Deck 21: The Costs of Production

Question 1

Which of the following are factors of production?

A)Output in a production function.
B)Productivity.
C)Land,labor,capital,and entrepreneurship.

Answer 1

Land,labor,capital,and entrepreneurship.

Question 2

The change in total output associated with one additional unit of input is the

A)Opportunity cost of the output.
B)Average productivity.
C)Marginal physical product.

Answer 2

Marginal physical product.

Question 3

Which of the following is the best explanation of why the law of diminishing returns does not apply in the long run?

A)In the long run,firms can increase the availability of space and equipment to keep up with the increase in variable inputs.
B)The MPP does not change in the long run.
C)In the long run,firms have enough time to find the most qualified workers.

Answer 3

In the long run,firms can increase the availability of space and equipment to keep up with the increase in variable inputs.

Question 4

In the short run,the law of diminishing returns

A)Occurs for only a few economies.
B)Can be observed in every production process.
C)Does not occur in command economies.

Question 5

Which of the following is a factor of production for the Little Biscuit Bread Company?

A)Flour.
B)Bread.
C)Productivity.

Question 6

A production function shows the

A)Minimum amount of output that can be obtained from alternative combinations of inputs.
B)Maximum quantity of inputs required to produce a given quantity of output.
C)Maximum output that can be produced with varying combinations of factor inputs.

Question 7

Labor productivity will increase in response to

A)Lower wages.
B)An increase in the amount of physical capital per worker.
C)Higher resource costs.

Question 8

The short-run production function shows how output changes when

A)The quantity of labor changes.
B)The quantity of land changes.
C)Technology changes.

Question 9

Which of the following statements is not true regarding the production function and the production possibilities curve?

A)Both the production function and the production possibilities curve maximize the amount of output attainable.
B)The production function describes the capacity of a single firm,whereas the production function summarizes the output capacity of the entire economy.
C)A production function tells us the maximum amount of output attainable from the use of all resources.

Question 10

Technical efficiency is achieved when a firm produces

A)At an amount indicated by a point on the production function.
B)Below the opportunity cost for the resources it uses.
C)Enough output to cover the opportunity cost of resources.

Question 11

Ceteris paribus,the law of diminishing returns states that beyond some point,the

A)Returns on stocks and bonds diminish with higher security prices.
B)Addition to total utility diminishes as more units of a good are consumed.
C)Marginal physical product of a factor of production diminishes as more of that factor is used.

Question 12

A production function shows

A)How a firm's production increases as it adds more labor.
B)How a firm's costs of production increase as it produces more goods.
C)How production changes as its unit costs go up.

Question 13

Diminishing returns occur because

A)Of inefficiency in the production process.
B)Of the use of inferior factors of production.
C)A firm increases the amount of a variable input without changing a fixed input.

Question 14

Which of the following is the slope of the production function with respect to an input?

A)The marginal physical product of the input.
B)The average product of the input.
C)The unit cost of the input.

Question 15

The period in which at least one input is fixed in quantity is the

A)Long run.
B)Production run.
C)Short run.

Question 16

In Figure 21.1,diminishing marginal returns first occur with the

A)Fifth worker.
B)Fourth worker.
C)Third worker.

Question 17

As an In and Out Burger restaurant increases the number of employees for a specific restaurant,

A)Total production of hamburgers will fall.
B)Costs of production will fall.
C)Efficiency will suffer as the restaurant becomes too crowded with employees.

Question 18

When a firm produces at a technically efficient output level,it is

A)Producing the output at the minimum MC curve.
B)Using the fewest resources to produce a good or service.
C)Producing the output where the AVC curve is at a minimum.

Question 19

If a firm could hire all the workers it wanted at a zero wage (i.e. ,the workers are volunteers),the firm should hire

A)Enough workers to produce the output where diminishing returns begin.
B)Enough workers to produce the output where worker productivity is the highest.
C)Enough workers to produce where the MPP equals zero.

Question 20

The marginal physical product is the

A)Change in total input required to produce one additional unit of output.
B)Change in total output associated with one additional unit of the variable input.
C)Number of units of output obtained from all units of input employed.

Question 21

If an additional unit of labor costs $20 and has a MPP of 15 units of output,the marginal cost is

A)$0.75.
B)$1.33.
C)$30.00.

Question 22

A U-shaped average total cost curve implies

A)First diminishing returns,and then increasing returns.
B)First marginal cost below average total cost,and then marginal cost above average total cost.
C)That total costs are at a minimum at the minimum of the average cost curve.

Question 23

The average variable cost curve slopes upward with a higher rate of output in the short run because of

A)The effect of diminishing returns.
B)The shape of the average fixed cost curve.
C)Diseconomies of scale.

