Question 1

The marginal cost curve:

Accepted Answer

A)   is a vertical line.
B)   generally rises at first and then declines as output expands.
C)   generally falls at first and then rises as output expands.
D)   intersects the average variable cost curve from below at its maximum point.E) C) and D)
F) B) and C)

Question 2

During the short-run period of the production process,a firm is:

Accepted Answer

A)   unable to vary any of its factors of production.
B)   able to vary only some of its factors of production.
C)   able to vary all of its factors of production.
D)   able to vary the size of its plant.E) C) and D)
F) B) and C)

Question 3

The marginal product of capital:

Accepted Answer

A)   is equal to the increase in capital necessary to generate a one-unit increase in output.
B)   is equal to the increase in output obtained from a one-unit increase in capital, holding other factors constant.
C)   is equal to the incremental profit associated with selling one more unit of output.
D)   is equal to the incremental cost of employing one more unit of physical or human capital.E) All of the above
F) A) and D)

Question 4

Exhibit 11-6  Refer to Exhibit 11-6.The short-run average total cost curve is the curve labeled:

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  D.E) B) and D)
F) None of the above

Question 5

Average fixed cost:

Accepted Answer

A)   remains unchanged as output expands.
B)   is defined as the change in total cost divided by the change in output.
C)   always increases as output increases.
D)   always decreases as output expands.E) B) and C)
F) All of the above

Question 6

Exhibit 11-3 A factory producing CD players finds that its output varies with the number of workers employed each week in the following way:
 Refer to Exhibit 11-3.The marginal product of the fifth worker hired is:

Accepted Answer

A)   112 units of output.
B)   94 units of output.
C)   20 units of output.
D)   18 units of output.E) B) and D)
F) C) and D)

Question 7

An implicit cost:

Accepted Answer

A)   is an opportunity cost.
B)   is an out-of-pocket expense.
C)   does not require an outlay of money.
D)   is characterized by both (a)  and (c) E) A) and B)
F) A) and C)

Question 8

A firm replaces a machine by hiring 3 hourly production workers instead.

Accepted Answer

A)   Both its fixed and variable costs will fall.
B)   Both its fixed and variable costs will rise.
C)   Its fixed costs will rise and its variable costs will fall.
D)   Its fixed costs will fall and its variable costs will rise.E) A) and D)
F) None of the above

Question 9

Scarlett recently began running her husband's lumber mill.Last month she took in $5,000 in sales revenue and paid $3,400 in out-of-pocket costs.Did the lumberyard make an economic profit last month?

Accepted Answer

A)   Definitely not.
B)   Yes. After considering non-zero explicit and implicit costs, it is clear that her profit is exactly equal to $1,600.
C)   Without knowing the magnitude of implicit costs, it is not possible to state whether the lumberyard earned an economic profit last month.
D)   Yes, after factoring implicit costs, it is clear that her profit will exceed $1,600.E) All of the above
F) A) and B)

Question 10

An example of an implicit cost of production is:

Accepted Answer

A)   the cost of raw materials used to produce bread in a bakery.
B)   the cost of labor in a factory that assembles DVD players.
C)   the income an entrepreneur could have earned working for someone else.
D)   all of the above.E) B) and D)
F) C) and D)

Question 11

Fixed costs are best defined as:

Accepted Answer

A)   costs that do not vary with output.
B)   costs that vary with output.
C)   the sum of all marginal costs.
D)   the change in total cost when one more unit of output is produced.E) A) and B)
F) A) and C)

Question 12

A Texas oil woman would like to increase the oil produced from her oil fields.Since it takes over a year to drill new wells,she opts instead for increasing labor and other variable inputs to produce more oil from existing wells.She is making a short-run production decision.

Accepted Answer

A) True 
 B)False

Question 13

The law of diminishing marginal product provides an explanation for why average total cost eventually increases as output is expanded in the short run.

Accepted Answer

A) True 
 B)False

Question 14

What is the law of diminishing marginal product? What causes it?

Accepted Answer

The law of diminishing marginal product ...

Question 15

Economists define the long run as any production time period lasting over one year.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 11-9  Refer to Exhibit 11-9.What is the level of the firm's total fixed cost (in thousands) ?

Accepted Answer

A)   $0
B)   $5
C)   $8
D)   $25E) A) and B)
F) None of the above

Question 17

In the short run,some costs are fixed.

Accepted Answer

A) True 
 B)False

Question 18

A firm which owns its own equipment and is earning positive economic profits

Accepted Answer

A)   is likely earning positive accounting profits.
B)   is likely earning zero accounting profits.
C)   is likely earning negative accounting profits.
D)   could be earning positive or negative accounting profits.E) All of the above
F) A) and B)

Question 19

Exhibit 11-2  Refer to Exhibit 11-2.How much are total fixed costs (in dollars) ?

Accepted Answer

A)   20
B)   30
C)   40
D)   50E) All of the above
F) B) and D)

Question 20

Exhibit 11-7  Refer to Exhibit 11-7.At output level 0Q,total cost equals:

Accepted Answer

A)   area ADQ0.
B)   area ADEB.
C)   area ADFC.
D)   area BEQ0.E) A) and B)
F) A) and C)

Exam 11: The Firm: Production and Costs

What is the law of diminishing marginal product? What causes it?

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Exhibit 11-2 Refer to Exhibit 11-2.How much are total fixed costs (in dollars) ?

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Average fixed cost:

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Exhibit 11-7 Refer to Exhibit 11-7.At output level 0Q,total cost equals:

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A firm which owns its own equipment and is earning positive economic profits

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Exhibit 11-6 Refer to Exhibit 11-6.The short-run average total cost curve is the curve labeled:

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An implicit cost:

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Exhibit 11-3 A factory producing CD players finds that its output varies with the number of workers employed each week in the following way: Refer to Exhibit 11-3.The marginal product of the fifth worker hired is:

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A Texas oil woman would like to increase the oil produced from her oil fields.Since it takes over a year to drill new wells,she opts instead for increasing labor and other variable inputs to produce more oil from existing wells.She is making a short-run production decision.

Correct AnswerverifiedShow Answer

The marginal product of capital:

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During the short-run period of the production process,a firm is:

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In the short run,some costs are fixed.

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A firm replaces a machine by hiring 3 hourly production workers instead.

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Exhibit 11-9 Refer to Exhibit 11-9.What is the level of the firm's total fixed cost (in thousands) ?

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Scarlett recently began running her husband's lumber mill.Last month she took in $5,000 in sales revenue and paid $3,400 in out-of-pocket costs.Did the lumberyard make an economic profit last month?

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The law of diminishing marginal product provides an explanation for why average total cost eventually increases as output is expanded in the short run.

Correct AnswerverifiedShow Answer

An example of an implicit cost of production is:

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Fixed costs are best defined as:

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Economists define the long run as any production time period lasting over one year.

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The marginal cost curve:

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The law of diminishing marginal product ...
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