Question 1

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

Accepted Answer

A)  larger firms always have lower per-unit costs than smaller firms.
B)  at small output rates,AFC will be high,while at large output rates,MC will be high.
C)  diminishing returns will be present when output is small,while high AFC will push per-unit cost to high levels when output is large.
D)  diseconomies of scale will be present at both small and large output rates.

Question 2

Which of the following is characteristic of the corporate form of ownership?

Accepted Answer

A)  unlimited liability
B)  easy transferability of ownership rights
C)  no divisible ownership rights
D)  absence of the principal-agent problem

Question 3

In order for the law of diminishing returns to be present,we must have

Accepted Answer

A)  at least one factor of production to be fixed.
B)  output decreasing as more laborers are hired.
C)  the price of labor increasing as more workers are hired.
D)  simultaneous changes in labor and capital.
E)  double the output when labor input is doubled.

Question 4

Fixed costs are best defined as

Accepted Answer

A)  costs that do not vary with output.
B)  costs that are at a minimum when output approaches the firm's capacity.
C)  the amount that one more unit of output adds to total costs.
D)  costs that decline as output increases.

Question 5

Economic profit is

Accepted Answer

A)  total revenues minus variable costs.
B)  total revenues minus private costs.
C)  total revenues minus explicit costs.
D)  total revenues minus total costs.

Question 6

The long run is a period of

Accepted Answer

A)  at least one year.
B)  sufficient length to allow a firm to expand output by hiring additional workers.
C)  sufficient length to allow a firm to alter its plant size and capacity and all other factors of production.
D)  sufficient length to allow a firm to transform economic losses into economic profits.

Question 7

Figure 8-6
 
-At what output does the firm depicted in Figure 8-6 minimize its per-unit cost of production?

Accepted Answer

A)  Q₁
B)  Q₂
C)  Q₃
D)  an output beyond Q₃

Question 8

If a firm increases its output and finds that its average total cost decreases as a result,this implies that

Accepted Answer

A)  marginal cost exceeds average total cost.
B)  the cost of producing an additional unit of output is more than the average total cost.
C)  average fixed cost is increasing.
D)  average total cost exceeds marginal cost.

Question 9

Mr.Hudson notes that if he produces 10 pairs of shoes per day,his average fixed cost (AFC) is $14 and his marginal cost $8;if he produces 20 pairs of shoes per day,his MC is $15.What is his AFC when output is 20 pairs of shoes per day?

Accepted Answer

A)  $5
B)  $7
C)  $8
D)  $15

Question 10

The short run is a time period of insufficient length for the firm to change its

Accepted Answer

A)  output.
B)  amount of labor employed.
C)  plant size and heavy equipment.
D)  price.

Question 11

Figure 8-6
 
-At what output does the firm depicted in Figure 8-6 begin to experience diminishing marginal returns to its variable factors of production?

Accepted Answer

A)  Q₁
B)  Q₂
C)  Q₃
D)  an output beyond Q₃

Question 12

Which of the following provides the strongest evidence that the corporate form of business structure is relatively efficient,particularly when business firms are large?

Accepted Answer

A)  the fact that almost 90 percent of business revenues are generated by corporations
B)  the fact that individual proprietorships are more numerous than corporations
C)  the fact that economic theory indicates corporate managers have some leeway to pursue their own interests at the expense of the owners of the firm
D)  the high salaries of many corporate executives,including some managing firms that are making economic losses

Question 13

Sunk costs

Accepted Answer

A)  are expenditures made in the past that cannot be regained no matter what is done now or in the future.
B)  are a component of variable costs,but not fixed costs.
C)  represent foregone opportunities,and therefore the firm's managers should consider these costs when they are making current decisions.
D)  can be avoided if the firm goes out of business.

Question 14

Marginal cost is best defined as

Accepted Answer

A)  a cost that does not vary with the rate of output.
B)  the difference between fixed and variable cost at any level of output.
C)  the amount added to total cost when one more unit of output is produced.
D)  the difference between price and average total cost at the profit-maximizing level of output.

Question 15

Which one of the following decisions most clearly reflects a lack of understanding of the concept of sunk costs?

Accepted Answer

A)  You pay to have your car towed back to the repair shop because it was not fixed properly the first time.
B)  You decide to get a master's degree because you cannot find a job in the field in which you majored.
C)  You decide to purchase a piece of machinery for your business that will eliminate three employees' positions.
D)  You study eight hours for a final exam even though there is no way now that you can pass the course.

Question 16

If General Electric finds that when it doubles both its plant size and the amount of associated inputs,its output level does not double,then

Accepted Answer

A)  the law of diminishing returns is in effect.
B)  long-run average costs must be decreasing.
C)  the firm is experiencing diseconomies of scale.
D)  the firm should increase production.
E)  the firm is experiencing constant returns to scale.

Question 17

The sum of the explicit and implicit costs incurred in the production process is called

Accepted Answer

A)  fixed cost.
B)  sunk cost.
C)  marginal cost.
D)  total cost.

