Question 1

-Refer to the above information. Average total cost is:

Accepted Answer

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

Question 2

-Refer to the above information. Marginal cost is:

Accepted Answer

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

Question 3

The principal-agent problem in corporations arises from:

Accepted Answer

A)   the fact that the principal objective of most corporations is to make profits and not to contribute to charity.
B)   a conflict of interest between corporate executives who manage the firm and stockholders who own the firm.
C)   the view that workers are agents who are not considered to be the principal asset of the corporations for which they work.
D)   a perspective that corporations are agents that represent the principal source of power for government and the national economy.E) B) and D)
F) A) and C)

Question 4

- Refer to the above information. Average fixed cost is:

Accepted Answer

A)   TVC - MC.
B)   
C)   
D)   E) B) and D)
F) A) and B)

Question 5

Which of the following statements is most accurate about sunk costs?

Accepted Answer

A)   All fixed costs are sunk costs.
B)   Sunk costs are important in business decisions because they need to be recovered.
C)   Sunk costs are unrecoverable and therefore shouldn't influence economic decisions.
D)   All expenditures, once made, represent sunk costs.E) B) and C)
F) All of the above

Question 6

Alyssa runs a "Dessert of the month" delivery service. To operate her business each year, she spends $30,000 on baking supplies (flour, sugar, etc.) , $50,000 on rent for her shop, and $5,000 for utilities. She owns her delivery van, estimating that in alternate uses it could generate $15,000 in income per year. Alyssa has other funds tied up in the business that could earn her $2,000 per year in interest. Alyssa has been offered $50,000 to work full time at a competing bakery. Her bakery generates $160,000 per year in revenue from subscriptions to her monthly service.
Based on the information above, which of the following is true about Alyssa's costs and profits?

Accepted Answer

A)   Alyssa's explicit costs are $67,000 and her implicit costs are $85,000.
B)   Alyssa's implicit costs are $67,000 and her economic profits are $93,000.
C)   Alyssa's accounting profits are $8,000 and her economic profits are $75,000.
D)   Alyssa's explicit costs are $85,000 and her accounting profits are $75,000.E) All of the above
F) A) and D)

Question 7

The law of diminishing returns indicates that:

Accepted Answer

A)   as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
B)   because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped.
C)   the demand for goods produced by purely competitive industries is downsloping.
D)   beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.E) B) and C)
F) A) and C)

Question 8

Which of the following industries would see firms reach their minimum efficient scale at relatively low levels of output?

Accepted Answer

A)   Automobile manufacturers.
B)   Software companies.
C)   Oil refineries.
D)   Hair salons.E) B) and D)
F) A) and C) D

Question 9

Suppose you own $50,000 of personal property, $5,000 of stock in General Statics Corporation, a $10,000 savings account, and $20,000 of government bonds. If General Statics goes bankrupt, the most you could lose is:

Accepted Answer

A)   $50,000.
B)   $5,000.
C)   $35,000.
D)   $85,000.E) A) and C)
F) A) and B)

Question 10

Use the figure below to answer the following questions:
 In the above figure, curves 1, 2, 3, and 4 represent the:

Accepted Answer

A)   ATC, MC, AFC, and AVC curves respectively.
B)   MC, AFC, AVC, and ATC curves respectively.
C)   MC, ATC, AVC, and AFC curves respectively.
D)   ATC, AVC, AFC, and MC curves respectively.E) A) and C)
F) A) and B)

Question 11

Refer to the above data. The total variable cost of producing 5 units is:

Accepted Answer

A)   $61.
B)   $48.
C)   $37.
D)   $24.E) A) and B)
F) B) and C)

Question 12

Alyssa runs a "Dessert of the month" delivery service. To operate her business each year, she spends $30,000 on baking supplies (flour, sugar, etc.) , $50,000 on rent for her shop, and $5,000 for utilities. She owns her delivery van, estimating that in alternate uses it could generate $15,000 in income per year. Alyssa has other funds tied up in the business that could earn her $2,000 per year in interest. Alyssa has been offered $50,000 to work full time at a competing bakery. Her bakery generates $160,000 per year in revenue from subscriptions to her monthly service.
Based on the information above, which of the following can we conclude about Alyssa's business?

