Question 1

If all resources used in the production of a product are increased by 10 percent and output increases by less than 5 percent, then the firm is experiencing

Accepted Answer

A)   economies of scale.
B)   diseconomies of scale.
C)   constant returns to scale.
D)   decreasing average total costs.

Question 2

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

Accepted Answer

A)   Marginal costs and average variable costs would both rise.
B)   Average fixed costs and average variable costs would rise.
C)   Average fixed costs and average total costs would rise.
D)   Average fixed costs would rise, but marginal costs would fall.

Question 3

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there

Accepted Answer

A)   is a minimum efficient scale.
B)   are constant returns to scale.
C)   are diseconomies of scale.
D)   are economies of scale.

Question 4

The real opportunity cost of producing product X is the amounts of products Y, Z, and so forth, that might have been produced if resources had not been used to produce X.

Accepted Answer

A) True 
 B)False

Question 5

Maria's Mexican Cantina is a restaurant that has been around for 30 years. In that time they have remained in the same building and only changed inputs such as staff and the menu. Based on this, we can conclude that Maria's

Accepted Answer

A)   has only ever operated in the short run.
B)   experienced a long run change whenever it changed personnel.
C)   has operated in the long run, even though it chose to keep the building input fixed.
D)   only operated in the long run if other firms entered or left the industry at this time.

Question 6

The vertical distance between a firm's ATC and AVC curves represents

Accepted Answer

A)   AFC, which increases as output increases.
B)   AFC, which decreases as output increases.
C)   marginal costs, which decrease as output decreases.
D)   marginal costs, which increase as output increases.

Question 7

If a firm wanted to know how much it would save by producing one less unit of output, it would look to

Accepted Answer

A)   MC.
B)   ATC.
C)   AVC.
D)   AFC.

Question 8

If a technological advance reduces the amount of variable resources needed to produce any level of output, then the

Accepted Answer

A)   AVC curve will shift upward.
B)   MC curve will shift downward.
C)   ATC curve will shift upward.
D)   AFC curve will shift downward.

Question 9

In comparing the changes in TVC and TC associated with an additional unit of output, we find that

Accepted Answer

A)   no generalization about the changes in TC and TVC can be made.
B)   the changes in TC and TVC are equal.
C)   the change in TC is greater than the change in TVC.
D)   the change in TVC is greater than the change in TC.

Question 10

The firm's short-run marginal-cost curve is increasing when

Accepted Answer

A)   marginal product is increasing.
B)   marginal product is decreasing.
C)   total fixed cost is increasing.
D)   average fixed cost is decreasing.

Question 11

The short-run average total cost curve is U-shaped because

Accepted Answer

A)   average fixed costs decline continuously as output increases.
B)   of increasing and diminishing returns.
C)   of economies and diseconomies of scale.
D)   minimum efficient scale is encountered.

Question 12

Answer the question on the basis of the following cost data.   Output  Average Fixed Cost  Average Variable Cost 1$50.00$100.00225.0080.00316.6766.67412.5065.00510.0068.0068.3773.3377.1480.0086.2587.50\begin{array} { | c | c | c | } \hline 	ext { Output } & 	ext { Average Fixed Cost } & 	ext { Average Variable Cost } \\hline 1 & \$ 50.00 & \$ 100.00 \\hline 2 & 25.00 & 80.00 \\hline 3 & 16.67 & 66.67 \\hline 4 & 12.50 & 65.00 \\hline 5 & 10.00 & 68.00 \\hline 6 & 8.37 & 73.33 \\hline 7 & 7.14 & 80.00 \\hline 8 & 6.25 & 87.50 \\hline\end{array} Output 12345678​ Average Fixed Cost $50.0025.0016.6712.5010.008.377.146.25​ Average Variable Cost $100.0080.0066.6765.0068.0073.3380.0087.50​​  If the firm closed down in the short run and produced zero units of output, its total cost would be

Accepted Answer

A)   $0.
B)   $50.
C)   $150.
D)   $100.

Question 13

The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of one reason for

Accepted Answer

A)   economies of scale.
B)   diminishing returns to scale.
C)   diminishing marginal returns.
D)   increasing marginal cost.

Question 14

Which of the following is a typical example of a fixed cost of production in a manufacturing firm?

Accepted Answer

A)   depreciation of capital
B)   wages paid to hourly workers
C)   electricity charges
D)   sales taxes due

Question 15

Marginal cost can be defined as the

Accepted Answer

A)   change in total fixed cost resulting from one more unit of production.
B)   change in total cost resulting from one more unit of production.
C)   change in average total cost resulting from one more unit of production.
D)   change in average variable cost resulting from one more unit of production.

Question 16

When total product is increasing at a decreasing rate, marginal product is positive, but falling.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is most likely to be an implicit cost for Company X?

