Deck 8: Production Technology and Cost

Question 1

Sarah has a savings account with a $1,000 balance that earns an annual percentage yield of 3%.If she decides to withdraw the entire balance to buy a laptop computer,what will be her opportunity cost of buying the laptop?

A) the cost of the laptop
B) the forgone interest
C) the forgone interest and the cost of the laptop
D) the cost of the laptop minus the forgone interest

Answer 1

the forgone interest

Question 2

Accounting costs include explicit and implicit costs.

Answer 2

False

Question 3

Dan is an entrepreneur who invests in commercial and residential real estate.He has a savings account with $100,000 that earns an annual percentage yield of 1%.Dan wants to buy a house that will give him a monthly cash inflow of $200.What will be the opportunity cost of investing in the house?

A) $1,200
B) $1,000
C) $800
D) $200

Answer 3

$1,000

Question 4

Total economic costs include

A) a normal rate of return.
B) out-of-pocket costs.
C) opportunity costs of all inputs.
D) all of the above

Question 5

Accounting costs include all monetary payments and all the opportunity cost of inputs that do not require an explicit monetary payment.

Question 6

Scenario 8.1: Ana used to work for an advertising agency where she earned a yearly salary of $60,000. She got tired of working for another company and therefore opened her own advertising company. Ana now pays her designer $40,000 per year and spends $25,000 for rent and utilities. She earns $120,000 in annual revenue.
Refer to Scenario 8.1.What is Ana's explicit cost?

A) $65,000
B) $55,000
C) $45,000
D) $35,000

Question 7

Recall the Application about the opportunity cost of an entrepreneur to answer the following question(s).
Recall the Application.All of the following would be included as an opportunity cost of quitting your other job and driving for Uber EXCEPT

A) the salary forgone from your other job.
B) the paid sick leave and vacation days that were benefits from your other job.
C) the subsidized health insurance offered from your other job.
D) the cost of the gasoline you need to purchase for your Uber job.

Question 8

Scenario 8.1: Ana used to work for an advertising agency where she earned a yearly salary of $60,000. She got tired of working for another company and therefore opened her own advertising company. Ana now pays her designer $40,000 per year and spends $25,000 for rent and utilities. She earns $120,000 in annual revenue.
Refer to Scenario 8.1.Ana's opportunity cost of running her own business is

A) $30,000.
B) $60,000.
C) $65,000.
D) $120,000.

Question 9

Table 8.1
Refer to Table 8.1.Suppose Mr.B withdrew $50,000 from his account that earned 10% to invest into this business.He quit his full-time job that paid $40,000 to manage this business.Mr.B's implicit cost equals

A) $100,000.
B) $90,000.
C) $50,000.
D) $45,000.

Question 10

Which of the following situations describes a short-run adjustment of a firm to changing business conditions?

A) A doctor increases the size of his waiting room.
B) A manager calls in two part-time workers to prepare for the holiday rush.
C) A rancher sells some of his land.
D) A manufacturing firm expands its production facility.

Question 11

Scenario 8.1: Ana used to work for an advertising agency where she earned a yearly salary of $60,000. She got tired of working for another company and therefore opened her own advertising company. Ana now pays her designer $40,000 per year and spends $25,000 for rent and utilities. She earns $120,000 in annual revenue.
Refer to Scenario 8.1.Ana's accounting profit is

A) $5,000.
B) $55,000.
C) $65,000.
D) $120,000.

Question 12

Scenario 8.1: Ana used to work for an advertising agency where she earned a yearly salary of $60,000. She got tired of working for another company and therefore opened her own advertising company. Ana now pays her designer $40,000 per year and spends $25,000 for rent and utilities. She earns $120,000 in annual revenue.
Refer to Scenario 8.1.Ana's economic profit is

A) -$5,000.
B) -$15,000.
C) -$55,000.
D) -$120,000.

Question 13

Economic costs are measured by all monetary payments.

Question 14

A firm's objective is to maximize its economic profit,which is calculated as

A) total revenue minus economic cost.
B) total profit minus total cost.
C) economic cost minus profit.
D) economic cost minus total revenue.

Question 15

Table 8.1
Refer to Table 8.1.Suppose Mr.B withdrew $50,000 from his account that earned 10% to invest into this business.He quit his full-time job that paid $40,000 to manage this business.If Mr.B is excited about his $45,000 profit,an economist would

A) celebrate with him.
B) mention the $90,000 he has given up.
C) tell him his economic profit is indeed positive but not as big as $45,000.
D) tell him he made zero economic profit.

