question

Economic cost can best be defined as...

answer

compensations that must be received by resource owners to insure their continued supply

question

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

answer

depreciation charges on company-owned equipment

question

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

answer

depreciation charges on company-owned equipment

question

Costs to an economist

answer

may or may not involve monetary outlays

question

What do wages paid to blue-collar workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

answer

All are opportunity costs

question

To the economist total cost includes

answer

explicit and implicit costs, including a normal profit

question

Implicit and explicit costs are different in that

answer

the former refer to nonexpenditure costs and the latter to out-of-pocket costs

question

Implicit costs are...

answer

nonexpenditure costs

question

An explicit cost is

answer

a money payment made for resources not owned by the firm itself

question

Accounting profits are typically

answer

greater than economic profits because the former do not take implicit costs into account

question

Economic profits are calculated by subtracting

answer

explicit and implicit costs from total revenue

question

Normal profit is

answer

the return to the entrepreneur when economic profits are zero

question

Which of the following definitions is correct?

answer

Economic profit = accounting profit - implicit costs

question

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

answer

$200,000 and its economic profits were zero

question

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

answer

profits were zero and its economic losses were $500,000

question

Use the following cost information for the Creamy Crisp Donut Company to answer questions 16-23: 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 Entrepreneur's potential economic profit from the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000

answer

Refer to the above data. Creamy Crisp's explicit costs are $150,000 Refer to the above data. Creamy Crisp's implicit costs, including a normal profit are: $136,000 Refer to the above data. Creamy Crisp's total economic costs (explicit + implicit costs, including a normal profit) are $286,000 Refer to the above data. Creamy Crisp's accounting profit is $230,000 Refer to the above data. Creamy Crisp's economic profit is $94,000 Refer to the above data. Creamy Crisp's total revenues exceed its total costs, including a normal profit, by $94,000 Refer to the above data. Creamy Crisp is earning an economic profit Refer to the above data. If, other things equal, Creamy Crisp's revenue fell to $286,000 it would earn a normal profit but not an economic profit

question

The basic characteristic of the short run is that

answer

the firm does not have sufficient time to change the size of its plant

question

Which of the following represents a long-run adjustment?

answer

unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants

question

Which of the following is a short-run adjustment?

answer

A local bakery hires two additional bakers.

question

The amount of calendar time associated with the long run

answer

varies from industry to industry

question

The basic difference between the short run and the long run is that

answer

at least one resource is fixed in the short run, while all resources are variable in the long run

question

The short run is characterized by

answer

at least one fixed resource

question

The long run is characterized by

answer

the ability of the firm to change its plant size

question

Marginal product is

answer

the increase in total output attributable to the employment of one more worker

question

The law of diminishing returns indicates that

answer

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point

question

Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?

answer

AP continues to rise so long as TP is rising

question

Which of the following best expresses the law of diminishing returns?

answer

As successive amounts of one resource (labor) are added to fixed amounts of other resources (property), beyond some point the resulting extra output will decline

question

Answer the next question(s) on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. Number Units of of workers output 0 0 1 40 2 90 3 126 4 150 5 165 6 180

answer

Refer to the above data. Diminishing marginal returns become evident with the addition of the third worker Refer to the above data. The marginal product of the sixth worker is 15 units of output Refer to the above data. Average product is at a maximum when two workers are hired

question

Marginal product

answer

may initially increase, then diminish, and ultimately become negative

question

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

answer

marginal product of the third worker is 9

question

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes

answer

the law of diminishing returns

question

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

answer

marginal product could be either increasing or decreasing

question

The law of diminishing returns results in

answer

a total product curve that eventually increases at a decreasing rate.

question

The law of diminishing returns describes the

answer

relationship between resource inputs and product outputs in the short run

question

Which of the following is correct?

answer

Marginal product rises faster than average product and also falls faster than average product.

question

Which of the following is not correct?

answer

Where total product is at a maximum, average product is also at a maximum.

question

The total output of a firm will be at a maximum where

answer

MP is zero

question

Fixed cost is

answer

any cost which does not change when the firm changes its output

question

Which of the following is most likely to be a fixed cost?