Question 24

Changes in short-run total costs result from changes in

A)Variable costs.
B)Fixed costs.
C)Profit.

Question 25

If the marginal physical product (MPP)is falling,then the

A)Marginal cost of each unit of output is falling.
B)Marginal cost of each unit of output is rising.
C)Total cost of each unit of output is falling.

Question 26

The most desirable rate of output for a firm is the output that

A)Minimizes total costs.
B)Maximizes total profit.
C)Minimizes marginal costs.

Question 27

Marginal cost

A)Rises as a direct result of diminishing returns.
B)Falls whenever marginal physical product decreases.
C)Falls in the short run because some resources are fixed.

Question 28

Average total cost is important to a business because

A)It tells the firm what the profit per unit produced is.
B)It always declines as more output is produced.
C)It tells the firm what its fixed costs are.

Question 29

In the short run,when a firm produces zero output,total cost equals

A)Zero.
B)Variable costs.
C)Fixed costs.

Question 30

Marginal cost

A)Is the change in total output from hiring one more factor of production.
B)Is the change in total cost from producing one additional unit of output.
C)Falls when there are diminishing returns.

Question 31

Which of the following is most likely a fixed cost?

A)The material used to make jackets.
B)The labor on an automotive assembly line.
C)The rent for a factory.

Question 32

The shape of the marginal cost curve reflects the

A)Law of diminishing returns.
B)Competitiveness of the firm.
C)Law of diminishing marginal utility.

Question 33

In the short run,when a firm produces zero output,variable cost equals

A)Zero.
B)Total cost.
C)Fixed cost.

Question 34

Profit is

A)The difference between total cost and variable cost.
B)The difference between total revenue and total cost.
C)Earned at all points along the production function.

Question 35

Marginal cost is equal to

A)The change in total costs divided by the change in quantity produced.
B)The change in fixed costs as more units are produced.
C)Total cost divided by quantity produced.

Question 36

An increase in production in the short run definitely results in an increase in

A)Average total costs.
B)Marginal costs.
C)Total costs.

Question 37

In the short run,which of the following is most likely a variable cost?

A)Contractual lease payments.
B)Labor and raw materials costs.
C)Property taxes.

Question 38

The sum of fixed cost and variable cost at any rate of output is

A)Total variable cost.
B)Total cost.
C)Average total cost.

Question 39

The average fixed cost (AFC)curve

A)Is U-shaped as a result of diminishing returns.
B)Declines as long as output increases.
C)Is intersected at its minimum point by marginal cost.

Question 40

Sam's surf shop has total costs of $2,000 when it is not producing any surfboards.This means that

A)Variable costs are $2000.
B)Fixed costs are $2,000.
C)The shop is very inefficient in its production.

Question 41

When the size of a factory (and all its associated inputs)doubles and,as a result,output more than doubles,

A)The law of diminishing returns must not apply in the smaller factory.
B)Economies of scale must exist.
C)The short-run ATC curve must be declining.

Question 42

Intel's chief executive says the company might expand the technology it is using in its planned $2.5 billion chip-manufacturing factory in China if the U.S.government allows it,underscoring the technology giant's ambitions in the world's fourth-biggest economy.The Intel executive is making a

A)Long-run decision,and therefore an investment decision.
B)Long-run decision,and therefore a production decision.
C)Decision that would definitely increase costs.

Question 43

What is the total cost of 120 units in Figure 21.2?

A)$34,560.
B)$9,600.
C)$24,960.

Question 44

What is the total fixed cost in Figure 21.2?

A)$80.
B)$10,000.
C)$9,600.

Question 45

Accounting costs and economic costs differ because

A)Economic costs include implicit costs and accounting costs do not.
B)Accounting costs include implicit costs and economic costs do not.
C)Economic costs include explicit costs and accounting costs do not.

Question 46

Economies of scale

A)Exist in both the short run and the long run.
B)Explain why average variable and average total costs decline in the short run.
C)Explain why average total costs decline as output increases in the long run.

Question 47

Explicit costs

A)Include only payments to labor.
B)Are the sum of actual monetary payments made for resources used to produce a good.
C)Include the market value of all resources used to produce a good.

Question 48

Assume a given amount of output can be produced by several small plants or one large plant with identical minimum per-unit costs.This long-run situation reflects the existence of

A)Economies of scale.
B)Diseconomies of scale.
C)Constant returns to scale.

Question 49

At what output level do diminishing marginal returns begin in Figure 21.2?

A)40 units.
B)100 units.
C)120 units.

Question 50

The period in which there are no fixed costs is the

A)Production run.
B)Long run.
C)Short run.

Question 51

The marginal cost curve intersects the minimum of the curve representing

A)TC.
B)ATC.
C)AFC.