Question 18

One advantage of team production over contracting out is that

Accepted Answer

A)  the cost of negotiating and enforcing contracts is generally lower with team production than with contracting out.
B)  the principal agent problem is eliminated by team production but cannot be addressed in contracting out.
C)  costs are always lower with team production because of the elimination of transactions costs.
D)  efficiency is always greater with team production.

Question 19

As output is expanded,if MC is more than ATC,

Accepted Answer

A)  ATC must be at its minimum.
B)  ATC must be at its maximum.
C)  ATC must be increasing.
D)  ATC must be constant.

Question 20

A homeowner will be away from her house for six months.The monthly mortgage payment on the house is $300.The utilities,to be paid by the owner,cost $100 per month if the house is occupied;otherwise zero.If the owner wishes to minimize her losses from the house,she should rent the house for as much as the market will bear,as long as monthly rent is greater than which of the following? (Assume wear and tear to be zero regardless of whether the house is occupied. ) (Hint: Remember the concept of sunk cost. )

Accepted Answer

A)  $0
B)  $100
C)  $200
D)  $400

Exam 21: Acosts and the Supply of Goods

If General Electric finds that when it doubles both its plant size and the amount of associated inputs,its output level does not double,then

Correct Answer
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Sunk costs

Correct Answer
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Figure 8-6 -At what output does the firm depicted in Figure 8-6 minimize its per-unit cost of production?

Correct Answer
verified

The sum of the explicit and implicit costs incurred in the production process is called

Correct Answer
verified

The short run is a time period of insufficient length for the firm to change its

Correct Answer
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Fixed costs are best defined as

Correct Answer
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The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

Correct Answer
verified

Which of the following provides the strongest evidence that the corporate form of business structure is relatively efficient,particularly when business firms are large?

Correct Answer
verified

If a firm increases its output and finds that its average total cost decreases as a result,this implies that

Correct Answer
verified

Correct Answer
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Mr.Hudson notes that if he produces 10 pairs of shoes per day,his average fixed cost (AFC) is $14 and his marginal cost $8;if he produces 20 pairs of shoes per day,his MC is $15.What is his AFC when output is 20 pairs of shoes per day?

Correct Answer
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As output is expanded,if MC is more than ATC,

Correct Answer
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Which of the following is characteristic of the corporate form of ownership?

Correct Answer
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Economic profit is

Correct Answer
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The long run is a period of

Correct Answer
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Figure 8-6 -At what output does the firm depicted in Figure 8-6 begin to experience diminishing marginal returns to its variable factors of production?

Correct Answer
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Which one of the following decisions most clearly reflects a lack of understanding of the concept of sunk costs?

Correct Answer
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Marginal cost is best defined as

Correct Answer
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In order for the law of diminishing returns to be present,we must have

Correct Answer
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One advantage of team production over contracting out is that

Correct Answer
verified

Exam 21: Acosts and the Supply of Goods

If General Electric finds that when it doubles both its plant size and the amount of associated inputs,its output level does not double,then

Correct AnswerverifiedShow Answer

Sunk costs

Correct AnswerverifiedShow Answer

Figure 8-6 -At what output does the firm depicted in Figure 8-6 minimize its per-unit cost of production?

Correct AnswerverifiedShow Answer

The sum of the explicit and implicit costs incurred in the production process is called

Correct AnswerverifiedShow Answer

The short run is a time period of insufficient length for the firm to change its

Correct AnswerverifiedShow Answer

Fixed costs are best defined as

Correct AnswerverifiedShow Answer

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

Correct AnswerverifiedShow Answer

Which of the following provides the strongest evidence that the corporate form of business structure is relatively efficient,particularly when business firms are large?

Correct AnswerverifiedShow Answer

If a firm increases its output and finds that its average total cost decreases as a result,this implies that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Mr.Hudson notes that if he produces 10 pairs of shoes per day,his average fixed cost (AFC) is $14 and his marginal cost $8;if he produces 20 pairs of shoes per day,his MC is $15.What is his AFC when output is 20 pairs of shoes per day?

Correct AnswerverifiedShow Answer

As output is expanded,if MC is more than ATC,

Correct AnswerverifiedShow Answer

Which of the following is characteristic of the corporate form of ownership?

Correct AnswerverifiedShow Answer

Economic profit is

Correct AnswerverifiedShow Answer

The long run is a period of

Correct AnswerverifiedShow Answer

Figure 8-6 -At what output does the firm depicted in Figure 8-6 begin to experience diminishing marginal returns to its variable factors of production?

Correct AnswerverifiedShow Answer

Which one of the following decisions most clearly reflects a lack of understanding of the concept of sunk costs?

Correct AnswerverifiedShow Answer

Marginal cost is best defined as

Correct AnswerverifiedShow Answer

In order for the law of diminishing returns to be present,we must have

Correct AnswerverifiedShow Answer

One advantage of team production over contracting out is that

Correct AnswerverifiedShow Answer

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