Question 1

Which of the following statements is NOT true of a corporation?

Accepted Answer

A)  It can enter into contracts. 
B)  It is an entity separate from the individuals who own it. 
C)  It can incur debt that is an obligation of the corporation but not of its individual owners. 
D)  It has the right to sue and be sued. 
E)  It is legally obliged to distribute all profits to shareholders. 
A)  It can enter into contracts. 
B)  It is an entity separate from the individuals who own it. 
C)  It can incur debt that is an obligation of the corporation but not of its individual owners. 
D)  It has the right to sue and be sued. 
E)  It is legally obliged to distribute all profits to shareholders.

Question 2

Consider a firm in the short run. Average product is at its maximum when

Accepted Answer

A)  total product is maximized. 
B)  marginal product is maximized. 
C)  the maximum quantity of the variable input is employed. 
D)  diminishing returns cease to operate. 
E)  average product equals marginal product and marginal product is falling. 
A)  total product is maximized. 
B)  marginal product is maximized. 
C)  the maximum quantity of the variable input is employed. 
D)  diminishing returns cease to operate. 
E)  average product equals marginal product and marginal product is falling.

Question 3

A limited partnership differs from an ordinary partnership by

Accepted Answer

A)  having a limited number of partners. 
B)  having a limited number of partners, each with limited liability. 
C)  including some partners whose liability is restricted to the amount that they invested in the firm. 
D)  having limited liability of all partners. 
E)  having unlimited liability for all partners. 
A)  having a limited number of partners. 
B)  having a limited number of partners, each with limited liability. 
C)  including some partners whose liability is restricted to the amount that they invested in the firm. 
D)  having limited liability of all partners. 
E)  having unlimited liability for all partners.

Question 4

The table below provides the total revenues and costs for a small landscaping company in a recent year.   TABLE 7-2
-Which of the following is most likely a long-run decision for a firm?

Accepted Answer

A)  The hours a store should stay open. 
B)  How many warehouses to build. 
C)  The number of workers to hire. 
D)  The amount of inventory to stock. 
E)  The price at which to sell the product. 
A)  The hours a store should stay open. 
B)  How many warehouses to build. 
C)  The number of workers to hire. 
D)  The amount of inventory to stock. 
E)  The price at which to sell the product.

Question 5

The equation Q = 0.5KL - 0.4)L + 2L2 is an example of

Accepted Answer

A)  a factor of production equation. 
B)  an economic input function. 
C)  a technological change equation. 
D)  an arithmetic expression of output quantities. 
E)  a production function. 
A)  a factor of production equation. 
B)  an economic input function. 
C)  a technological change equation. 
D)  an arithmetic expression of output quantities. 
E)  a production function.

Question 6

A firm that has two or more owners who share decision-making power as well as the firmʹs profits is called

Accepted Answer

A)  a single proprietorship. 
B)  a partnership. 
C)  a corporation. 
D)  a non-profit organization. 
E)  a joint-stock company. 
A)  a single proprietorship. 
B)  a partnership. 
C)  a corporation. 
D)  a non-profit organization. 
E)  a joint-stock company.

Question 7

The table below provides the annual revenues and costs for a family-owned firm producing catered meals.   TABLE 7-1
-Refer to Table 7-1. The implicit costs for this family-owned firm are

Accepted Answer

A)  $35 000. 
B)  $80 000. 
C)  $100 000. 
D)  $115 000. 
E)  $490 000. 
A)  $35 000. 
B)  $80 000. 
C)  $100 000. 
D)  $115 000. 
E)  $490 000.

Question 8

A firmʹs short-run cost curves, as conventionally drawn, show that

Accepted Answer

A)  AFC increases as output increases. 
B)  ATC = TFC + TVC. 
C)  AVC decreases as long as MC > AVC. 
D)  the MC curve intersects the AVC and ATC curves at their maximum points. 
E)  ATC decreases and then increases as output increases. 
A)  AFC increases as output increases. 
B)  ATC = TFC + TVC. 
C)  AVC decreases as long as MC > AVC. 
D)  the MC curve intersects the AVC and ATC curves at their maximum points. 
E)  ATC decreases and then increases as output increases.

Question 9

In the short run, the firmʹs product curves show

Accepted Answer

A)  AP is at its minimum when MP = AP. 
B)  TP is at its maximum when MP is at its maximum. 
C)  TP begins to decrease when AP begins to decrease. 
D)  when MP < AP, AP is increasing. 
E)  when the MP curve cuts the AP curve from above, the AP curve begins to fall. 
A)  AP is at its minimum when MP = AP. 
B)  TP is at its maximum when MP is at its maximum. 
C)  TP begins to decrease when AP begins to decrease. 
D)  when MP < AP, AP is increasing. 
E)  when the MP curve cuts the AP curve from above, the AP curve begins to fall.

