Question 1

An example of debt financing for any form of business organization is
A) buying back bonds.
B) borrowing from a bank.
C) issuing new stock.
D) buying back previously issued stock.
E) using undistributed profits.

Accepted Answer

Borrowing from a bank is an example of debt financing where the business organization borrows a certain amount of money from a creditor in exchange for agreeing to repay the loan amount with interest over a specified period of time. This form of financing is useful for businesses that need immediate access to funds and do not want to dilute their ownership.

Question 2

The law of diminishing returns states that if increasing quantities of a variable factor are applied to a given quantity of fixed factors, then
A) the AP will eventually decrease, but only if TP is held constant.
B) TP will eventually begin to fall.
C) the MP will eventually decrease with constant AP.
D) the MP and the AP of the variable factor will eventually decrease.
E) the AP will eventually decrease with constant MP.

Accepted Answer

The answer of The law of diminishing returns states that...

Question 3

The equation Q = 0.5KL - (0.4)L + 2L2 is an example of
A) a factor of production equation.
B) an arithmetic expression of output quantities.
C) a technological change equation.
D) a production function.
E) an economic input function.

Accepted Answer

The equation Q = 0.5KL - (0.4)L + 2L2 represents a production function, which shows the relationship between inputs (K and L) and output (Q).

Question 4

The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital. Assume that the wage per unit of labour is $10 and the cost of the capital is $50.  TABLE 7-3
-A firm can raise financial capital without incurring debt by issuing new shares and/or
A) issuing bonds.
B) making extra dividend payments.
C) increasing its bank loans.
D) reinvesting profits.
E) investing in new capital equipment.

Accepted Answer

The answer of The following data show the total output...

Question 5

If increasing quantities of a variable factor are applied to a given quantity of fixed factors, then the law of diminishing returns tells us that
A) total product will eventually begin to fall.
B) the marginal product will eventually decrease with constant average product.
C) the marginal product and the average product of the variable factor will eventually decrease.
D) the average product will eventually decrease, but only if total product is held constant.
E) the average product will eventually decrease with constant marginal product.

Accepted Answer

The law of diminishing returns states that as more units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decrease. This means that each additional unit of the variable input will add less to the total output than the unit before it. As a result, the average product (total output divided by the quantity of the variable input) will also eventually decrease. Therefore, the correct answer is C.

Question 6

The table below provides the annual revenues and costs for a family-owned firm producing catered meals.  TABLE 7-1
-Refer to Table 7-1. The accounting profits for this family-owned firm are
A) $0
B) $10 000
C) $30 000
D) $500 000
E) -$15 000

Accepted Answer

Accounting profit is calculated as total revenue minus total explicit costs. In this case, the total revenue is $210,000 ($180,000 + $30,000) and the total explicit costs are $200,000 ($160,000 + $20,000 + $20,000). Therefore, the accounting profit is $10,000 ($210,000 - $200,000).

Question 7

If Michelle used $1000 from her savings account, which was paying 6 percent interest annually, to invest in her brother's new sporting-goods store, the opportunity cost of her investment on an annual basis would be
A) her share of the store's profits.
B) $60.
C) $1060.
D) $1000.
E) the dividend paid to her by her brother.

Accepted Answer

The opportunity cost of an investment is the return that could have been earned on an alternative investment of equal risk. In this case, Michelle could have earned 6 percent interest annually on her savings account if she did not invest in her brother's store. Therefore, the opportunity cost of her investment is the interest she would have earned on her savings account, which is $60 ($1000 x 0.06).

Question 8

The period of time over which all factors of production and technology are variable is known as the
A) very-short run.
B) short run.
C) long run.
D) very-long run.

Accepted Answer

The answer of The period of time over which all...

Question 9

Which of the following statements about the relationship between marginal product and average product is correct?
A) When average product exceeds marginal product, marginal product must be rising.
B) When marginal product is falling, average product is falling.
C) When marginal product exceeds average product, average product must be rising.
D) Average product equals marginal product when marginal product is at its maximum.
E) Average product equals marginal product at marginal product's lowest point.

Accepted Answer

The answer of Which of the following statements about the...

Question 10

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.  TABLE 7-4
-Refer to Table 7-4. The total cost of producing 175 units of output is
A) $75.
B) $100.
C) $150.
D) $175.
E) $350.

Accepted Answer

The answer of The following data show the total output...

