Deck 8: Costs of Production

Question 1

Fixed costs stay the same even as the output level of the firm changes.

Answer 1

True

Question 2

Diminishing returns set in when a firm increases its labor and capital at the same time.

Answer 2

False

Question 3

The total variable cost curve increases at a decreasing rate when there are early gains from specialization.

Answer 3

True

Question 4

Total costs never decrease as output increases.

Question 5

A positively sloped long-run average total cost curve means there are economies of scale.

Question 6

There are significant differences in the general character of cost structures among various types of firms such as fishing, farming, and automobile manufacturing.

Question 7

A study of actual business people showed that most believe their ATC curve is declining until production capacity is reached.

Question 8

The social and economic environment plays a secondary role when compared to the importance of land, labor, capital, and entrepreneurship.

Question 9

Fixed cost will decrease with increases in output.

Question 10

The total cost of production is measured by the sum of fixed and variable costs.

Question 11

A decrease in labor productivity will increase marginal cost.

Question 12

Average total cost is found by subtracting AFC from AVC.

Question 13

Economies of scale is a short-run phenomenon.

Question 14

In the short run, a firm cannot change its level of output.

Question 15

By downsizing, a firm attempts to operate on a smaller scale of operation.

Question 16

All firms and all industries face identical long-run average cost curves.

Question 17

If changing the quantity produced from 10,000 to 10,001 causes total costs to increase by $15, the marginal cost at 10,000 must be $15.

Question 18

In the short run, if the average total cost of producing 4,000 shoes is $10 and the average total cost of producing 7,000 shoes is $9, then the most efficient point of production occurs at a quantity at least as great as 7,000.

Question 19

If the marginal cost and average total cost of production are the same at 5,000 units, then there is no other output that has a lower average total cost.

Question 20

The difference between the average variable cost and the average fixed cost is the average total cost.

Question 21

The difference between the average total cost and the average fixed cost is the average variable cost.

Question 22

As production increases, average fixed cost begins to fall and then begins to rise again.

Question 23

If the average total cost and marginal cost are equal at a value of $30 and a quantity of 20,000, then the total cost increases with the production of one more unit.

Question 24

The decision to expand the size of your factory is a long-run decision.

Question 25

If you are currently producing at a level where average fixed cost and average variable cost are the same, your average total cost has been minimized.

Question 26

The firm's fixed cost refers to costs that

A) do not change as the price of a good changes
B) do not change as the firm's output changes
C) can never be changed
D) can only be changed in the short run
E) do not change when the scale of the operation changes

Question 27

An example of a firm's fixed cost would be the

A) monthly rent it pays based on a multiple-year lease
B) cost of employing labor
C) quantity of inventory it accumulates
D) raw materials used in production
E) cost of shipping the goods it produces

Question 28

The firm's variable cost include costs that

A) change as the price of the good changes
B) change as the firm's output changes
C) can never be changed
D) can only be changed in the long run
E) change with economies of scale and remain unchanged with diseconomies of scale

Question 29

An example of a variable cost to the firm is the

A) monthly rent it pays based on a multiple-year lease
B) cost of shipping the goods it produces
C) property taxes it pays
D) interest payments on a bank loan
E) entrepreneur's opportunity cost

Question 30

When the firm produces zero output, its fixed cost is

A) zero
B) the same as its total cost
C) the same as its variable cost
D) the same as its marginal cost
E) infinite

Question 31

When the firm produces zero output, its variable cost is

A) zero
B) the same as total cost
C) the same as fixed costs
D) the same as price
E) infinite

Question 32

-Exhibit H-1 shows the change in the quantity of pizzas produced as the firm adds more workers to production. The marginal product of the second worker is

A) 4
B) 10
C) 14
D) 6
E) 15

Question 33

-Exhibit H-1 shows the change in the quantity of pizzas produced as the firm adds more workers to production. The marginal product of the fifth worker is

A) 4
B) 18
C) 19
D) 3
E) 1

Question 34

-Exhibit H-1 shows the change in the quantity of pizzas produced as the firm adds more workers to production. The total production of pizzas when four workers are employed is

A) 4
B) 15
C) 18
D) 3
E) 1

Question 35

-Exhibit H-1 shows the change in the short-run production of pizzas as more workers are hired. The table shows the marginal product of the labor input is decreasing with the hiring of the third worker. A possible reason for this diminishing marginal product is

A) decreases in wages
B) increases in plant size
C) decreases in fixed cost
D) increases in division of labor as additional workers are hired
E) decreases in labor productivity

