Deck 6: Cost of Production

Question 1

Variable costs are costs that increase as a firm's output increases but are constant as a firm's output decreases.

Answer 1

False

Question 2

Long-run marginal cost is the rate of change of the long-run total cost as the level of output changes.

Answer 2

True

Question 3

Variable costs are costs that increase or decrease as a firm's output increases or decreases.

Answer 3

True

Question 4

Semi-variable costs are costs that increase as a firm's output increases but are constant as a firm's output decreases.

Question 5

The private costs of a firm includes all of the explicit costs of resource use the firm must bear to produce an output.

Question 6

Implicit costs are those costs of production for which specific payment has been made sometime in the past or for which the firm is committed in the future.

Question 7

The social costs of firm are the private costs of the resources that the firm uses plus any additional costs imposed on society by the firm's operations.

Question 8

Long-run total cost is the maximum economic cost of producing each possible level of output when the time period is sufficiently long to change all inputs of the firm's production function.

Question 9

Implicit costs represent the opportunity that a company gives up by using a firm-owned resource in one way rather than another.

Question 10

Explicit costs are those costs of production that a financial accountant attempts to record as data and are gathered for the firm's income statement.

Question 11

The private costs of a firm includes all of the costs of resource use, both explicit and implicit, the firm must bear to produce an output.

Question 12

Historical costs are those costs of production for which explicit payment has been made sometime in the past.

Question 13

Marginal cost must be equal to average cost when average cost is at a maximum.

Question 14

Fixed costs are costs that do not vary with the level of output in the short run.

Question 15

The social costs of firm are any additional costs imposed on society by the firm's operations.

Question 16

When marginal cost is greater than average cost, then average cost must be rising.

Question 17

Incremental cost is the additional cost that a firm will incur if it undertakes one more activity, or if it takes one course of action rather than another.

Question 18

Long-run average cost is equal to long-run total cost divided by the level of output.

Question 19

Long-run total cost is the minimum economic cost of producing each possible level of output when the time period is sufficiently long to change all inputs of the firm's production function.

Question 20

Semi-variable costs are costs that are fixed over some ranges of output and variable over others.

Question 21

Short-run marginal cost is the rate of change of short-run total variable cost as the level of output changes in the short run.

Question 22

If the marginal product of a variable input rises, there will be a corresponding fall in short-run marginal cost.

Question 23

If the average productivity of the variable input increases, there will be a corresponding fall in average variable cost.

Question 24

Short-run average total cost is equal to average fixed cost plus short-run average variable cost for each level of output.

Question 25

Costs of the firm for which explicit payment has been made some time in the past are:

A) opportunity costs
B) implicit costs
C) fixed costs
D) historical costs
E) variable costs

Question 26

Short-run marginal cost is the rate of change of short-run total cost as the level of output changes in the short run.

Question 27

Total fixed cost is the private economic cost of the firm's fixed inputs in the short run.

Question 28

Economies of scale reduce long-run average costs.

Question 29

Short-run total cost includes all of the private economic costs of the firm in the short run.

Question 30

Diseconomies of scale increase long-run average costs.

Question 31

Total fixed cost is the sum of the private economic cost and the social costs of the firm's fixed inputs in the short run.

Question 32

Short-run total cost includes all of the private economic costs and social costs of the firm in the short run.

Question 33

Average fixed cost is equal to total fixed costs divided by the level of output.

Question 34

Short-run average variable cost is the variable cost per unit of output in the short run.

Question 35

Short-run average total cost is equal to short-run total cost divided by the level of output.

Question 36

Short-run average variable cost is equal to short-run total variable cost divided by the level of output.

Question 37

Economies of scale are technological and organizational advantages that accrue to the firm as it increases output in the long run.

Question 38

Diseconomies of scale are technological and organizational disadvantages that the firm encounters as it increases output in the long run.

Question 39

Short-run average total cost is the cost per unit of output in the short run.

Question 40

Short-run total variable cost is the sum of the private economic costs and the social costs of a firm that vary with its level of output in the short run.

Question 41

Average fixed costs:

A) rise when production increases.
B) rise when production decreases.
C) rise when total costs increase.
D) rise when average variable costs increase
E) never rise.

Question 42

Costs that do not vary with the level of output produced by the firm during a time period are:

A) opportunity costs
B) implicit costs
C) fixed costs
D) historical costs
E) explicit costs

Question 43

If we assume that both the marginal cost and average cost curves are U shapes, then at the minimum point on the average variable cost curve, marginal cost must be:

A) at its minimum
B) at its maximum
C) greater than average cost
D) less than average cost
E) equal to average cost

Question 44

Costs that do not involve actual payment by a firm to factors of production but which nevertheless represent costs to the firm in the sense that in order to use certain inputs in the production process the firm has to abandon opportunities to use them elsewhere are:

A) explicit costs
B) opportunity costs
C) fixed costs
D) historical costs
E) variable costs

Question 45

Short-run average variable cost can be defined mathematically as:

A) dSTC/dQ.
B) STC/Q.
C) TVC/Q.
D) dSMC/dQ.
E) AVC/Q

Question 46

Social costs include the following:

A) explicit costs only
B) implicit costs only
C) only those costs that society bears because of the firm's activities.
D) private costs plus those costs that society bears because of the firm's activities.
E) implicit costs plus those costs that society bears because of the firm's activities.

