Chapter 13 – Costs Of Production – Flashcards

According to the law of supply, a. firms' production levels are not correlated with the price of a good. b. the supply curve slopes downward. c. firms are willing to produce a greater quantity of a good when the price of the good is higher. d. None of the above are correct.

Industrial organization is the study of how a. labor unions organize workers in industries. b. profitable firms are in organized industries. c. industries organize for political advantage. d. firms' decisions regarding prices and quantities depend on the market conditions they face.

Economists normally assume that the goal of a firm is to (i) sell as much of their product as possible. (ii) set the price of their product as high as possible. (iii) maximize profit. a. (i) and (ii) b. (ii) and (iii) c. (iii) only d. All of the above are correct.

The amount of money that a firm receives from the sale of its output is called a. total gross profit. b. total net profit. c. total revenue. d. net revenue.

The amount of money that a firm pays to buy inputs is called a. total cost. b. variable cost. c. marginal cost. d. fixed cost.

Profit is defined as a. net revenue minus depreciation. b. total revenue minus total cost. c. average revenue minus average total cost. d. marginal revenue minus marginal cost.

Which of the following can be added to profit to obtain total revenue? a. net profit b. capital profit c. operational profit d. total cost

Economists normally assume that the goal of a firm is to (i) make profit as large as possible even if it means reducing output. (ii) make profit as large as possible even if it means incurring a higher total cost. (iii) make revenue as large as possible. a. (i) and (ii) b. (i) and (iii) c. (ii) and (iii) d. None of the above are correct.

Total revenue equals a. total output multiplied by price per unit of output. b. total output divided by profit. c. (total output multiplied by sales price) - inventory surplus. d. (total output multiplied by sales price) - inventory shortage.

Those things that must be forgone to acquire a good are called a. substitutes. b. opportunity costs. c. explicit costs. d. competitors.

XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 275 units sold was sold for a price of $95. Total revenue for the XYZ corporation would be a. -$3,875. b. $26,125. c. $28,500. d. $30,000.

Explicit costs a. require an outlay of money by the firm. b. include all of the firm's opportunity costs. c. include income that is forgone by the firm's owners. d. All of the above are correct.

Which of the following would be categorized as an implicit cost? (i) wages of workers (ii) raw material costs (iii) forgone investment opportunities a. (i) and (iii) b. (iii) only c. (ii) and (iii) d. All of the above are correct.

An example of an explicit cost of production would be a. the cost of forgone labor earnings for an entrepreneur. b. the lost opportunity to invest in other capital markets when the money is invested in one's business. c. the cost of flour for a baker. d. None of the above are correct.

Which of the following is an implicit cost? (i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm (ii) interest paid on the firm's debt (iii) rent paid by the firm to lease office space a. (ii) and (iii) b. (i) and (iii) c. (i) only d. All of the above are correct.

An example of an implicit cost of production would be a. the income an entrepreneur could have earned working for someone else. b. the cost of raw materials for producing bread in a bakery. c. the cost of a delivery truck in a business that rarely makes deliveries. d. All of the above are correct.

To an economist, the field of industrial organization answers which of the following questions? a. Why are consumers subject to the law of demand? b. Why do firms experience falling marginal product of labor? c. How does the difference in the number of firms affect prices and the efficiency of market outcomes? d. Why do firms consider production costs when determining product supply?

Accountants are primarily interested in the a. flow of money into and out of firms. b. stock of assets of firms. c. marginal costs of production of firms. d. taxes due on capital assets of firms.

John owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? a. wages John could earn washing windows b. dividends John's money was earning in the stock market before John sold his stock and bought a shoe-shine booth c. the cost of shoe polish d. All of the above are correct.

Which of the following costs would be regarded as an implicit cost? a. the cost of accounting services b. the opportunity cost of financial capital that has been invested in the business c. the cost of compliance with government regulation d. all costs that involve outlays of money by the firm

Which of the following is an implicit cost of owning a business? (i) interest expense on existing business loans (ii) forgone savings account interest when personal money is invested in the business (iii) damaged or lost inventory a. (i) only b. (ii) only c. (i) and (ii) d. All of the above are correct.

The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is a. an explicit cost. b. an accounting cost c. an implicit cost. d. forgone accounting profit.