Question 11

Suppose a firm is producing 500 units of output, incurring a total cost of $700 000 and total fixed cost of $100 000. It can be concluded that average variable cost is
A) $1200.
B) $1600.
C) $600.
D) $1400.
E) $200.

Accepted Answer

The answer of Suppose a firm is producing 500 units...

Question 12

Suppose a production function for a firm takes the following algebraic form: Q = 2KL - (0.2)L2, where Q is the output of sweaters per day. Now suppose the firm is operating with 8 units ofcapital (K=8) and 10 units of labour (L=10). What is the output of sweaters?
A) 30 sweaters per day
B) 60 sweaters per day
C) 80 sweaters per day
D) 140 sweaters per day
E) 155 sweaters per day

Accepted Answer

Q = 2KL - (0.2)L² Q = 2(8)(10) - (0.2)(10)(1)(1^2)(8^2)(1) Q = 160 - (0.2)(640) Q = 160 - 128 Q = 32 units Therefore, the output of sweaters is 32 sweaters per day. None of the given choices match the calculated output of 32, so we must use process of elimination to determine the closest option. Option D is the closest, with a value of 140 sweaters per day.

Question 13

In the short run, the firm's product curves show
A) TP is at its maximum when MP = O.
B) AP is at its minimum when MP = AP.
C) when MP > AP, AP is decreasing.
D) TP begins to decrease when AP begins to decrease.
E) when the MP curve cuts the AP curve from below, the AP curve begins to fall.

Accepted Answer

The answer of In the short run, the firm's product...

Question 14

We can predict that resources will move into an industry whenever
A) economic profits for firms in that industry are greater than zero.
B) accounting profits for firms in that industry are greater than zero.
C) economic profits for firms in that industry are zero.
D) accounting profits for firms in that industry are zero.
E) economic losses for firms in that industry are minimized.

Accepted Answer

Economic profits take into account both explicit and implicit costs, while accounting profits only take into account explicit costs. Therefore, if economic profits for firms in an industry are greater than zero, it indicates that there is a net positive return even after taking into account all costs (explicit and implicit). This creates an incentive for resources to move into that industry as it is more profitable compared to other industries with zero or negative economic profits.

Question 15

The theory of the firm is based on the following two key assumptions:
A) Each firm has a highly diversified product, and this leads to profit maximization.
B) Firms seek to maximize profit, and to distribute the maximum value in dividends.
C) Firms seek to maximize revenues, and to maximize undistributed profits.
D) Firms seek to maximize profits, and the firm is a single, consistent decision-making unit.
E) Firms seek to become as large as possible, and they seek to maximize total revenue.

Accepted Answer

The theory of the firm is based on the assumption that firms seek to maximize profits, and that the firm is a single, consistent decision-making unit. This means that the firm will make decisions that are in the best interest of maximizing profits, and that all aspects of the firm will work towards this goal. This assumption is fundamental to many economic models, as it allows for predictions to be made about how firms will behave in different situations.

Quiz 7: Producers in the Short Run

An example of debt financing for any form of business organization is

The law of diminishing returns states that if increasing quantities of a variable factor are applied to a given quantity of fixed factors, then

The equation Q = 0.5KL - (0.4) L + 2L2 is an example of

If increasing quantities of a variable factor are applied to a given quantity of fixed factors, then the law of diminishing returns tells us that

The table below provides the annual revenues and costs for a family-owned firm producing catered meals. TABLE 7-1 -Refer to Table 7-1. The accounting profits for this family-owned firm are

If Michelle used $1000 from her savings account, which was paying 6 percent interest annually, to invest in her brother's new sporting-goods store, the opportunity cost of her investment on an annual basis would be

The period of time over which all factors of production and technology are variable is known as the

Which of the following statements about the relationship between marginal product and average product is correct?

Suppose a firm is producing 500 units of output, incurring a total cost of $700 000 and total fixed cost of $100 000. It can be concluded that average variable cost is

Suppose a production function for a firm takes the following algebraic form: Q = 2KL - (0.2) L2, where Q is the output of sweaters per day. Now suppose the firm is operating with 8 units ofcapital (K=8) and 10 units of labour (L=10) . What is the output of sweaters?

In the short run, the firm's product curves show

We can predict that resources will move into an industry whenever

The theory of the firm is based on the following two key assumptions: