Question 1

Variable costs are costs that change directly with output.

Accepted Answer

A) True 
 B)False

Question 2

In the diagram, curves 1, 2, and 3 represent the

Accepted Answer

A)  average, marginal, and total product curves respectively.
B)  marginal, average, and total product curves respectively.
C)  total, average, and marginal product curves respectively.
D)  total, marginal, and average product curves respectively.

Question 3

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.

Question 4

Which statement best illustrates the law of diminishing returns from studying?

Accepted Answer

A)  As hours of studying decrease, the student's GPA will also diminish.
B)  As study hours increase, the amount of learning will increase at a diminishing rate.
C)  Students with higher GPAs tend to study fewer hours on the night before a big exam.
D)  Students who cram the night before a big exam do not show much improvement in their learning.

Question 5

Refer to the provided graphs. They show the long-run average total cost (LRATC) for cars. Just after World War II, the Ford Motor Company opened a large automobile manufacturing facility near Detroit with capacity Q ₀ autos per year. Shortly thereafter, the plant was closed and two smaller ones were opened in the same vicinity, each more profitably producing about one-half as many cars as the old facility. Which graph best shows the situation just described, when only one plant was operating?

Accepted Answer

A)  graph A
B)  graph B
C)  graph C
D)  graph D

Question 6

If total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be

Accepted Answer

A)  $200.
B)  $250.
C)  $800.
D)  $3,200.

Question 7

Economic cost can best be defined as

Accepted Answer

A)  any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers.
B)  those payments for resources that involve an obvious cash transaction.
C)  the income the firm must provide to resource suppliers to attract resources from alternative uses.
D)  the opportunity cost of using a resource already owned by the firm.

Question 8

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

Accepted Answer

A)  profits were $100,000 and its economic profits were $0.
B)  losses were $500,000 and its economic losses were $0.
C)  profits were $500,000 and its economic profits were $1,000,000.
D)  profits were $0 and its economic losses were $500,000.

Question 9

When total product is increasing at an increasing rate, marginal product is

Accepted Answer

A)  positive and increasing.
B)  positive and decreasing.
C)  constant.
D)  negative.

Question 10

A natural monopoly exists when

Accepted Answer

A)  unit costs are minimized by having one firm produce an industry's entire output.
B)  several formerly competing producers merge to become the only firm in an industry.
C)  short-run average total cost curves are tangent to long-run average total cost curves.
D)  minimum efficient scale is attained at a small level of output.

Question 11

Refer to the provided graph. There are economies of scale

Accepted Answer

A)  from Q₁ to Q₂.
B)  from Q₂ to Q₃.
C)  from Q₃ to Q₄.
D)  beyond Q₄.

Question 12

List the four factors that explain economies of scale.

Accepted Answer

Economies of scale occur due to (1)worke...

Question 13

Plant sizes get larger as you move from ATC-1 to ATC-4.  Which plant size would produce at the least cost for the 1,500-2,500 range of output?

Accepted Answer

A)  $1
B)  $2
C)  $3
D)  $4

Question 14

The following is cost information for the Creamy Crisp Donut Company.Entrepreneur's potential earnings as a salaried worker = $40,000Annual lease on building = $25,000Annual revenue from operations = $420,000Payments to workers = $150,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Creamy Crisp's total revenues exceed its total costs, including a normal profit, by

Accepted Answer

A)  $309,000.
B)  $183,000.
C)  $237,000.
D)  $111,000.

Question 15

The question is based on the following table, which provides information on the production of a product that requires one variable input.  With the addition of the fifth unit of input, the marginal product is

Accepted Answer

A)  8 and the average product is 50.
B)  92 and the average product is 10.
C)  8 and the average product is 10.
D)  10 and the average product is 8.

Question 16

Use the following data to answer the question.  The average product (AP) when three units of labor are hired is

Accepted Answer

A)  14.
B)  12.
C)  108.
D)  28.

Question 17

If long-run average total cost decreases as output increases, this is due to

Accepted Answer

A)  declining average fixed costs.
B)  the law of diminishing returns.
C)  economies of scale.
D)  externalities.

