Deck 6: A Firms Production Decisions and Costs in the Short Run

Question 1

What do economists consider the true cost of doing business?

A)Explicit costs.
B)Explicit costs less implicit costs.
C)Implicit costs.
D)Explicit costs plus implicit costs.
E)Explicit costs plus economic profits.

Answer 1

Explicit costs plus implicit costs.

Question 2

Below are some financial data for the Do Drop In convenience store.
The owners have put $40,000 into the business and they worked a total of 80 hours during the week.Savings accounts are currently paying 5.2% interest and the going wage rate is $8 per hour.
Refer to the information above to answer this question.What is the week's economic profit for the Do Drop In?

A)-$320.
B)-$40.
C)$280.
D)$320.
E)$1,050.

Answer 2

-$320.

Question 3

Below are some financial data for the Do Drop In convenience store.
The owners have put $40,000 into the business and they worked a total of 80 hours during the week.Savings accounts are currently paying 5.2% interest and the going wage rate is $8 per hour.
Refer to the information above to answer this question.What are the week's total implicit costs for the Do Drop In?

A)$40.
B)$680.
C)$6,300.
D)$6,900.
E)$7,580.

Answer 3

$680.

Question 4

What is the term for the costs that come from the use of the owner's own resources and therefore are not actually paid out in money?

A)Sunk costs.
B)Explicit costs.
C)Implicit costs.
D)Depreciation.

Question 5

Which of the following statements is true concerning sunk costs?

A)They are the total costs of any asset that has been purchased in the past.
B)They are the total costs of any asset,less depreciation,that has been purchased in the past.
C)It is another term for depreciation.
D)They have zero opportunity costs.

Question 6

What is depreciation?

A)Costs that are actually paid out in money.
B)A type of explicit cost.
C)Revenue over and above all costs,including normal profits.
D)The annual cost of any asset that is expected to be in use for more than a year.

Question 7

What are costs that are actually paid out in money?

A)Implicit costs.
B)Explicit costs.
C)Sunk costs.
D)Short-run costs.

Question 8

Which of the following is not a type of business organization that firms can form?

A)Sole proprietor.
B)Unlimited partnership.
C)Non-profit organization.
D)Crown corporation.

Question 9

Below are some financial data for the Do Drop In convenience store.
The owners have put $40,000 into the business and they worked a total of 80 hours during the week.Savings accounts are currently paying 5.2% interest and the going wage rate is $8 per hour.
Refer to the information above to answer this question.What are the week's total explicit costs for the Do Drop In?

A)$3,160.
B)$4,440.
C)$6,300.
D)$6,900.
E)$7,580.

Question 10

Below are some financial data for the Do Drop In convenience store.
The owners have put $40,000 into the business and they worked a total of 80 hours during the week.Savings accounts are currently paying 5.2% interest and the going wage rate is $8 per hour.
Refer to the information above to answer this question.According to an accountant,what is the week's profit for the Do Drop In?

A)-$230.
B)$230.
C)$360.
D)$450.
E)$960.

Question 11

What is an explicit cost?

A)A cost that is actually paid out in money.
B)A cost that is not actually paid out in money.
C)A historical cost of buying equipment for production that has no current resale value.
D)The annual cost of any asset that is expected to be in use for more than a year.

Question 12

Below are some financial data for the Do Drop In convenience store.
The owners have put $40,000 into the business and they worked a total of 80 hours during the week.Savings accounts are currently paying 5.2% interest and the going wage rate is $8 per hour.
What are sunk costs?

A)Costs that are implicit and are not actually paid out in money.
B)The historical costs of buying machinery and equipment which have no current resale value.
C)The annual cost of wear and tear on machinery and equipment.
D)Costs that are actually paid out in money.

Question 13

What are implicit costs?

A)Costs that are actually paid out in money.
B)The annual cost of wear and tear on assets.
C)The costs of buying machinery and equipment.
D)Costs that are not actually paid out in money.
E)Costs that reflect diminishing returns.

Question 14

What is the term for the surplus that is earned over and above all explicit and implicit costs of doing business?

A)Net profits.
B)Marginal profits.
C)Economic profits.
D)Normal profits.

Question 15

Which of the following statements is true concerning economic profits?