Economic profit is equal to a. total revenue minus the explicit cost of producing goods and services. b. total revenue minus the opportunity cost of producing goods and services. c. total revenue minus the accounting cost of producing goods and services. d. average revenue minus the average cost of producing the last unit of a good or service.

Accounting profit is equal to a. marginal revenue minus marginal cost. b. total revenue minus the explicit cost of producing goods and services. c. total revenue minus the opportunity cost of producing goods and services. d. average revenue minus the average cost of producing the last unit of a good or service.

Economic profit is equal to (i) total revenue - (explicit costs + implicit costs). (ii) total revenue - opportunity costs. (iii) accounting profit + implicit costs. a. (i) only b. (i) and (ii) c. (ii) and (iii). d. All of the above are correct.

Accounting profit is equal to (i) total revenue - implicit costs. (ii) total revenue - opportunity costs. (iii) economic profit + implicit costs. a. (i) only b. (iii) only c. (i) and (ii) d. None of the above are correct.

Economic profit a. will never exceed accounting profit. b. is most often equal to accounting profit. c. is always at least as large as accounting profit. d. is a less complete measure of profitability than accounting profit.

To an economist, it is conceivable that the objective that motivates an individual entrepreneur to start a business arises from a. an innate love for the type of business that he or she starts. b. a desire to earn a profit. c. an altruistic desire to provide the world with a good product. d. All of the above are correct.

When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision? a. The cost of something is what you give up to get it. b. A country's standard of living depends on its ability to produce goods and services. c. Prices rise when the government prints too much money. d. Governments can sometimes improve market outcomes.

Gordon is a senior majoring in computer network development at Smart State University. While he has been attending college, Gordon started a computer consulting business to help senior citizens set up their network connections and teach them how to use e-mail. Gordon charges $25 per hour for his consulting services. Gordon also works 5 hours a week for the Economics Department to maintain that department's Web page. The Economics Department pays Gordon $20 per hour. From this information we can conclude: a. Gordon should increase the number of hours he works for the Economics Department to make it comparable to his consulting business income. b. Gordon is obviously not maximizing his well-being if he continues to work for the Economics Department. c. If Gordon chooses one hour at the beach with his friends rather than spend one more hour with a consulting client, the forgone income of $25 is considered a cost of the choice to go to the beach. d. If the Economics Department offers Gordon a full-time job he will definitely not take the job offer.

Economists normally assume that the goal of a firm is to a. maximize its total revenue. b. maximize its profit. c. minimize its explicit costs. d. minimize its total cost.

Explicit costs a. require an outlay of money by the firm. b. enter into the accountant's measurement of a firm's profit. c. enter into the economist's measurement of a firm's profit. d. All of the above are correct.

A certain firm manufactures and sells computer chips. Last year, it sold 2 million chips at a price of $10 per chip. For last year, the firm's a. accounting profit amounted to $20 million. b. economic profit amounted to $20 million. c. total revenue amounted to $20 million. d. explicit costs amounted to $20 million.

A firm's opportunity costs of production amount to its a. explicit costs only. b. implicit costs only. c. explicit costs + implicit costs. d. explicit costs + implicit costs + total revenue.

Which of the following expressions is correct? a. accounting profit = total revenue - explicit costs. b. economic profit = total revenue - total opportunity costs. c. economic profit = total revenue - explicit costs - implicit costs. d. All of the above are correct.

Which of the following expressions is correct? a. accounting profit = economic profit + implicit costs b. accounting profit = total revenue - implicit costs c. economic profit = accounting profit + explicit costs d. economic profit = total revenue - implicit costs

Susan used to work as a telemarketer, earning $25,000 per year. She gave up that job to start a catering business. In calculating the economic profit of her catering business, the $25,000 income that she gave up is counted as part of the catering firm's a. total revenue. b. opportunity costs. c. explicit costs. d. All of the above are correct.

Dolores used to work as a high school teacher for $40,000 per year but quit in order to start her own catering business. To buy the necessary equipment, she withdrew $20,000 from her savings, (which paid 3 percent interest) and borrowed $30,000 from her uncle, whom she pays 3 percent interest per year. Last year she paid $25,000 for ingredients and had revenue of $60,000. She asked Louis the accountant and Greg the economist to calculate her profit for her. a. Louis says her profit is $34,100 and Greg says her profit is $6,500. b. Louis says her profit is $34,100 and Greg says she lost $6,500. c. Louis says her profit is $35,000 and Greg says she lost $5,000. d. Louis says her profit is $33,500 and Greg says her profit is 33,500.

