chapter 13

Chapter 13

878 ( Chapter 13/The Costs of Production

Chapter 13/The Costs of Production ( 877

Chapter 13

The Costs of ProductionTRUE/FALSE1.The economic field of industrial organization examines how firms decisions about prices and quantities depend on the market conditions they face.ANS:TDIF:2REF:13-0NAT:Analytic

LOC:Costs of production

TOP:Industrial organization

MSC:Interpretive2.Profit equals marginal revenue minus marginal cost.ANS:FDIF:1REF:13-1NAT:Analytic


TOP:ProfitMSC:Definitional3.Profit equals total revenue minus total cost.ANS:TDIF:1REF:13-1NAT:Analytic


TOP:ProfitMSC:Definitional4.The difference between economic profit and accounting profit is that economic profit is calculated based on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only.ANS:TDIF:2REF:13-1NAT:Analytic


TOP:Economic profit | Accounting profit

MSC:Interpretive5.Accounting profit is greater than or equal to economic profit.ANS:TDIF:2REF:13-1NAT:Analytic


TOP:Accounting profit | Economic profit

MSC:Analytical6.Economic profit is greater than or equal to accounting profit.ANS:FDIF:2REF:13-1NAT:Analytic



MSC:Analytical7.Although economists and accountants treat many costs differently, they both treat the cost of capital the same.ANS:FDIF:2REF:13-1NAT:Analytic



MSC:Interpretive8.Accountants keep track of the money that flows into and out of firms.ANS:TDIF:1REF:13-1NAT:Analytic


TOP:Accounting profit

MSC:Interpretive9.When economists speak of a firm's costs, they are usually excluding the opportunity costs.ANS:FDIF:2REF:13-1NAT:Analytic


TOP:Opportunity costs

MSC:Interpretive10.Economists and accountants both include forgone income as a cost to a small business owner.ANS:FDIF:2REF:13-1NAT:Analytic



MSC:Interpretive11.Economists and accountants usually disagree on the inclusion of implicit costs into the cost analysis of a firm.ANS:TDIF:1REF:13-1NAT:Analytic


TOP:Implicit costs

MSC:Interpretive12.Implicit costs are costs that do not require an outlay of money by the firm.ANS:TDIF:1REF:13-1NAT:Analytic


TOP:Implicit costs

MSC:Definitional13.Accountants often ignore implicit costs.ANS:TDIF:1REF:13-1NAT:Analytic


TOP:Implicit costs

MSC:Interpretive14.In the long run, a factory is usually considered a fixed input.ANS:FDIF:2REF:13-2NAT:Analytic


TOP:Long runMSC:Interpretive15.Diminishing marginal productivity implies decreasing total product.ANS:FDIF:2REF:13-2NAT:Analytic


TOP:Diminishing marginal product

MSC:Interpretive16.Diminishing marginal product exists when the total cost curve becomes flatter as outputs increases.ANS:FDIF:2REF:13-2NAT:Analytic



MSC:Interpretive17.Diminishing marginal product exists when the production function becomes flatter as inputs increase.ANS:TDIF:2REF:13-2NAT:Analytic



MSC:Interpretive18.A second or third worker may have a higher marginal product than the first worker in certain circumstances.ANS:TDIF:2REF:13-2NAT:Analytic


TOP:Marginal product

MSC:Interpretive19.The typical total-cost curve is U-shaped.ANS:FDIF:2REF:13-2NAT:Analytic


TOP:Total-cost curve

MSC:Interpretive20.The average fixed cost curve is constant.ANS:FDIF:2REF:13-2NAT:Analytic


TOP:Average fixed cost

MSC:Interpretive21.In the short run, if a firm produces nothing, total costs are zero.ANS:FDIF:2REF:13-2NAT:Analytic


TOP:Total costs | Fixed costs

MSC:Interpretive22.If a firm produces nothing, it still incurs its fixed costs.ANS:TDIF:2REF:13-2NAT:Analytic


TOP:Fixed costsMSC:Interpretive23.The shape of the total cost curve is unrelated to the shape of the production function.ANS:FDIF:2REF:13-2NAT:Analytic


TOP:Total-cost curve | Production function

MSC:Interpretive24.The shape of the total cost curve is related to the shape of the production function.ANS:TDIF:2REF:13-2NAT:Analytic



MSC:Interpretive25.If the marginal cost of producing the tenth unit of output is $3, and if the average total cost of producing the tenth unit of output is $2, then at ten units of output, average total cost is rising.ANS:TDIF:3REF:13-3NAT:Analytic


TOP:Marginal cost | Average total cost

MSC:Analytical26.If the marginal cost of producing the tenth unit of output is $2.50, and if the average total cost of producing the tenth unit of output is $3, then at ten units of output, average total cost is rising.ANS:FDIF:3REF:13-3NAT:Analytic



MSC:Analytical27.If the marginal cost of producing the fifth unit of output is higher than the marginal cost of producing the fourth unit of output, then at five units of output, average total cost must be rising.ANS:FDIF:3REF:13-3NAT:Analytic



MSC:Analytical28.Marginal costs are costs that do not vary with the quantity of output produced.ANS:FDIF:1REF:13-3NAT:Analytic


TOP:Marginal cost

MSC:Definitional29.Several related measures of cost can be derived from a firm's total cost.ANS:TDIF:2REF:13-3NAT:Analytic


TOP:Cost curvesMSC:Interpretive30.Variable costs usually change as the firm alters the quantity of output produced.ANS:TDIF:2REF:13-3NAT:Analytic


TOP:Variable costs

MSC:Definitional31.Variable costs equal fixed costs when nothing is produced.ANS:FDIF:2REF:13-3NAT:Analytic


TOP:Variable costs

MSC:Interpretive32.The cost of producing an additional unit of a good is not the same as the average cost of the good.ANS:TDIF:2REF:13-3NAT:Analytic


TOP:Average total cost

MSC:Interpretive33.Average variable cost is equal to total variable cost divided by quantity of output.ANS:TDIF:2REF:13-3NAT:Analytic


TOP:Average variable cost

MSC:Definitional34.The average total cost curve is unaffected by diminishing marginal product.ANS:FDIF:3REF:13-3NAT:Analytic


TOP:Diminishing marginal product | Average total cost

MSC:Interpretive35.The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves.ANS:TDIF:2REF:13-3NAT:Analytic



MSC:Interpretive36.If the marginal cost curve is rising, then so is the average total cost curve.ANS:FDIF:2REF:13-3NAT:Analytic



MSC:Interpretive37.The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost curve.ANS:TDIF:2REF:13-3NAT:Analytic


TOP:Average total cost | Marginal cost

MSC:Interpretive38.The marginal cost curve intersects the average total cost curve at the minimum point of the marginal cost curve.ANS:FDIF:2REF:13-3NAT:Analytic


TOP:Average total cost | Marginal cost

MSC:Interpretive39.Assume Jack received all A's in his classes last semester. If Jack gets all B's in his classes this semester, his GPA may or may not fall.ANS:TDIF:3REF:13-3NAT:Analytic



