Deck 7: Producers in the Short Run

Question 1

Suppose a firm with the usual U- shaped cost curves is producing a level of output such that its short- run costs are as follows: ATC = $0.37 per unit AVC = $0.32 per unit AFC = $0.05 per unit MC = $0.43 per unit
Given these short- run costs,as the firm increases its output,which of the following statements is true?

A)Average product of the variable factor must be increasing.
B)Marginal product of the variable factor is at its minimum point.
C)Marginal product of the variable factor must be increasing.
D)Marginal product of the variable factor must be decreasing.
E)The point of diminishing average product of the variable factor has not yet been reached.

Answer 1

D

Question 2

The relationship between factors of production used in the production process and the resulting output is called a(n)

A)production boundary.
B)production function.
C)economic function.
D)cost function.
E)consumption possibilities boundary.

Answer 2

B

Question 3

The opportunity cost of money that a firm's owner has invested in the firm is an example of

A)direct production costs.
B)explicit costs.
C)accounting costs.
D)sunk costs.
E)implicit costs.

Answer 3

E

Question 4

In economics,the term "fixed costs" means

A)implicit costs.
B)costs incurred in the past that involve no implicit costs.
C)costs that are never accounted for.
D)costs that do not vary with the level of output produced.
E)opportunity costs.

Question 5

The table below provides the total revenues and costs for a small landscaping company in a recent year. $$\begin{array} { | l | l | } \hline \text { Total Revenues }(\$) & 250000 \\\hline & \\\hline \text { Total Costs }(\$) & \\\hline \text { wages and salaries } & 150000 \\\hline \text { risk-free return of } 2 \% \text { on owner's capital of } \$ 20000 & 400 \\\hline \text { interest on bank loan } & 1500 \\\hline \text { cost of supplies } & 27000 \\\hline \text { depreciation of capital equipment } & 8000 \\\hline \text { additional wages the owner could have earned in next } & 30000 \\\text { best alternative } & \\\hline \text { risk premium of } 4 \% \text { on owner's capital of } \$ 20000 & 800 \\\hline\end{array}$$ TABLE 7- 2

-Refer to Table 7- 2.The implicit costs for this firm are

A)$400.
B)$31 200.
C)$30 400.
D)$30 800.
E)$800.

Question 6

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. $$\begin{array} { | c | l | } \hline \text { Lab our per period } & \text { Total output per period } \\\hline 0 & 0 \\\hline 1 & 10 \\\hline 2 & 30 \\\hline 3 & 90 \\\hline 4 & 132 \\\hline 5 & 150 \\\hline\end{array}$$ TABLE 7- 3

-Refer to Table 7- 3.The marginal product of labour is at its maximum when the firm changes the amount of labour hired from

A)0 to 1 unit.
B)1 to 2 units.
C)2 to 3 units.
D)3 to 4 units.
E)4 to 5 units.

Question 7

Diminishing marginal product of labour is said to exist when there is

A)an increase in the division and specialization of labour.
B)a reduction in the level of labour input that causes output to increase.
C)a successively smaller increase in output with each successive unit increase in labour input.
D)an increase in the amount of capital available for each unit of labour.
E)technological advancement.

Question 8

A firm's short- run marginal cost curve is decreasing when

A)average fixed cost is increasing.
B)total fixed cost is decreasing.
C)marginal product is decreasing.
D)capacity is reached.
E)marginal product is increasing.

Question 9

The diagram below shows some short- run cost curves for a firm.
FIGURE 7- 2
Refer to Figure 7- 2.Which of the following choices correctly identifies the cost curves in part (ii)of the figure?

A)Curve 4 is the marginal cost curve.Curve 5 is the average fixed cost curve. Curve 6 is the average variable cost curve.Curve 7 is the average total cost curve.
B)Curve 4 is the average fixed cost curve.Curve 5 is the average total cost curve.Curve 6 is the marginal cost curve. Curve 7 is the average variable cost curve.
C)Curve 4 is the marginal cost curve. Curve 5 is the average variable cost curve.Curve 6 is the average fixed cost curve.
Curve 7 is the average total cost curve.
D)Curve 4 is the marginal cost curve.Curve 5 is the average total cost curve. Curve 6 is the average variable cost curve.Curve 7 is the average fixed cost curve.
E)Curve 4 is the average total cost curve.Curve 5 is the marginal cost curve. Curve 6 is the average variable cost curve.Curve 7 is the average fixed cost curve.

