economies of scale arise when

Correct Answer
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Average total cost is increasing whenever

Correct Answer
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Which of the following measures of cost is best described as "the increase in total cost that arises from an extra unit of production?"

Correct Answer
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Table 13-3 -Refer to Table 13-3.At which number of workers does diminishing marginal product begin?

Correct Answer
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Table 13-8 -Refer to Table 13-8.What is the shape of the marginal cost curve for this firm?

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

Correct Answer
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A firm produces 400 units of output at a total cost of $1,200.If fixed costs are $200,

Correct Answer
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Exam 13: The Costs of Production.

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Total revenue equals

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Marginal costs are costs that do not vary with the quantity of output produced.

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Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

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Firms may experience diseconomies of scale when

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Correct AnswerverifiedShow Answer

Table 13-2 -Refer to Table 13-2.What is the marginal product of the fourth worker?

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Which of the following statements is correct?

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David's firm experiences diminishing marginal product for all ranges of inputs.The total cost curve associated with David's firm

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Economic profit is greater than or equal to accounting profit.

Correct AnswerverifiedShow Answer

Economies of scale arise when

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Average total cost is increasing whenever

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Which of the following measures of cost is best described as "the increase in total cost that arises from an extra unit of production?"

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Table 13-3 -Refer to Table 13-3.At which number of workers does diminishing marginal product begin?

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Table 13-8 -Refer to Table 13-8.What is the shape of the marginal cost curve for this firm?

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

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A firm produces 400 units of output at a total cost of $1,200.If fixed costs are $200,

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