MSC:Interpretive40.Average total cost and marginal cost express information that is already contained in a firm's total cost.ANS:TDIF:2REF:13-3NAT:Analytic



MSC:Interpretive41.Average total cost reveals how much total cost will change as the firm alters its level of production.ANS:FDIF:2REF:13-3NAT:Analytic



MSC:Interpretive42.The shape of the marginal cost curve tells a producer something about the marginal product of her workers.ANS:TDIF:2REF:13-3NAT:Analytic


TOP:Marginal cost | Marginal product

MSC:Interpretive43.When average total cost rises if a producer either increases or decreases production, then the firm is said to be operating at efficient scale.ANS:TDIF:2REF:13-3NAT:Analytic


TOP:Efficient scale

MSC:Interpretive44.Fixed costs are those costs that remain fixed no matter how long the time horizon is.ANS:FDIF:2REF:13-4NAT:Analytic


TOP:Fixed costsMSC:Interpretive45.Diseconomies of scale often arise because higher production levels allow specialization among workers.ANS:FDIF:2REF:13-4NAT:Analytic


TOP:Diseconomies of scale

MSC:Interpretive46.Economies of scale often arise because higher production levels allow specialization among workers.ANS:TDIF:2REF:13-4NAT:Analytic


TOP:Economies of scale

MSC:Interpretive47.If long-run average total cost is rising, then the firm is experiencing economies of scale.ANS:FDIF:2REF:13-4NAT:Analytic


TOP:Economies of scale | Diseconomies of scale

MSC:Definitional48.The fact that many inputs are fixed in the short run but variable in the long run has little impact on the firm's cost curves.ANS:FDIF:2REF:13-4NAT:Analytic


TOP:Long runMSC:Interpretive49.In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories.ANS:TDIF:2REF:13-4NAT:Analytic


TOP:Specialization

MSC:Interpretive50.The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are.ANS:TDIF:2REF:13-4NAT:Analytic


TOP:Specialization

MSC:Interpretive51.As a firm moves along its long-run average cost curve, it is adjusting the size of its factory to the quantity of production.ANS:TDIF:2REF:13-4NAT:Analytic



MSC:Interpretive52.Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above the long-run curve.ANS:TDIF:2REF:13-4NAT:Analytic



MSC:Interpretive53.There is general agreement among economists that the long-run time period exceeds one year.ANS:FDIF:2REF:13-4NAT:Analytic


TOP:Long runMSC:InterpretiveTable 13-1Listed in the table are the long-run total costs for three different firms.

Quantity12345

Firm A100100100100100

Firm B100200300400500

Firm C1003006001,0001,500

54.Refer to Table 13-1. Firm A is experiencing economies of scale.ANS:TDIF:3REF:13-4NAT:Analytic



MSC:Analytical55.Adam Smith's example of the pin factory demonstrates that economies of scale result from specialization.ANS:TDIF:2REF:13-4NAT:Analytic



MSC:InterpretiveSHORT ANSWER1.What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?ANS:

The opportunity cost of an item refers to all those things that must be forgone to acquire that item. Both explicit and implicit costs are included as opportunity costs.DIF:2REF:13-1NAT:AnalyticLOC:Costs of production


MSC:Definitional2.A key difference between accountants and economists is their different treatment of the cost of capital. Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.ANS:

An accountant would not include the forgone interest income that the money could have earned elsewhere if it had not been invested in the business. Therefore, an accountant's estimate of total cost will be less than an economist's.DIF:2REF:13-1NAT:AnalyticLOC:Costs of production


MSC:Analytical3.The production function depicts a relationship between which two variables? Also, draw a production function that exhibits diminishing marginal product.ANS:

It depicts a relationship between output and a given input. The graph should show output increasing, but at a decreasing rate as inputs increase.

DIF:2REF:13-2NAT:AnalyticLOC:Costs of production

TOP:Production function

MSC:Applicative4.How would a production function that exhibits decreasing marginal product affect the shape of the total cost curve? Explain or draw a graph.ANS:

The total cost curve will increase at an increasing rate, or in other words, the total cost curve gets steeper as the amount produced rises.

DIF:2REF:13-3NAT:AnalyticLOC:Costs of production

TOP:Diminishing marginal product | Total-cost curveMSC:Analytical5.What effect, if any, does diminishing marginal product have on the shape of the marginal cost curve?ANS:

Diminishing marginal product causes the marginal cost curve to rise.DIF:2REF:13-3NAT:AnalyticLOC:Costs of production

TOP:Diminishing marginal product | Marginal costMSC:Analytical6.Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shop's average total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bob's economist explains that ATC is U-shaped for two reasons. The first is the existence of diminishing marginal product, which causes it to rise. What would be the second reason? Assume that the marginal cost curve is linear. (Hint: The second reason relates to average fixed cost)ANS:

Average fixed cost always declines as output rises because fixed cost is being spread over a larger number of units, thus causing the average total cost curve to fall.DIF:3REF:13-3NAT:AnalyticLOC:Costs of production


MSC:Analytical7.If the average total cost curve is falling, what is necessarily true of the marginal cost curve? If the average total cost curve is rising, what is necessarily true of the marginal cost curve?ANS:

When average total cost curve is falling, marginal cost is below ATC. If the average total cost curve is rising, marginal cost is above ATC.DIF:2REF:13-3NAT:AnalyticLOC:Costs of production

TOP:Average total cost | Marginal costMSC:Analytical8.According to the mathematical laws that govern the relationship between average total cost and marginal cost, where must these two curves intersect?ANS:

The two curves will cross at the minimum point on the average total cost curve.DIF:2REF:13-3NAT:AnalyticLOC:Costs of production

TOP:Average total cost | Marginal costMSC:Analytical

Sec00 - The Costs of ProductionMULTIPLE CHOICE1.Analyzing the behavior of the firm enhances our understanding of a.what decisions lie behind the market supply curve.

b.how consumers allocate their income to purchase scarce resources.

c.how financial institutions set interest rates.

d.whether resources are allocated fairly.

ANS:ADIF:1REF:13-0NAT:Analytic


TOP:Supply curve

MSC:Applicative2.Which field of economics studies how the number of firms affects the prices in a market and the efficiency of market outcomes? a.macro economics

b.industrial organization

c.labor economics

d.monetary economics

ANS:BDIF:1REF:13-0NAT:Analytic



MSC:Definitional3.Economists in the field of industrial organization study how a.central banking policies affect financial markets.

b.firms demand for labor and individuals supply of labor affect resource markets.

c.firms decisions about prices and quantities depend on market conditions.

d.externalities and public goods affect the environment.

ANS:CDIF:1REF:13-0NAT:Analytic



MSC:Definitional4.Industrial organization is the study of how a.labor unions organize workers in industries.

b.profitable firms are in organized industries.

c.industries organize for political advantage.

d.firms' decisions regarding prices and quantities depend on the market conditions they face.

ANS:DDIF:1REF:13-0NAT:Analytic



MSC:Definitional5.To an economist, the field of industrial organization answers which of the following questions?a.Why are consumers subject to the law of demand?

b.Why do firms experience diminishing marginal products of inputs?

c.How does the number of firms affect prices and the efficiency of market outcomes?

d.Why do firms consider production costs when determining product supply?