Question 10

If a firm uses factor inputs that are personally owned by the firm's owner,then economists refer to the opportunity cost of these inputs as

A)implicit costs.
B)inverted costs.
C)accounting costs.
D)direct production costs.
E)sunk costs.

Question 11

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. $$\begin{array} { | l | c | } \hline \text { Labour per unit of time } & \text { Total output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$$ TABLE 7- 4

-Refer to Table 7- 4.Average fixed costs for 305 units of output is approximately

A)45 cents.
B)74 cents.
C)82 cents.
D)33 cents.
E)41 cents.

Question 12

Consider a firm in the short run.If AP = MP and both are positive,then total product

A)is decreasing as extra units of the variable factor are employed.
B)is increasing as extra units of the variable factor are employed.
C)is at a maximum.
D)is at its minimum.
E)may be either increasing or decreasing as extra units of the variable factor are employed.

Question 13

The table below provides the annual revenues and costs for a family- owned firm producing catered meals. $$\begin{array} { | l | l | } \hline \text { Total Revenues } ( \$ ) & 500000 \\\hline \text { Total Costs } ( \$ ) & \\\hline \text { wages and salaries } & \\\hline \text { risk- free return of } 6 \% \text { on ow ners' capital of } 250000 & 15000 \\\hline \text { rent } & 200000 \\\hline \text { - depreciation of capital equipment } & 105000 \\\hline \text { risk premium of } 8 \% \text { on owners' capital of } 250000 & 25000 \\\hline \text { intermediate inputs } & 20000 \\\hline \text { - forgone wages of owners in alternative employment } & 80000 \\\hline \text { interest on bank loan } & 10000 \\\hline\end{array}$$ TABLE 7- 1

-Refer to Table 7- 1.The implicit costs for this family- owned firm are

A)$115 000.
B)$35 000.
C)$100 000.
D)$80 000.
E)$490 000.

Question 14

When a plant is operating at the level of output where its short- run average total cost is at its minimum,

A)marginal cost is at a minimum.
B)average fixed cost is at a minimum.
C)the plant is operating at its capacity.
D)more of the variable factor of production should be employed.
E)average variable cost is at a minimum.

Question 15

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. $$\begin{array} { | l | l | } \hline \text { Labour per unit of time } & \text { Total output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$$ TABLE 7- 4

-Refer to Table 7- 4.Marginal product of labour begins decreasing with the unit of labour hired.Average product of labour begins decreasing with the unit of labour hired.

A)3rd; 2nd
B)2nd; 3rd
C)4th; 5th
D)3rd; 4th
E)4th; 3rd

Question 16

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.

Question 17

Which of the following is most likely a long- run decision for a firm?

A)The number of workers to hire.
B)The hours a store should stay open.
C)How many warehouses to build.
D)The price at which to sell the product.
E)The amount of inventory to stock.

Question 18

The table below provides information on output per month and short- run costs for a firm producing outdoor wooden lounge chairs. $$\begin{array} { | l | l | l | c | } \hline & \text { TFC } & \text { TVC } & \text { TC } \\\hline 5 & 200 & 200 & 400 \\\hline 10 & 200 & 220 & 420 \\\hline 15 & 200 & 240 & 440 \\\hline 20 & 200 & 260 & 460 \\\hline 25 & 200 & 350 & 550 \\\hline 30 & 200 & 810 & 1010 \\\hline\end{array}$$ TABLE 7- 5

-Refer to Table 7- 5.Given the information in the table about short- run costs,this firm would minimize the average variable cost of production when producing

A)10 chairs.
B)15 chairs.
C)20 chairs.
D)25 chairs.
E)30 chairs.

Question 19

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. $$\begin{array} { | c | c | } \hline \text { Labour per unit of time } & \text { Total output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$$ TABLE 7- 4

-Refer to Table 7- 4.The total fixed cost of producing 305 units of output is

A)$100.
B)$125.
C)$225
D)$112.50.
E)$305.