A)They are always positive.
B)They are equal to profits as measured by an accountant.
C)They are always zero.
D)They are revenue over and above all costs including implicit costs.

Question 16

Below are some financial data for the Do Drop In convenience store.
The owners have put $40,000 into the business and they worked a total of 80 hours during the week.Savings accounts are currently paying 5.2% interest and the going wage rate is $8 per hour.
What is the term for the historical costs of buying plant,machinery and equipment that have no current resale value?

A)Sunk cost.
B)Depreciation.
C)Short run cost.
D)Long run cost.
E)Implicit cost.

Question 17

What is the term for the annual cost of wear of any asset that is expected to be in use for more than a year?

A)Diminishing returns.
B)Marginal cost.
C)Depreciation.
D)Sunk cost.
E)Explicit cost.

Question 18

What are normal profits?

A)The minimum profit that must be earned to keep the entrepreneur in that type of business.
B)The explicit cost of doing business.
C)Profits made by the typical firm in an industry.
D)Total revenue over and above all costs.

Question 19

Which of the following statements is correct regarding normal profits?

A)They are calculated by subtracting explicit costs from total revenue.
B)Earning normal profits is considered a necessary part of doing business.
C)They would always be smaller than economic profits.
D)They are what is left over after economic profits are covered.

Question 20

What is the term for the period of time in which at least one input in the production process is fixed?

A)Fixed run.
B)Variable run.
C)Long run.
D)Short run.

Question 21

What is the term for dividing up the production process into specialized tasks?

A)Units of labour.
B)Separation of labour.
C)Division of labour.
D)Distinction of labour.

Question 22

Below are some production data for Quite Simple Products Ltd.

Refer to the information above to answer this question.How many units of labour are being used when the firm's marginal cost is at a minimum?

A)1.
B)2.
C)3.
D)5.
E)8.

Question 23

Below are some production data for Quite Simple Products Ltd.

Refer to the information above to answer this question.What is the marginal product of the fifth unit of labour?

A)5.
B)20.
C)30.
D)38.
E)190.

Question 24

What is meant by the term short run?

A)A production period in which at least one input is variable.
B)A production period in which at least one input is fixed.
C)Any period shorter than one year.
D)The time it takes for a capital asset to wear out.

Question 25

What will happen to total product after the point of diminishing returns has been reached?

A)It will continue to rise until marginal product becomes zero.
B)It will continue to rise until marginal product begins to decline.
C)It will begin to fall.
D)It will start to rise for the first time.

Question 26

Below are some production data for Quite Simple Products Ltd.

Refer to the information above to answer this question.What is the average product of the sixth unit of labour?

A)6.
B)20.
C)31.
D)35.
E)210.

Question 27

If marginal product is declining,which of the following statements is correct?

A)Average product must be falling.
B)Average product could be rising or falling.
C)Marginal cost must be falling.
D)Average variable cost must be rising.
E)Average variable cost must be falling.

Question 28

What term refers to the total output divided by the quantity of inputs used to produce that total?

A)Average product.
B)Short run profits.
C)Law of diminishing returns.
D)Marginal product.

Question 29

Which of the following statements is true about the advantages gained through the division of labour?

A)It causes the marginal product of labour to increase,but it has no effect on the average product of labour.
B)It was first thought of by David Ricardo in his example of a hat factory.
C)It is an idea that has little application in the real world.
D)Its application results in both the marginal and average product of labour increasing.

Question 30

Below are some production data for Quite Simple Products Ltd.

Refer to the previous question to answer this question.How many units of labour are being used when diminishing returns first become evident?

A)1.
B)2.
C)3.
D)4.
E)Cannot be determined.

Question 31

What is the term for the increase in total product resulting from the addition of one more unit of input?

A)Total product.
B)Marginal product.
C)Normal product.
D)Average product.
E)Variable product.

Question 32

What is the law of diminishing returns?

A)As more of a fixed input is added to a variable input in the production process the resulting increase in output will,at some point,accelerate.
B)As more of a variable input is added to a fixed input in the production process the resulting increase in output will,at some point,accelerate.
C)As more of a variable input is added to a fixed input in the production process the resulting increase in output will,at some point,diminish.
D)As more of a variable input is added to a fixed input in the production process the resulting increase in output will,at some point,become negative.