MSC:Definitional6.A student might describe information about the costs of production as a.dry and technical.

b.boring.

c.crucial to understanding firms and market structures.

d.All of the above could be correct.



TOP:Supply curve

MSC:Interpretive

Sec01 - The Costs of Production - What Are Costs?MULTIPLE CHOICE1.Economists assume that the typical person who starts her own business does so with the intention of a.donating the profits from her business to charity.

b.capturing the highest number of sales in her industry.

c.maximizing profits.

d.minimizing costs.



TOP:Profit maximization

MSC:Applicative2.Economists normally assume that the goal of a firm is to(i)sell as much of their product as possible.

(ii)set the price of the product as high as possible.

(iii)maximize profit.

a.(i) and (ii) are true.

b.(ii) and (iii) are true.

c.(iii) is true.

d.(i) and (iii) are true.




MSC:Interpretive3.Economists normally assume that the goal of a firm is to earn (i)profits as large as possible, even if it means reducing output.

(ii)profits as large as possible, even if it means incurring a higher total cost.

(iii)revenues as large as possible, even if it reduces profits.

a.(i) and (ii) are true.

b.(i) and (iii) are true.

c.(ii) and (iii) are true.

d.(i), (ii), and (iii) are true.




MSC:Interpretive4.An entrepreneurs motivation to start a business arises froma.an innate love for the type of business that he or she starts.

b.a desire to earn a profit.

c.an altruistic desire to provide the world with a good product.

d.All of the above could be correct.




MSC:Interpretive5.Economists normally assume that the goal of a firm is toa.maximize its total revenue.

b.maximize its profit.

c.minimize its explicit costs.

d.minimize its total cost.




MSC:Definitional6.Economists assume that the goal of the firm is to maximize total a.revenue.

b.profits.

c.costs.

d.satisfaction.




MSC:Interpretive7.When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision?a.The cost of something is what you give up to get it.

b.A country's standard of living depends on its ability to produce goods and services.

c.Prices rise when the government prints too much money.

d.Governments can sometimes improve market outcomes.




MSC:Interpretive8.The amount of money that a firm receives from the sale of its output is calleda.total gross profit.

b.total net profit.

c.total revenue.

d.net revenue.



TOP:Total revenue

MSC:Definitional9.Total revenue equals a.price x quantity.

b.price/quantity.

c.(price x quantity) - total cost.

d.output - input.



TOP:Total revenue

MSC:Definitional10.The amount of money that a firm pays to buy inputs is calleda.total cost.

b.variable cost.

c.marginal cost.

d.fixed cost.



TOP:Total costMSC:Definitional11.Total cost is the a.amount a firm receives for the sale of its output.

b.fixed cost less variable cost.

c.market value of the inputs a firm uses in production.

d.quantity of output minus the quantity of inputs used to make a good.



TOP:Total costMSC:Definitional12.Profit is defined asa.net revenue minus depreciation.

b.total revenue minus total cost.

c.average revenue minus average total cost.

d.marginal revenue minus marginal cost.



TOP:ProfitMSC:Definitional13.Profit is defined as total revenue a.plus total cost.

b.times total cost.

c.minus total cost.

d.divided by total cost.



TOP:ProfitMSC:Definitional14.Which of the following can be added to profit to obtain total revenue?a.net profit

b.capital profit

c.operational profit

d.total cost



TOP:Total revenue

MSC:Analytical15.If Kelsey sells 300 glasses of lemonade at $0.50 each, her total revenues are a.$150.

b.$299.50.

c.$300.

d.$600.



TOP:Total revenue

MSC:Analytical16.If Amanda sells 200 glasses of lemonade at $0.50 each, her total revenues are a.$100.

b.$199.50.

c.$200.

d.$400.



TOP:Total revenue

MSC:Analytical17.Kirsten sells 300 glasses of lemonade at $0.50 each. Her total costs are $125. Her profits are a.$25.

b.$124.50.

c.$125.

d.$150.



TOP:ProfitMSC:Analytical18.Zoe sells 200 glasses of lemonade at $0.50 each. Her total costs are $25. Her profits are a.$25.

b.$75.

c.$100.

d.$175.



TOP:ProfitMSC:Analytical19.XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 275 units sold was sold for a price of $95. Total profit for the XYZ corporation would bea.-$3,875.

b.$26,125.

c.$28,500.

d.$30,000.



TOP:ProfitMSC:Applicative20.Those things that must be forgone to acquire a good are calleda.implicit costs.

b.opportunity costs.

c.explicit costs.

d.accounting costs.



TOP:Opportunity cost

MSC:Definitional21.Gordon is a senior majoring in computer network development at Smart State University. While he has been attending college, Gordon started a computer consulting business to help senior citizens set up their network connections and teach them how to use e-mail. Gordon charges $25 per hour for his consulting services. Gordon also works 5 hours a week for the Economics Department to maintain that department's Web page. The Economics Department pays Gordon $20 per hour. From this information we can conclude:a.Gordon should increase the number of hours he works for the Economics Department to make it comparable to his consulting business income.

b.Gordon is obviously not maximizing his well-being if he continues to work for the Economics Department.

c.If Gordon chooses one hour at the beach with his friends rather than spend one more hour with a consulting client, the forgone income of $25 is considered a cost of the choice to go to the beach.

d.Both b and c are correct




MSC:Analytical22.A firm's opportunity costs of production are equal to its a.explicit costs only.

b.implicit costs only.

c.explicit costs + implicit costs.

d.explicit costs + implicit costs + total revenue.




MSC:Definitional23.Susan used to work as a telemarketer, earning $25,000 per year. She gave up that job to start a catering business. In calculating the economic profit of her catering business, the $25,000 income that she gave up is counted as part of the catering firm'sa.total revenue.

b.opportunity costs.

c.explicit costs.

d.marginal costs.




MSC:Interpretive24.John has decided to start his own lawn-mowing business. To purchase the mowers and the trailer to transport the mowers, John withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is John's annual opportunity cost of the financial capital that has been invested in the business?a.$30

b.$140

c.$170

d.$300




MSC:Analytical25.Gavin has decided to start his own snow removal business. To purchase the necessary equipment, Gavin withdrew $2,000 from his savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gavin's annual opportunity cost of the financial capital that has been invested in the business?a.$60

b.$280

c.$340

d.$660




MSC:Analytical26.Dianne has decided to start her own photography studio. To purchase the necessary equipment, Dianne withdrew $10,000 from her savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Dianne's annual opportunity cost of the financial capital that has been invested in the business?a.$300

b.$400

c.$700

d.$1,650




MSC:Analytical27.The value of a business owner's time is an example ofa.an opportunity cost.

b.a fixed cost.

c.an explicit cost.

d.total revenue.




MSC:Interpretive28.An example of an opportunity cost that is also an implicit cost is a.a lease payment.

b.the cost of raw materials.

c.the value of the business owners time.

d.All of the above are correct.