answer

property insurance premiums

question

If you owned a small farm, which of the following would be a fixed cost?

answer

hail insurance

question

Which of the following is most likely to be a variable cost?

answer

fuel and power payments

question

If you operated a small bakery, which of the following would be a variable cost in the short run?

answer

baking supplies (flour, salt, etc.)

question

Marginal cost is the

answer

change in total cost that results from producing one more unit of output

question

For most producing firms

answer

average total costs decline as output is carried to a certain level, and then begin to rise

question

Average fixed cost

answer

declines continually as output increases

question

Which of the following is correct as it relates to cost curves?

answer

Marginal cost intersects average total cost at the latter's minimum point

question

Marginal cost

answer

equals both average variable cost and average total cost at their respective minimums

question

When average fixed costs are falling

answer

average variable cost may be either rising or falling

question

Which of the following statements is correct?

answer

Marginal cost is the price or cost of an extra variable input (for example, an additional worker) divided by its marginal product.

question

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are

answer

$5,000

question

If average total cost is declining, then

answer

marginal cost must be less than average total cost

question

The relationship between the marginal cost and the average total cost schedule is such that

answer

if MC is declining, ATC must also be declining.

question

Other things equal, if the prices of a firm's variable inputs were to fall

answer

marginal cost, average variable cost, and average total cost would all fall

question

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

answer

Average fixed costs and average total costs would rise

question

If a firm decides to produce no output in the short run, its costs will be

answer

its fixed costs.

question

Answer the next question(s) on the basis of the following cost data: Total Output cost 0 $24 1 33 2 41 3 48 4 54 5 61 6 69

answer

Refer to the above data. The total variable cost of producing 5 units is: $37 Refer to the above data. The average total cost of producing 3 units of output is: $16 Refer to the above data. The average fixed cost of producing 3 units of output is: $8 Refer to the above data. The marginal cost of producing the sixth unit of output is: $8 Refer to the above data. The profit-maximizing output for this firm: cannot be determined from the information given.

question

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

answer

the changes in TC and TVC are equal

question

Average fixed cost is:

answer

TFC over Q

question

Average total cost is:

answer

TFC + TVC over Q

question

Marginal cost is:

answer

change in TFC over change in Q

question

Total cost is:

answer

TFC + TVC

question

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

answer

MC curve will shift downward.

question

In the short run which of the following statements is correct?

answer

Total cost will exceed variable cost

question

Total fixed cost (TFC):

answer

does not change as total output increases or decreases.

question

Fixed costs are associated with:

answer

the short run only.

question

Which of the following holds true?

answer

When AP is rising AVC is falling, and when AP is falling AVC is rising

question

In the short run it is impossible for an expansion of output to increase:

answer

B) average fixed cost.

question

Average fixed costs can be determined graphically by:

answer

the vertical distance between ATC and AVC.

question

The vertical distance between the total cost and the total variable cost curves differs by an amount which:

answer

is constant as output changes.

question

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

answer

AFC, which decreases as output increases.

question

If a profitable firm's fixed costs somehow were zero:

answer

AVC and ATC would coincide

question

In the short run:

answer

TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate

question

Total cost minus total variable cost equals:

answer

total fixed cost

question

As output increases, total variable cost:

answer

increases at a decreasing rate and then at an increasing rate

question

In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs:

answer

are $1250

question

Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased:

answer

total cost at first increases at a decreasing rate and then increases at an increasing rate

question

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30

answer

firm's total cost is $270.

question

The relationship between marginal cost and average fixed cost is such that:

answer

MC may either rise or fall as AFC declines.

question

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

answer

both are equal to MC.

question

Which of the following is correct?

answer

When AP is rising, AVC is falling.