A production function is a relationship between a. inputs and quantity of output. b. inputs and revenue. c. inputs and costs. d. inputs and profit.

The marginal product of labor is equal to the a. incremental cost associated with a one unit increase in labor. b. incremental profit associated with a one unit increase in labor. c. increase in labor necessary to generate a one unit increase in output. d. increase in output obtained from a one unit increase in labor.

The marginal product of labor can be defined as a. change in profit/change in labor. b. change in output/change in labor. c. change in labor/change in output. d. change in labor/change in total cost.

One would expect to observe diminishing marginal product of labor when a. crowded office space reduces the productivity of new workers. b. workers are discouraged about the lack of help from other workers. c. only new workers are trained in using the most productive capital. d. union workers are told to reduce their work effort in preparation for a new round of collective bargaining talks.

When adding another unit of labor leads to an increase in output that is smaller than increases in output that resulted from adding previous units of labor, we have the property of a. diminishing labor. b. diminishing output. c. diminishing marginal product. d. negative marginal product.

Which of the following statements about a production function is correct for a firm that uses labor to produce output? a. The production function depicts the relationship between the quantity of labor and the quantity of output. b. The slope of the production function measures marginal cost. c. The quantity of output is measured along the horizontal axis. d. All of the above are correct.

Which of these assumptions is often realistic for a firm in the short run? a. The firm can vary both the size of its factory and the number of workers it employs. b. The firm can vary the size of its factory, but not the number of workers it employs. c. The firm can vary the number of workers it employs, but not the size of its factory. d. The firm can vary neither the size of its factory nor the number of workers it employs.

Assume a certain firm regards the number of workers it employs as variable, and that it regards the size of its factory as fixed. This assumption is often realistic a. in the short run, but not in the long run. b. in the long run, but not in the short run. c. both in the short run and in the long run. d. neither in the short run nor in the long run.

For a firm, the production function represents the relationship between a. implicit costs and explicit costs. b. quantity of inputs and total cost. c. quantity of inputs and quantity of output. d. quantity of output and total cost.

For a firm, the relationship between the quantity of inputs and quantity of output is called the a. profit function. b. production function. c. total-cost function. d. quantity function.

For a certain firm, the number of workers hired is the only variable input. When this firm's production function is illustrated on a graph, a. the number of workers is measured on the horizontal axis and the quantity of output is measured on the vertical axis. b. the number of workers is measured on the horizontal axis and variable cost is measured on the vertical axis. c. the number of workers is measured on the horizontal axis and profit is measured on the vertical axis. d. total cost is measured on the horizontal axis and the number of workers is measured on the vertical axis.

The marginal product of an input in the production process is the increase in a. total revenue obtained from an additional unit of that input. b. profit obtained from an additional unit of that input. c. total revenue obtained from an additional unit of that input. d. quantity of output obtained from an additional unit of that input.

When a firm's only variable input is labor, then the slope of the production function measures the a. quantity of labor. b. quantity of output. c. total cost. d. marginal product of labor.

Let L represent the number of workers hired by a firm and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is a. 8 units of output. b. 10 units of output. c. 122 units of output. d. 130 units of output.

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product? a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers. b. The farmer is able to produce 5,800 bushels of wheat when he hires 4 workers. c. The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers. d. All of the above are correct.

Suppose a certain firm is able to produce 160 units of output per day when 15 workers are hired. The firm is able to produce 176 units of output per day when 16 workers are hired (holding other inputs fixed). Then the marginal product of the 16th worker is a. 10 units of output. b. 11 units of output. c. 16 units of output. d. 176 units of output.

A total-cost curve shows the relationship between the a. quantity of an input used and the total cost of production. b. quantity of output produced and the total cost of production. c. total cost of production and profit. d. total cost of production and total revenue.

Which of the following costs do not vary with the amount of output a firm produces? a. average fixed costs b. fixed costs and average fixed costs c. marginal costs and average fixed costs d. fixed costs

An example of a fixed cost would be (i) raw materials supplied at a government -regulated price. (ii) rent paid on a factory. (iii) machine maintenance. a. (ii) only b. (i) and (ii) c. (ii) and (iii) d. All of the above are correct.

