Deck 7: Cost and Industry Structure

Question 1

According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will

A) do so regardless of what type of competition exists in a market.
B) take a long-run perspective on costs, when such costs cannot be adjusted.
C) take a short-run perspective on labor costs which cannot be immediately changed.
D) breakdown its cost structure according to short-run adjustments.

Answer 1

do so regardless of what type of competition exists in a market.

Question 2

In economics, a firm that faces no competitors is referred to as _________________.

A) an oligopoly
B) a monopoly
C) a perfect competitor
D) an oligopolizor

Answer 2

a monopoly

Question 3

In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

A) its' fixed costs
B) the quantity of output
C) its' average costs
D) diminishing marginal costs

Answer 3

the quantity of output

Question 4

___________ include all spending on labor, machinery, tools, and supplies purchased from other firms.

A) Total profits
B) Total revenues
C) Total costs
D) Total profit margins

Question 5

The term _____________ is used to describe the additional cost of producing one more unit.

A) average cost
B) fixed cost
C) variable cost
D) marginal cost

Question 6

In order to reduce the harmful affects of recession and carbon emissions, the government provided tax incentives for manufacturing firm's to ___________________ that provide alternative, more efficient methods of combining inputs to produce output.

A) acquire energy efficient production technologies
B) increase the returns to scale
C) maintain constant returns to scale
D) create perfect competition between firms

Question 7

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

A) Total revenue
B) Total profits
C) Average profit margin
D) Total cost

Question 8

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

A) Diminishing variable returns
B) Diminishing average returns
C) Diminishing marginal returns
D) Diminishing marginal costs

Question 9

In the US economy, nearly half of all the workers employed by private firms work at

A) 18,000 firms with fewer than 100 employees.
B) 18,000 large firms that employ more than 500 workers.
C) 26,000 firms with fewer than 100 employees.
D) 26,000 large firms that employ more than 300 workers.

Question 10

In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.

A) monopoly
B) economies of scale
C) diminishing returns
D) diseconomies of scale

Question 11

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

A) diminishing marginal returns
B) marginal cost output
C) economies of scale
D) diseconomies of scale

Question 12

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

A) Oligopolistic competition
B) Perfect competition
C) Monopolistic competition
D) Monogopolised competition

Question 13

In microeconomics, the term _____________________ is synonymous with economies of scale.

A) diminishing marginal returns
B) increasing returns to scale
C) decreasing returns to scale
D) constant returns to scale

Question 14

______________ include all of the costs of production that increase with the quantity produced.

A) Fixed costs
B) Variable costs
C) Average costs
D) Average variable costs

Question 15

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

A) fixed costs; do not change,
B) variable costs; are constantly changing,
C) fixed costs; are consistently changing,
D) variable costs; do not change,

Question 16

The ______________ of all firms can be broken down into some common underlying patterns.

A) total revenues
B) diminishing short-run costs
C) cost structure
D) diminishing long-run costs

Question 17

The term "constant returns to scale" describes a situation where

A) expanding all inputs does not change the average cost of production.
B) a larger-scale firm can produce at a lower cost than a smaller-scale firm.
C) expanding all inputs changes the average cost of production.
D) the quantity of output rises and the average cost of production falls.

Question 18

If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.

A) decreasing returns to scale
B) consent returns to scale
C) economies of scale
D) increasing returns to scale

Question 19

In order to determine ____________, the firm's total costs must be divided by the quantity of its output.

A) diminishing marginal returns
B) fixed costs
C) variable cost
D) average cost

Question 20

Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?

A) 63%
B) 50%
C) 45%
D) 35%

Question 21

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was

A) $1.50
B) $1.23
C) $2.25
D) $2.43

Question 22

Why would labor be treated as a variable cost?

A) they are costs incurred in the act of producing that will decrease with quantity produced
B) they are made before production starts and vary according to the specific line of business
C) labor costs are an input cost that firms are unable to change in the short run
D) producing larger quantities of a good or service generally requires more workers

Question 23

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

A) physical space for the gallery
B) costs of purchasing art work to sell in the gallery
C) wages paid to three part-time employees
D) accountant's fees for preparing tax returns

Question 24

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

A) downward-sloping; more costly to produce
B) upward-sloping; more costly to produce
C) downward-sloping; less costly to produce
D) upward-sloping; less costly to produce

Question 25

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

A) $3.00
B) $2.00
C) $1.80
D) $1.60

Question 26

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?

