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Exam 9: Businesses and the Costs of Production

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Question 31

Multiple Choice

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Assume a firm is operating at minimum average total cost in the short run. If there is a decrease in output, it follows that

A) marginal cost increases.
B) average fixed cost increases.
C) average total cost decreases.
D) average variable cost increases.

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Question 32

Multiple Choice

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The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, we can conclude that

A) marginal product of the third worker is 9.
B) the third worker has to work with poorer-quality tools and raw materials.
C) the firm will not want to hire more than three workers.
D) the first worker puts forth more effort than the second and third workers.

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Question 33

True/False

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Normal profit is an implicit cost.

Which of the following statements is correct?

Average fixed costs diminish continuously as output increases.

When a firm doubles its inputs and finds that its output has more than doubled, this is known as

The fixed cost of the firm is $500. The firm's total variable cost is indicated in the table. The average total cost of the firm when 3 units of output are being produced is

When the total product curve is falling, the

Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The normal profits for Harvey in the first year were

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

At any level of output.

Assume that the only variable resource used to produce output is labor. Refer to the provided table. With diminishing marginal returns, if the firm hires seven units of labor, which of the following numbers would most probably be the total product?

When producing 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25. Total cost at this output level is

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

If in the short run a firm's total product is increasing, then its

Plant sizes get larger as you move from ATC-1 to ATC-4. In the long run, the firm should use plant size ATC-3 for what level of output?

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

Variable costs are

The question is based on the following table, which provides information on the production of a product that requires one variable input. Diminishing marginal returns sets in with the addition of the

In the long run,