Question 20

Churches,the YMCA,the Salvation Army,and the Nature Conservancy are examples of

A)corporations.
B)non- profit organizations.
C)partnership.
D)single proprietorship.
E)limited partnership.

Question 21

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

A)a factor of production equation.
B)a technological change equation.
C)an economic input function.
D)an arithmetic expression of output quantities.
E)a production function.

Question 22

Suppose a firm is producing 250 units of output.At this level of output,average fixed costs are $20 per unit and average variable costs are $80 per unit.It can be concluded that total cost is

A)$40 per unit.
B)$0.40 per unit.
C)$2500.
D)$100.
E)$ 25 000.

Question 23

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. $$\begin{array} { | c | c | } \hline \text { Labour per unit of time } & \text { Total output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$$ TABLE 7- 4

-Refer to Table 7- 4.The average total cost of producing 75 units of output is

A)$0.80.
B)$1.
C)$2.
D)$1.33.
E)$0.67.

Question 24

Consider a basket- producing firm with fixed capital.If the firm can produce 36 baskets per day with 3 workers and then increases productivity to 44 baskets per day with 4 workers,then which of the following statements is true?

A)The marginal product of the fourth worker is 11.
B)The firm has passed the point of diminishing average productivity.
C)With 4 workers,the firm's average product of labour is 13.
D)The firm has not yet reached the point of diminishing marginal productivity.
E)The marginal product is above the average product.

Question 25

Consider a firm's short- run cost curves.Which one of the following types of cost declines over the whole range of output?

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

Question 26

The vertical distance between the total cost curve and the total variable cost curve is

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

Question 27

The table below provides the annual revenues and costs for a family- owned firm producing catered meals. $\begin{array}{|l|l|}\hline \text { Total Revenues }(\$) & 500000 \\\hline & \\\hline \text { Total Costs }(\$) & \\\hline \text { wages and salaries } & 200000 \\\hline \text { risk-free return of } 6 \% \text { on owners' capital of } 250000 & 15000 \\\hline \text { rent } & 105000 \\\hline \text { depreciation of capital equipment } & 25000 \\\hline \text { risk premium of } 8 \% \text { on owners' capital of } 250000 & 20000 \\\hline \text { intermediate inputs } & 150000 \\\hline \text { forgone wages of owners in alternative employment } & 80000 \\\hline \text { interest on bank loan } & 10000 \\\hline\end{array}$ TABLE 7- 1

-Refer to Table 7- 1.To an accountant,this family- owned catering company is earning .To an economist,the same firm is earning _ .

A)zero profit; normal profits
B)positive profits; economic losses
C)economic profits; economic profits
D)economic profits; economic losses
E)zero profit; economic losses

Question 28

A firm can raise financial capital without incurring debt by

A)issuing bonds.
B)investing in new capital equipment.
C)making extra dividend payments.
D)issuing new shares.
E)increasing its bank loans.

Question 29

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)$1400.
D)$600.
E)$200.

Question 30

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. $$\begin{array} { | c | c | } \hline \text { Labour per unit of time } & \text { Total output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$$ TABLE 7- 4

-Refer to Table 7- 4.Diminishing marginal productivity of labour is first observed when the firm changes the amount of labour hired from

A)0 to 1 unit.
B)1 to 2 units.
C)2 to 3 units.
D)3 to 4 units.
E)4 to 5 units.

Question 31

Economists use the notation Q = f(L,K)to describe

A)the arithmetic relationship between the outputs that a firm uses and the inputs that it produces.
B)the flow of labour (L)and capital (K)services that are available when output is (Q).
C)the level of output (Q)required to fully employ labour (L)and capital (K).
D)the technological relationship between the inputs that a firm uses and the outputs that it produces.
E)the financial relationship between the inputs that a firm uses and the outputs that it produces.

Question 32

A firm's capacity is defined as the level of output where

A)average total cost is at its maximum.
B)short- run average total cost is at its minimum.
C)the upper limit on what can be produced is reached.
D)average fixed costs are at a minimum.
E)marginal cost equals average variable cost.

