Deck 3: The Costs of Production

Question 1

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-TFC for 2 units of output is equal to:

A) 8
B) 10
C) 26
D) 36

Answer 1

10

Question 2

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-TVC for 2 units of output is equal to:

A) 21
B) 10
C) 18
D) 30

Answer 2

18

Question 3

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-TC for 2 units of output is equal to::

A) 28
B) 24
C) 26
D) 25

Answer 3

28

Question 4

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-ATC for 1 unit of output is equal to::

A) 17.5
B) 18
C) 20
D) 15

Question 5

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-MC for 1 unit of output is equal to::

A) 10
B) 12.5
C) 11
D) 9

Question 6

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-TFC for 4 units of output is equal to:

A) 7.5
B) 10
C) 20
D) 30

Question 7

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-TVC for 4 units of output is equal to:

A) 7.5
B) 10
C) 32
D) 30

Question 8

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-TC for 4 units of output is equal to:

A) 7.5
B) 10
C) 42
D) 40

Question 9

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-ATC for 4 units of output is equal to:

A) 7.5
B) 10
C) 10.5
D) 40

Question 10

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-AVC for 4 units of output is equal to:

A) 7.5
B) 10
C) 20
D) 8

Question 11

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-What are the units for TC?

A) lbs
B) $
C) lb/$
D) $/lb

Question 12

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-What are the units for TFC?

A) lbs
B) $
C) lb/$
D) $/lb

Question 13

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-What are the units for ATC?

A) lbs
B) $
C) lb/$
D) $/lb

Question 14

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-What are the units for AVC?

A) lbs
B) $
C) lb/$
D) $/lb

Question 15

Below is a chart of costs for an agribusiness firm that produces beef (lbs).
$\begin{array}{llcccccc} \underline{\mathrm{Y}} & \underline{\text { TFC }} & \underline{\text { TVC }}& \underline{\text { TC }} & \underline{\text { ATC }} & \underline{\text { AVC }} & \underline{\text { MC }} \\0 &10&0&10&--&--&--\\1 & 10 & 10 & 20 &\underline {\quad} & 10&\underline {\quad}\\2 & \underline {\quad} & \underline {\quad} & \underline {\quad} & 14& 9 &8 \\3 & 10 & 24 & 34 & 11.3 & 8 & 6 \\4 & \underline {\quad} &\underline {\quad} & \underline {\quad} & \underline {\quad} &\underline {\quad} & 8\end{array}$

-What are the units for MC?

A) lbs
B) $
C) lb/$
D) $/lb

Question 16

What are the units for Y?

A) lbs
B) $
C) lb/$
D) $/lb

Question 17

Profit is:

A) the difference between marginal cost and price
B) the difference between total variable costs and total revenues
C) The difference between total revenues and total costs
D) the difference between total fixed cost and price

Question 18

Marginal cost is equal to:

A) the added cost of producing an additional unit of input
B) the price of a unit of output
C) the change in total cost divided by the change in output
D) total cost divided by the output level

Question 19

An industry is:

A) perfectly competitive
B) a firm
C) manufacturing, rather than agriculture
D) a group of firms that all produce and sell the same product

Question 20

An example of a homogeneous product is:

A) wheat
B) toothpaste
C) branded cattle
D) Big Macs

Question 21

For an increasing cost firm:

A) MC = AC
B) MC > AC
C) marginal cost chases average cost
D) MC < AC

Question 22

In a competitive industry such as agriculture:

A) firms can freely enter, but not exit.
B) firms can freely exit, but not enter.
C) firms can neither freely enter nor exit.
D) firms can freely enter and exit.

Question 23

An example of a decreasing cost firm is:

A) a beef packing plant
B) an oil company
C) a feedlot
D) a lumber company

Question 24

The oil industry is an example of:

A) an increasing cost industry
B) a constant cost industry
C) a decreasing cost industry
D) an industry with huge fixed costs

Question 25

Below is a chart of costs for Starbucks Coffee Roasters, in Seattle Washington. Starbucks purchases coffee beans (crates) and roasts them to produce Y = roasted coffee (kg).
$\mathrm{TFC}=\$ 200$ $\quad$$\quad$ $P_{X}=\$ 500 / \text { CRATE }$

$\begin{array}{ccc}\underline{\mathrm{Y}} &\underline{\mathrm{TVC}} &\underline{\mathrm{TC}} &\underline{\mathrm{ATC}}& \underline{\mathrm{AVC}}& \underline{\mathrm{MC}}\\0 & 0 & -- \\1 & 200 & -- \\2 & 300 & -- \\3 & 340 & -- \\4 & -- & 600 \\5 & 500 & -- \\6 & 1000 & --\end{array}$

-What is the TC of producing 3 kg of coffee?