Question 36

-In Exhibit H-3 the total variable cost of 200 units of output is

A) $550
B) $600
C) $650
D) $700
E) $750

Question 37

-In Exhibit H-3 the total variable cost of 400 units of output is

A) $900
B) $1,100
C) $1,400
D) $1,700
E) $2,000

Question 38

-In Exhibit H-3 the average fixed cost of 200 units of output is

A) $8
B) $7
C) $6
D) $5
E) $4

Question 39

-In Exhibit H-3 the total cost of 500 units of output is

A) $2,600
B) $3,000
C) $3,200
D) $3,800
E) $4,200

Question 40

-In Exhibit H-3 the total cost of 600 units of output is

A) $2,800
B) $3,200
C) $3,800
D) $4,600
E) $5,000

Question 41

-In Exhibit H-3 the average variable cost of 300 units of output is

A) $3.50
B) $2.80
C) $2.50
D) $2.00
E) $1.80

Question 42

-In Exhibit H-3 the average total cost of 400 units of output is

A) $6.20
B) $6.10
C) $6.00
D) $5.90
E) $6.30

Question 43

-In Exhibit H-3 the average total cost of 600 units of output is

A) $6.60
B) $6.80
C) $7.00
D) $7.30
E) $7.70

Question 44

-In Exhibit H-3 the marginal cost of the five hundredth unit of output is

A) $6
B) $7
C) $8
D) $9
E) $11

Question 45

-In Exhibit H-3 the

A) total fixed cost curve is positively sloped
B) average fixed cost reaches a minimum at 400 units
C) total variable cost curve is U-shaped
D) average total cost equals marginal cost at 300 units
E) marginal cost equals average variable cost between 300 and 400 units

Question 46

When graphed, total fixed cost will

A) slope upward to the right at a constant positive slope
B) first decrease and then increase
C) first increase and then decrease
D) slope down forever
E) be a horizontal line

Question 47

When graphed, total variable cost must

A) first slope down and then slope up
B) always have a positive slope
C) always have a negative slope
D) first slope up and then slope down
E) be a horizontal line

Question 48

The total cost of production equals

A) average total cost + average variable cost
B) average total cost + average fixed cost
C) average variable cost + average fixed cost
D) total fixed cost + total variable cost
E) marginal cost + total variable cost

Question 49

When graphed, the total cost of production will

A) intercept the vertical axis at the level of fixed cost
B) first slope down, then slope up
C) slope down forever
D) first slope up, then slope down
E) be a horizontal line

Question 50

The average total cost of production is measured by

A) average variable cost + average fixed cost
B) fixed cost + variable cost
C) average variable cost - average fixed cost
D) marginal cost + variable cost
E) fixed cost + marginal cost

Question 51

If a firm is producing 10 pizzas, and the price of a pizza = $3.50, the AFC = $.80, and AVC = $3.00, then the firm is

A) earning a profit of $.80 per pizza
B) earning a total profit of $8.00
C) losing $.30 per pizza
D) losing a total of $6.00
E) earning a profit of $.50 per pizza

Question 52

-In Exhibit H-4, the total cost of producing zero pizzas is

A) zero
B) $100
C) $5
D) $105
E) $95

Question 53

-In Exhibit H-4, the marginal cost of the fourth pizza is

A) $10
B) $15
C) $17
D) $23
E) $40

Question 54

-In Exhibit H-4, the variable cost of producing 4 pizzas is

A) $100
B) $40
C) $60
D) $85
E) $185

Question 55

Average fixed cost is measured by

A) AVC + ATC
B) TFC/TC
C) AVC - ATC
D) TFC/Q
E) TC - VC

Question 56

Average variable cost is measured by

A) AFC + ATC
B) TC - TFC
C) AVC - ATC
D) TVC/TC
E) TVC/Q

Question 57

-By filling in the blanks in Exhibit H-5 (on the following page), the AFC of 4 pizzas is shown to be equal to

A) $10.00
B) $9.50
C) $19.50
D) $40.00
E) $78.00

Question 58

If a firm's output equals 10, product price equals $5.00, TFC = $8.00, and TVC = $60.00,then AFC would equal

A) $.80
B) $1.00
C) $80.00
D) $2.00
E) $8.00

Question 59

If a firm's output equals 10, product price equals $5.00, TFC = $8.00, and TVC = $60.00,then AVC would equal

A) $.80
B) $1.00
C) $6.00
D) $60.00
E) $8.00

Question 60

If a firm's output equals 10, product price equals $5.00, TFC = $8.00, and TVC = $60.00,then ATC would equal