Question 33

Below are some production data for Quite Simple Products Ltd.

Refer to the information above to answer this question.How many units of labour are being used when the firm is at its most productive point?

A)1.
B)2.
C)4.
D)5.
E)7.

Question 34

What term is used to describe the result of adding more and more units of a variable resource to a production process where there is at least one fixed variable and the resulting increase in output begins to decrease?

A)Depreciation.
B)The law of increasing productivity.
C)The law of marginal productivity.
D)The law of diminishing returns.

Question 35

Below are some production data for Quite Simple Products Ltd.

Refer to the information above to answer this question.What is the value of average product when marginal product is zero?

A)0.
B)7.
C)30.9.
D)27.
E)Cannot be determined.

Question 36

Which of the following statements is true about the marginal product of labour?

A)It is total output divided by the quantity of labour inputs used.
B)It is the increase in total output resulting from the use of one more unit of labour.
C)It is the increase in total output divided by the quantity of labour inputs used.
D)It is total output multiplied by the quantity of labour inputs used.

Question 37

What do economists mean by the term "the most productive output"?

A)The output where total product is at a maximum.
B)The output where average product is at a maximum.
C)The output where marginal product is at a maximum.
D)The output where marginal cost is at a minimum.
E)The output where average cost is at a minimum.

Question 38

What is significant about the level of output at which marginal product begins to decline?

A)It is the point of maximum average product.
B)It is the point of minimum average cost.
C)It is the point at which the division of labour begins.
D)It is the point at which diminishing returns begins.

Question 39

Which of the following statements about the marginal product of labour is correct?

A)It may either rise or fall as more labour is used.
B)It always rises as more labour is used.
C)It always falls as more labour is used.
D)There is no relationship between marginal product and labour.

Question 40

What is the significance of the maximum point on the total product curve?

A)It is the point where the increase in output begins to slow down.
B)It is the point where diminishing returns sets in.
C)It is the point of maximum marginal product.
D)It is the point where marginal product is zero.

Question 41

The data in the table is for a firm in which labour is the only variable cost and each unit of labour costs the same regardless of how many units are bought.

Refer to the information above to answer this question.What is the value of AVC if 3 units of labour are used?

A)$1.50.
B)$5.
C)$6.67.
D)$10.
E)$18.60.

Question 42

The data in the table is for a firm in which labour is the only variable cost and each unit of labour costs the same regardless of how many units are bought.

Refer to the information above to answer this question.What is the value of MC if 5 units of labour are used?

A)$1.50.
B)$2.
C)$4.
D)$5.
E)$20.

Question 43

Refer to the graph above to answer this question.What is true at maximum total output?

A)It is the most productive output.
B)It is where diminishing returns begin.
C)It is where marginal product is at a maximum.
D)It is where marginal product is zero.

Question 44

What is total variable cost?

A)Those costs that do not vary with the level of output.
B)The total of all costs that vary with the level of output.
C)The sum of both total fixed cost and marginal cost.
D)The increase in total variable cost as a result of producing one more unit of output.

Question 45

What is the term for the total of all costs that vary with the level of output?

A)Average variable cost.
B)Marginal cost.
C)Variable cost.
D)Total variable cost.
E)Total cost.

Question 46

The data in the table is for a firm in which labour is the only variable cost and each unit of labour costs the same regardless of how many units are bought.

Refer to the information above to answer this question.What are the missing numbers for AP in the fourth column?

A)20,25,20,17.5 and -5.
B)20,15,20,17.5 and -5.
C)10,15,20,16.9 and 13.
D)10,25,25,16.9 and 0.
E)10,20,20,17.5 and -5.

Question 47

What is the sum of the marginal cost of all of the units produced?

A)Total cost.
B)Average cost.
C)Total variable cost.
D)Total variable cost less total fixed cost.
E)Total variable cost plus fixed cost.

Question 48

The graph below illustrates the average and marginal product of labour for Get Smart Enterprises.

Refer to the graph above to answer this question.How many units of labour does the firm need to employ to achieve an output that minimizes average variable cost?

A)1.
B)3.
C)6.
D)9.
E)12.

Question 49

The data in the table is for a firm in which labour is the only variable cost and each unit of labour costs the same regardless of how many units are bought.

Refer to the information above to answer this question.What are the missing numbers for MP in the third column?

