Deck 6: Production and Costs

Question 1

The total fixed cost curve is an upward-sloping curve that starts from the origin.

Answer 1

False

Question 2

Marginal cost refers to the change in total cost for a one-unit change in output and also to the change in total variable cost for a one-unit change in output

Answer 2

True

Question 3

Total cost equals total variable cost plus marginal cost.​

Answer 3

False

Question 4

In the long run, firms can vary all inputs in the production process.

Question 5

Diseconomies of scale are most likely at very low levels of output.

Question 6

An increase in the price of raw materials will shift both the MC and the ATC curves upward.

Question 7

An economic profit of zero indicates a satisfactory situation for a firm.

Question 8

As output increases, variable costs decrease​

Question 9

In the short run, all costs are variable.​

Question 10

The long-run average total cost curve is less U-shaped than the short-run average total cost curve

Question 11

In the long run, the firm gets to choose which short-run curve it wants to use

Question 12

Economic profit always exceeds accounting profit.

Question 13

One would expect to observe a diminishing marginal product of labor when the office space is overcrowded

Question 14

The average fixed cost curve approaches the horizontal axis but never touches it

Question 15

Sunk costs are important for current business decisions.​

Question 16

Scarlett recently began running her husband's lumber mill. Last month, the mill made a revenue of $5,000 and paid $3,400 in out-of-pocket costs. The lumber mill made an economic profit of $1,600 last month.

Question 17

The total cost curve lies above the total variable cost curve.

Question 18

When marginal cost is below average total cost, average total cost must be increasing

Question 19

Diseconomies of scale occur when firms cannot handle the complexities of large-scale management.​

Question 20

If a firm experiences economies of scale, the average total cost of production increases as output expands.

Question 21

The long-run average total cost curve owes its U-shaped structure to the economies and diseconomies of scale.

Question 22

Rachel bought a sandwich maker. The shopkeeper assured her that it was a very good and useful product. After using the sandwich maker for two months, Rachel found that using it was time consuming and that it also consumed a lot of electricity. So, she stopped using it. Therefore, Rachel has incurred a(n) _____ in buying the sandwich maker

A)private cost
B)external cost
C)external cost.
D)implicit cost
E)explicit cost

Question 23

Lintell Inc. earned a total revenue of $9.3 million and incurred an explicit cost of $3.6 million for the financial year 2013-14. The owner of the company could earn an annual salary of $0.5 million if he joined another firm. Lintell Inc.'s accounting profit for 2013-14 was:

A)$5.2 million.
B)$5.7 million.
C)$8.8 million.
D)$5.5 million.
E)$8.4 million

Question 24

Which of the following observations is true?

A)Sunk costs are irrelevant for any future action.
B)Sunk costs should not be ignored when making decisions.
C)Sunk costs should be included when weighing the marginal costs of production against the marginal benefits received.
D)Sunk costs can be recovered using corrective measures.
E)Sunk costs are the same as social marginal costs.

Question 25

Which of the following is not an explicit cost to the owner of a local pizza parlor?

A)The cost of flour for making pizzas
B)The cost of cleaning products required to clean the parlor
C)The cost of using his garage as the parlor
D)The cost of ovens required to make pizzas
E)The cost of hiring a chef

Question 26

When economic profits in an industry are zero and implicit costs are positive, _____.

A)accounting profits will be greater than zero
B)the firm will be running at a loss
C)accounting profits will be negative
D)the firm's revenue will not be enough to compensate for its losses, and it will to go out of business
E)accounting profits will be equal to economic profits

Question 27

Economic profits are calculated after taking into account:​

A)explicit costs but not implicit costs.
B)implicit costs but not explicit costs.
C)both implicit and explicit costs.
D)only sunk costs.
E)only external costs.

Question 28

An explicit cost is:

A)an opportunity cost for which payment is not required.
B)an out-of-pocket expense
C)always larger than an associated implicit cost.
D)not included by an accountant.
E)generally invisible.

Question 29

An example of an implicit cost of production is:

A)the cost of leather used in manufacturing furniture.
B)the cost of space in someone's home that is used as his or her home office
C)the wage paid to a high school student who works in a fast-food restaurant
D)the cost of milk bought by household consumers
E)the wage of a high school teacher who provides tuitions to his students after school hours.