Question 33

A firm that is maximizing its profits by producing a certain level of output must also be

A)minimizing its cost of producing that output.
B)maximizing its revenue.
C)minimizing its variable costs.
D)maximizing its sales.
E)maximizing its output.

Question 34

When a corporation issues a bond

A)it is called equity capital.
B)the purchaser of the bond assumes ownership rights in the corporation.
C)it is making a promise to pay interest each year but not repay the principal.
D)it is called financing through the stock market.
E)it is making a promise to pay interest each year and to repay the principal at a stated time in the future.

Question 35

A firm's short- run cost curves,as conventionally drawn,show that

A)AFC increases as output increases.
B)ATC decreases and then increases as output increases.
C)AVC decreases as long as MC > AVC.
D)the MC curve intersects the AVC and ATC curves at their maximum points.
E)ATC = TFC + TVC.

Question 36

The opportunity cost to a firm of using an asset is zero if

A)the asset has zero sunk costs associated with it.
B)the asset is already owned by the firm.
C)the asset has no alternative uses.
D)the asset was given to the firm for free.
E)no money was spent to acquire the asset.

Question 37

Short- run cost curves for a firm are eventually upward- sloping because of the effects of

A)diminishing marginal product.
B)increasing fixed costs.
C)decreasing total product.
D)increasing marginal productivity of the variable inputs.
E)the increasing price of variable inputs.

Question 38

Jodi recently went into business producing widgets.Which of the following would be a fixed cost for her firm? 1.labour costs of $1000 per month
2.raw material costs of $5000 per month
3.a one- year lease on a building of $12 000

A)1 only
B)2 only
C)3 only
D)1 and 2
E)2 and 3

Question 39

Real capital includes

A)owner's equity.
B)a firm's balance in its bank account.
C)a firm's physical assets.
D)corporate bonds.
E)corporate stock.

Question 40

A limited partnership differs from an ordinary partnership by

A)including some partners whose liability is restricted to the amount that they invested in the firm.
B)having a limited number of partners,each with limited liability.
C)having limited liability of all partners.
D)having a limited number of partners.
E)having unlimited liability for all partners.

Question 41

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

A)borrowing from a bank.
B)issuing new stock.
C)using undistributed profits.
D)buying back bonds.
E)buying back previously issued stock.

Question 42

The point of diminishing marginal productivity is the point where

A)the marginal product begins to fall at an increasing rate.
B)average product has reached its maximum.
C)marginal product has reached its maximum.
D)the marginal product curve lies below the average product curve.
E)the total product begins to fall.

Question 43

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. $$\begin{array} { | c | c | } \hline \text { L abour per period } & \text { Total output per period } \\\hline 0 & 0 \\\hline 1 & 10 \\\hline 2 & 30 \\\hline 3 & 90 \\\hline 4 & 132 \\\hline 5 & 150 \\\hline\end{array}$$ TABLE 7- 3

-Refer to Table 7- 3.The average product of labour is highest when the firm hires

A)1 unit of labour.
B)2 units of labour.
C)3 units of labour.
D)4 units of labour.
E)5 units of labour.

Question 44

Consider a house- construction firm with fixed capital.The firm can build 8 houses per year with 16 workers and 8.8 houses per year with 17 workers.If it is currently building 8.8 houses per year,which of the following is true?

A)The firm has not yet reached the point of diminishing average productivity.
B)The firm has already passed the point of diminishing marginal productivity.
C)The marginal product is below the average product.
D)Average product is at a maximum with 17 workers.
E)Average product is at a maximum with 16 workers.

Question 45

It is assumed in standard economic theory that a firm makes decisions in an effort to

A)be favoured politically.
B)maximize its revenue.
C)maximize its profits.
D)have a highly diversified product.
E)become as large as possible.

Question 46

Consider a firm in the short run.If total product is at its maximum,then

A)average product must equal marginal product.
B)average product must be falling and be equal to zero.
C)average product must be rising and must lie above marginal product.
D)marginal product must be greater than zero and must be falling.
E)marginal product must be falling and be equal to zero.

