Deck 11: Production Costs

Question 1

If the Essex Produce Company owns the building that it operates from, it should consider the Money that it could earn by renting the building out to someone else. This lost rent, or opportunity cost, is part of:

A) variable costs.
B) short-run costs.
C) explicit costs.
D) implicit costs.

Answer 1

implicit costs.

Question 2

The business costs most frequently associated with opportunity costs are:

A) explicit costs.
B) fixed costs.
C) implicit costs.
D) variable costs.

Answer 2

implicit costs.

Question 3

Economic profit:

A) declines in the long run.
B) is always less than accounting profit.
C) is independent of implicit costs.
D) is always greater than accounting profit.

Answer 3

is always less than accounting profit.

Question 4

Someone withdraws $10 000 from an account that paid 5% annual interest and used the funds to purchase real estate. After one year that person sold the real estate property for $13 000. An Economist would calculate the economic profit on the real estate sale to be:

A) $500
B) $2500
C) $3000
D) $13 000

Question 5

Someone withdraws $10 000 from an account that paid 10% annual interest and used the funds to purchase real estate. After one year that person sold the real estate property for $10 500. An Economist would calculate the economic profit on the real estate sale to be:

A) -$500
B) $0
C) $500
D) $1500

Question 6

The short run is described as a period of time:

A) when the firm can adjust all the input into the production process.
B) in which production levels cannot be changed.
C) when the firm cannot adjust any input into the production process.
D) when at least one input into the production process cannot be changed.

Question 7

The long run is described as a period of time:

A) when the output from the production process can be altered.
B) when the firm has achieved economies of scale.
C) when all inputs but one into the production process can be changed.
D) when all inputs into the production process can be altered.

Question 8

The production function is the relationship between:

A) the number of workers hired and total costs of production.
B) changes in inputs and changes in output.
C) changes in output and the changes in explicit costs only.
D) the changes in the number of units produced and changes in total production costs.

Question 9

The law of diminishing returns states that:

A) the specialization of labour will eventually come to an end.
B) eventually a point is reached when, as more of a variable resource is added to a fixed resource, the additions to total output will become fewer and fewer.
C) eventually total production costs will increase.
D) eventually a point is reached at which hiring one more worker will cause total output to decrease.

Question 10

The law of diminishing returns sets in when:

A) total revenue is maximized.
B) average variable costs are at a minimum.
C) average total costs begin to increase.
D) the marginal cost curve begins to increase.

Question 11

Marginal product:

A) refers to the addition to total output achieved by hiring one more worker.
B) decreases with worker specialization.
C) is associated with both fixed and variable costs.
D) is at a maximum when marginal cost is increasing.

Question 12

The law of diminishing returns:

A) is the same as diseconomies of scale.
B) causes the firm's average costs to decline.
C) is relevant for small firms only.
D) occurs only in the short run.

Question 13

Productivity:

A) of a worker will increase the more resources the worker has to work with.
B) of the workers decreases as more and more capital equipment is available to the workers.
C) increases as the size of the work force increases.
D) is irrelevant in terms of discussing total production costs.

Question 14

When marginal product is greater than average product:

A) the marginal and average products are equal.
B) the average product is increasing.
C) the average product is falling.
D) the marginal product is always rising.

Question 15

When marginal product is less than average product:

A) the average product is increasing.
B) the marginal product is always rising.
C) the marginal and average products are equal.
D) the average product is falling.

Question 16

Which of the following statements is true?

A) Adding an additional worker will diminish marginal productivity at some point.
B) Adding an additional worker will always increase average productivity.
C) Adding an additional worker will always diminish marginal productivity.
D) Adding an additional worker will always increase total production.

Question 17

Given that 5 workers produce 37 chairs and 6 workers produce 43 chairs, what is the average Product of the 6 workers?

A) 7 chairs
B) 6 chairs
C) 8.6 chairs
D) 7.2 chairs

Question 18

Given that 5 workers produce 37 chairs and 6 workers produce 43 chairs, what is the marginal product the 6th worker?

A) 7 chairs
B) 7.2 chairs
C) 7.4 chairs
D) 6 chairs

Question 19

Given that 8 workers product 52 chairs and the average product of 9 workers is 6 chairs, what is the total number of chairs produced by 9 workers?

A) 2 chairs
B) 58 chairs
C) 54 chairs
D) 6 chairs

Question 20

Given that 8 workers product 52 chairs and the average product of 9 workers is 6 chairs, what is the total marginal product of the 9th worker?

A) 58 chairs
B) 54 chairs
C) 2 chairs
D) 6 chairs

Question 21

A number of factors influence productivity, which of the following affects the macro level in the economy?

A) labour force
B) scale of business operations
C) economic conditions
D) management techniques

Question 22

A number of factors influence productivity, which of the following affects the micro level in the economy?

