Question 1

Which of the following is a typical example of a fixed cost of production in a manufacturing firm?

Accepted Answer

A)  depreciation of capital
B)  wages paid to hourly workers
C)  electricity charges
D)  sales taxes dueE) A) and C)
F) B) and C)

Question 2

Diseconomies of scale stem primarily from the difficulties in managing and coordinating a large-scale business enterprise.

Accepted Answer

A) True 
 B)False

Question 3

The reason the marginal cost curve eventually increases as output increases for the typical firm is because of

Accepted Answer

A)  diseconomies of scale.
B)  diminishing marginal utility.
C)  diminishing marginal returns.
D)  increasing opportunity cost.E) None of the above
F) C) and D)

Question 4

When a firm doubles its inputs and finds that its output has more than doubled, this is known as

Accepted Answer

A)  economies of scale.
B)  constant returns to scale.
C)  diseconomies of scale.
D)  a violation of the law of diminishing returns.E) A) and D)
F) None of the above

Question 5

Production costs to an economist

Accepted Answer

A)  consist only of explicit costs.
B)  reflect opportunity costs.
C)  never reflect monetary outlays.
D)  always reflect monetary outlays.E) A) and B)
F) A) and C)

Question 6

If marginal cost exceeds average total cost in the short run, then which is likely to be true?

Accepted Answer

A)  Average total cost is increasing.
B)  Average variable cost is decreasing.
C)  Average total cost is less than average variable cost.
D)  Marginal cost is less than average variable cost.E) None of the above
F) A) and B)

Question 7

When the total product curve is falling, the

Accepted Answer

A)  marginal product of labor is zero.
B)  marginal product of labor is negative.
C)  average product of labor is increasing.
D)  average product of labor must be negative.E) None of the above
F) A) and B)

Question 8

Zero economic profits mean that the firm is earning

Accepted Answer

A)  revenues that just cover all of its actual expenses.
B)  accounting profits that are equal to its accounting costs.
C)  the same amount of accounting profits as what it would have earned elsewhere.
D)  revenues that are equal to its accounting profits.E) B) and D)
F) None of the above

Question 9

The amount of calendar time associated with the long run

Accepted Answer

A)  is less than that associated with the immediate market period.
B)  varies from industry to industry.
C)  is the same for all firms.
D)  is, by definition, any length of time greater than one year.E) A) and B)
F) A) and C)

Question 10

The total output of a firm will be at a maximum where

Accepted Answer

A)  MP is at a maximum.
B)  AP is at a minimum.
C)  MP is zero.
D)  AP is at a maximum.E) B) and C)
F) None of the above

Question 11

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there

Accepted Answer

A)  is a minimum efficient scale.
B)  are constant returns to scale.
C)  are diseconomies of scale.
D)  are economies of scale.E) A) and D)
F) B) and C)

Question 12

(Last Word)  The development of additive manufacturing technology (3-D printers)  is expected to lower prices by doing which of the following?

Accepted Answer

A)  reducing the cost of producing blueprints for manufactured goods
B)  promoting greater economies of scale in manufacturing
C)  reducing the demand for manufactured goods
D)  reducing both large fixed set-up costs and transportation costsE) B) and C)
F) C) and D)

Question 13

The law of diminishing returns explains why

Accepted Answer

A)  total cost eventually rises faster and faster.
B)  total cost eventually falls.
C)  total cost eventually rises more and more slowly.
D)  total cost eventually reaches a maximum point.E) None of the above
F) C) and D)

Question 14

Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased,

Accepted Answer

A)  total cost at first increases at a decreasing rate and then increases at an increasing rate.
B)  total variable cost at first increases at an increasing rate and then increases at a decreasing rate.
C)  average total cost at first increases and then diminishes.
D)  average fixed cost will rise beyond the point of diminishing returns.Topic: Short-Run Production RelationshipsE) B) and C)
F) A) and B)

Question 15

Which of the following statements is true?