Question 47

The period of time over which the firm can vary its technology of production is the

A)short run.
B)long run.
C)very- long run.
D)very- short run.
E)none of the above; technology cannot be varied.

Question 48

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. $$\begin{array} { | c | c | } \hline \text { Labour per unit of time } & \text { Total output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$$ TABLE 7- 4

-Refer to Table 7- 4.The average total cost for 250 units of output is approximately

A)33 cents.
B)$1.00.
C)80 cents.
D)40 cents.
E)63 cents.

Question 49

What information is provided by average,marginal,and total product curves?

A)They demonstrate that each of these measures of output increase as more inputs are applied.
B)They relate the price of output to the quantity supplied.
C)They demonstrate that,in the short run,all inputs are variable.
D)They express relationships between physical inputs and physical outputs.
E)They relate the prices of inputs (factors of production)to the prices of products.

Question 50

Suppose that when a firm hires one additional unit of labour,total product increases from 100 to 110 units of output per month.Marginal product must therefore be

A)decreasing.
B)increasing.
C)zero.
D)constant.
E)positive.

Question 51

With regard to economic decision making for firms,the long run is a period in which

A)only capital is variable.
B)only some of the factors of production are variable.
C)all factors of production are variable but technology is fixed.
D)technology is variable.
E)technology may be variable,but some factors of production are fixed.

Question 52

The table below shows output,marginal cost,and average variable cost for the production of pairs of shoes.All costs are in dollars. $$\begin{array} { | c | c | c | } \hline \text { Output } & \begin{array} { c } \text { Marginal } \\\text { Cost }\end{array} & \begin{array} { c } \text { Average } \\\text { Variable Cost }\end{array} \\\hline 50 & 60 & 140 \\\hline 70 & 45 & 115 \\\hline 90 & 35 & 95 \\\hline 110 & 30 & 80 \\\hline 130 & 35 & 65 \\\hline 150 & 60 & 60 \\\hline 170 & 105 & 65 \\\hline 190 & 180 & 75 \\\hline 210 & 230 & 90 \\\hline 230 & 290 & 110 \\\hline\end{array}$$ TABLE 7- 6

-Refer to Table 7- 6.Suppose this firm is producing 210 pairs of shoes per time period and that the variable factor of production is labour.Which of the following statements best describes this firm's production?

A)Each additional unit of labour employed reduces the average variable cost of the pairs of shoes.
B)Additional units of labour employed will increase the average variable cost of producing shoes.
C)Marginal cost is higher than average variable cost,so marginal product must be rising.
D)Marginal cost is higher than average variable cost,so average product must be rising.
E)The firm is producing below its capacity.

Question 53

Suppose a firm is producing 100 units of output,incurring a total cost of $10 000 and total variable cost of $6000.It can be concluded that average fixed cost is

A)$100.
B)$4000.
C)$40.
D)$60.
E)$160.

Question 54

Refer to Table 7- 3.The average variable cost when producing 132 units of output is approximately

A)30 cents.
B)24 cents.
C)45 cents.
D)89 cents.
E)68 cents.

Question 55

Which of the following statements about the organization of firms is true?

A)Owners of a corporation have unlimited liability.
B)Corporations have limited access to money markets.
C)Crown corporations are never interested in increasing profits because they have other goals.
D)Partnerships are the most common form of business organization in Canada.
E)Owners of a corporation are not personally liable for the firm's actions,though its directors may be.

Question 56

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

A)very- long run.
B)short run.
C)very- short run.
D)long run.

Question 57

In the short run time horizon for a firm,total fixed costs

A)decrease as output increases.
B)are equal to total variable costs.
C)decrease and then increase as output increases.
D)do not vary with output.
E)increase and then decrease as output increases.

Question 58

Which of the following statements is NOT true of a corporation?

A)It can incur debt that is an obligation of the corporation but not of its individual owners.
B)It is an entity separate from the individuals who own it.
C)It is legally obliged to distribute all profits to shareholders.
D)It can enter into contracts.
E)It has the right to sue and be sued.