MSC:Interpretive29.Which of the following statements is correct?a.Opportunity costs equal explicit minus implicit costs.

b.Economists consider opportunity costs to be included in a firms total revenues.

c.Economists consider opportunity costs to be included in a firms costs of production.





MSC:Interpretive30.Explicit costsa.require an outlay of money by the firm.

b.include all of the firm's opportunity costs.

c.include income that is forgone by the firm's owners.

d.Both b and c are correct.

ANS:ADIF:1REF:13-1TOP:Explicit costs

MSC:Definitional31.Which of the following would be an example of an implicit cost?(i)forgone investment opportunities

(ii)wages of workers

(iii)raw materials costs

a.(i) only

b.(ii) only

c.(ii) and (iii) only

d.(i) and (iii) only



TOP:Implicit costs

MSC:Interpretive32.Implicit costs

a.do not require an outlay of money by the firm.

b.do not enter into the economist's measurement of a firm's profit.

c.are also known as variable costs.

d.are not part of an economists measurement of opportunity cost.



TOP:Implicit costs

MSC:Interpretive33.An example of an explicit cost of production would be the a.cost of forgone labor earnings for an entrepreneur.

b.lost opportunity to invest in capital markets when the money is invested in one's business.

c.lease payments for the land on which a firms factory stands.

d.Both a and c are correct.



TOP:Explicit costs

MSC:Interpretive34.Which of the following is an example of an implicit cost?(i)the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm

(ii)interest paid on the firm's debt

(iii)rent paid by the firm to lease office space

a.(ii) and (iii) only

b.(i) and (iii) only

c.(i) only

d.(iii) only



TOP:Implicit costs

MSC:Interpretive35.John owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?a.wages John could earn washing windows

b.dividends John's money was earning in the stock market before John sold his stock and bought a shoe-shine booth

c.the cost of shoe polish




TOP:Explicit costs

MSC:Interpretive36.The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat isa.an explicit cost.

b.an accounting cost

c.an implicit cost.

d.forgone accounting profit.



TOP:Implicit costs

MSC:Interpretive37.Explicit costsa.do not require an outlay of money by the firm.

b.enter into the accountant's measurement of a firm's profit.

c.enter into the economist's measurement of a firm's profit.




TOP:Explicit costs

MSC:Interpretive38.Which of the following is an example of an implicit cost?a.salaries paid to owners who work for the firm

b.interest on money borrowed to finance equipment purchases

c.cash payments for raw materials

d.foregone rent on office space owned and used by the firm



TOP:Implicit costs

MSC:Interpretive39.Jane decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jane's economic profit from running her own business?a.$-55,000

b.$-5,000

c.$5,000

d.$20,000



TOP:Economic profit

MSC:Analytical40.Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadnt opened her own business, she would have earned a salary of $25,000. In her first year, Bevs revenues were $30,000. Which of the following statements is correct?a.Bevs total explicit costs are $25,300.

b.Bevs total implicit costs are $300.

c.Bevs accounting profits exceed her economic profits by $300.

d.Bevs economic profit is $4,700.




MSC:Analytical41.Dolores used to work as a high school teacher for $40,000 per year but quit in order to start her own catering business. To invest in her factory, she withdrew $20,000 from her savings, which paid 3 percent interest, and borrowed $30,000 from her uncle, whom she pays 3 percent interest per year. Last year she paid $25,000 for ingredients and had revenue of $60,000. She asked Louis the accountant and Greg the economist to calculate her profit for her.a.Louis says her costs are $25,900, and Greg says her costs are $66,500.

b.Louis says her costs are $25,000, and Greg says her costs are $65,000.

c.Louis says her profit is $66,500, and Greg says her costs are $66,500.

d.Louis says her profit is $75,000, and Greg says her costs are $41,500.




MSC:Applicative42.Dolores used to work as a high school teacher for $40,000 per year but quit in order to start her own catering business. To invest in her factory, she withdrew $20,000 from her savings, which paid 3 percent interest, and borrowed $30,000 from her uncle, whom she pays 3 percent interest per year. Last year she paid $25,000 for ingredients and had revenue of $60,000. She asked Louis the accountant and Greg the economist to calculate her profit for her.a.Louis says her profit is $25,900, and Greg says her profit is $66,500.

b.Louis says her profit is $35,000, and Greg says she lost $5,900.

c.Louis says her profit is $34,100, and Greg says she lost $6,500.

d.Louis says her profit is $34,100, and Greg says her profit is $34,100.




MSC:Applicative43.Which of the following statements is correct?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.




MSC:Interpretive44.A difference between explicit and implicit costs is that a.explicit costs are greater than implicit costs.

b.explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do.

c.implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

d.implicit costs are greater than explicit costs.



TOP:Explicit costs | Implicit costs

MSC:Interpretive45.Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmers market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmers market. Which of the following statements is correct regarding Katherines profits from selling flowers?a.Katherines accounting profits are $100, and her economic profits are $25.

b.Katherines accounting profits are $100, and her economic profits are $75.

c.Katherines accounting profits are $25, and her economic profits are $100.

d.Katherines accounting profits are $75, and her economic profits are $125.




MSC:Analytical46.Katherine gives piano lessons for $20 per hour. She also grows flowers, which she arranges and sells at the local farmers market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmers market. Which of the following statements is correct regarding Katherines profits from selling flowers?a.Katherines accounting profits are $100, and her economic profits are $100.

b.Katherines accounting profits are $100, and her economic profits are $0.

c.Katherines accounting profits are $0, and her economic profits are $100.

d.Katherines accounting profits are $0, and her economic profits are $-100.




MSC:Analytical47.A certain firm manufactures and sells computer chips. Last year it sold 2 million chips at a price of $10 per chip. For last year, the firm'sa.accounting profit amounted to $20 million.

b.economic profit amounted to $20 million.

c.total revenue amounted to $20 million.

d.explicit costs amounted to $20 million.



TOP:Total revenue

MSC:Applicative48.Economic profit is equal toa.total revenue minus the explicit cost of producing goods and services.

b.total revenue minus the opportunity cost of producing goods and services.

c.total revenue minus the accounting cost of producing goods and services.

d.average revenue minus the average cost of producing the last unit of a good or service.



TOP:Economic profit

MSC:Definitional49.Accounting profit is equal toa.marginal revenue minus marginal cost.

b.total revenue minus the explicit cost of producing goods and services.

c.total revenue minus the opportunity cost of producing goods and services.

d.average revenue minus the average cost of producing the last unit of a good or service.




MSC:Definitional50.Economic profita.will never exceed accounting profit.

b.is most often equal to accounting profit.

c.is always at least as large as accounting profit.

d.is a less complete measure of profitability than accounting profit.



TOP:Economic profit

MSC:Interpretive51.Which of the following expressions is correct?a.accounting profit = total revenue - explicit costs

b.economic profit = total revenue - implicit costs

c.economic profit = total revenue - explicit costs

d.Both a and b are correct.