Question 30

David was taken to a concert by his friend who promised it would be very good. David paid for his own ticket. However, David did not like the concert and left before it ended. Therefore, David incurred a(n) _____ in buying the ticket

A)private cost
B)explicit cost
C)explicit cost.
D)implicit cost
E)sunk cost

Question 31

An implicit cost is:

A)an opportunity cost to a firm.
B)an out-of-pocket expense for a firm.
C)always included by an accountant while calculating profits
D)a cost that does not affect future business decisions.
E)always larger than explicit costs.

Question 32

Lintell Inc. earned a total revenue of $9.3 million and incurred an explicit cost of $3.6 million for the financial year 2013-14. The owner of the company could earn an annual salary of $0.5 million if he joined another firm. Lintell Inc.'s economic profit for 2013-14 was:

A)$5.2 million.
B)$5.7 million.
C)$8.8 million.
D)$5.5 million
E)$5.3 million.

Question 33

When long-run average total cost does not change as output varies, firms experience constant returns to scale.

Question 34

When a firm makes zero economic profit, it means that:​

A)When a firm makes zero economic profit, it means that:
B)the firm is covering the total opportunity costs of its resources.
C)the firm is covering its entire explicit costs but not its explicit costs.
D)the firm is not covering its opportunity costs and therefore is running at a loss.
E)the firm's social marginal benefit is greater than its social marginal cost.

Question 35

private costs are included in economic profit but not in accounting profit.

A)sunk costs are included in economic profit but not in accounting profit.
B)sunk costs are included in economic profit but not in accounting profit
C)external costs are included in economic profit but not in accounting profit.
D)cash payments are included in economic profit but not in accounting profit.
E)implicit costs are included in economic profit but not in accounting profit

Question 36

Lintell Inc. earned a total revenue of $10 million for the financial year 2013-14. The company incurred a total cost of $6.9 million. Lintell Inc. earned a profit of:​

A)$3.1 million
B)$3.9 million.
C)$4.5 million.
D)$6 million.
E)$5.3 million.

Question 37

he minimum efficient scale is the level of output at which the long-run average total costs are maximized.

Question 38

An example of an implicit cost of production is:​

A)the cost of raw materials used to produce bread in a bakery.
B)the cost of labor in a factory that assembles DVD players.
C)the income an entrepreneur could have earned working for someone else.
D)the salary of a manager working in a multinational agency.
E)the hourly wage of a chef hired by a popular food chain.

Question 39

Brad worked as a contractor for a year, earned revenues of $120,000, and incurred an explicit cost of $70,000. If he could have earned $80,000 working for a computer company, his economic profit as a contractor would be_____.

A)−$30,000
B)−$50,000
C)$30,000
D)$40,000
E)−$10,000

Question 40

Brad worked as a contractor for a year, earned revenues of $120,000, and incurred an explicit cost of $70,000. If he could have earned $80,000 working for a computer company, his accounting profit as a contractor would be _____.

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

Question 41

A difference between the long run and the short run is that:

A)a firm is unable to vary some of its factors of production in the short run, while all the factors of production are variable in the long run.
B)a firm is able to expand output by utilizing additional workers, raw materials, and physical capital in the short run, while it is impossible to hire additional workers or add raw materials to expand output in the long run.
C)the short run is generally a period of one year, while the long run is a fixed period of 5 years for all firms across industries.
D)the short run is of sufficient length to allow a firm to transform economic losses into economic profits, while the long run is too short to turn economic losses into economic profits.
E)sunk costs are incurred in the short run, while they are not incurred in the long run.

Question 42

The table below shows the number of oranges picked by different pickers. Based on the table, the total output of labor diminishes with the addition of the _____ picker.Table 6-2 ​

A)fifth
B)seventh
C)eighth
D)ninth​
E)fourth

Question 43

The change in total cost resulting from a one-unit increase in production is called:

A)total fixed cost
B)average variable cost.
C)marginal cost.
D)external cost.
E)social cost.