Question 59

Suppose NHL hockey player Jarome Iginla is averaging three points per game going into the last game of the season in which he collects four points,thereby changing his average for the season.To use an analogy in economics,it could be said that average product increases

A)when marginal product increases.
B)when total product increases.
C)when marginal product exceeds average product.
D)when average product exceeds marginal product.
E)whenever marginal product is positive.

Question 60

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. $$\begin{array} { | c | c | } \hline \text { Labour per period } & \text { Total output per period } \\\hline 0 & 0 \\\hline 1 & 10 \\\hline 2 & 30 \\\hline 3 & 90 \\\hline 4 & 132 \\\hline 5 & 150 \\\hline\end{array}$$ TABLE 7- 3

-Refer to Table 7- 3.The average total cost when producing 150 units of output is approximately

A)33 cents.
B)40 cents.
C)$1.50.
D)80 cents.
E)67 cents.

Question 61

The opportunity cost of any factor of production is

A)its explicit cost.
B)the money actually paid to the factors of production.
C)the benefit forgone by not using it in its worst alternative.
D)its accounting cost.
E)the benefit forgone by not using it in its best alternative.

Question 62

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

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

Question 63

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. $$\begin{array} { | l | c | } \hline \text { Labour per unit of time } & \text { Total output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$$ TABLE 7- 4

-Refer to Table 7- 4.The marginal product of labour curve intersects the average product of labour curve from above when the firm changes the amount of labour per unit of time from

A)0 to 1 units.
B)1 to 2 units.
C)2 to 3 units.
D)3 to 4 units.
E)4 to 5 units.

Question 64

Suppose that a firm's capital is fixed and one more unit of labour is hired,thereby increasing the firm's total output.Which of the following statements can be correct? 1.Marginal cost would remain constant.
2.Marginal cost would increase.
3.Marginal cost would decrease.

A)1 only
B)2 only
C)3 only
D)Any of 1,2,and 3 is possible.
E)None are possible.

Question 65

The diagram below shows some short- run cost curves for a firm.
FIGURE 7- 2
Refer to Figure 7- 2.Which of the following choices correctly identifies the cost curves in part (i)of the figure?

A)Curve 1 is the total variable cost curve.Curve 2 is the total cost curve. Curve 3 is the total fixed cost curve.
B)Curve 1 is the total fixed cost curve.Curve 2 is the total variable cost curve.Curve 3 is the total cost curve.
C)Curve 1 is the total cost curve. Curve 2 is the total variable cost curve.Curve 3 is the average fixed cost curve.
D)Curve 1 is the total cost curve. Curve 2 is the total variable cost curve.Curve 3 is the total fixed cost curve.
E)Curve 1 is the total marginal cost curve.Curve 2 is the total average cost curve.Curve 3 is the total average fixed cost curve.

Question 66

Suppose Jodi's widget business is using two inputs,labour and capital.If the price of labour increases,which of the following will happen?

A)The firm's marginal cost curve will remain unchanged.
B)The firm's average total cost curve will shift upward.
C)Jodi will shut down her business.
D)Jodi will hire more labour.
E)The firm's average fixed cost curve will shift upward.

Question 67

Consider a firm in the short run.When the total- product curve is increasing at an increasing rate

A)the marginal- product curve lies below the average- product curve.
B)marginal product is positive and increasing.
C)average product is falling.
D)marginal product is positive but declining.
E)average product is zero.

Question 68

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. $$\begin{array} { | l | c | } \hline \text { Labour per unit of time } & \text { Total output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$$ TABLE 7- 4

-Refer to Table 7- 4.The total cost of producing 175 units of output is

A)$100.
B)$75.
C)$175.
D)$350.
E)$150.

Question 69

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. $$\begin{array} { | c | l | } \hline \text { Lab our per period } & \text { Total output per period } \\\hline 0 & 0 \\\hline 1 & 10 \\\hline 2 & 30 \\\hline 3 & 90 \\\hline 4 & 132 \\\hline 5 & 150 \\\hline\end{array}$$ TABLE 7- 3

-Refer to Table 7- 3.The average total cost when producing 90 units of output is approximately

A)$26.67.
B)33 cents.
C)89 cents.
D)30 cents.
E)27 cents.