MSC:Interpretive52.Which of the following expressions is correct?a.accounting profit = economic profit + implicit costs

b.accounting profit = total revenue - implicit costs

c.economic profit = accounting profit + explicit costs

d.economic profit = total revenue - implicit costs




MSC:Analytical53.When calculating a firm's profit, an economist will subtract only a.explicit costs from total revenue since these are the only costs that can be measured explicitly.

b.implicit costs from total revenue since these include both the costs that can be directly measured as well as the costs that can be indirectly measured.

c.the opportunity costs from total revenue since these include both the implicit and explicit costs of the firm.

d.the marginal cost since the cost of the next unit is the only relevant cost.



TOP:Economic profit

MSC:Definitional54.Suppose that for a particular business there are no implicit opportunity costs. Thena.accounting profit will be greater than economic profit.

b.accounting profit will be the same as economic profit.

c.accounting profit will be less than economic profit.

d.the relationship between accounting profit and economic profit cannot be determined without more information.




MSC:Analytical55.Total revenue minus both explicit and implicit costs is calleda.accounting profit.

b.economic profit.

c.average total cost.

d.None of the above is correct.



TOP:Economic profit

MSC:Definitional56.Total revenue minus only explicit costs is calleda.accounting profit.

b.economic profit.

c.average total cost.




TOP:Economic profit

MSC:Definitional57.Total revenue minus only implicit costs is calleda.accounting profit.

b.economic profit.

c.opportunity cost.




TOP:Economic profit

MSC:Definitional58.Kevin quit his $65,000 a year corporate lawyer job to open up his own law practice. In Kevin's first year in business his total revenue equaled $150,000. Kevin's explicit cost during the year totaled $85,000. Using the information from Kevin's first year in business, what is his economic profit?a.$0

b.$20,000

c.$65,000

d.$85,000



TOP:Economic profit

MSC:Applicative59.The difference between accounting profit and economic profit relates toa.the manner in which revenues are defined.

b.how total revenue is calculated.

c.the manner in which costs are defined.

d.the price of the good in the market.



TOP:Economic profit

MSC:DefinitionalScenario 13-1

Joe wants to start his own business, which will require that he purchase a factory that costs $400,000. Joe currently has $500,000 in the bank earning 3 percent interest per year.60.Refer to Scenario 13-1. If Joe purchases the factory with his own money, what is the annual implicit opportunity cost of purchasing the factory?a.$0

b.$3,000

c.$12,000

d.$15,000



TOP:Implicit costs

MSC:Applicative61.Refer to Scenario 13-1. Suppose Joe purchases the factory using $200,000 of his own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Joes annual opportunity cost of purchasing the factory?a.$3,000

b.$6,000

c.$15,000

d.$18,000




MSC:ApplicativeScenario 13-2

Zach withdrew $400,000 out of his personal savings account and used it to start his new cookie business. The bank account pays 3 percent interest per year. During the first year of his business, Zach sold 6,000 boxes of cookies for $2.50 per box. Also during the first year, the cookie business made monetary outlays of $9,000. You may assume that there is no opportunity cost to Zachs time.62.Refer to Scenario 13-2. Zach's accounting profit for the year wasa.$-494,000.

b.$-6,000.

c.$6,000.

d.$12,000.




MSC:Applicative63.Refer to Scenario 13-2. Zach's economic profit for the year wasa.$-506,000.

b.$-6,000.

c.$3,000.

d.$6,000.



TOP:Economic profit

MSC:ApplicativeScenario 13-3

Tony is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat.64.Refer to Scenario 13-3. What is the total opportunity cost of the day that Farmer Tony incurred for his spring day in the field planting wheat?a.$130

b.$250

c.$300

d.$380




MSC:Analytical65.Refer to Scenario 13-3. Tony's accountant would most likely figure the total cost of his wheat planting to equala.$25.

b.$130.

c.$300.

d.$380.



TOP:Explicit costs

MSC:Analytical66.Refer to Scenario 13-3. Tony's accounting profit equalsa.$-80.

b.$130.

c.$170.

d.$260.




MSC:Applicative67.Refer to Scenario 13-3. Tony's economic profit equalsa.$-130.

b.$-80.

c.$130.

d.$170.



TOP:Economic profit

MSC:ApplicativeScenario 13-4Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each.68.Refer to Scenario 13-4. What are Wandas explicit costs per glass?a.$0.18

b.$0.10

c.$0.08

d.$0.02



TOP:Explicit costs

MSC:Analytical69.Refer to Scenario 13-4. What are Wandas implicit costs per glass?a.$0.18

b.$0.10

c.$0.08

d.$0.02



TOP:Implicit costs

MSC:Analytical70.Refer to Scenario 13-4. What are Wandas total costs per glass?a.$0.18

b.$0.10

c.$0.08

d.$0.02



TOP:Total costMSC:Analytical71.Refer to Scenario 13-4. What are Wandas total accounting profits?a.$150

b.$126

c.$96

d.$24



TOP:Economic profit

MSC:Analytical72.Refer to Scenario 13-4. What are Wandas total economic profits?a.$150

b.$126

c.$96

d.$54



TOP:Economic profit

MSC:AnalyticalScenario 13-5

Samantha has been working for a law firm and earning an annual salary of $80,000. She decides to open her own practice. 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. Samantha will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500.73.Refer to Scenario 13-5. Samantha's annual implicit costs will equala.$55,200.

b.$75,200.

c.$80,500.

d.$165,700.



TOP:Implicit costs

MSC:Analytical74.Refer to Scenario 13-5. Samantha's annual accounting costs will equala.$55,200.

b.$75,200.

c.$80,500.

d.$165,700.



TOP:Explicit costs

MSC:Analytical75.Refer to Scenario 13-5. Samantha's annual economic costs will equala.$55,200.

b.$75,200.

c.$80,500.

d.$135,700.



TOP:Explicit costs | Implicit costs

MSC:Analytical76.Refer to Scenario 13-5. According to Samanthas accountant, which of the following revenue totals will yield her business $50,000 in profits?a.$55,200.

b.$105,200.

c.$132,500.

d.$185,700.




MSC:Analytical77.Refer to Scenario 13-5. According to an economist, which of the following revenue totals will yield her business $50,000 in economic profits?a.$55,200.

b.$100,200.

c.$132,500.

d.$185,700.



TOP:Economic profit

MSC:Analytical

Sec02 - The Costs of Production - Production and CostMULTIPLE CHOICE1.A production function describesa.how a firm maximizes profits.

b.how a firm turns inputs into output.

c.the minimal cost of producing a given level of output.

d.the relationship between cost and output.




MSC:Definitional2.A production function is a relationship between inputs and a.quantity of output.

b.revenue.

c.costs.

d.profit.




MSC:Definitional3.Which of the following statements about a production function is correct for a firm that uses labor to produce output?a.The production function depicts the relationship between the quantity of labor and the quantity of output.

b.The slope of the production function measures marginal cost.

c.The quantity of output determines the maximum amount of labor the firm will hire.





MSC:Interpretive4.For a firm, the production function represents the relationship betweena.implicit costs and explicit costs.

b.quantity of inputs and total cost.

c.quantity of inputs and quantity of output.

d.quantity of output and total cost.