A)12,20,10,5 and 0.
B)12,25,5,0 and -5.
C)28,50,28.6,42.6 and 58.6.
D)12,50,28.6,43.6 and 58.6.
E)28,25,10,5,and 0.

Question 50

What is the term for the increase in total variable costs which results from the production of one more unit of output?

A)Marginal cost.
B)Total variable cost.
C)Average variable cost.
D)Total cost.

Question 51

The data in the table is for a firm in which labour is the only variable cost and each unit of labour costs the same regardless of how many units are bought.

Refer to the information above to answer this question.What are the missing numbers for TP in the second column?

A)12,28,75,140 and 150.
B)12,28,70,130 and 150.
C)12,60,90,180 and 130.
D)8,75,100,130 and 135.
E)8,60,100,135 and 150.

Question 52

The data in the table is for a firm in which labour is the only variable cost and each unit of labour costs the same regardless of how many units are bought.

Refer to the information above to answer this question.What is the value of TVC if 7 units of labour are used?

A)$70.
B)$100.
C)$130.2.
D)$700.
E)$910.

Question 53

Refer to the graph above to answer this question.What is the most productive output?

A)1.
B)6.
C)8.
D)11.

Question 54

The graph below illustrates the average and marginal product of labour for Get Smart Enterprises.

Refer to the graph above to answer this question.How many units of labour does the firm need to employ to achieve maximum output?

A)1.
B)3.
C)6.
D)9.
E)12.

Question 55

What is average variable cost?

A)Total fixed cost divided by total output.
B)Total variable cost divided by total marginal costs.
C)Total output divided by total variable cost.
D)Total variable cost divided by total output.

Question 56

The graph below illustrates the average and marginal product of labour for Get Smart Enterprises.

Refer to the graph above to answer this question.How many units of labour does the firm need to employ to achieve an output that minimizes marginal cost?

A)1.
B)3.
C)6.
D)9.
E)12.

Question 57

The data in the table is for a firm in which labour is the only variable cost and each unit of labour costs the same regardless of how many units are bought.

Refer to the information above to answer this question.As one reads down the TVC column,what is the pattern in the numbers?

A)They fall until the fifth unit of labour used and then rise.
B)They rise until the fifth unit of labour used and then fall.
C)They continuously rise.
D)They continuously fall.
E)There is no clear pattern.

Question 58

Refer to the graph above to answer this question.At what output does diminishing returns begin?

A)1.
B)6.
C)8.
D)11.

Question 59

The graph below illustrates the average and marginal product of labour for Get Smart Enterprises.

Refer to the graph above to answer this question.How many units of labour does the firm need to employ to achieve economic capacity?

A)3.
B)6.
C)9.
D)12.
E)Cannot be determined.

Question 60

The data in the table is for a firm in which labour is the only variable cost and each unit of labour costs the same regardless of how many units are bought.

Refer to the information above to answer this question.As one reads down the MC column,what is the pattern in the numbers?

A)They fall until the fourth unit of labour used and then rise.
B)They fall until the fifth unit of labour used and then rise.
C)They rise until the fourth unit of labour used and then fall.
D)They rise until the fifth unit of labour used and then fall.
E)They continually rise.

Question 61

What causes marginal cost to increase?

A)The advantages of the division of labour.
B)The fact that ATC increases.
C)Raising marginal product.
D)The law of diminishing returns.

Question 62

"Fill in the blank" in the table below and then answering the question below.

Refer to the information above to answer this question.What is the value of total fixed cost?

A)$2.
B)$6.
C)$10.
D)$20.
E)$70.

Question 63

Why is the AVC curve saucer-shaped?

A)Because the MC curve is both below and above the AVC curve.
B)Because the ATC curve is both below and above the AVC curve.
C)Because the AFC curve is horizontal.
D)Because the TVC curve is also saucer-shaped.

Question 64

Refer to the information above to answer this question.What is average fixed cost when output is 50?

A)Zero.
B)$3.
C)$20.
D)$150.
E)Cannot be determined.

Question 65

"Fill in the blank" in the table below and then answering the question below.

Refer to the information above to answer this question.What is total variable cost when output is 3?

A)Zero.
B)$3.
C)$18.
D)$29.
E)$39.

