Question 1

Answer the question on the basis of the following information.  When two workers are employed,

Accepted Answer

A)  total product is 20.
B)  total product is 18.
C)  average product is 10.
D)  total product cannot be determined from the information given.

Question 2

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

Accepted Answer

A)  payments of wages to its office workers
B)  rent paid for the use of equipment owned by the Schultz Machinery Company
C)  use of savings to pay operating expenses instead of generating interest income
D)  economic profits resulting from current production

Question 3

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that

Accepted Answer

A)  the long-run average total cost curve is upsloping.
B)  a 10 percent increase in all inputs will increase output by less than 10 percent.
C)  a 10 percent increase in all inputs will increase output by more than 10 percent.
D)  the firm is encountering problems of managerial bureaucracy because of its size.

Question 4

The following cost data are for a firm in the short run.  What is the firm's average variable cost at an output of 5 units?

Accepted Answer

A)  $30
B)  $60
C)  $120
D)  $140

Question 5

A major factor explaining economies of scale is increased specialization of labor.

Accepted Answer

A) True 
 B)False

Question 6

When diminishing marginal returns starts occurring, the addition of successive units of a variable resource to a fixed resource will cause the firm's production to diminish.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

Accepted Answer

A)  $100,000 and its economic profits were $0.
B)  $200,000 and its economic profits were $0.
C)  $100,000 and its economic profits were $100,000.
D)  $0 and its economic loss was $200,000.

Question 8

If all resources used in the production of a product are increased by 10 percent and output increases by less than 5 percent, then the firm is experiencing

Accepted Answer

A)  economies of scale.
B)  diseconomies of scale.
C)  constant returns to scale.
D)  decreasing average total costs.

Question 9

Which statement is correct?

Accepted Answer

A)  Marginal cost is the change in average cost when there is a change in output of 1 unit.
B)  The marginal cost curve cuts the average variable cost curve at its lowest point.
C)  The marginal cost curve cuts the average variable cost curve at an output greater than where the marginal cost curve cuts the average cost curve.
D)  If average variable cost is increasing, then average total cost must be increasing too.

Question 10

The following is cost information for the Creamy Crisp Donut Company.Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Creamy Crisp's implicit costs, including a normal profit, are

Accepted Answer

A)  $136,000.
B)  $150,000.
C)  $94,000.
D)  $156,000.

Question 11

Use the following data to answer the question. The letters A, B, and C designate three successively larger plant sizes.  At what level of output is minimum efficient scale realized?

Accepted Answer

A)  30
B)  40
C)  50
D)  60

Question 12

Harvey quit his job at State University, where he earned $62,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $4,000 a year. To start the business, he cashed in $50,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 10,000 units of software at $72 for each unit. Of the $72 per unit, $60 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.The explicit costs of Harvey's firm in the first year were

Accepted Answer

A)  $120,000.
B)  $600,000.
C)  $49,000.
D)  $720,000.

Question 13

If in the short run a firm's total product is increasing, then its

Accepted Answer

A)  marginal product must also be increasing.
B)  marginal product must be decreasing.
C)  marginal product could be either increasing or decreasing.
D)  average product must also be increasing.

Question 14

Economic profits are

Accepted Answer

A)  always larger than accounting profits.
B)  the sum of accounting profits and implicit costs.
C)  equal to the difference between total revenues and implicit costs.
D)  equal to the difference between accounting profits and implicit costs.

Question 15

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand

Accepted Answer

A)  if a labor force in excess of Q₁ is employed.
B)  if a labor force in excess of Q₂ is employed.
C)  if a labor force in excess of Q₃ is employed.
D)  only if the marginal product curve becomes negative at all levels of output.

Question 16

Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced

Accepted Answer

A)  an upward shift in their MC, AVC, and ATC curves.
B)  an upward shift in their AFC, AVC, and ATC curves.
C)  a downward shift in their MC, AFC, and AVC curves.
D)  greater economies of scale.