Question 18

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

Accepted Answer

A)  $286,000.
B)  $150,000.
C)  $230,000.
D)  $94,000.

Question 19

Assume a firm closes down in the short run and produces no output. Under these conditions,

Accepted Answer

A)  TVC is positive, but TFC and TC are zero.
B)  TFC is positive, but TVC and TC are zero.
C)  TFC and TC are positive, but TVC is zero.
D)  TFC, TVC, and TC will all be positive.

Question 20

Why should firms incorporate opportunity costs into their calculation of economic costs?

Accepted Answer

All resources have an opportunity cost. ...

Exam 9: Businesses and the Costs of Production

Assume a firm closes down in the short run and produces no output. Under these conditions,

Correct Answer
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When total product is increasing at an increasing rate, marginal product is

Correct Answer
verified

A natural monopoly exists when

Correct Answer
verified

Economic cost can best be defined as

Correct Answer
verified

In the diagram, curves 1, 2, and 3 represent the

Correct Answer
verified

Plant sizes get larger as you move from ATC-1 to ATC-4. Which plant size would produce at the least cost for the 1,500-2,500 range of output?

Correct Answer
verified

Variable costs are costs that change directly with output.

Correct Answer
verified

The question is based on the following table, which provides information on the production of a product that requires one variable input. With the addition of the fifth unit of input, the marginal product is

Correct Answer
verified

Which statement best illustrates the law of diminishing returns from studying?

Correct Answer
verified

Correct Answer
verified

Why should firms incorporate opportunity costs into their calculation of economic costs?

Correct Answer
verified
All resources have an opportunity cost. ...
View Answer

If long-run average total cost decreases as output increases, this is due to

Correct Answer
verified

Correct Answer
verified

List the four factors that explain economies of scale.

Correct Answer
verified
Economies of scale occur due to (1)worke...
View Answer

Refer to the provided graph. There are economies of scale

Correct Answer
verified

Correct Answer
verified

If total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be

Correct Answer
verified

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

Correct Answer
verified

The minimum efficient scale of a firm

Correct Answer
verified

Use the following data to answer the question. The average product (AP) when three units of labor are hired is

Correct Answer
verified

Exam 9: Businesses and the Costs of Production

Assume a firm closes down in the short run and produces no output. Under these conditions,

Correct AnswerverifiedShow Answer

When total product is increasing at an increasing rate, marginal product is

Correct AnswerverifiedShow Answer

A natural monopoly exists when

Correct AnswerverifiedShow Answer

Economic cost can best be defined as

Correct AnswerverifiedShow Answer

In the diagram, curves 1, 2, and 3 represent the

Correct AnswerverifiedShow Answer

Plant sizes get larger as you move from ATC-1 to ATC-4. Which plant size would produce at the least cost for the 1,500-2,500 range of output?

Correct AnswerverifiedShow Answer

Variable costs are costs that change directly with output.

Correct AnswerverifiedShow Answer

The question is based on the following table, which provides information on the production of a product that requires one variable input. With the addition of the fifth unit of input, the marginal product is

Correct AnswerverifiedShow Answer

Which statement best illustrates the law of diminishing returns from studying?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Why should firms incorporate opportunity costs into their calculation of economic costs?

Correct AnswerverifiedAll resources have an opportunity cost. ...View AnswerShow Answer

If long-run average total cost decreases as output increases, this is due to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

List the four factors that explain economies of scale.

Correct AnswerverifiedEconomies of scale occur due to (1)worke...View AnswerShow Answer

Refer to the provided graph. There are economies of scale

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be

Correct AnswerverifiedShow Answer

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

Correct AnswerverifiedShow Answer

The minimum efficient scale of a firm

Correct AnswerverifiedShow Answer

Use the following data to answer the question. The average product (AP) when three units of labor are hired is

Correct AnswerverifiedShow Answer

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All resources have an opportunity cost. ...
View Answer

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Correct Answer
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Economies of scale occur due to (1)worke...
View Answer

Correct Answer
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Correct Answer
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