A) $.80
B) $1.00
C) $6.00
D) $6.80
E) $8.00

Question 61

If a firm's output equals 10, product price equals $5.00, TFC = $8.00, and TVC = $60.00,then the firm's profit would equal

A) $.80
B) $1.80
C) $80.00
D) -$16.80
E) -$18.00

Question 62

Economies of scale implies that increases in the scale of operation are associated with

A) decreasing total cost
B) decreasing fixed cost
C) decreasing average total cost
D) increasing average total cost
E) decreasing average variable cost

Question 63

Economies of scale

A) require a change in the size of operations and therefore is a long-run consideration
B) require a more intensive use of existing plant and therefore is a short-run consideration
C) means that a doubling of plant size will double output
D) require a change in the size of plant and therefore is a short-run consideration
E) require a more intensive use of existing plant and therefore is a long-run consideration

Question 64

If a firm can double output by doubling the size of its operation, it is subject to

A) economies of scale
B) diseconomies of scale
C) constant returns to scale
D) increasing returns to scale
E) diminishing returns to scale

Question 65

Starting a fishing business

A) is safe because the price of fish is stable
B) requires little prior knowledge
C) involves no significant entry costs
D) is a risky way to make a living
E) does not involve opportunity costs

Question 66

A local bagel company plans to keep and maintain its bagel factory, which is estimated to last 25 years. All cost decisions it makes during the 25-year period

A) are short-run decisions
B) are long-run decisions
C) involve only maintenance of the factory
D) are zero, since the cost decisions were made at the beginning
E) involve both fixed and variable cost

Question 67

Fixed cost is sometimes called

A) total cost
B) sunk cost
C) variable cost
D) marginal cost
E) average total cost

Question 68

Which of the following is an example of a variable cost for a bakery?

A) monthly mortgage payment for the building
B) monthly loan payment for ovens
C) fire insurance payments
D) flour and other ingredients for baking
E) property taxes

Question 69

Changes in labor productivity, changes in the quality of labor, and changes in the price of labor are three factors that explain why labor costs eventually

A) increase at a decreasing rate
B) increase at an increasing rate
C) decrease at an increasing rate
D) decrease at a decreasing rate
E) become constant

Question 70

Labor productivity measures

A) input per machine per hour
B) input per laborer per hour
C) output per machine per hour
D) output per laborer per hour
E) output per unit of land per hour

Question 71

-In Exhibit H-7, if the price of labor is $9, then the additional labor cost per unit ofadditional output for the fourth worker is

A) $0.33
B) $2.80
C) $3.00
D) $5.00
E) $28.00

Question 72

Which of the following is considered to be a variable cost of operating an automobile?

A) insurance
B) taxes
C) car loan payment
D) tires
E) license and registration fees

Question 73

Labor costs usually increase at an increasing rate at high levels of output for all of the following reasons except

A) labor productivity begins to decline
B) the marginal gains from specialization decrease
C) the price of labor rises as more workers are hired
D) the workers hired later may not be as qualified
E) fuel costs begin to increase as more output is produced

Question 74

Pete's Package Delivery Service currently makes deliveries only within the state, but now decides to expand the scale of its operation by serving the neighboring state as well. It islikely to find

A) total variable costs decline as diminishing returns set in
B) total fixed costs decline as more trucks cover a wider area
C) total variable costs rise as more fuel and drivers are needed
D) the price of hiring a worker falls as more workers are hired
E) profits rise as total costs remain constant

Question 75

Usually, the shape of a firm's total variable cost curve primarily reflects the cost of

A) labor
B) taxes
C) energy
D) depreciation
E) raw materials

Question 76

Patty runs a small organic peanut butter company with five employees and local sales of $100,000 per year. She estimates that the shape of her total variable cost curve largely reflects her costs of

A) peanuts
B) electricity
C) packaging
D) labor
E) marketing

Question 77

Which of the following is true concerning cost curves?

A) TC + TFC = TVC
B) AFC + AVC = ATC
C) MC + AVC = TVC
D) TC - MC = TFC
E) ATC + MC = TC

Question 78

-In Exhibit H-8, the total fixed cost is

A) $0
B) $1,000
C) $3,000
D) $5,000
E) $6,000

Question 79

-In Exhibit H-8, the total variable cost of producing 3,000 units of output is

A) $0
B) $1,000
C) $3,000
D) $4,000
E) $5,000

Question 80

-In Exhibit H-8, the total cost of producing 6,000 units of output is

A) $1,000
B) $3,000
C) $5,000
D) $6,000
E) $8,000