Question 17

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

Accepted Answer

A)  shipping charges
B)  property insurance premiums
C)  wages for unskilled labor
D)  expenditures for raw materials

Question 18

Refer to the provided graph. If the firm is producing at Q ₁, the area BADE represents

Accepted Answer

A)  total costs.
B)  total variable costs.
C)  total fixed costs.
D)  average variable costs.

Question 19

If economic profits in an industry are zero and implicit costs are greater than zero, then

Accepted Answer

A)  resources will move out of the industry.
B)  there will be no production in the short run.
C)  accounting profits are greater than zero.
D)  new firms will enter the industry.

Question 20

Refer to the provided graph. If the firm is producing at Q ₁, the area 0 ADQ ₁ represents

Accepted Answer

A)  total costs.
B)  total variable costs.
C)  total fixed costs.
D)  average total costs.

Exam 9: Businesses and the Costs of Production

Correct Answer
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Refer to the provided graph. If the firm is producing at Q ₁, the area 0 ADQ ₁ represents

Correct Answer
verified

If all resources used in the production of a product are increased by 10 percent and output increases by less than 5 percent, then the firm is experiencing

Correct Answer
verified

Which statement is correct?

Correct Answer
verified

The following cost data are for a firm in the short run. What is the firm's average variable cost at an output of 5 units?

Correct Answer
verified

Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced

Correct Answer
verified

Correct Answer
verified

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

Correct Answer
verified

Use the following data to answer the question. The letters A, B, and C designate three successively larger plant sizes. At what level of output is minimum efficient scale realized?

Correct Answer
verified

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand

Correct Answer
verified

A major factor explaining economies of scale is increased specialization of labor.

Correct Answer
verified

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

Correct Answer
verified

Answer the question on the basis of the following information. When two workers are employed,

Correct Answer
verified

If economic profits in an industry are zero and implicit costs are greater than zero, then

Correct Answer
verified

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

Correct Answer
verified

When diminishing marginal returns starts occurring, the addition of successive units of a variable resource to a fixed resource will cause the firm's production to diminish.

Correct Answer
verified

Economic profits are

Correct Answer
verified

If in the short run a firm's total product is increasing, then its

Correct Answer
verified

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that

Correct Answer
verified

Refer to the provided graph. If the firm is producing at Q ₁, the area BADE represents

Correct Answer
verified

Exam 9: Businesses and the Costs of Production

Correct AnswerverifiedShow Answer

Refer to the provided graph. If the firm is producing at Q ₁, the area 0 ADQ ₁ represents

Correct AnswerverifiedShow Answer

If all resources used in the production of a product are increased by 10 percent and output increases by less than 5 percent, then the firm is experiencing

Correct AnswerverifiedShow Answer

Which statement is correct?

Correct AnswerverifiedShow Answer

The following cost data are for a firm in the short run. What is the firm's average variable cost at an output of 5 units?

Correct AnswerverifiedShow Answer

Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

Correct AnswerverifiedShow Answer

Use the following data to answer the question. The letters A, B, and C designate three successively larger plant sizes. At what level of output is minimum efficient scale realized?

Correct AnswerverifiedShow Answer

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand

Correct AnswerverifiedShow Answer

A major factor explaining economies of scale is increased specialization of labor.

Correct AnswerverifiedShow Answer

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

Correct AnswerverifiedShow Answer

Answer the question on the basis of the following information. When two workers are employed,

Correct AnswerverifiedShow Answer

If economic profits in an industry are zero and implicit costs are greater than zero, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When diminishing marginal returns starts occurring, the addition of successive units of a variable resource to a fixed resource will cause the firm's production to diminish.

Correct AnswerverifiedShow Answer

Economic profits are

Correct AnswerverifiedShow Answer

If in the short run a firm's total product is increasing, then its

Correct AnswerverifiedShow Answer

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that

Correct AnswerverifiedShow Answer

Refer to the provided graph. If the firm is producing at Q ₁, the area BADE represents

Correct AnswerverifiedShow Answer

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