Question 16

You are the owner and only employee of a company that repairs computers.Last year,you earned total revenues of $75,000.Your costs for equipment,rent,and supplies were $10,000.To start this business you quit a job at a computer software firm that paid $40,000 a year.Last year,your economic profits were

A) $100,000.
B) $75,000.
C) $50,000.
D) $25,000.

Question 17

Mario has a company that produces plastic freezer bags.His company objective is to maximize

A) his company's revenues.
B) his company's total out-of-pocket costs.
C) his company's opportunity costs of each factor of production.
D) his company's economic profits, the difference between total revenue and total cost.

Question 18

You are the owner and only employee of a company that repairs computers.Last year,you earned total revenues of $75,000.Your costs for equipment,rent,and supplies were $10,000.To start this business you quit a job at a computer software firm that paid $40,000 a year.During the year,your economic costs were

A) $10,000.
B) $40,000.
C) $50,000.
D) $75,000.

Question 19

Table 8.1
Refer to Table 8.1.Suppose Mr.B withdrew $50,000 from his account that earned 10% to invest into this business.He quit his full-time job that paid $40,000 to manage this business.Mr.B's economic profit equals

A) $100,000.
B) $45,000.
C) $0.
D) -$45,000.

Question 20

You own a building that has four possible uses: an Internet cafe,a coffee store,an ice cream store,and a bookstore.The value of the building in each use is $2,000; $3,000; $4,000; and $5,000,respectively.You decide to open an ice cream store.The opportunity cost of using this building for an ice cream store is

A) $2,000, the value if the building is used as an Internet cafe.
B) $3,000, the value if the building is used as a coffee store.
C) $3,333, the average of the values if the building is used for either an Internet cafe, a coffee store, or a bookstore.
D) $5,000, the value if the building is used for a bookstore.

Question 21

Economic costs include only the implicit costs to a firm.

Question 22

Explain the difference between accounting costs and economic costs.

Question 23

Refer to Figure 8.1.The marginal product of the second worker is ________ lawns mowed.

A) 4
B) 5
C) 5.5
D) 11

Question 24

Which of the following is a reason why the marginal product increases as output increases?

A) decreasing repetition
B) increasing continuity
C) Both A and B are correct.
D) Neither A nor B is correct.

Question 25

Your friend Harry has quit his $20,000-a-year job to start a business that rents fishing boats.He asks you to lend him $50,000 and agrees to pay you a 10% return on your $50,000 if he earns a profit.During the first year Harry's total revenue is $120,000 and his total cost for equipment and supplies are $100,000.Harry tells you that he cannot pay you any interest this year because he did not earn a profit.Is your friend Harry trying to cheat you?

Question 26

Refer to Figure 8.2.The marginal product of the fifth worker is

A) 1.
B) 5.
C) 8.
D) 10.

Question 27

Table 8.2
Mitzi's Pet Salon hires you to determine the company's status.The data in Table 8.2 provides information on the company's annual costs and revenues.Mitzi spends at least 40 hours a week at her place of business.If she closed the salon,she could work for her competitor and earn $15,000 per year.She also owns the building that houses the salon and could rent it out for $18,000 per year if she closes her business.Calculate the economic cost and economic profit for Mitzi's Pet Salon.Would an accountant come to the same conclusion about the profitability of this firm? Explain.

Question 28

Refer to Figure 8.2.The marginal product of the third worker is

A) 42.
B) 32.
C) 12.
D) 10.

Question 29

When El Guapo's Mexican Restaurant hires one waiter,5 tables can be served in an hour.When El Guapo's Mexican Restaurant hires two waiters,12 tables can be served in an hour.The marginal product of labor of the second waiter is ________ tables served per hour.

A) 5
B) 7
C) 12
D) 17

Question 30

The period of time when a firm is unable to change all of inputs,or factors of production,is called the

A) economic term.
B) short run.
C) accounting term.
D) long run.

Question 31

Jimmy was working for an accounting firm earning $30,000 per year.He has $100,000 in an investment account earning 10% per year.If he decided to invest the $100,000 in a new business and quit his job to work full-time at this new business,what is his implicit cost of this new business?

Question 32

The opportunity cost of an entrepreneur's time is an explicit cost.

Question 33

At Carolina's Bakery,the marginal products of the first,second,third,and fourth workers are 15,11,8,and 6 cakes produced,respectively.The total product of the first three workers is

A) 8.
B) 15.
C) 34.
D) 42.