Accepted Answer

A)   forgone rent from the building owned and used by Company X
B)   rental payments on IBM equipment
C)   payments for raw materials purchased from Company Y
D)   transportation costs paid to a nearby trucking firm

Question 18

Answer the question on the basis of the following cost data.   Output  Average Fixed Cost  Average Variable Cost 1$50.00$100.00225.0080.00316.6766.67412.5065.00510.0068.0068.3773.3377.1480.0086.2587.50\begin{array} { | c | c | c | } \hline 	ext { Output } & 	ext { Average Fixed Cost } & 	ext { Average Variable Cost } \\hline 1 & \$ 50.00 & \$ 100.00 \\hline 2 & 25.00 & 80.00 \\hline 3 & 16.67 & 66.67 \\hline 4 & 12.50 & 65.00 \\hline 5 & 10.00 & 68.00 \\hline 6 & 8.37 & 73.33 \\hline 7 & 7.14 & 80.00 \\hline 8 & 6.25 & 87.50 \\hline\end{array} Output 12345678​ Average Fixed Cost $50.0025.0016.6712.5010.008.377.146.25​ Average Variable Cost $100.0080.0066.6765.0068.0073.3380.0087.50​​  The average total cost of five units of output is

Accepted Answer

A)   $69.
B)   $78.
C)   $3.
D)   $10.

Question 19

If average variable cost is $74 and total fixed cost is $100 at 5 units of output, then average total cost at this output level is

Accepted Answer

A)   $91.
B)   $94.
C)   $97.
D)   $100.

Question 20

Cash expenditures a firm incurs to pay for resources are called

Accepted Answer

A)   implicit costs.
B)   explicit costs.
C)   normal profit.
D)   opportunity costs.

Exam 9: Businesses and the Costs of Production

When total product is increasing at a decreasing rate, marginal product is positive, but falling.

Correct Answer
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If a firm wanted to know how much it would save by producing one less unit of output, it would look to

Correct Answer
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Marginal cost can be defined as the

Correct Answer
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Which of the following is a typical example of a fixed cost of production in a manufacturing firm?

Correct Answer
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Correct Answer
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Correct Answer
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The firm's short-run marginal-cost curve is increasing when

Correct Answer
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The vertical distance between a firm's ATC and AVC curves represents

Correct Answer
verified

Cash expenditures a firm incurs to pay for resources are called

Correct Answer
verified

The real opportunity cost of producing product X is the amounts of products Y, Z, and so forth, that might have been produced if resources had not been used to produce X.

Correct Answer
verified

If all resources used in the production of a product are increased by 10 percent and output increases by less than 5 percent, then the firm is experiencing

Correct Answer
verified

The short-run average total cost curve is U-shaped because

Correct Answer
verified

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

Correct Answer
verified

Maria's Mexican Cantina is a restaurant that has been around for 30 years. In that time they have remained in the same building and only changed inputs such as staff and the menu. Based on this, we can conclude that Maria's

Correct Answer
verified

Which of the following is most likely to be an implicit cost for Company X?

Correct Answer
verified

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there

Correct Answer
verified

If a technological advance reduces the amount of variable resources needed to produce any level of output, then the

Correct Answer
verified

If average variable cost is $74 and total fixed cost is $100 at 5 units of output, then average total cost at this output level is

Correct Answer
verified

In comparing the changes in TVC and TC associated with an additional unit of output, we find that

Correct Answer
verified

The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of one reason for

Correct Answer
verified

Exam 9: Businesses and the Costs of Production

When total product is increasing at a decreasing rate, marginal product is positive, but falling.

Correct AnswerverifiedShow Answer

If a firm wanted to know how much it would save by producing one less unit of output, it would look to

Correct AnswerverifiedShow Answer

Marginal cost can be defined as the

Correct AnswerverifiedShow Answer

Which of the following is a typical example of a fixed cost of production in a manufacturing firm?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The firm's short-run marginal-cost curve is increasing when

Correct AnswerverifiedShow Answer

The vertical distance between a firm's ATC and AVC curves represents

Correct AnswerverifiedShow Answer

Cash expenditures a firm incurs to pay for resources are called

Correct AnswerverifiedShow Answer

The real opportunity cost of producing product X is the amounts of products Y, Z, and so forth, that might have been produced if resources had not been used to produce X.

Correct AnswerverifiedShow Answer

If all resources used in the production of a product are increased by 10 percent and output increases by less than 5 percent, then the firm is experiencing

Correct AnswerverifiedShow Answer

The short-run average total cost curve is U-shaped because

Correct AnswerverifiedShow Answer

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

Correct AnswerverifiedShow Answer

Maria's Mexican Cantina is a restaurant that has been around for 30 years. In that time they have remained in the same building and only changed inputs such as staff and the menu. Based on this, we can conclude that Maria's

Correct AnswerverifiedShow Answer

Which of the following is most likely to be an implicit cost for Company X?

Correct AnswerverifiedShow Answer

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there

Correct AnswerverifiedShow Answer

If a technological advance reduces the amount of variable resources needed to produce any level of output, then the

Correct AnswerverifiedShow Answer

If average variable cost is $74 and total fixed cost is $100 at 5 units of output, then average total cost at this output level is

Correct AnswerverifiedShow Answer

In comparing the changes in TVC and TC associated with an additional unit of output, we find that

Correct AnswerverifiedShow Answer

The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of one reason for

Correct AnswerverifiedShow Answer

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