Question 70

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 MP and the AP of the variable factor will eventually decrease.
B)the AP will eventually decrease with constant MP.
C)the MP will eventually decrease with constant AP.
D)the AP will eventually decrease,but only if TP is held constant.
E)TP will eventually begin to fall.

Question 71

The table below provides information on output per month and short- run costs for a firm producing outdoor wooden lounge chairs. $$\begin{array} { | l | l | l | c | } \hline & \text { TFC } & \text { TVC } & \text { TC } \\\hline 5 & 200 & 200 & 400 \\\hline 10 & 200 & 220 & 420 \\\hline 15 & 200 & 240 & 440 \\\hline 20 & 200 & 260 & 460 \\\hline 25 & 200 & 350 & 550 \\\hline 30 & 200 & 810 & 1010 \\\hline\end{array}$$ TABLE 7- 5

-Refer to Table 7- 5.At what level of output is this firm at its capacity?

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

Question 72

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

A)AP is at its minimum when MP = AP.
B)when MP < AP,AP is increasing.
C)TP is at its maximum when MP is at its maximum.
D)TP begins to decrease when AP begins to decrease.
E)when the MP curve cuts the AP curve from above,the AP curve begins to fall.

Question 73

The table below provides the total revenues and costs for a small landscaping company in a recent year. $\begin{array}{|l|l|}\hline \text { Total Revenues }(\$) & 250000 \\\hline & \\\hline \text { Total Costs }(\$) & \\\hline \text { wages and salaries } & 150000 \\\hline \text { risk-free return of } 2 \% \text { on owner's capital of } \$ 20000 & 400 \\\hline \text { - interest on bank loan } & 1500 \\\hline \text { - cost of supplies } & 27000 \\\hline \text { depreciation of capital equipment } & 8000 \\\hline \text { additional wages the owner could have earned in next } & 30000 \\\text { best alternative } & \\\hline \text { - risk premium of } 4 \% \text { on owner's capital of } \$ 20000 & 800 \\\hline\end{array}$ TABLE 7- 2

-Refer to Table 7- 2.The explicit costs for this firm are

A)$186 900.
B)$217 300.
C)$186 500.
D)$178 500.
E)$217 700.

Question 74

Sport- fishermen on the Campbell River in British Columbia are catching fewer fish and are having to fish many more hours to catch them.However,the total number of fish caught on the river continues to increase.The river is experiencing

A)diminishing total returns.
B)diminishing marginal returns.
C)increasing marginal returns.
D)constant marginal returns.
E)increasing average returns.

Question 75

Suppose a firm producing digital cameras is operating such that marginal costs are higher than average costs.If the firm produces one more camera,average costs will

A)reach a point of diminishing returns.
B)remain constant.
C)rise.
D)fall.
E)reach their maximum.

Question 76

Consider a firm's short- run cost curves.When capital is a fixed factor,a rise in the cost of labour

A)shifts the marginal cost curve upwards.
B)shifts the AVC curve down.
C)leaves the MC curve unchanged.
D)shifts the total product curve downwards.
E)leaves the ATC curve unchanged.

Question 77

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. $$\begin{array} { | l | c | } \hline \text { Labour per unit of time } & \text { Total output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$$ TABLE 7- 4

-Refer to Table 7- 4.The total variable cost of producing 305 units of output is

A)$325.
B)$305.
C)$225.
D)$100.
E)$125.

Question 78

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

A)Average product equals marginal product when marginal product is at its maximum.
B)When marginal product exceeds average product,average product must be rising.
C)Average product equals marginal product at marginal product's lowest point.
D)When marginal product is falling,average product is falling.
E)When average product exceeds marginal product,marginal product must be rising.

Question 79

Which of the following statements describes an advantage to the owner of a single proprietorship?

A)The firm has a legal existence separate from its owner.
B)Shares of the firm can be traded on any stock exchange.
C)He or she has limited liability.
D)The owner's liability is limited to the amount he or she actually invests in the firm.
E)The owner can readily maintain full and complete control over every aspect of the firm's operation.

Question 80

An example of "real" capital is

A)shares in a corporation.
B)a firm's balance in a bank account.
C)a firm's computer systems.
D)corporate bonds.
E)a firm's retained earnings.