Question 34

Refer to Figure 8.2.The marginal product of the sixth worker is

A) -5.
B) 0.
C) 5.
D) 50.

Question 35

Refer to Figure 8.2.Diminishing marginal returns set in after the ________ worker is hired.

A) first
B) second
C) third
D) fifth

Question 36

A firm's accounting cost is always higher than its economic cost.

Question 37

Economic profits are determined by subtracting implicit costs from total revenue.

Question 38

Suppose that at the Pollo Loco Restaurant,5 cooks can make 70 meals.Assuming that there are diminishing returns to labor,it will require ________ to make 70 more meals.

A) an additional 5 cooks
B) more than an additional 5 cooks
C) less than an additional 5 cooks
D) a total of 10 cooks

Question 39

The short run can be defined as any period of time

A) less than one year.
B) in which some inputs are fixed.
C) in which all inputs are variable.
D) in which price is fixed.

Question 40

Refer to Figure 8.1.The lawn mower company's total-product curve shows which of the following?

A) only the effects of labor specialization
B) only the effects of diminishing returns
C) the effects of both labor specialization and diminishing returns
D) none of the above

Question 41

Total variable cost

A) increases as output increases.
B) is constant as output increases.
C) decreases as output increases.
D) is lowest for labor-intensive technologies.

Question 42

Which of the following statements about fixed costs is correct?

A) Fixed costs are not opportunity costs.
B) Fixed costs must be paid even if the firm's output is zero.
C) Fixed costs are always the largest portion of total costs.
D) none of the above

Question 43

If marginal product is negative,then

A) total product will decrease if more of the input is hired.
B) total product is equal to zero.
C) marginal product will increase if more of the input is hired.
D) average product will increase if more of the input is hired.

Question 44

Short-run costs that depend on the level of output are

A) total fixed cost only.
B) total variable costs only.
C) total costs only.
D) both total variable costs and total costs.

Question 45

If the price of a fixed factor of production increases,then

A) total costs are unchanged.
B) marginal costs will increase.
C) variable costs are unchanged.
D) variable costs will increase.

Question 46

Dan owns a factory that manufactures smartphones.He has many expenses every month to keep his factory running.Which of the following is one of Dan's fixed costs?

A) plastic used to make the smartphones
B) his electricity bill for the factory
C) his mortgage on the factory
D) memory devices used to store music and video on the smartphones

Question 47

Refer to Figure 8.3.If two microwave ovens are produced,Micro Oven's total variable costs are

A) $350.
B) $425.
C) $500.
D) indeterminate from this information.

Question 48

Which type of cost always increases immediately when output increases?

A) fixed costs
B) overhead costs
C) total variable costs
D) sunk costs

Question 49

Table 8.3
Refer to Table 8.3.If the firm hires seven workers,then

A) marginal product is negative.
B) marginal product is less than one.
C) total product is negative.
D) marginal product is equal to three.

Question 50

Refer to Figure 8.3.The vertical distance AB represents

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

Question 51

Raphael's Salon has $5,000 in fixed costs and $15,000 in variable costs monthly.Raphael's Salon performs 1,500 haircuts per month.What is the average total cost for Raphael's Salon?

A) $0.075
B) $7.00
C) $8.00
D) $13.33

Question 52

A residential cleaning company has total costs of $45,000 and total variable costs of $25,000.The cleaning company has total fixed costs that equal

A) $20,000.
B) $45,000.
C) $70,000.
D) indeterminate because the firm's output level is not known

Question 53

Table 8.3
Refer to Table 8.3.If four workers are hired,then

A) diminishing marginal returns have started.
B) marginal product equals five.
C) total product is maximized on the table.
D) all of the above

Question 54

Refer to Figure 8.3.Micro Oven's total fixed costs are

A) $0.
B) $200.
C) $500.
D) indeterminate from this information.

Question 55

Table 8.3
Refer to Table 8.3.The firm will experience diminishing marginal returns to labor as long it hires more than

A) 0 units of labor.
B) 1 unit of labor.
C) 2 units of labor.
D) 3 units of labor.

Question 56

A fixed cost can be thought of as

A) a cost that changes as output increases.
B) a cost that must be paid even if output equals zero.
C) a cost that is paid only when output equals zero.
D) total costs ignoring opportunity costs.

Question 57

Which of the following is most likely a variable cost for a firm?

A) the interest payments made on equipment loans
B) an annual payment for insurance on the firm's plant
C) the monthly rent on office space that it leased for 5 years
D) the payments made to match workers' 401K contributions

Question 58

For small quantities of output,average variable cost decreases as output increases due to

A) a reduction in the number of workers.
B) diminishing return.
C) labor specialization increases worker productivity.
D) More information is needed to determine the answer.