Fixed costs can be defined as costs that a. vary inversely with production. b. vary in proportion with production. c. are incurred only when production is large enough. d. are incurred even if nothing is produced.

Suppose Jan is starting up a small lemonade stand business. Variable costs for Jan's lemonade stand would include the cost of a. building the lemonade stand. b. hiring an artist to design a logo for her sign. c. lemonade mix. d. All of the above are correct.

If a firm produces nothing, which of the following costs will be zero? a. total cost b. fixed cost c. opportunity cost d. variable cost

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run, a. output is not variable. b. the number of workers used to produce the firm's product is fixed. c. the size of the factory is fixed. d. there are no fixed costs.

The cost of producing the typical unit of output is the firm's a. average total cost. b. opportunity cost. c. variable cost. d. marginal cost.

Average total cost is equal to a. output/total cost. b. total cost - total quantity of output. c. average variable cost + total fixed cost. d. total cost/output.

The amount by which total cost rises when the firm produces one additional unit of output is called a. average cost. b. marginal cost. c. fixed cost. d. variable cost.

The cost of producing an additional unit of output is the firm's a. marginal cost. b. productivity offset. c. variable cost. d. average variable cost.

Average total cost equals a. change in total costs divided by quantity produced. b. change in total costs divided by change in quantity produced. c. (fixed costs + variable costs) divided by quantity produced. d. (fixed costs + variable costs) divided by change in quantity produced.

Variable cost divided by quantity produced is a. average total cost. b. marginal cost. c. profit. d. None of the above are correct.

Marginal cost equals (i) change in total cost divided by change in quantity produced. (ii) change in variable cost divided by change in quantity produced. (iii) the average fixed cost of the current unit. a. (i) and (ii) b. (ii) and (iii) c. (ii) only d. All of the above are correct.

Variable cost divided by change in quantity produced is a. average variable cost. b. marginal cost. c. average total cost. d. None of the above are correct.

Marginal cost equals a. total cost divided by quantity of output produced. b. total output divided by the change in total cost. c. the slope of the total cost curve. d. None of the above are correct.

Average total cost tells us the a. total cost of the first unit of output, if total cost is divided evenly over all the units produced. b. cost of a typical unit of output, if total cost is divided evenly over all the units produced. c. cost of the last unit of output, if total cost does not include a fixed cost component. d. variable cost of a firm that is producing at least one unit of output.

Marginal cost tells us the a. value of all resources used in a production process. b. marginal increment to profitability when price is constant. c. amount by which total cost rises when output is increased by one unit. d. amount by which output rises when labor is increased by one unit.

If marginal cost is rising, a. average variable cost must be falling. b. average fixed cost must be rising. c. marginal product must be falling. d. marginal product must be rising.

Diminishing marginal product suggests that the marginal a. cost of an extra worker is unchanged. b. cost of an extra worker is less than the previous worker's marginal cost. c. product of an extra worker is less than the previous worker's marginal product. d. product of an extra worker is greater than the previous worker's marginal product.

Diminishing marginal product suggests that a. additional units of output become less costly as more output is produced. b. marginal cost is upward sloping. c. the firm is at full capacity. d. All of the above are correct.

The average fixed cost curve a. always declines with increased levels of output. b. always rises with increased levels of output. c. declines as long as it is above marginal cost. d. declines as long as it is below marginal cost.

Average total cost is very high when a small amount of output is produced because a. average variable cost is high. b. average fixed cost is high. c. marginal cost is high. d. All of the above are correct.

Total cost necessarily rises due to (i) rising marginal cost. (ii) falling marginal cost. (iii) increasing marginal product. a. (i) only b. (i) and (ii) c. (ii) only d. None of the above are correct.

The efficient scale of the firm is the quantity of output that a. maximizes marginal product. b. maximizes profit. c. minimizes average total cost. d. minimizes average variable cost.

When marginal cost is less than average total cost, a. marginal cost must be falling. b. average variable cost must be falling. c. average total cost is falling. d. average total cost is rising.

When marginal cost exceeds average total cost, a. average fixed cost must be rising. b. average total cost must be rising. c. average total cost must be falling. d. marginal cost must be falling.