Accepted Answer

A)   Alyssa is incurring economic losses, so we would expect her to close her business.
B)   Alyssa is earning economic profits, so we would expect her to remain in business.
C)   Alyssa's economic profits are greater than her accounting profits.
D)   Alyssa would be better off working for the competing bakery.E) A) and D)
F) None of the above

Question 13

Alyssa runs a "Dessert of the month" delivery service. To operate her business each year, she spends $30,000 on baking supplies (flour, sugar, etc.) , $50,000 on rent for her shop, and $5,000 for utilities. She owns her delivery van, estimating that in alternate uses it could generate $15,000 in income per year. Alyssa has other funds tied up in the business that could earn her $2,000 per year in interest. Alyssa has been offered $50,000 to work full time at a competing bakery. Her bakery generates $160,000 per year in revenue from subscriptions to her monthly service.
Based on the information above, which of the following is true about Alyssa's costs and profits?

Accepted Answer

A)   Alyssa's explicit costs are $67,000 and her implicit costs are $85,000.
B)   Alyssa's implicit costs are $67,000 and her economic profits are $93,000.
C)   Alyssa's accounting profits are $75,000 and her economic profits are $8,000.
D)   Alyssa's explicit costs are $85,000 and her accounting profits are $8,000.E) C) and D)
F) A) and D)

Question 14

- Refer to the above information. Total cost is:

Accepted Answer

A)   the change in marginal cost.
B)   TVC - TFC.
C)   TFC + TVC.
D)   E) C) and D)
F) None of the above C

Question 15

Which of the following best expresses the law of diminishing returns?

Accepted Answer

A)   Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output.
B)   Population growth automatically adjusts to that level at which the average product per worker will be at a maximum.
C)   As successive amounts of one resource (labor)  are added to fixed amounts of other resources (capital) , beyond some point the resulting extra output will decline.
D)   Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output.E) A) and B)
F) B) and C)

Exam 6: Businesses and Their Costs

-Refer to the above information. Average total cost is:

Correct Answer
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D

-Refer to the above information. Marginal cost is:

Correct Answer
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The principal-agent problem in corporations arises from:

Correct Answer
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- Refer to the above information. Average fixed cost is:

Correct Answer
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Which of the following statements is most accurate about sunk costs?

Correct Answer
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The law of diminishing returns indicates that:

Correct Answer
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Which of the following industries would see firms reach their minimum efficient scale at relatively low levels of output?

Correct Answer
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D

Suppose you own $50,000 of personal property, $5,000 of stock in General Statics Corporation, a $10,000 savings account, and $20,000 of government bonds. If General Statics goes bankrupt, the most you could lose is:

Correct Answer
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Use the figure below to answer the following questions: In the above figure, curves 1, 2, 3, and 4 represent the:

Correct Answer
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Refer to the above data. The total variable cost of producing 5 units is:

Correct Answer
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- Refer to the above information. Total cost is:

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C

Which of the following best expresses the law of diminishing returns?

Correct Answer
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Exam 6: Businesses and Their Costs

-Refer to the above information. Average total cost is:

Correct AnswerverifiedD

-Refer to the above information. Marginal cost is:

Correct AnswerverifiedShow Answer

The principal-agent problem in corporations arises from:

Correct AnswerverifiedShow Answer

- Refer to the above information. Average fixed cost is:

Correct AnswerverifiedShow Answer

Which of the following statements is most accurate about sunk costs?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The law of diminishing returns indicates that:

Correct AnswerverifiedShow Answer

Which of the following industries would see firms reach their minimum efficient scale at relatively low levels of output?

Correct AnswerverifiedD

Suppose you own $50,000 of personal property, $5,000 of stock in General Statics Corporation, a $10,000 savings account, and $20,000 of government bonds. If General Statics goes bankrupt, the most you could lose is:

Correct AnswerverifiedShow Answer

Use the figure below to answer the following questions: In the above figure, curves 1, 2, 3, and 4 represent the:

Correct AnswerverifiedShow Answer

Refer to the above data. The total variable cost of producing 5 units is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

- Refer to the above information. Total cost is:

Correct AnswerverifiedC

Which of the following best expresses the law of diminishing returns?

Correct AnswerverifiedShow Answer

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D

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D

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C

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