Question 44

The table below shows the number of T-shirts manufactured by different units of labor. Based on the table, diminishing marginal product is first evident with the addition of the _____ workerTable 6-1​

A)cz
B)6^th
C)7^th
D)8^th​
E)4^th

Question 45

The table below shows how a factory's output varies with the number of workers employed each week. Based on the table, marginal product begins to diminish when the _____ worker is employed.Table 6-3

A)first
B)second
C)third
D)third.
E)sixth

Question 46

Fixed costs are costs:

A)that do not vary with the level of output.
B)that are incurred only in the long run
C)that include only implicit costs.
D)that include only implicit costs
E)that can be avoided in the short run without going out of business.

Question 47

The short run is:

A)a period in which firms are able to vary all inputs.
B)a period in which firms are unable to change their scale of production.
C)a period in which inputs can be varied only in equal proportions.
D)a period that is the same for all firms across all industries
E)a period that only has variable costs.

Question 48

The figure below shows how the quantity of bicycles produced per week varies with the number of workers employed per week. Based on the figure, marginal product diminishes when the _____ is hiredFigure 6-1

A)first worker
B)second worker
C)third worker
D)fourth worker
E)fifth worker

Question 49

A firm can produce 840 gallons of paint per day with 6 workers or 910 gallons per day with 7 workers. The marginal product of labor over this range of output, stated in gallons per worker per day, is _____ gallons of paint.

A)140
B)135
C)130
D)70
E)80

Question 50

The figure below shows how the quantity of bicycles produced per week varies with the number of workers employed per week. Based on the figure, the marginal product of the fifth worker hired each week is _____.Figure 6-1

A)zero bicycles
B)10 bicycles
C)15 bicycles
D)−15 bicycles
E)-20 bicycles

Question 51

The marginal product of capital:

A)is equal to the increase in capital necessary to generate a one-unit increase in output, holding other factors constant.
B)is equal to the increase in output obtained from a one-unit increase in capital, holding other factors constant
C)is equal to the incremental profit associated with selling one more unit of output.
D)is equal to the incremental cost of employing one more unit of physical or human capital.
E)is equal to the incremental sales associated with the employment of one extra unit of human or physical capital.

Question 52

Which of the following is most likely to be a variable cost?

A)The payment for the raw materials used in manufacturing goods
B)The interest payments on a loan used to finance the construction of a building
C)The lease payment on a warehouse
D)The opportunity cost of the heavy equipment installed in a factory
E)The payment for the installation of new software

Question 53

The table below shows the total number of oranges picked by different pickers. Based on the table, the marginal product of labor diminishes with the addition of the _____ picker.Table 6-2

A)fifth
B)seventh
C)eighth
D)ninth
E)fourth

Question 54

Which of the following would be considered a variable input in the short run?

A)The size of a firm's plant
B)The acreage of an apple farmer's orchard
C)The production capacity of a machine
D)The electricity required for a factory building
E)The amount of money that was invested in building a factory

Question 55

The figure below shows how the quantity of bicycles produced per week varies with the number of workers employed per week. Based on the figure, if the firm's goal is to maximize weekly output, the firm should employ _____.Figure 6-1

A)one worker
B)two workers
C)three workers
D)five workers
E)four workers

Question 56

The table below shows how a factory's output varies with the number of workers employed each week. Based on the table, the marginal product of the fifth worker hired is:Table 6-3

A)112 units of output
B)94 units of output.
C)20 units of output.
D)18 units of output.
E)30 units of output.

Question 57

The figure below shows the change in the quantity of bicycles produced per week due to changes in the number of workers employed per week. Based on the figure, the marginal product of the second worker is _____.Figure 6-1

A)10 bicycles
B)15 bicycles
C)20 bicycles
D)30 bicycles
E)25 bicycles

Question 58

The production function describes:

A)the relationship between the quantity of inputs utilized and the quantity of output produced.
B)how inputs are most profitably used in production.
C)the most cost-effective method of combining various inputs in the production process.
D)the relationship between a firm's sales revenue and its level of production.
E)the relationship between variable inputs and fixed inputs in a production process.

Question 59

Which of the following is a short run adjustment?

A)A bakery hiring two additional bakers
B)Two new firms entering the textile industry
C)Three firms leaving the bicycle industry
D)A computer hardware company building a new factory
E)A printing press installing a new printing machine

Question 60

The long run:

A)is a period long enough for every input except plant size to be varied.
B)is a period in which there are no fixed costs.
C)is typically a period of two years
D)is fixed for all firms across all industries.
E)is a period in which output cannot be varied.

