micro ch 11 Test Questions – Flashcards
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economic cost can best be defined as
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a payment that must be made to obtain and retain the services of a resource
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an explicit cost is
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a money payment made for resources not owned by the firm itself
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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 Refer to the data. Creamy Crisp's total economic costs are:
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$286,000
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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 Refer to the data. Creamy Crisp's total revenues exceed its total costs including a normal profit by
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$94,000
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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 Refer to the data. Creamy Crisp:
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is earning an economic profit
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which of the following statements concerning the relationships between total product, average product and marginal product is not correct?
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***A. AP continues to rise so long as TP is rising.*** B. AP reaches a maximum before TP reaches a maximum. C. TP reaches a maximum when the MP of the variable input becomes zero. D. MP cuts AP at the maximum AP.
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the law of diminishing returns results in
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total product curve that eventually increases at a decreasing rate
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which of the following is correct?
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A. When total product is rising, both average product and marginal product must also be rising. B. When marginal product is falling, total product must be falling. C. When marginal product is falling, average product must also be falling. ***D. Marginal product rises faster than average product and also falls faster than average product.***
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if you owned a small farm, which of the following would most likely be a fixed cost
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A. Harvest labor. ***B. Hail insurance.*** C. Fertilizer. D. Seed.
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which of the following statements is correct
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A. Average total cost is the difference between average variable cost and average fixed cost. B. Marginal cost measures the cost per unit of output associated with any level of production. C. When marginal product rises, marginal cost must also rise. ***D. Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.***
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average total cost is
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(TFC+TVC)/Q
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if a technological advance reduces the amount of variable resources needed to produce any level of output, then the
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MC curve will shift downward
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in the short run what will happen with total costs and variable costs
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total costs will exceed variable costs
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in the short run:
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TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate
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in comparing the changes in TC and TVC associated with an additional unit of output, we find that:
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both TC and TVC are equal to MC
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the short-run average TC curve is U-shaped because
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of increasing and diminishing returns
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economies and diseconomies of scale explain
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why the firms long run average total cost curve is U-shaped
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in the long run
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all costs are variable costs
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if a firm doubles its output in the long run and its unit costs of production decline, we can conclude that
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economies of scale are being realized
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the minimum efficient scale of a firm
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is the smallest level of output at which long run average total cost is minimized
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if an industry's long run average total cost curve has an extended range of constant returns to scale, this implies:
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both relatively small and relativiely small and relatively large firms can be viable in the industry
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natural monopoly exists when
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unit costs are minimized by having one firm produce and industry's entire output
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if a firm increases all of its inputs by 10 percent and itsoutput increases by 15 percent, then:
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it is encountering economies of scale
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suppose a firm is in a range of production where it is experiencing economies of scale. knowing this we can predict that
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a 10% increase in all inputs will increase output by more than 10%
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if the law of diminishing returns applies to study time
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***A. the tenth hour of study will likely be less productive than the third.*** B. this implies that longer lectures are less productive than shorter ones. C. there is no benefit to studying a subject more than five hours in any given day. D. people with less intelligence necessarily experience diminishing returns sooner than those with greater intelligence.