Question 66

Refer to the information above to answer this question.What is the value of marginal cost at economic capacity?

A)$5.
B)$6.
C)$8.
D)$12.
E)$80.

Question 67

Refer to the information above to answer this question.What is the total variable cost of producing 50 units of output?

A)$150.
B)$260.
C)$410.
D)Cannot be determined.

Question 68

Refer to the information above to answer this question.What is the value of marginal cost when MP is maximized?

A)$4.
B)$5.
C)$50.
D)$80.
E)$120.

Question 69

Refer to the information above to answer this question.What is the value of average variable cost at the most productive output?

A)$6.
B)$5.
C)$8.
D)$8.17.
E)Cannot be determined.

Question 70

Refer to the information above to answer this question.What is marginal cost when output is 50?

A)$4.
B)$5.
C)$6.
D)$60.

Question 71

Refer to the graph above to answer this question.Which of the following statements is correct?

A)Curve 1 illustrates marginal product while curve 3 illustrates average variable cost.
B)Curve 1 illustrates average variable cost while curve 3 illustrates marginal product.
C)Curve 1 illustrates average product while curve 3 illustrates average variable cost.
D)Curve 2 illustrates marginal product while curve 3 illustrates average variable cost.
E)Diminishing returns are best illustrated by curves 2 and 3.

Question 72

Refer to the information above to answer this question.What is average variable cost when output is 50?

A)$5.
B)$5.20.
C)$6.
D)$8.20.

Question 73

Refer to the graph above to answer this question.Which of the following statements is correct?

A)Curve 1 illustrates marginal product while curve 3 illustrates average variable cost.
B)Curve 1 illustrates average variable cost while curve 3 illustrates marginal product.
C)Curve 1 illustrates average product while curve 3 illustrates average variable cost.
D)Curve 2 illustrates marginal product while curve 3 illustrates average variable cost.
E)The most productive output is best illustrated by curves 1 and 4.

Question 74

Refer to the graph above to answer this question.Which of the following statements is correct?

A)Curve 1 illustrates average product while curve 3 illustrates average variable cost.
B)Curve 1 illustrates average variable cost while curve 3 illustrates marginal product.
C)Curve 1 illustrates average product while curve 4 illustrates average variable cost.
D)Curve 2 illustrates marginal product while curve 3 illustrates average variable cost.
E)Curves 1 and 2 are cost curves while curves 3 and 4 are product curves.

Question 75

"Fill in the blank" in the table below and then answering the question below.

Refer to the information above to answer this question.What is average total cost when output is 2?

A)$8.
B)$11.
C)$12.
D)$14.
E)$28.

Question 76

Refer to the information above to answer this question.What is the most productive level of output?

A)30.
B)40.
C)50.
D)60.
E)Cannot be determined.

Question 77

Refer to the graph above to answer this question.Which of the following statements is correct?

A)Curve 1 illustrates marginal product while curve 3 illustrates average cost.
B)Curve 1 illustrates average cost while curve 3 illustrates marginal product.
C)Curve 2 illustrates marginal cost while curve 3 illustrates marginal product.
D)Curve 2 illustrates marginal product while curve 3 illustrates marginal cost.
E)Curves 1 and 2 are cost curves while curves 3 and 4 are product curves.

Question 78

Refer to the graph above to answer this question.Which of the following statements is correct?

A)Marginal product and marginal cost reach their minimum levels at the same output.
B)Average product and average cost reach their maximum levels at the same output.
C)AVC cuts MC at the latter's minimum point.
D)AP is at a maximum when ATC is at a minimum.
E)AP is at a maximum when AVC is at a minimum.

Question 79

Refer to the information above to answer this question.What is the value of average total cost at the point of diminishing returns?

A)$5.
B)$8.17.
C)$8.71.
D)$10.
E)Cannot be determined.

Question 80

The data in the table is for a firm in which labour is the only variable cost and each unit of labour costs the same regardless of how many units are bought.

Refer to the information above to answer this question.As one reads down the AVC column,what is the pattern in the numbers?

A)They continuously rise.
B)They continuously fall.
C)They fall until the fifth unit of labour used and then remain unchanged.
D)They rise until the fifth unit of labour used and then remain unchanged.
E)They fall until the fifth unit of labour used and then rise with the seventh unit of labour used.