Question 59

Marginal cost

A) is the increase in total cost resulting from producing one more unit of output.
B) is the average cost of production divided by output.
C) equals the increase in average variable cost resulting from producing one more unit of output.
D) always equals average cost.

Question 60

A firm's short-run total cost (TC)is equal to

A) fixed cost plus variable cost.
B) variable cost minus total cost.
C) total cost divided by variable cost.
D) fixed cost minus variable cost.

Question 61

Table 8.5
Refer to Table 8.5.If Sherry produces one pair of earrings,her total variable costs are

A) $50.
B) $100.
C) $150.
D) indeterminate from this information.

Question 62

Table 8.4
Refer to Table 8.4.There are diminishing returns to labor for

A) all workers.
B) workers 1 and 2 only.
C) workers 4 through 5 only.
D) worker 1 only.

Question 63

As output increases,average fixed costs

A) decrease.
B) initially decrease and then increase.
C) remain constant.
D) increase.

Question 64

Table 8.4
Refer to Table 8.4.Three workers can produce 90 cakes per day at a total cost of

A) $50.
B) $350.
C) $550.
D) $750.

Question 65

Table 8.4
Refer to Table 8.4.When the fifth worker is employed,the marginal cost is

A) $150.
B) $100.
C) $15.
D) $10.

Question 66

Refer to Figure 8.5.The marginal cost of the third oven is

A) $150.
B) $100.
C) $50.
D) indeterminate from this information.

Question 67

If The Mayo Law Firm's total costs are $7,000 when 20 clients' cases are worked and $7,600 when 21 clients' cases are worked,the marginal cost of the 21st client's case is

A) $300.
B) $400.
C) $500.
D) $600.

Question 68

Refer to Figure 8.4.The marginal cost of the 10th basketball is

A) $1.
B) $2.
C) $28.
D) $30.

Question 69

Table 8.5
Refer to Table 8.5.If Sherry produces zero earrings,her total fixed costs are

A) $0.
B) $50.
C) $100.
D) indeterminate from this information.

Question 70

The law of diminishing returns applies in

A) the short run and the long run.
B) the long run only.
C) the short run only.
D) neither the short run nor the long run.

Question 71

At Fresh Hot Bakery,the average cost of making 20 baguettes is $1.00.The average cost of making 21 baguettes is $1.10.The marginal cost of the 21st baguettes is

A) $0.10.
B) $2.10.
C) $3.00.
D) $3.10.

Question 72

A firm will begin to experience diminishing returns at the point where

A) marginal cost increases.
B) marginal cost decreases.
C) marginal product increases.
D) Both B and C are correct.

Question 73

As output increases,it is always true that

A) average total cost decreases.
B) average variable cost is above marginal cost.
C) average fixed costs decrease.
D) total fixed costs increase.

Question 74

Marginal costs typically

A) increase as output increases.
B) decrease as output increases.
C) first increase then decrease as output increases.
D) first decrease then increase as output increases.

Question 75

Marginal cost is equal to

A) variable cost divided by output.
B) output divided by variable cost.
C) the change in output divided by the change in variable cost.
D) the change in variable cost divided by the change in output.

Question 76

Table 8.4
Refer to Table 8.4.When the second worker is hired,the marginal cost is equal to

A) $2.
B) $3.
C) $6.
D) $50.

Question 77

As output increases,total cost also increases.Therefore,

A) marginal cost is increasing.
B) marginal cost is positive.
C) average fixed costs are increasing.
D) all of the above

Question 78

Tom's Landscaping Service has only one variable input,which is labor.Tom's Landscaping Service's labor costs are $300 a day and Tom's Landscaping Service works on 9 yards per day.To work on 10 yards per day,Tom's Landscaping Service's labor costs increase to $325 a day.The marginal cost of working on the 10th yard is

A) $25.00.
B) $32.50.
C) $45.00.
D) indeterminate from the information given.

Question 79

Refer to Figure 8.6.The total fixed costs for Cyndy's Floral Arrangements are $1,000.If Cyndy's Floral Arrangements produces 200 silk flower arrangements,the average fixed costs are

A) $0.20.
B) $5.
C) $20.
D) $200.

Question 80

Table 8.5
Refer to Table 8.5.If Sherry produces two pair of earrings,her marginal cost is

A) $40.00.
B) $45.00.
C) $72.50.
D) $122.50.