Question 1

Suppose a chain of convenience stores reorganized its system of supplying its stores with food. This led to a sharp reduction in the number of trucks that the company had to use and increased the amount of fresh food on store shelves. Which of the following statements best describes the chain stores' actions?

Accepted Answer

A)   The change implemented is not an example of technological change because it did not require the use of new machinery of equipment.
B)   Technological change refers only to the introduction of new products or improvements to existing product. As such, the scenario described in the question is not technological change.
C)   The firm is able to produce more output (increase its sales)  using fewer inputs (less trucks) . Therefore, the chain of convenience stores has implemented a positive technological change.
D)   The scenario described is an example of management efficiency and not technological change. Essentially, the chain changes its way of operating its business.

Question 2

Implicit costs can be defined as

Accepted Answer

A)   accounting profit minus explicit cost.
B)   the non-monetary opportunity cost of using the firm's own resources.
C)   the deferred cost of production.
D)   total cost minus fixed costs.

Question 3

A "stockout" occurs when

Accepted Answer

A)   brokers run out of shares of stock to sell of a particular company.
B)   a disruption due to a power outage, etc., causes a temporary production shutdown.
C)   a company holds too many goods in inventories.
D)   a firm loses sales because goods consumers want are not available.

Question 4

Sally quit her job as an auto mechanic earning $50,000 per year to start her own business. To save money she operates her business out of a small building she owns which, until she started her own business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which earned a market interest rate of 5% per year) in her business. You are given the following information about the first year of her operations.
Total revenue $120,000
Cost of labor 40,000
Cost of materials 15,000
Equipment rental 5,000
a. Calculate her economic costs.
b. Calculate her accounting costs.
c. Calculate her implicit costs.
d. Sally tells you that she would really like to move to a location closer to town but she decided against it because "right now I don't pay any rent and it will cost me $10,000 a year to rent near town." Do you agree with her reasoning?

Accepted Answer

a. $121,000 = 40,000 (labor) + 15,000 (m...

Question 5

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?

Accepted Answer

A)   The fixed cost of running the studio is $22,000.
B)   The variable cost of running the studio is $22,000.
C)   The $10,000 Adam spent on equipment is a fixed cost of business, and the $12,000 he'll need to continue operations is a variable cost.
D)   The $10,000 Adam spent on equipment is the total cost of starting the business, and the $12,000 he'll need to continue operations is a marginal cost.

Question 6

A firm's expansion path

Accepted Answer

A)   is the same thing as its long-run average cost curve.
B)   is a curve that shows a firm's cost-minimizing combination of inputs for every level of output, holding input prices constant.
C)   shows the targeted growth rate in sales over the long run.
D)   is a curve that shows expected profits at various price levels.

Question 7

Figure 11-15 
-Refer to Figure 11-15. Suppose Hilda hires labor at $8 per hour and capital costs $10 per unit. What is the minimum cost of producing 200 gooseberry pies?

Accepted Answer

A)   $3,600
B)   $1,120
C)   $592
D)   $560

Question 8

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest)  and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her implicit costs?

Accepted Answer

A)   $80,000
B)   $70,000
C)   $42,000
D)   $41,500

Question 9

What are economies of scale? What are diseconomies of scale?

Accepted Answer

Economies of scale occur when ...

Question 10

Which of the following statements is true?

Accepted Answer

A)   Opportunity cost = explicit cost - implicit cost.
B)   Total cost = fixed cost + implicit cost.
C)   Total cost = fixed cost + variable cost.
D)   Variable cost = wages + salaries + benefits.

Question 11

Which of the following is true at the output level where average total cost is at its minimum?

Accepted Answer

A)   Marginal cost equals average total cost.
B)   Average variable cost equals fixed cost.
C)   Marginal cost equals average variable cost.
D)   Average total cost equals average fixed cost.

Question 12

Suppose Argyle Sachs has to choose between building a smaller sweater factory and a larger sweater factory. In the following graph, the relationship between costs and output for the smaller factory is represented by the curve ATC1, and the relationship between costs and output for the larger factory is represented by the curve ATC2.  a. If Argyle expects to produce 3,600 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain?
b. If Argyle expects to produce 5,000 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain.
c. If the average cost of producing sweaters is lower in the larger factory when Argyle produces 6,500 sweaters per week, why isn't it also lower when Argyle produces 4,000 sweaters per week?

Accepted Answer

a. Argyle's costs will be lower with a s...

Question 13

Suppose you have just opened a store to sell espresso machines. Both you and a competing store buy this machine from a manufacturer for $130 each. Your competitor who has a store of the same size as yours is currently selling about 10 machines a month at a price of $200 per machine. You expect to sell about 6 machines a month at a price of $220 per machine. If you lower your price, you expect to make a loss. Which of the following could explain why your competitor is able to profitably sell the machine at a lower price although the cost of purchasing the machine is the same for the both of you?