Question 10

A firm that is maximizing its profits by producing a certain level of output must also be

Accepted Answer

A)  minimizing its cost of producing that output. 
B)  maximizing its sales. 
C)  minimizing its variable costs. 
D)  maximizing its output. 
E)  maximizing its revenue. 
A)  minimizing its cost of producing that output. 
B)  maximizing its sales. 
C)  minimizing its variable costs. 
D)  maximizing its output. 
E)  maximizing its revenue.

Question 11

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 12

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 variable cost when producing 132 units of output is approximately

Accepted Answer

A)  24 cents. 
B)  30 cents. 
C)  45 cents. 
D)  68 cents. 
E)  89 cents. 
A)  24 cents. 
B)  30 cents. 
C)  45 cents. 
D)  68 cents. 
E)  89 cents.

Question 13

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 product of labour when the firm hires 3 units of labour is . The average product of labour when the firm hires 4 units of labour is .

Accepted Answer

A)  30; 33 
B)  90; 132 
C)  60; 42 
D)  90; 222 
E)  30; 90 
A)  30; 33 
B)  90; 132 
C)  60; 42 
D)  90; 222 
E)  30; 90

Question 14

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 15

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 16

When a corporation issues a bond

Accepted Answer

A)  the purchaser of the bond assumes ownership rights in the corporation. 
B)  it is making a promise to pay interest each year and to repay the principal at a stated time in the future. 
C)  it is called equity capital. 
D)  it is called financing through the stock market. 
E)  it is making a promise to pay interest each year but not repay the principal. 
A)  the purchaser of the bond assumes ownership rights in the corporation. 
B)  it is making a promise to pay interest each year and to repay the principal at a stated time in the future. 
C)  it is called equity capital. 
D)  it is called financing through the stock market. 
E)  it is making a promise to pay interest each year but not repay the principal.

Question 17

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 marginal product of labour is at its maximum when the firm changes the amount of labour hired from

Accepted Answer

A)  0 to 1 unit. 
B)  1 to 2 units. 
C)  2 to 3 units. 
D)  3 to 4 units. 
E)  4 to 5 units. 
A)  0 to 1 unit. 
B)  1 to 2 units. 
C)  2 to 3 units. 
D)  3 to 4 units. 
E)  4 to 5 units.

Question 18

Consider a house-construction firm with fixed capital. The firm can build 8 houses per year with 16 workers and 8.8 houses per year with 17 workers. If it is currently building 8.8 houses per year, which of the following is true?

Accepted Answer

A)  Average product is at a maximum with 16 workers. 
B)  Average product is at a maximum with 17 workers. 
C)  The marginal product is below the average product. 
D)  The firm has already passed the point of diminishing marginal productivity. 
E)  The firm has not yet reached the point of diminishing average productivity. 
A)  Average product is at a maximum with 16 workers. 
B)  Average product is at a maximum with 17 workers. 
C)  The marginal product is below the average product. 
D)  The firm has already passed the point of diminishing marginal productivity. 
E)  The firm has not yet reached the point of diminishing average productivity.

Question 19

The table below provides the total revenues and costs for a small landscaping company in a recent year.   TABLE 7-2
-Refer to Table 7-2. The accounting profits for this firm are

Accepted Answer

A)  $32 300. 
B)  $32 700. 
C)  $63 100. 
D)  $63 500. 
E)  $71 500. 
A)  $32 300. 
B)  $32 700. 
C)  $63 100. 
D)  $63 500. 
E)  $71 500.

Question 20

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. At what level of output does average variable cost reach a minimum?

Accepted Answer

A)  30 
B)  90 
C)  132 
D)  150 
E)  AVC declines continuously over the range of output shown. 
A)  30 
B)  90 
C)  132 
D)  150 
E)  AVC declines continuously over the range of output shown.

Exam 7: Producers in the Short Run

Which of the following statements is NOT true of a corporation?

Consider a firm in the short run. Average product is at its maximum when

A limited partnership differs from an ordinary partnership by

The table below provides the total revenues and costs for a small landscaping company in a recent year. TABLE 7-2 -Which of the following is most likely a long-run decision for a firm?

The equation Q = 0.5KL - 0.4)L + 2L2 is an example of

A firm that has two or more owners who share decision-making power as well as the firmʹs profits is called

The table below provides the annual revenues and costs for a family-owned firm producing catered meals. TABLE 7-1 -Refer to Table 7-1. The implicit costs for this family-owned firm are

A firmʹs short-run cost curves, as conventionally drawn, show that

In the short run, the firmʹs product curves show

A firm that is maximizing its profits by producing a certain level of output must also be

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

When a corporation issues a bond

Consider a house-construction firm with fixed capital. The firm can build 8 houses per year with 16 workers and 8.8 houses per year with 17 workers. If it is currently building 8.8 houses per year, which of the following is true?

The table below provides the total revenues and costs for a small landscaping company in a recent year. TABLE 7-2 -Refer to Table 7-2. The accounting profits for this firm are

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How Factor Markets Work

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Market Failures and Government Intervention

The Economics of Environmental Protection

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What Macroeconomics Is All About

The Measurement of National Income

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Adding Government and Trade to the Simple Macro Model

Output and Prices in the Short Run

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

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Monetary Policy in Canada

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