Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

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

Question 3

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.   TABLE 7-3
-Refer to Table 7-3.The average total cost when this firm is producing 10 units of output is

Accepted Answer

A) 60 cents. 
B) $1. 
C) $6. 
D) $10. 
E) $60. 
A) 60 cents. 
B) $1. 
C) $6. 
D) $10. 
E) $60.

Question 4

The table below provides information on output per month and short-run costs for a firm producing outdoor wooden lounge chairs.All costs are in dollars.   TABLE 7-5
-Refer to Table 7-5.Given the information in the table about short-run costs,this firm would minimize the average total cost of production when producing

Accepted Answer

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

Question 5

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

Accepted Answer

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

Question 6

The law of diminishing returns states that if increasing quantities of a variable factor are applied to a given quantity of fixed factors,then

Accepted Answer

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

Question 7

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

Accepted Answer

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

Question 8

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

Accepted Answer

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

Question 9

If Michelle used $1000 from her savings account,which was paying 6% interest annually,to invest in her brotherʹs new sporting-goods store,the opportunity cost of her investment on an annual basis would be

Accepted Answer

A) $60. 
B) $1000. 
C) $1060. 
D) her share of the storeʹs profits. 
E) the dividend paid to her by her brother. 
A) $60. 
B) $1000. 
C) $1060. 
D) her share of the storeʹs profits. 
E) the dividend paid to her by her brother.

Question 10

With regard to economic decision making for firms,the short run is

Accepted Answer

A) a definite number of months. 
B) a period over which the quantities of all factors of production and technology are variable. 
C) a period over which the quantity of at least one significant factor of production is fixed. 
D) a period over which the quantities of all factors of production are variable but technology is fixed. 
E) less than one year. 
A) a definite number of months. 
B) a period over which the quantities of all factors of production and technology are variable. 
C) a period over which the quantity of at least one significant factor of production is fixed. 
D) a period over which the quantities of all factors of production are variable but technology is fixed. 
E) less than one year.

Question 11

The table below shows output,marginal cost,and average variable cost for the production of pairs of shoes.All costs are in dollars.   TABLE 7-6
-Refer to Table 7-6.If the firm produces 130 pairs of shoes,and the fixed cost is $550,then the firmʹs total cost is

Accepted Answer

A) $7000. 
B) $8000. 
C) $9000. 
D) $10 000. 
E) $12 000. 
A) $7000. 
B) $8000. 
C) $9000. 
D) $10 000. 
E) $12 000.

Question 12

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

Accepted Answer

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

Question 13

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

Accepted Answer

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

Question 14

The table below provides information on output per month and short-run costs for a firm producing outdoor wooden lounge chairs.All costs are in dollars.   TABLE 7-5
-Refer to Table 7-5.What is the average variable cost of producing 10 chairs?

Accepted Answer

A) $22 
B) $42 
C) $200 
D) $220 
E) $420 
A) $22 
B) $42 
C) $200 
D) $220 
E) $420

Question 15

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.   TABLE 7-3
-Refer to Table 7-3.Diminishing marginal product of labour is first observed when the firm changes the amount of labour hired from

Accepted Answer

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. 
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 16

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

Accepted Answer

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

Question 17

Marginal cost is defined as the

Accepted Answer

A) change in total cost resulting from an additional unit of output. 
B) change in fixed cost resulting from an additional unit of output. 
C) difference between average total cost and average variable cost. 
D) cost per unit when the firm is operating at capacity. 
E) cost of an additional unit of a variable factor of production. 
A) change in total cost resulting from an additional unit of output. 
B) change in fixed cost resulting from an additional unit of output. 
C) difference between average total cost and average variable cost. 
D) cost per unit when the firm is operating at capacity. 
E) cost of an additional unit of a variable factor of production.

Question 18

When a firmʹs marginal cost is rising,we know that

Accepted Answer

A) average fixed cost must be rising. 
B) average variable cost must be rising. 
C) average total cost must be rising. 
D) marginal product must be zero. 
E) marginal product must be falling. 
A) average fixed cost must be rising. 
B) average variable cost must be rising. 
C) average total cost must be rising. 
D) marginal product must be zero. 
E) marginal product must be falling.

Question 19

A firm can raise financial capital without incurring debt by

Accepted Answer

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

Exam 7: Producers in the Short Run

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

The law of diminishing returns states that if increasing quantities of a variable factor are applied to a given quantity of fixed factors,then

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

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

If Michelle used $1000 from her savings account,which was paying 6% interest annually,to invest in her brotherʹs new sporting-goods store,the opportunity cost of her investment on an annual basis would be

With regard to economic decision making for firms,the short run is

The table below shows output,marginal cost,and average variable cost for the production of pairs of shoes.All costs are in dollars. TABLE 7-6 -Refer to Table 7-6.If the firm produces 130 pairs of shoes,and the fixed cost is $550,then the firmʹs total cost is

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

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

The table below provides information on output per month and short-run costs for a firm producing outdoor wooden lounge chairs.All costs are in dollars. TABLE 7-5 -Refer to Table 7-5.What is the average variable cost of producing 10 chairs?

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

Marginal cost is defined as the

When a firmʹs marginal cost is rising,we know that

A firm can raise financial capital without incurring debt by

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