question

Average Average fixed variable Output cost cost 1 $50.00 $100.00 2 25.00 80.00 3 16.67 66.67 4 12.50 65.00 5 10.00 68.00 6 8.37 73.33 7 7.14 80.00 8 6.25 87.50

answer

Refer to the above data. Total fixed cost is $50.00. Refer to the above data. The average total cost of five units of output is: $78 Refer to the above data. The total cost of four units of output is: $310 Refer to the above data. If the firm closed down and produced zero units of output, its total cost would be: $50 Refer to the above data. The marginal cost of the fifth unit of output is: $80 Refer to the above data. The marginal cost curve would intersect the average variable cost curve at about: 4 units of output Refer to the above data. If the firm decided to increase its output from 6 to 7 units, its total costs would rise by: $120.00

question

A fixed cost is:

answer

any cost which a firm would incur even if output was zero.

question

Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the:

answer

AVC, ATC, and MC curves all to rise.

question

If a technological advance increases a firm's labor productivity, we would expect its:

answer

average total cost curve to fall

question

As a firm produces successive units of output in the short run we would expect:

answer

TVC to increase initially by declining amounts, but eventually increase by increasing amounts

question

Assume a firm closes down in the short run and produces no output. Under these conditions:

answer

TFC and TC are positive, but TVC is zero.

question

If marginal cost is:

answer

rising, then average total cost could be either falling or rising

question

Which of the following is incorrect?

answer

Total fixed cost equals total variable cost in the long run.

question

If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then:

answer

the average variable cost of 9 units is $10.

question

A firm's total variable cost will depend on:

answer

all of the above

question

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

answer

of increasing and diminishing returns

question

The Sunshine Corporation finds that its costs are $40 when it produces no output. Its total variable costs (TVC) change with output as shown in the accompanying table. Use this information to answer the following question(s). Output TVC 1 30 2 50 3 65 4 85 5 110

answer

Refer to the above information. The total cost of producing 3 units of output is: $105. Refer to the above information. The average total cost of 3 units of output is: $35 Refer to the above information. The average fixed cost of 3 units of output is: $13.33 Refer to the above information. The marginal cost of the third unit of output is: $15 Refer to the above information. This firm: may be either realizing a profit or a loss.

question

When diseconomies of scale occur:

answer

the long-run average total cost curve rises

question

Which of the following is not a source of economies of scale?

answer

inelastic resource supply curves.

question

When a firm does more of something, it gets better at it. This learning-by-doing is:

answer

a source of economies of scale.

question

Use the following data to answer the next question(s). The letters A, B, and C designate three successively larger plant sizes. Output ATC-A ATC-B ATC-C 10 6 13 44 20 5 9 35 30 4 6 27 40 5 4 20 50 7 3 14 60 10 4 11 70 14 5 8 80 19 7 6 90 25 10 5 100 32 16 7

answer

Refer to the above data. In the long run the firm should use plant size "A" for: 10 to 30 units of output. Refer to the above data. In the long run the firm should use plant size "C" for: all units of output greater than 80. Refer to the above data. Economies of scale are realized over the ___ to ___ levels of output; diseconomies of scale exist over the ___ to ___ levels of output. 10, 50; 60, 100 Refer to the above data. At what level of output is minimum efficient scale realized? 50

question

Economies of scale are indicated by:

answer

the declining segment of the long-run average total cost curve.

question

Diseconomies of scale:

answer

pertain to the long run.

question

The long-run average total cost curve:

answer

is based on the assumption that all resources are variable.

question

If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that:

answer

economies of scale are being realized

question

The minimum efficient scale of a firm:

answer

is the smallest level of output at which long-run average total cost is minimized.

question

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that:

answer

both relatively small and relatively large firms can be viable in the industry

question

A natural monopoly exists when:

answer

unit costs are minimized by having one firm produce an industry's entire output.

question

Diseconomies of scale arise primarily because:

answer

of the difficulties involved in managing and coordinating a large business enterprise.

question

The long-run average total cost curve:

answer

indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size

question

If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then:

answer

it is encountering economies of scale

question

If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then:

answer

it is encountering constant returns to scale

question

The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by only 8 percent. This means that initially it was producing:

answer

in the range of diseconomies of scale

question

Diseconomies of scale means that:

answer

a firm's long-run average total cost curve is rising

question

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that:

answer

a 10 percent increase in all inputs will increase output by more than 10 percent

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