A) economic conditions
B) labour force
C) management techniques
D) government policies

Question 23

A number of factors influence productivity, which of the following affect both the macro and Micro level in the economy?

A) government policies
B) management techniques
C) labour force
D) economic conditions

Question 24

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

A) transportation
B) energy
C) wages
D) property taxes

Question 25

Fixed costs:

A) are only present in the long run.
B) are present even if production is zero.
C) are influenced by worker productivity.
D) are the same as explicit costs.

Question 26

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

A) insurance premiums
B) interest payments on loans
C) transportation costs
D) property taxes

Question 27

If the total cost of producing 4 chairs is $146 and the marginal cost of producing the 5th chair is $26, then average total cost of producing 5 chairs is:

A) $5.20 per chair.
B) $6.50
C) $34.40
D) $36.50 per chair.

Question 28

Marginal cost means:

A) the increase in total costs associated with producing one more unit of output.
B) the difference between actual production costs and the lowest level of average costs.
C) the increase in fixed costs from one short-run situation to another.
D) the increase in total costs associated with hiring one more worker.

Question 29

Which of the following statements is not correct?

A) the marginal cost curve always intersects the average total cost curve at the minimum point of the ATC curve
B) when marginal product is decreasing, marginal cost is decreasing
C) diminishing returns only influence costs in the short run
D) marginal product is at a maximum when marginal cost is at a minimum

Question 30

As output increases, the ATC and AVC curves get closer together because:

A) marginal costs cause both to continually increase.
B) average fixed costs become less and less.
C) fixed costs disappear in the long run.
D) none of the above is necessarily correct

Question 31

The short-run average cost curve has a "U" shape because:

A) large firms are not quite as efficient as small firms, so average costs tend to increase.
B) specialization will result in lower average costs and diseconomies of scale will increase average costs.
C) worker specialization will tend to lower average costs, while diminishing returns will increase average costs.
D) economies and diseconomies of scale both have an impact on the curve.

Question 32

If marginal cost is increasing but is less than average total cost, average total cost is:

A) increasing.
B) remaining constant.
C) decreasing.
D) impossible to tell without more information

Question 33

If marginal cost is decreasing and is less than average total cost, average total cost is:

A) remaining constant.
B) decreasing.
C) increasing.
D) impossible to tell without more information

Question 34

Max is taking a economics class in which he is currently average a C grade. If Max receives a B On his next exam his grade will:

A) not change.
B) decrease.
C) increase.
D) be equal to B.

Question 35

Economies of scale:

A) only occur in very large firms.
B) result from worker specialization and the use of more efficient equipment.
C) take over when the worker specialization ends.
D) result in a decline in short-run average costs.

Question 36

Diseconomies of scale and diminishing returns differ in the following way:

A) diseconomies of scale cause average costs to decrease.
B) diseconomies of scale occur in the short run only.
C) diseconomies of scales occur in large firms, whereas diminishing returns affect small firms only.
D) diminishing returns occur in the short run only.

Question 37

Which of the following is least likely to be associated with economies of scale?

A) bureaucracy
B) worker specialization
C) quantity price discounts
D) more efficient capital equipment

Question 38

If all inputs in a production process were doubled and output more than doubled, it would be an Example of:

A) diseconomies of scale.
B) diminishing returns.
C) economies of scale.
D) specialization.

Question 39

If all inputs in a production process were doubled and output also doubled, it would be an Example of:

A) economies of scale.
B) specialization.
C) diseconomies of scale.
D) constant returns to scale.

Question 40

The minimum efficient scale (MES) plant is:

A) the minimum plant size required in order to achieve economies of scale.
B) the smallest level of output required to achieve economies of scale.
C) the smallest plant in the industry.
D) the smallest level of output that will allow the firm to reach the lowest average cost in the industry.

Question 41

The main reason why Canadian plants are below the MES size is:

A) most machinery used is better suited for smaller plant sizes.
B) marketing economies are not possible across larger output.
C) the small size of the domestic market and the large geographic area.
D) the advantage of specialization in smaller plants.

Question 42

Economies of scope can be defined as:

A) the reduction in average costs that comes with increased production levels.
B) the minimum level of production for nation-wide advertising to be effective.
C) the level of production beyond which diminishing returns do not exist.
D) the cost of having two products produced by one firm is less than having them produced separately by two firms.

Question 43

In order to maximize profits, a firm will produce at the point at which:

A) marginal costs and marginal revenues are equal.
B) total revenue is maximized.
C) total costs are minimized.
D) average total costs are at a minimum.

Question 44

The most significant reason why a firm may not be able to maximize profits is:

A) due to incomplete information.
B) unsuccessful advertising.
C) inability to produce at lowest cost.
D) inability to produce output on time.