Question 52

The long-run average total cost curve is constructed from the

A)Minimum points of the short-run marginal cost curves.
B)Minimum points of the short-run average variable cost curves.
C)Lowest average total cost for producing each level of output.

Question 53

Refer to Figure 21.3.The vertical difference between the total cost curve and the total fixed cost curve represents

A)Total variable costs.
B)Total marginal costs.
C)Average fixed costs.

Question 54

In economics,the long run is considered to be

A)The time period when all costs are variable.
B)The time period when all costs are explicit.
C)One year.

Question 55

What is the average fixed cost when output is 120 units in Figure 21.2?

A)$0.67.
B)$80.00.
C)$96.00.

Question 56

When the average total cost curve is rising,the marginal cost curve will be

A)Below the average fixed cost curve.
B)Falling with greater output.
C)Above the average total cost curve.

Question 57

Which of the following is a long-run concept?

A)Diminishing marginal productivity.
B)Diminishing returns.
C)Diseconomies of scale.

Question 58

Which of the following statements about the relationship between economic costs and accounting costs is true?

A)Accounting costs are always less than or equal to economic costs.
B)Accounting costs must always equal economic costs.
C)Accounting costs are always greater than economic costs.

Question 59

Economies of scale are reductions in average

A)Total cost that result from declining average fixed costs.
B)Fixed cost that result from reducing the firm's scale of operations.
C)Total cost that result from using operations of larger size.

Question 60

Economic cost

A)Includes both implicit and explicit costs.
B)Is the sum of actual monetary payments made for resources used to produce a good.
C)Includes only implicit costs.

Question 61

At 10 units of output in Table 21.2,the total fixed cost is

A)$44.
B)$14.
C)$40.

Question 62

Complete Table 21.5: The marginal cost of the third unit of output in Table 21.5 is

A)$4.
B)$3.
C)$30.

Question 63

Complete Table 21.5: The total variable cost of the first unit of output in Table 21.5 is

A)$15.00.
B)$12.00.
C)$8.00.

Question 64

Complete Table 21.5: The average variable cost of the second unit of output in Table 21.5 is

A)$6.00.
B)$4.00.
C)$8.00.

Question 65

Complete Table 21.5: The total cost of 3 units of output in Table 21.5 is

A)$30.
B)$15.
C)$23.

Question 66

Average fixed cost at 20 units of output in Table 21.2 is

A)$1.00.
B)$2.00.
C)$2.50.

Question 67

At 2 units of output in Table 20.4,the average variable cost is

A)$13.
B)$6.
C)$12.

Question 68

The marginal cost between 20 and 30 units of output in Table 21.2 is

A)$1.60.
B)$4.00.
C)$1.80.

Question 69

The marginal cost of the fourth unit of output in Table 21.4 is

A)$4.00.
B)$20.00.
C)$16.00.

Question 70

At 30 units of output in Table 21.2,the total variable cost is

A)$30.
B)$40.
C)$50.

Question 71

For the output levels in Table 21.4,the minimum of the average variable cost curve occurs at a production rate of

A)3 units per day.
B)2 units per day.
C)4 units per day.

Question 72

For the output levels in Table 21.4,the minimum of the average total cost curve occurs at a production rate of

A)2 units per day.
B)3 units per day.
C)4 units per day.

Question 73

If workers are paid $10,what is the labor cost per unit of output in Table 21.1 when output is increased from 15 to 35 units of output?

A)$0.28 per unit.
B)$0.50 per unit.
C)$10 per unit.

Question 74

At 20 units of output in Table 21.2,the average variable cost is

A)$1.10 per unit.
B)$1.75 per unit.
C)$2.00 per unit.

Question 75

For the output levels in Table 21.2,the minimum of the average variable cost curve occurs at a production rate of

A)Zero units per day.
B)10 units per day.
C)20 units per day.

Question 76

Complete Table 21.3 below: What is the unit labor cost in Table 21.3 for the second unit of labor if the MPP represents daily output and the wage rate is $72 per day?

A)$0.50 per unit of output.
B)$2.00 per unit of output.
C)$36.00 per unit of output.

Question 77

Complete Table 21.5: Total fixed costs in Table 21.5 are equal to

A)$0 because the problem involves the long run.
B)$15.
C)$30.

Question 78

With which unit of labor do diminishing marginal returns first appear in Table 21.1?

A)The first.
B)The second.
C)The third.

Question 79

At 4 units of output in Table 21.4,total fixed costs are

A)$78.00.
B)$19.50.
C)$16.00.

Question 80

At 3 units of output in Table 21.4,average fixed costs are

A)$16.00.
B)$19.50.
C)$5.33.