Question 61

The figure below shows the various cost curves. Based on the figure, A represents _____.Figure 6-3

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

Question 62

The figure below shows the various cost curves. Based on the figure, C represents _____.Figure 6-3

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

Question 63

Total variable costs:

A)are the costs of short-run fixed capital equipment
B)are so named because they vary from firm to firm within an industry.
C)are costs that increase as production increases.
D)are costs that decrease as production increases.
E)are costs that are excluded by an economist while computing profits.

Question 64

If average fixed cost and average variable cost are added, the result is:

A)social marginal cost
B)external cost.
C)total cost.
D)average total cost.
E)marginal cost.

Question 65

If Randy's fixed cost totals $800 and the variable cost per unit is $10 for 100 units, his average total cost equals _____.​

A)$8.10
B)$18.00
C)$90.00
D)$91.00
E)$81.00

Question 66

A firm produces 200 units of output at a total cost of $1,000. The firm's total fixed cost equals $200.The firm's per-unit average variable cost is _____.

A)$4
B)$5
C)$7
D)$10
E)$8

Question 67

The figure below shows the cost curves faced by an industry. Based on the figure, B represents _____.Figure 6-3

A)the total fixed cost curve
B)the marginal cost curve
C)the average fixed cost curve
D)the average fixed cost curve.
E)the average variable cost curve

Question 68

The table below shows the amount of output produced and the costs incurred by a firm. Based on the table, the average total cost incurred by the firm for 4 units of output is _____.Table 6-4​

A)$40
B)$15
C)$20
D)$35
E)$30

Question 69

The per-unit cost of total output is known as _____.​

A)average total cost
B)external cost
C)social marginal cost
D)total fixed cost
E)private marginal cost

Question 70

The figure below shows the relationship between the quantity of output produced and the cost per unit. Based on the figure, Y represents _____.Figure 6-2

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

Question 71

The table below shows how total cost varies with output in a factory producing bicycles. Based on the table, the marginal cost of producing the fourth bicycle equals _____.Table 6-6

A)$4.50
B)$4
C)$3
D)$2.50
E)$3.50

Question 72

If average total cost is $40 and average variable cost is $20 at 10 units of output and the marginal cost of the 11th unit is $30, what is the average total cost of 11 units?

A)$23.00
B)$20.09.
C)$30.00
D)$39.09
E)$39.09.

Question 73

The table below shows how total cost varies with output in a factory producing watches. Based on the table, if the total fixed cost is $20, the average variable cost of producing 5 units of output is _____.Table 6-5

A)$15
B)$22.5
C)$16.3
D)$13
E)$16.6

Question 74

The table below shows the amount of output produced and the costs incurred by a firm. Based on the table, the average variable cost incurred by the firm for producing 2 units of output is _____.Table 6-4 ​

A)$30
B)$15
C)$25
D)$45
E)$50

Question 75

A firm produces 1,000 units of output at an average variable cost of production of 50 cents. The firm's total fixed costs equal $700. The total cost of producing 1,000 units of output equals:

A)$700.
B)$500
C)$1,000.
D)$1,200.
E)$800.

Question 76

If the average total cost of producing 20 units of output is $15 and the average total cost of 21 units of output equals $15, then the marginal cost of the 21^st unit is _____.

A)$18
B)$15
C)$20
D)$20.
E)$12​

Question 77

The figure below shows the change in the quantity of output produced along with the change in cost per unit. Based on the figure, D represents _____.Figure 6-3​

A)the total fixed cost curve
B)the marginal cost curve
C)the average fixed cost curv
D)the average total cost curve
E)the average variable cost curve

Question 78

The table below shows how total cost varies with output in a factory producing watches. Based on the table, the marginal cost of producing the third watch equals _____.Table 6-5

A)$65
B)$69
C)$5
D)$4
E)$8

Question 79

The table below shows the amount of output produced and the costs incurred by a firm. Based on the table, the total fixed cost incurred by the firm is _____.Table 6-4

A)$20
B)$30
C)$40
D)$50
E)$10

Question 80

The table below shows how total cost varies with output in a factory producing bicycles. Based on the table, the level of output (in thousands) at which average total cost is minimized is _____.Table 6-6

A)1
B)2
C)3
D)4
E)6