A) 200
B) 300
C) 500
D) 540

Question 26

Below is a chart of costs for Starbucks Coffee Roasters, in Seattle Washington. Starbucks purchases coffee beans (crates) and roasts them to produce Y = roasted coffee (kg).
$\mathrm{TFC}=\$ 200$ $\quad$$\quad$ $P_{X}=\$ 500 / \text { CRATE }$

$\begin{array}{ccc}\underline{\mathrm{Y}} &\underline{\mathrm{TVC}} &\underline{\mathrm{TC}} &\underline{\mathrm{ATC}}& \underline{\mathrm{AVC}}& \underline{\mathrm{MC}}\\0 & 0 & -- \\1 & 200 & -- \\2 & 300 & -- \\3 & 340 & -- \\4 & -- & 600 \\5 & 500 & -- \\6 & 1000 & --\end{array}$

-What is the MC of producing 5 kg of coffee?

A) 100
B) 120
C) 140
D) 150

Question 27

Below is a chart of costs for Starbucks Coffee Roasters, in Seattle Washington. Starbucks purchases coffee beans (crates) and roasts them to produce Y = roasted coffee (kg).
$\mathrm{TFC}=\$ 200$ $\quad$$\quad$ $P_{X}=\$ 500 / \text { CRATE }$

$\begin{array}{ccc}\underline{\mathrm{Y}} &\underline{\mathrm{TVC}} &\underline{\mathrm{TC}} &\underline{\mathrm{ATC}}& \underline{\mathrm{AVC}}& \underline{\mathrm{MC}}\\0 & 0 & -- \\1 & 200 & -- \\2 & 300 & -- \\3 & 340 & -- \\4 & -- & 600 \\5 & 500 & -- \\6 & 1000 & --\end{array}$

-What is the ATC of producing 5 kg of coffee?

A) 100
B) 120
C) 140
D) 150

Question 28

Below is a chart of costs for Starbucks Coffee Roasters, in Seattle Washington. Starbucks purchases coffee beans (crates) and roasts them to produce Y = roasted coffee (kg).
$\mathrm{TFC}=\$ 200$ $\quad$$\quad$ $P_{X}=\$ 500 / \text { CRATE }$

$\begin{array}{ccc}\underline{\mathrm{Y}} &\underline{\mathrm{TVC}} &\underline{\mathrm{TC}} &\underline{\mathrm{ATC}}& \underline{\mathrm{AVC}}& \underline{\mathrm{MC}}\\0 & 0 & -- \\1 & 200 & -- \\2 & 300 & -- \\3 & 340 & -- \\4 & -- & 600 \\5 & 500 & -- \\6 & 1000 & --\end{array}$

-What are the units for AVC?

A) $
B) $/kg
C) $/crate
D) kg

Question 29

Below is a chart of costs for Starbucks Coffee Roasters, in Seattle Washington. Starbucks purchases coffee beans (crates) and roasts them to produce Y = roasted coffee (kg).
$\mathrm{TFC}=\$ 200$ $\quad$$\quad$ $P_{X}=\$ 500 / \text { CRATE }$

$\begin{array}{ccc}\underline{\mathrm{Y}} &\underline{\mathrm{TVC}} &\underline{\mathrm{TC}} &\underline{\mathrm{ATC}}& \underline{\mathrm{AVC}}& \underline{\mathrm{MC}}\\0 & 0 & -- \\1 & 200 & -- \\2 & 300 & -- \\3 & 340 & -- \\4 & -- & 600 \\5 & 500 & -- \\6 & 1000 & --\end{array}$

-What is the TVC of producing 4 kg of coffee?

A) 200
B) 300
C) 400
D) 500

Question 30

Below is a chart of costs for Starbucks Coffee Roasters, in Seattle Washington. Starbucks purchases coffee beans (crates) and roasts them to produce Y = roasted coffee (kg).
$\mathrm{TFC}=\$ 200$ $\quad$$\quad$ $P_{X}=\$ 500 / \text { CRATE }$

$\begin{array}{ccc}\underline{\mathrm{Y}} &\underline{\mathrm{TVC}} &\underline{\mathrm{TC}} &\underline{\mathrm{ATC}}& \underline{\mathrm{AVC}}& \underline{\mathrm{MC}}\\0 & 0 & -- \\1 & 200 & -- \\2 & 300 & -- \\3 & 340 & -- \\4 & -- & 600 \\5 & 500 & -- \\6 & 1000 & --\end{array}$

-What is the AVC of producing 5 kg of coffee?

A) 100
B) 120
C) 140
D) 150

Question 31

What are the units for TC?

A) kg
B) $
C) crates
D) $/kg

Question 32

What are the units for TFC?