Question 47

Costs that vary with the level of production of the firm are:

A) opportunity costs
B) semi-variable costs
C) fixed costs
D) variable costs
E) implicit costs

Question 48

Short-run average total cost can be defined mathematically as:

A) dSTC/dQ.
B) AFC + AVC.
C) TVC/Q.
D) dSMC/dQ.
E) AVC/Q

Question 49

The _________traces that lowest cost per unit at which a firm can produce any level of output when all inputs are variable.

A) long run marginal cost curve
B) short run marginal cost curve
C) implicit cost curve
D) long run average cost curve
E) short run average cost curve

Question 50

Which of the following would not be considered an opportunity cost?

A) the monthly salary that the owner could expect to earn if he worked for someone else.
B) the wages and salaries of employee who could be working in another division.
C) an expected return on the capital invested in the firm if it were available to be invested elsewhere.
D) estimated rental income that the firm's owners could have earned on manufacturing equipment by leasing it to another business.
E) estimated rental income that the firm's owners could have earned on the building by leasing it to another business.

Question 51

Which of the following statements are false?

A) STC = TFC+TVC
B) AVC = SAC - AFC
C) AFC = TFC/Q
D) arc SMC = $\Delta$ TFC/ $\Delta$ Q
E) SAC = STC/Q

Question 52

Private costs include all of the following EXCEPT:

A) explicit costs
B) implicit costs
C) fixed costs
D) variable costs
E) social costs

Question 53

An economist left her $100,000-a-year teaching position to work full time in her own consulting business. In her first year, she had total revenue of $200,000 and business expenses of $150,000. She made an):

A) implicit profit
B) economic loss
C) economic profit
D) accounting loss, but not an economic loss
E) zero economic profit

Question 54

Short-run marginal cost:

A) is the rate of change of short-run fixed cost as the level of output changes.
B) is the rate of change of short-run total variable cost as the level of output changes.
C) is the rate of change of short-run average cost as the level of output changes.
D) is the rate of change of short-run total cost as the level of output changes.
E) b and d

Question 55

Long-run marginal cost:

A) is the rate of change of long-run fixed cost as the level of output changes.
B) is the rate of change of long-run total cost as the level of output changes.
C) is the rate of change of long-run average cost as the level of output changes.
D) is usually fixed over a given range of production.
E) is always constant.

Question 56

Costs associated with some decisions by the firm that are additional costs that a firm would incur if it took one course of action rather than another are called:

A) incremental costs
B) implicit costs
C) fixed costs
D) historical costs
E) opportunity costs

Question 57

Variable costs might include all of the following EXCEPT:

A) direct labor to produce a firm's product
B) direct materials to produce a firm's product
C) salary of the firm's accountant
D) utilities
E) worker's compensation insurance

Question 58

The long-run average cost function reaches a minimum where:

A) dLAC/dQ = 0.
B) LTC = LAC.
C) dTFC/dQ = 0.
D) dLMC/dQ = 0.
E) dLTC/dQ = 0.

Question 59

Costs that are fixed over some ranges of output and variable over others are called:

A) opportunity costs
B) semi-variable costs
C) fixed costs
D) variable costs
E) implicit costs

Question 60

All of the following are explicit costs of production EXCEPT:

A) wages and salaries paid to company employees.
B) rent paid for manufacturing space.
C) raw materials costs.
D) depreciation on company equipment
E) the market rate of space that could be rented but instead is used in the manufacturing process.

Question 61

Short run data for Doug's Oar Factory
What is the short run average total cost for Doug's Oar Factory?

A) 672, 390, 226, 166, 148, 82
B) 680, 580, 390, 226, 182, 96
C) 740, 390, 276, 226, 198, 182
D) 880, 540, 476, 348, 226, 182
E) 960, 740, 626, 576, 548, 532

Question 62

If the units of a variable input in a production process are 1, 2, 3, 4 and 5, and the corresponding total outputs are: 30, 43, 58, 66 and 72. The arc marginal product of the fourth unit of input is:

A) 4
B) 6
C) 8
D) 10
E) 12

Question 63

As shown in Exhibit A, the arc marginal cost of producing the fifth unit in the short run is:

A) $23
B) $16
C) $24
D) $50
E) $33

Question 64

A shown in Exhibit A, the total cost of producing 5 units in the short run is:

A) $100
B) $227
C) $250
D) $50
E) Zero

Question 65

Given the following table and that the price of input "a" is constant and that "a" is the only variable input, what is the Arc MP_a?