MSC:Definitional5.For a firm, the relationship between the quantity of inputs and quantity of output is called thea.profit function.

b.production function.

c.total-cost function.

d.quantity function.




MSC:DefinitionalTable 13-1

Alysons Pet Sitting ServiceNumber of WorkersOutput (number of pet visits)

00

120

245

360

470

6.Refer to Table 13-1. What is the marginal product of the second worker?a.15

b.20

c.22.5

d.25




MSC:Analytical7.Refer to Table 13-1. What is the marginal product of the third worker?a.15

b.20

c.35

d.60




MSC:Analytical8.Refer to Table 13-1. Alysons pet sitting service experiences diminishing marginal productivity with the addition of the a.first worker.

b.second worker.

c.third worker.

d.fourth worker.




MSC:Analytical9.Refer to Table 13-1. Suppose that Alysons pet sitting service has a fixed cost of $50 per month for her cell phone. Each worker costs Alyson $60 per day. What is the shape of Alysons total cost curve as output increases from 0 and 45? a.Total cost increases but gets flatter.

b.Total cost increases and gets steeper.

c.Total cost decreases and gets flatter.

d.Total cost decreases but gets steeper.




MSC:Interpretive10.Refer to Table 13-1. Suppose that Alysons pet sitting service has a fixed cost of $50 per month for her cell phone. Each worker costs Alyson $60 per day. What is the shape of Alysons total cost curve as output increases from 45 to 70? a.Total cost increases but gets flatter.

b.Total cost increases and gets steeper.

c.Total cost decreases and gets flatter.

d.Total cost decreases but gets steeper.




MSC:InterpretiveFigure 13-1

Suppose the production function shifts from TP1 to TP2.

11.Refer to Figure 13-1. In this diagram, the shift in the total product curve represents an increase in the firm'sa.costs of production.

b.productivity.

c.diseconomies.

d.market share.




MSC:Analytical12.Refer to Figure 13-1. Which of the following could explain why the total product curve shifted in this diagram?a.A reduction in capital equipment available to the firm.

b.Labor skills have become rusty and outdated in the firm.

c.The firm has developed new technology in its production facility.

d.The firm is now receiving a higher price for its product.




MSC:Interpretive13.Which of these assumptions is often realistic for a firm in the short run?a.The firm can vary both the size of its factory and the number of workers it employs.

b.The firm can vary the size of its factory but not the number of workers it employs.

c.The firm can vary the number of workers it employs but not the size of its factory.

d.The firm can vary neither the size of its factory nor the number of workers it employs.



TOP:Production function | Short run

MSC:Definitional14.Assume a certain firm regards the number of workers it employs as variable but regards the size of its factory as fixed. This assumption is often realistica.in the short run but not in the long run.

b.in the long run but not in the short run.

c.both in the short run and in the long run.

d.neither in the short run nor in the long run.



TOP:Production function | Short run

MSC:Interpretive15.Lois is a self-employed pet sitter. She can make 20 housecalls per day. She is considering hiring her sister Dora to work for her. Both she and Dora can visit 35 houses per day. What is Doras marginal product?a.55

b.35

c.22.5

d.15




MSC:Analytical16.Lois is a self-employed pet sitter. She can make 20 housecalls per day. She is considering hiring her sister Dora to work for her. Dora can visit 18 houses per day. What would be the total output of Loiss firm if she hired her sister?a.18

b.19

c.20

d.38




MSC:AnalyticalFigure 13-2

17.Refer to Figure 13-2. The graph illustrates a typical a.total-cost curve.


c.production possibilities frontier.

d.marginal product of labor curve.




MSC:Interpretive18.Refer to Figure 13-2. As the number of workers increases,a.total output increases but at a decreasing rate.

b.marginal product increases but at a decreasing rate.

c.marginal product increases at an increasing rate.

d.total output decreases.




MSC:Analytical19.Refer to Figure 13-2. As the number of workers increases,a.marginal product decreases.

b.total output decreases.

c.marginal product increases but at a decreasing rate.

d.Both a and b are correct.




MSC:Analytical20.Refer to Figure 13-2. With regard to cookie production, the figure impliesa.diminishing marginal product of workers.

b.diminishing marginal cost of cookie production.

c.decreasing cost of cookie production.

d.increasing marginal product of workers.




MSC:Analytical21.Refer to Figure 13-2. The graph illustrates a typical production function. Based on its shape, what does the corresponding total cost curve look like?a.an upward-sloping curve that increases at an increasing rate

b.an upward-sloping curve that increases at a decreasing rate

c.a downward-sloping curve

d.a horizontal straight line



TOP:Production function | Total-cost curve

MSC:Interpretive22.The marginal product of labor is equal to thea.incremental cost associated with a one unit increase in labor.

b.incremental profit associated with a one unit increase in labor.

c.increase in labor necessary to generate a one unit increase in output.

d.increase in output obtained from a one unit increase in labor.




MSC:Definitional23.The marginal product of labor can be defined asa.change in profit/change in labor.

b.change in output/change in labor.

c.change in labor/change in output.

d.change in labor/change in total cost.




MSC:Definitional24.The marginal product of an input in the production process is the increase ina.total revenue obtained from an additional unit of that input.

b.profit obtained from an additional unit of that input.

c.total revenue obtained from an additional unit of that input.

d.quantity of output obtained from an additional unit of that input.




MSC:Definitional25.When a firm's only variable input is labor, then the slope of the production function measures thea.quantity of labor.

b.quantity of output.

c.total cost.

d.marginal product of labor.




MSC:Applicative26.Let L represent the number of workers hired by a firm and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 132). Then the marginal product of the 13th worker isa.8 units of output.

b.10 units of output.

c.122 units of output.

d.132 units of output.




MSC:Applicative27.Let L represent the number of workers hired by a firm and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 5, Q = 125) and (L = 6, Q = 162). Then the marginal product of the 6th worker isa.25 units of output.







MSC:Applicative28.Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 176 units of output per day when 16 workers are hired (holding other inputs fixed). Then the marginal product of the 16th worker isa.10 units of output.







MSC:Applicative29.The marginal product of any input is the a.increase in total cost associated with a one-unit increase in production.

b.change in total output associated with a $1.00 increase in total cost.

c.increase in total cost resulting from the hiring of an additional worker.

d.increase in total output obtained from one additional unit of that input.




MSC:Definitional30.When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing a.diminishing labor.

b.diminishing output.

c.diminishing marginal product.

d.negative marginal product.




MSC:Applicative31.On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?a.The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.

b.The farmer is able to produce 5,800 bushels of wheat when he hires 4 workers.

c.The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers.

d.Any of the above could be correct.




MSC:Analytical32.On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?a.The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.

b.The farmer is able to produce 5,400 bushels of wheat when he hires 4 workers.

c.The farmer is able to produce 5,200 bushels of wheat when he hires 4 workers.

d.Any of the above could be correct.




MSC:Analytical33.When the marginal product of an input declines as the quantity of that input increases, the production function exhibitsa.increasing marginal product.

b.diminishing marginal product.

c.diminishing total product.





MSC:Definitional34.As Al's Radiator Company adds workers while keeping the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Al's Radiator Company encountersa.economies of scale.

b.diseconomies of scale.

c.increasing marginal returns.

d.diminishing marginal returns.




MSC:InterpretiveTable 13-2Number of WorkersOutputFixed CostVariable CostTotal Cost

00$50$0$50

190$50$20$70

2170$50$40$90

3230$50$60$110

4240$50$80$130

35.Refer to Table 13-2. The marginal product of the second worker is a.90 units.

b.85 units.

c.80 units.

d.20 units.




MSC:Analytical36.Refer to Table 13-2. The marginal product of the third worker is a.230 units.

b.100 units.

c.77 units.

d.60 units.




MSC:Analytical37.Refer to Table 13-2. The marginal product of the fourth worker is a.10 units.

b.60 units.

c.230 units.

d.240 units.




MSC:Analytical38.Refer to Table 13-2. At which number of workers does diminishing marginal product begin?a.1

b.2

c.3

d.4




MSC:Analytical39.Refer to Table 13-2. If the firm can sell its output for $1 per unit, what is the profit-maximizing level of output?a.240 units

b.230 units

c.190 units

d.170 units



TOP:ProfitMSC:AnalyticalTable 13-3Number of WorkersTotal OutputMarginal Product

00--

130

240

350

440

530

40.Refer to Table 13-3. What is total output when 1 worker is hired?a.30

b.40

c.120

d.160




MSC:Analytical41.Refer to Table 13-3. What is total output when 2 workers are hired?a.30

b.40

c.70

d.120





b.40

c.70

d.120





b.70

c.120

d.160





b.120

c.160

d.190




MSC:AnalyticalTable 13-4

Gallo Cork FactoryNumber

of

WorkersNumber

of

MachinesOutput

(corks produced

per hour)Marginal Product of LaborCost of WorkersCost of MachinesTotal

Cost

125

2210

3220

4235

5255

6270

7280

45.Refer to Table 13-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of corks produced. If Gallo's produces at a rate of 70 corks per hour and operates 8 hours per day, what is Gallos total labor cost per day?a.$72

b.$112

c.$576

d.$616



TOP:Variable costs

MSC:Applicative46.Refer to Table 13-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of corks produced. What is the total daily cost of producing at a rate of 55 units per hour if Gallos operates 8 hours per day?a.$480

b.$576

c.$520

d.$616



TOP:Total costMSC:Applicative47.Refer to Table 13-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of corks produced. Assume the number of machines does not change. If Gallo's produces at a rate of 78 corks per hour, what is the total machine cost per day?a.$20

b.$40

c.$240

d.We are unable to determine total machine costs from the information given.



TOP:Fixed costsMSC:Applicative48.Refer to Table 13-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of corks produced. If Gallo's produces at a rate of 35 corks per hour, what is the total labor cost per hour?a.$40

b.$48

c.$384

d.$424



TOP:Variable costs

MSC:Applicative49.Refer to Table 13-4. Assume Gallo's currently employs 5 workers. What is the marginal product of labor when Gallo's adds a 6th worker?a.5 corks per hour

b.15 corks per hour

c.25 corks per hour

d.70 corks per hour




MSC:Applicative50.Refer to Table 13-4. Assume Gallo's currently employs 2 workers. What is the marginal product of labor when Gallo's adds a 3rd worker?a.5 corks per hour

b.10 corks per hour

c.20 corks per hour

d.25 corks per hour




MSC:Applicative51.Refer to Table 13-4. Gallo's cork factory experiences diminishing marginal product of labor with the addition of which worker?a.the third worker

b.the fourth worker

c.the fifth worker

d.the sixth worker




MSC:ApplicativeFigure 13-3

52.Refer to Figure 13-3. The graph illustrates a typical a.total-cost curve.


c.production possibilities frontier.

d.fixed-cost curve.




MSC:Interpretive53.Refer to Figure 13-3. The graph illustrates a typical total cost curve. Based on its shape, what does the corresponding production function look like?a.an upward-sloping curve that increases at an increasing rate

b.an upward-sloping curve that increases at a decreasing rate

c.a downward-sloping curve

d.a horizontal straight line




MSC:Interpretive54.Refer to Figure 13-3. Which of the following is true of the production function (not pictured) that underlies this total cost function?(i)Total output increases as the quantity of inputs increases but at a decreasing rate.

(ii)Marginal product is diminishing for all levels of input usage.

(iii)The slope of the production function decreases as the quantity of inputs increases.

a.(i) only

b.(ii) and (iii) only

c.(i) and (iii) only

d.(i), (ii), and (iii)




MSC:Interpretive55.Refer to Figure 13-3. The changing slope of the total cost curve reflectsa.decreasing average variable cost.

b.decreasing average total cost.

c.decreasing marginal product.

d.increasing fixed cost.




MSC:Interpretive56.Refer to Figure 13-3. Which of the following statements best captures the nature of the underlying production function?a.Output increases at a decreasing rate with additional units of input.

b.Output increases at an increasing rate with additional units of input.

c.Output decreases at a decreasing rate with additional units of input.

d.Output decreases at an increasing rate with additional units of input.




MSC:Interpretive57.Refer to Figure 13-3. Assuming that the firm depicted produces cookies, which of the statements below is most consistent with the shape of the total cost curve?a.Producing an additional cookie is always more costly than producing the previous cookie.

b.Total production of cookies decreases with additional units of input.

c.Producing additional cookies is equally costly, regardless of how many cookies are already being produced.

d.Producing additional cookies becomes increasingly costly only when the number of cookies already being produced is large.




MSC:Interpretive58.A total-cost curve shows the relationship between thea.quantity of an input used and the total cost of production.

b.quantity of output produced and the total cost of production.

c.total cost of production and profit.

d.total cost of production and total revenue.




MSC:Definitional59.If the total cost curve gets steeper as output increases, the firm is experiencing a.diseconomies of scale.

b.economies of scale.

c.diminishing marginal product.

d.increasing marginal product.




MSC:Interpretive60.Davids firm experiences diminishing marginal product for all ranges of inputs. The total cost curve associated with Davids firm 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.




MSC:Interpretive61.Which of the following statements about a production function is correct for a firm that uses labor to produce output?a.The production function depicts the relationship between the quantity of labor and the quantity of output.

b.The slope of the production function measures marginal product.

c.The slopes of the production function and the total cost curve are inversely related; if one is increasing, the other is decreasing.




TOP:Production function | Total-cost curve

MSC:Interpretive

Sec03 - The Costs of Production - The Various Measures of CostMULTIPLE CHOICE1.Total cost can be divided into two types of costs: a.fixed costs and variable costs.

b.fixed costs and marginal costs.

c.variable costs and marginal costs.

d.average costs and marginal costs.



TOP:Fixed costs | Variable costs

MSC:Definitional2.Some costs do not vary with the quantity of output produced. Those costs are calleda.marginal costs.

b.average costs.

c.fixed costs.

d.incurred costs.