Accepted Answer

A)  Diminishing marginal returns means that total output decreases as more of the variable inputs are employed.
B)  Diminishing marginal returns means that in order to increase output at a constant rate, the firm must add larger and larger quantities of the variable inputs.
C)  Diminishing marginal returns implies that there will never be increasing returns to scale.
D)  Diminishing marginal returns implies that the firm's profits will be shrinking as it produces more of its product.E) A) and B)
F) A) and C)

Question 16

The vertical distance between a firm's ATC and AVC curves represents

Accepted Answer

A)  AFC, which increases as output increases.
B)  AFC, which decreases as output increases.
C)  marginal costs, which decrease as output decreases.
D)  marginal costs, which increase as output increases.E) C) and D)
F) None of the above

Question 17

A firm doubles the quantity of all resources it employs and, as a result, output doubles.Which of the following is correct?

Accepted Answer

A)  There are increasing returns to scale.
B)  The long-run average total cost curve is flat.
C)  The law of diminishing returns is proven wrong.
D)  The example is for the short-run rather than the long-run.E) A) and C)
F) B) and D)

Question 18

If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then

Accepted Answer

A)  it is encountering diseconomies of scale.
B)  it is encountering economies of scale.
C)  the law of diminishing returns is taking hold.
D)  the firm's long-run ATC curve will be rising.E) A) and B)
F) All of the above

Question 19

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year.If the firm sold 100,000 units of its output at $50 per unit, its accounting

Accepted Answer

A)  profits were $100,000 and its economic profits were $0.
B)  losses were $500,000 and its economic losses were $0.
C)  profits were $500,000 and its economic profits were $1 million.
D)  profits were $0 and its economic losses were $500,000.E) A) and D)
F) A) and C)

Question 20

When the Defense Department ordered 132 new airplanes, the cost per plane was estimated to be $580 million.A cut in the order to 75 planes increased the per plane cost to $800 million.This change in per unit cost can be explained by

Accepted Answer

A)  a move to minimum efficient scale.
B)  the law of diminishing returns.
C)  the loss of economies of scale.
D)  an increase in total fixed cost.E) All of the above
F) A) and C)

Exam 9: Businesses and the Costs of Production

Which of the following statements is true?

Correct AnswerverifiedShow Answer

(Last Word) The development of additive manufacturing technology (3-D printers) is expected to lower prices by doing which of the following?

Correct AnswerverifiedShow Answer

Production costs to an economist

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The reason the marginal cost curve eventually increases as output increases for the typical firm is because of

Correct AnswerverifiedShow Answer

Zero economic profits mean that the firm is earning

Correct AnswerverifiedShow Answer

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there

Correct AnswerverifiedShow Answer

The amount of calendar time associated with the long run

Correct AnswerverifiedShow Answer

The vertical distance between a firm's ATC and AVC curves represents

Correct AnswerverifiedShow Answer

If marginal cost exceeds average total cost in the short run, then which is likely to be true?

Correct AnswerverifiedShow Answer

When the total product curve is falling, the

Correct AnswerverifiedShow Answer

When the Defense Department ordered 132 new airplanes, the cost per plane was estimated to be $580 million.A cut in the order to 75 planes increased the per plane cost to $800 million.This change in per unit cost can be explained by

Correct AnswerverifiedShow Answer

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year.If the firm sold 100,000 units of its output at $50 per unit, its accounting

Correct AnswerverifiedShow Answer

Which of the following is a typical example of a fixed cost of production in a manufacturing firm?

Correct AnswerverifiedShow Answer

If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then

Correct AnswerverifiedShow Answer

The total output of a firm will be at a maximum where

Correct AnswerverifiedShow Answer

The law of diminishing returns explains why

Correct AnswerverifiedShow Answer

When a firm doubles its inputs and finds that its output has more than doubled, this is known as

Correct AnswerverifiedShow Answer

A firm doubles the quantity of all resources it employs and, as a result, output doubles.Which of the following is correct?

Correct AnswerverifiedShow Answer

Diseconomies of scale stem primarily from the difficulties in managing and coordinating a large-scale business enterprise.

Correct AnswerverifiedShow Answer

Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased,

Correct AnswerverifiedShow Answer

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