Accepted Answer

A)   The competing store probably has a lower marginal cost of production.
B)   The competing store probably has a lower average variable cost of production.
C)   The competing store's goal is to maximize revenue and not profit.
D)   The competing store probably has a lower average cost because average fixed cost falls as output increases.

Question 14

Figure 11-15 
-Refer to Figure 11-15. What is the combination of inputs that produces 200 gooseberry pies at the lowest cost?

Accepted Answer

A)   combination e: 10 hours of labor and 48 units of capital
B)   combination f: 40 hours of labor and 24 units of capital
C)   combination g: 60 hours of labor and 14 units of capital
D)   combination h: 60 hours of labor and 9 units of capital

Question 15

Which of the following is a fixed cost?

Accepted Answer

A)   payment to hire a security worker to guard the gate to the factory around the clock
B)   wages to hire assembly line workers
C)   payments to an electric utility
D)   costs of raw materials

Question 16

The absolute value of the slope of an isocost line equals the ratio of

Accepted Answer

A)   the marginal productivities of the two inputs.
B)   the prices of the two inputs.
C)   the marginal utilities of the two inputs.
D)   the quantities of the two inputs.

Question 17

Diminishing marginal product of labor occurs when adding another unit of labor

Accepted Answer

A)   decreases output.
B)   changes output by an amount smaller than the output added by the previous unit of labor.
C)   increases output by an amount larger than the output added by the previous unit of labor.
D)   decreases output by an amount smaller than the output added by the previous unit of labor.

Question 18

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.)  to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers?

Accepted Answer

A)   $100
B)   $124.40
C)   $220
D)   $240

Question 19

In the long run, all of a firm's inputs are variable.

Accepted Answer

A) True 
 B)False

Question 20

Higher isocost lines correspond to higher

Accepted Answer

A)   profits.
B)   total costs of production.
C)   input prices.
D)   sales revenue.

Exam 11: Technology, Production, and Costs

Correct Answer
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A firm's expansion path

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Correct Answer
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Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers?

Correct Answer
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Which of the following statements is true?

Correct Answer
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Figure 11-15 -Refer to Figure 11-15. What is the combination of inputs that produces 200 gooseberry pies at the lowest cost?

Correct Answer
verified

A "stockout" occurs when

Correct Answer
verified

Implicit costs can be defined as

Correct Answer
verified

In the long run, all of a firm's inputs are variable.

Correct Answer
verified

Higher isocost lines correspond to higher

Correct Answer
verified

The absolute value of the slope of an isocost line equals the ratio of

Correct Answer
verified

Figure 11-15 -Refer to Figure 11-15. Suppose Hilda hires labor at $8 per hour and capital costs $10 per unit. What is the minimum cost of producing 200 gooseberry pies?

Correct Answer
verified

Diminishing marginal product of labor occurs when adding another unit of labor

Correct Answer
verified

Correct Answer
verified
a. Argyle's costs will be lower with a s...
View Answer

Which of the following is true at the output level where average total cost is at its minimum?

Correct Answer
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What are economies of scale? What are diseconomies of scale?

Correct Answer
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Economies of scale occur when ...
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Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?

Correct Answer
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Which of the following is a fixed cost?

Correct Answer
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Correct Answer
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Correct Answer
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a. $121,000 = 40,000 (labor) + 15,000 (m...
View Answer

Exam 11: Technology, Production, and Costs

Correct AnswerverifiedShow Answer

A firm's expansion path

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Figure 11-15 -Refer to Figure 11-15. What is the combination of inputs that produces 200 gooseberry pies at the lowest cost?

Correct AnswerverifiedShow Answer

A "stockout" occurs when

Correct AnswerverifiedShow Answer

Implicit costs can be defined as

Correct AnswerverifiedShow Answer

In the long run, all of a firm's inputs are variable.

Correct AnswerverifiedShow Answer

Higher isocost lines correspond to higher

Correct AnswerverifiedShow Answer

The absolute value of the slope of an isocost line equals the ratio of

Correct AnswerverifiedShow Answer

Figure 11-15 -Refer to Figure 11-15. Suppose Hilda hires labor at $8 per hour and capital costs $10 per unit. What is the minimum cost of producing 200 gooseberry pies?

Correct AnswerverifiedShow Answer

Diminishing marginal product of labor occurs when adding another unit of labor

Correct AnswerverifiedShow Answer

Correct Answerverifieda. Argyle's costs will be lower with a s...View AnswerShow Answer

Which of the following is true at the output level where average total cost is at its minimum?

Correct AnswerverifiedShow Answer

What are economies of scale? What are diseconomies of scale?

Correct AnswerverifiedEconomies of scale occur when ...View AnswerShow Answer

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?

Correct AnswerverifiedShow Answer

Which of the following is a fixed cost?

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Correct AnswerverifiedShow Answer

Correct Answerverifieda. $121,000 = 40,000 (labor) + 15,000 (m...View AnswerShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a. Argyle's costs will be lower with a s...
View Answer

Correct Answer
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Correct Answer
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Economies of scale occur when ...
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a. $121,000 = 40,000 (labor) + 15,000 (m...
View Answer