A) costs that increase with the quantity produced
B) costs of research and development
C) costs related to labor expenditures
D) costs related to physical inputs

Question 27

The graph above illustrates the total cost function for GoodieCookie Co. The changing slope of the total cost curve reflects this company's

A) decreasing average total costs.
B) decreasing marginal costs.
C) decreasing average variable costs.
D) decreasing fixed costs.

Question 28

The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct?

A) A = 42; E = 40
B) A = 70; E = 40
C) A = 42, E = 12
D) A = 70; E = 12

Question 29

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

A) divide total costs into two categories: variable costs that can't be changed in the short run and fixed costs that can be
B) divide the total costs of production by the quantity of output
C) divide the variable costs of production by the quantity of output
D) divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be

Question 30

Refer to the graph shown above. Based on the information illustrated in the graph, which of the following is correct?

A) marginal cost line must intersect the average cost line at the middle point of the average cost curve
B) marginal cost of production is below the average cost for producing previous units
C) producing one more unit is reducing average costs overall
D) producing a marginal unit is increasing average costs overall

Question 31

The graph above illustrates the total cost function for GoodieCookie Co. How are the company's fixed costs represented in this graph?

A) by adding up the fixed costs
B) at any vertical axis point where the total cost curve never equals zero
C) as the point where the total cost curve touches the vertical axis
D) by adding up the variable costs

Question 32

Mindy's company manufactures rubber balls used by elementary schools for playground activities. The table below sets out her firm's production cost information. Some values are missing. Which of the following statements is correct?

A) A = 20; E = 45
B) A = 25; E = 45
C) A = 25; E = 5
D) A = 20; E = 5

Question 33

Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?

A) costs that must be made before production starts
B) costs that vary according to specific line of business
C) costs incurred in the act of producing
D) costs incurred as advertising expenses

Question 34

Refer to the table below.

If the firm sells 5 units at a price of $30 each, then the marginal unit produced

A) costs more than the average cost.
B) is subtracting from profits.
C) costs the same as the average cost.
D) is adding to profits.

Question 35

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was

A) $1.00
B) $3.00
C) $4.00
D) $7.00

Question 36

Refer to the table below.

If this information were used to create a total cost graph, the curve should

A) begin at 40 on the vertical axis and slope upward.
B) become steeper as quantity increases.
C) become steeper due to diminishing returns.
D) reflect all of the above.

Question 37

Refer to the table below.

If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal?

A) losses equal $5
B) profits equal $5
C) profits equal $25
D) losses equal $25

Question 38

Refer to the table below.

If the firm produces 5 units that it sells for $39.00 each, what will its profits or losses equal?

A) losses equal $40
B) profits equal $70
C) profits equal $40
D) losses equal $70

Question 39

Refer to the diagram above. Based on the information illustrated in the graph, which of the following is correct?

A) producing a marginal unit is reducing average costs overall
B) the marginal cost of production for producing an additional unit is below the cost for producing the earlier units
C) the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve
D) low marginal costs first pull up the overall average costs

Question 40

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

A) variable costs
B) fixed costs
C) opportunity costs
D) total cost

Question 41

When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________.

A) economies of scale; a larger factory can produce at a lower average cost than a smaller company.
B) economies of scale; a smaller factory can produce at a lower average cost than a larger company.
C) low labor inputs; larger scale of production leads to higher costs.
D) labor inputs; economies-of-scale curve is U-shaped.

Question 42

The future of cities in the United States and in other countries will be determined by their ability to benefit from the _________________ and to minimize or counterbalance the ______________________.

A) economies of agglomeration; corresponding diseconomies
B) economies of scale; agglomeration factors
C) diverse population; greater returns to scale of illegal activities
D) constant returns to scale; market-orientated system

Question 43

Briefly describe the spectrum of competitive situations faced by firms in markets.

Question 44

If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals

A) that if the market price exceeds average cost, profits will be positive.
B) that if the market price is below average cost, then profits will be negative.
C) total revenues are the quantity produced multiplied by the price.
D) whether the firm is earning profit if fixed costs are left out of the calculation.