A) kg
B) $
C) crates
D) $/kg

Question 33

What are the units for ATC?

A) kg
B) $
C) crates
D) $/kg

Question 34

What are the units for TVC?

A) kg
B) $
C) crates
D) $/kg

Question 35

What are the units for MC?

A) kg
B) $
C) crates
D) $/kg

Question 36

What are the units for Y?

A) kg
B) $
C) crates
D) $/kg

Question 37

Profits are:

A) the value of production minus the cost of producing the output
B) TR minus TC
C) maximized by producers
D) all of the other answers

Question 38

A fixed input:

A) does not vary with price
B) does not vary with costs
C) does not vary with the level of output
D) remains fixed in both the SR and the LR

Question 39

Constant returns output:

A) reflect scarcity
B) does not vary with output
C) increases at an increasing rate as more input is added to the production process
D) increases at an constant rate as more input is added to the production process

Question 40

Variable inputs:

A) cannot exist in the long run
B) cannot exist in the short run
C) cannot exist in the immediate run
D) are less expensive than fixed inputs

Question 41

The railroad industry is an example of:

A) a decreasing cost industry
B) a constant cost industry
C) an increasing cost industry
D) an industry with huge variable costs

Question 42

Economic profit equals:

A) total revenues minus fixed costs
B) total revenues minus opportunity costs
C) total revenues minus explicit costs
D) total revenues minus both explicit and opportunity costs

Question 43

Which is always true?

A) ATC>AVC
B) MC>AVC
C) MC>ATC
D) ATC>MC

Question 44

Accounting profit equals:

A) total revenues minus explicit costs
B) total revenues minus opportunity costs
C) total revenues minus both explicit and opportunity costs
D) total revenues minus fixed costs

Question 45

The feedlot industry is an example of what type of cost structure?

A) increasing
B) decreasing
C) constant
D) standard

Question 46

To "think like an economist," decisions should include:

A) total fixed costs
B) accounting costs
C) explicit costs
D) opportunity costs

Question 47

MC are defined as:

A) change in TC given a change in output
B) change in ATC given a change in output
C) change in TC given a change in input
D) change in ATC given a change in input

Question 48

ATC are defined as:

A) change in TC given a change in output
B) total per-unit costs
C) costs per unit of fixed inputs
D) costs per unit of variable inputs

Question 49

AVC are defined as:

A) change in TC given a change in output
B) total per-unit costs
C) costs per unit of fixed inputs
D) costs per unit of variable inputs

Question 50

The opportunity cost of attending college is:

A) the salary that will be earned after college in the best opportunity
B) housing and food costs and tuition, books, and fees
C) tuition, books, and fees only
D) how much the student could earn in the next best alternative job

Question 51

Define profits, and explain what each term in the definition refers to.

Question 52

Explain why a firm may desire to not maximize output.

Question 53

Many agricultural producers have a business objective of maximizing yield per acre. Analyze this objective carefully and completely. Use a graph to demonstrate the outcome of this objective.

Question 54

Is it possible for a firm to have zero economic profits and positive accounting profits? Explain why or why not.

Question 55

Explain why the total cost curve is shaped the way that it is.

Question 56

Graph the cost structure for an electricity company.

Question 57

An ethanol plant purchases X = corn (bu) and produces ethanol Y = ethanol (gal).
A. Complete the cost chart to include all costs.
B. Give an example of a fixed cost for the ethanol plant; explain why it is fixed.
C. Give an example of a variable cost for the ethanol plant; explain why it is variable.
D. Define opportunity costs and describe the ethanol plant's opportunity costs.
E. Do costs in the table above include opportunity costs? Explain.

Question 58

Define and explain the term, "opportunity cost."
A. Use the concept to explain birth rates across nations.
B. Use the concept to explain why most (but not all) college students are young, pre- career, pre-children.
C. Use the concept to explain why some people are teachers, even though the salaries are low relative to other professions.
D. Give a good example of how the concept of opportunity cost affects you and your decision making.

Question 59

Define and explain: TC, TFC, TVC, ATC, AVC, and MC.

Question 60

Suppose that the fixed costs for a wheat farm are equal to $10, and variable costs are given in the chart:
A. Explain what the fixed costs are for the wheat farm.
B. Explain what the variable costs are for the wheat farm.
C. Complete a chart that includes: Y, TC, TFC, TVC, ATC, AVC, and MC.
D. Are opportunity costs included in these costs?
E. Complete a graph of Y, TC, TFC, TVC, ATC, AVC, and MC.

Question 61

Write a description of:
A. A constant cost firm
B. A decreasing cost firm
C. An increasing cost firm.
Give an example of each.

Question 62

Describe the relationship between:
A. Physical product curves and cost curves, and
B. Average and marginal costs.