TOP:Fixed costsMSC:Definitional3.Which of the following costs do not vary with the amount of output a firm produces?a.average fixed costs

b.fixed costs and average fixed costs

c.marginal costs and average fixed costs

d.fixed costs



TOP:Fixed costsMSC:Definitional4.Fixed costs can be defined as costs thata.vary inversely with production.

b.vary in proportion with production.

c.are incurred only when production is large enough.

d.are incurred even if nothing is produced.



TOP:Fixed costsMSC:Interpretive5.In the short run, a firm incurs fixed costsa.only if it incurs variable costs.

b.only if it produces no output.

c.only if it produces a positive quantity of output.

d.whether it produces output or not.



TOP:Fixed costsMSC:Interpretive6.For a construction company that builds houses, which of the following costs would be a fixed cost?a.the $50,000 per year salary paid to a construction foreman

b.the $30,000 per year salary paid to the company's bookkeeper

c.the $10,000 per year premium paid to an insurance company




TOP:Fixed costsMSC:Interpretive7.For a construction company that builds houses, which of the following costs would be a fixed cost?a.the $20 per hour wage paid to a construction foreman

b.the $30,000 per year salary paid to the company's bookkeeper

c.the $2 per worker-hour paid to the state government for workers compensation insurance




TOP:Fixed costsMSC:Interpretive8.Which of the following costs of publishing a book is a fixed cost?a.author royalties of 5% per book

b.the costs of paper and binding

c.shipping and postage expenses

d.composition, typesetting, and jacket design for the book



TOP:Fixed costsMSC:Interpretive9.Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost?a.$40

b.$60

c.$80

d.$100



TOP:Fixed costsMSC:Analytical10.Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely to be considered fixed costs?a.the cost of mustard

b.the cost of hotdog buns

c.wages paid to workers who sell hot dogs

d.the cost of bookkeeping services



TOP:Fixed costsMSC:Interpretive11.Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost ofa.building the lemonade stand.

b.hiring an artist to design a logo for her sign.

c.lemons and sugar.




TOP:Variable costs

MSC:Interpretive12.Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost ofa.lemons and sugar.

b.paper cups.

c.the wages paid to her hourly workers.




TOP:Variable costs

MSC:Interpretive13.If a firm produces nothing, which of the following costs will be zero?a.total cost

b.fixed cost

c.opportunity cost

d.variable cost



TOP:Variable costs

MSC:Interpretive14.For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?a.the $20 million payment that the firm pays each year for accounting services

b.the cost of the steel that is used in producing automobiles

c.the rent that the firm pays for office space in a suburb of St. Louis




TOP:Variable costs

MSC:Interpretive15.For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?a.the unemployment insurance premium that the firm pays to the state of Missouri that is calculated based on the number of worker-hours that the firm uses

b.the cost of the steel that is used in producing automobiles

c.the cost of the electricity of running the machines on the factory floor




TOP:Variable costs

MSC:Interpretive16.When a firm is able to put idle equipment to use by hiring another worker,a.variable costs will rise.

b.variable costs will fall.

c.fixed costs will fall.

d.fixed costs and variable costs will rise.



TOP:Variable costs

MSC:Interpretive17.Which of the following is the best example of a variable cost?a.monthly wage payments for hired labor

b.annual property tax payments for a building

c.monthly rent payments for a warehouse

d.annual insurance payments for a warehouse



TOP:Variable costs

MSC:Interpretive18.The cost of producing the typical unit of output is the firm'sa.average total cost.

b.opportunity cost.

c.variable cost.

d.marginal cost.




MSC:Definitional19.Average total cost is equal toa.output/total cost.

b.total cost - total quantity of output.

c.average variable cost + total fixed cost.

d.total cost/output.




MSC:Definitional20.Average total cost equalsa.change in total costs divided by quantity produced.

b.change in total costs divided by change in quantity produced.

c.(fixed costs + variable costs) divided by quantity produced.

d.(fixed costs + variable costs) divided by change in quantity produced.




MSC:Definitional21.Average total cost tells us thea.total cost of the first unit of output, if total cost is divided evenly over all the units produced.

b.cost of a typical unit of output, if total cost is divided evenly over all the units produced.

c.cost of the last unit of output, if total cost does not include a fixed cost component.

d.variable cost of a firm that is producing at least one unit of output.




MSC:Interpretive22.Which of the following expressions is correct?a.marginal cost = (change in quantity of output)/(change in total cost)

b.average total cost = (total cost)/(quantity of output)

c.total cost = variable cost + marginal cost

d.average variable cost = (quantity of output)/(total variable cost)




MSC:Interpretive23.Average total cost (ATC) is calculated as follows:a.ATC = (change in total cost)/(change in quantity of output).

b.ATC = (change in total cost)/(change in quantity of input).

c.ATC = (total cost)/(quantity of output).

d.ATC = (total cost)/(quantity of input).




MSC:Definitional24.Which of the following measures of cost is best described as "the cost of a typical unit of output if total cost is divided evenly over all the units produced?"a.average fixed cost

b.average variable cost

c.average total cost

d.marginal cost




MSC:Definitional25.Larry's Lunchcart is a small street vendor business. If Larry makes 15 pretzels in his first hour of business and incurs a total cost of $16.50, his average total cost per pretzel isa.$1.10.

b.$6.50.

c.$15.00.

d.$16.50.




MSC:Applicative26.At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the a.average variable cost of 21 pairs of boots is $23.

b.average total cost of 21 pairs of boots is $23.

c.average total cost of 21 pairs of boots is $15.09.

d.marginal cost of the 20th pair of boots is $20.




MSC:Applicative27.Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that marginal cost of the third worker hired is $40, and the average total cost when three workers are hired is $50. What is the total cost of production when three workers are hired?a.$50

b.$90

c.$120

d.$150




MSC:Analytical28.Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 4 workers, the firm produces 50 units of output. If the fixed cost of production is $4, the variable cost per unit of labor is $20, and the marginal product of labor for the fifth unit of labor is 2, what is the average total cost of production when the firm hires 5 workers? a.$2.00

b.$20.00

c.$20.80

d.$22.80




MSC:Applicative29.Toms Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equala.$80

b.$90

c.$100

d.$110




MSC:Applicative30.The Wacky Widget company has total fixed costs of $100,000 per year. The firm's average variable cost is $5 for 10,000 widgets. At that level of output, the firm's average total costs equala.$10

b.$15

c.$100

d.$150




MSC:Applicative31.Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produced?a.$10

b.$25

c.$30

d.$35




MSC:Analytical32.Charless Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is a.$100.

b.$200.

c.$300.

d.$500.




MSC:Applicative33.Smith Technologies has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equala.$2.

b.$4.

c.$1,000.

d.$2,000.




MSC:Applicative34.Which of the following statements is not correct?a.Fixed costs are constant.

b.Variable costs change as output changes.

c.Average fixed costs are constant.

d.Average total costs are typically U-shaped.




MSC:Applicative35.Suppose that for a particular firm the only variable input into the production process is labor and that

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