Question 45

Fixed costs are important because, at least in the ___________, the firm _______________.

A) long run; cannot alter them
B) short run; cannot alter them
C) long run; can alter them
D) short run; can alter them

Question 46

Briefly explain how the total revenue for a profit-seeking firm is determined.

Question 47

Which of the following should typically be ignored because spending has already been made and cannot be changed?

A) variable costs
B) sunk costs
C) marginal costs
D) average marginal costs

Question 48

The graph above illustrates the electricity market. Consider market competition between firms where price is based on AR and select the most appropriate answer.

A) this market is perfectly competitive with excess profits possible in the short-run
B) this market is imperfectly competitive with excess profits possible in the short-run
C) this market is imperfectly competitive with excess profits possible in the long-run
D) this market is perfectly competitive with negative profits possible in the long-run

Question 49

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

A) marginal costs
B) average costs
C) total revenue
D) variable costs

Question 50

A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.

A) returns to scale
B) economies of scale
C) constant returns to scale
D) diminishing marginal returns

Question 51

_____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas.

A) Economies of scale
B) Constant returns to scale
C) Agglomeration factors
D) Diseconomies of scale

Question 52

In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.

A) either total cost or average cost
B) increasing marginal returns
C) either total cost or variable cost
D) decreasing marginal returns

Question 53

If I'maJuiceCo. establishes a bottling plant in Delaware, it will most likely

A) use production technologies that require more workers.
B) strive for economies of scale where quantity of output falls as the cost of production falls.
C) strive to reach economies of scale that will result in producing at a higher average cost.
D) use production technologies that conserve on the number of workers.

Question 54

The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation.

A) marginal cost; total costs
B) marginal cost; fixed costs
C) average variable cost; fixed costs
D) average variable cost; total costs

Question 55

The economies-of-scale curve is a long-run average cost curve, because

A) it allows all factors of production to change.
B) fixed costs cannot be changed.
C) only variable costs are allowed to change.
D) only marginal costs are allowed to change

Question 56

The graph above illustrates the electricity market. Consider market competition between firms where price is based on AR and select the most appropriate answer.

A) in the short-run, the demand curve and average revenue shift as other firms enter the market and increase competition
B) in the short-run, the demand curve and average revenue shift as other firms leave the market and decrease competition
C) in the long-run, the demand curve and average revenue shift as other firms enter the market and increase competition
D) in the long-run, the demand curve and average revenue shift as other firms leave the market and decrease competition

Question 57

Economies of scale may arise from all but one of the following. Which one is it?

A) doubling promotional expenses to expand sale more than proportionately
B) having a larger retail space can expand sales more than proportionately
C) spreading the fixed-costs of administration over more customers holds average costs down
D) government economic subsidies protect firms from competition to avoid losses.

Question 58

A situation where the level of output, scale and average costs are all rising is called

A) decreasing returns to scale
B) diseconomies of scale
C) diminishing returns to scale
D) both a and b are correct

Question 59

Briefly describe the short-run perspective of a firm's total costs. Provide a brief explanation of what a production technology refers to and explain how production technology relates to a firm's long-run perspective.

Question 60

____________ tells a firm whether it can earn profits given the price in the market.

A) Marginal cost
B) Total cost
C) Average cost
D) Average marginal cost

Question 61

Briefly explain what is meant by the term "fixed costs" and provide three examples of same. What determines a firm's level of fixed costs?

Question 62

Briefly discuss marginal costs, including an explanation of how they are calculated; any condition that is typical to them, and what makes knowing them useful.

Question 63

Briefly explain what the term "agglomeration economies" refers to and briefly describe what the fundamental reason for the development of this particular type of economy relates to. Provide two examples of factors associated with agglomeration economies and identify what these factors help to explain. Identify two factors that would lead to diseconomies and briefly explain how the future of many of the world's cities will be likely be determined.

Question 64

Contrast the role of fixed costs and variable costs in economic decisions about future production and pricing.

Question 65

Briefly explain what is meant by the term "variable costs" and provide three examples of same.

Question 66

Briefly discuss average costs, including how they are calculated, how they are typically appear on a graph, and what they relate to profitability.

Question 67

Briefly discuss average variable costs, including how they are calculated, how they typically on a graph, and how they are related to determining profitability.