A) 50, 100, 150, 100, 50, 0
B) 100, 150, 200, 150, 100, 50
C) 100, 200, 300, 200, 100, 50
D) 200, 300, 400, 300, 200, 100
E) 200, 250, 300, 250, 200, 150

Question 66

Complete the following table, given that the price of input "a" is constant and that "a" is the only variable input.

Question 67

Short Run Data for Sullivan's Salmon Farm
What is the average fixed cost for Sullivan's Salmon Farm?

A) 336, 168, 112, 84, 67.2, 56
B) 370, 195, 138, 113, 99, 91
C) 340, 270, 260, 240, 195, 138
D) 340, 318, 290, 168, 113, 99
E) 370, 168, 138, 112, 99, 84

Question 68

A firm has the following short run total cost function:

a. Write the equations for the firms SMC, AVC, and SAC
b. Determine the output level at which SMC will be minimized
c. Determine the output level at which AVC will be minimized

Question 69

Complete the following table, assuming that the firm is in the short run, that "a" is the only variable input, and the P_a, the price of input "a" is fixed.

Question 70

The Summer Clean Up Company performs landscaping to get yards in shape for summer parties. Its only variable input is labor. Each homeowner must provide all the tools necessary for the day's job. Each worker must supply his or her own transportation to the job site. Each worker costs $30.00 per day and Summer Clean Up's total fixed cost is $200 per day. The following table contains some of the company's daily production and cost data, where Q is cubic yards of trash. Where is SMC at its minimum and MP_L at a maximum?

A) SMC is at a minimum between 50 and 150 units of output. MP_L is at a maximum between 50 and 100 units of output and 5 and 10 units of input labor.
B) SMC is at a minimum between 150 and 225 units of output. MP_L is at a maximum between 100 and 150 units of output and 10 and 15 units of input labor.
C) SMC is at a minimum between 225 and 275 units of output. MP_L is at a maximum between 150 and 225 units of output and 15and 20 units of input labor.
D) SMC is at a minimum between 275 and 305 units of output. MP_L is at a maximum between 275 and 305 units of output and 20 and 25 units of input labor.
E) SMC is at a minimum between 330 and 350 units of output. MP_L is at a maximum between 305 and 330 units of output and 35and 40 units of input labor.

Question 71

Short Run Data for Sullivan's Salmon Farm
What is the short run total cost for Sullivan's Salmon Farm?

A) 3500, 3700, 3940, 4320, 4950, 5460
B) 3700, 3900, 4140, 4520, 4950, 5460
C) 3700, 3900, 4440, 5080, 5700, 6160
D) 3900, 4240, 4640, 5080, 5550, 5900
E) 3900, 4140, 4520, 5080, 5700, 5900

Question 72

Complete the following table, which gives short run data for a firm

Question 73

Complete the following tables, given that the price of input "a" is constant and that "a" is the only variable input.

Question 74

Complete the following table, which gives short run data for a firm.

Question 75

Short run data for Doug's Oar Factory
What is the arc short run marginal cost for Sullivan's Salmon Farm?

A) 34, 27, 26, 29, 31.8, 35
B) 34, 20, 24, 38, 43, 51
C) 37, 34, 26, 33.8, 43, 48
D) 37, 20, 26, 29, 43, 51
E) 54, 30, 34, 48, 53, 61

Question 76

Suppose that a firm has the following cost function:
a. Determine the output level at which SMC will be minimized.
b. Determine the output level at which AVC will be minimized
c. Find the value of AVC when AVC is at is minimum
d. Find the value of SMC when AVC is at its minimum
e. Compare your answers to parts c and d.

Question 77

Suppose the firm has the following total cost function:
a. Write equations for average fixed cost and average variable cost
a. What will be the value of short-run average cost when Q = 80?
b. Write the marginal cost equation for this firm
c. What will be the marginal cost be when Q = 40?
d. For this firm, what will be the dollar value of AVC at its minimum?
e. At what level of output will marginal cost be at its minimum?
f. What will be the value of marginal cost when it is at its minimum?

Question 78

Short run data for Doug's Oar Factory
What is the total variable cost for Doug's Oar Factory?

A) 672, 1120, 1344, 1680, 2240,3360
B) 680, 700, 1080, 1092, 2320, 3180
C) 680, 1680, 2240, 3180, 3360, 4200
D) 680, 1080, 1560, 2320, 3180, 4200
E) 740, 780, 828, 904, 990, 1092

Question 79

The Summer Clean Up Company performs landscaping to get yards in shape for summer parties. It's only variable input is labor. Each homeowner must provide all the tools necessary for the day's job. Each worker must supply his or her own transportation to the job site. Each worker costs $30.00 per day and Summer Clean Up's total fixed cost is $200 per day. The following table contains some of the company's daily production and cost data, where Q is cubic yards of trash.
a. Complete the table
b. Where is SMC at it's minimum? Where is MP_L at a maximum?
b. between 50 and 150 units of output; between 50 and 100 units of output and 5 and 10 units of input labor.

Question 80

Complete the following table, which gives short run data for a firm