Question 1

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

Accepted Answer

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

Question 2

When a plant is operating at the level of output where its short- run average total cost is at its minimum,

Accepted Answer

A)  more of the variable factor of production should be employed. 
B)  average fixed cost is at a minimum. 
C)  the plant is operating at its capacity. 
D)  marginal cost is at a minimum. 
E)  average variable cost is at a minimum. 
A)  more of the variable factor of production should be employed. 
B)  average fixed cost is at a minimum. 
C)  the plant is operating at its capacity. 
D)  marginal cost is at a minimum. 
E)  average variable cost is at a minimum.

Question 3

A firm can raise financial capital without incurring debt by issuing new shares and/or

Accepted Answer

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

Question 4

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 5

Consider a firm in the short run. If AP = MP and both are positive, then total product

Accepted Answer

A)  is at its minimum. 
B)  is increasing as extra units of the variable factor are employed. 
C)  is at a maximum. 
D)  may be either increasing or decreasing as extra units of the variable factor are employed. 
E)  is decreasing as extra units of the variable factor are employed. 
A)  is at its minimum. 
B)  is increasing as extra units of the variable factor are employed. 
C)  is at a maximum. 
D)  may be either increasing or decreasing as extra units of the variable factor are employed. 
E)  is decreasing as extra units of the variable factor are employed.

Question 6

"An objective of firms is to maximize profits". This statement

Accepted Answer

A)  is a normative statement and thus cannot be tested. 
B)  is an unrealistic assumption, and therefore of little use to economists. 
C)  has been proven by empirical testing to be always true. 
D)  applies only to corporations. 
E)  is an assumption used by economists to predict the behaviour of firms. 
A)  is a normative statement and thus cannot be tested. 
B)  is an unrealistic assumption, and therefore of little use to economists. 
C)  has been proven by empirical testing to be always true. 
D)  applies only to corporations. 
E)  is an assumption used by economists to predict the behaviour of firms.

Question 7

Suppose a firm is producing 500 units of output, incurring a total cost of $700 000 and total fixed cost of $100 000. It can be concluded that average variable cost is

Accepted Answer

A)  $1200. 
B)  $1600. 
C)  $600. 
D)  $1400. 
E)  $200. 
A)  $1200. 
B)  $1600. 
C)  $600. 
D)  $1400. 
E)  $200.

Question 8

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

Question 9

In the short run, when capital is a fixed factor, a rise in the cost of labour

Accepted Answer

A)  shifts the AVC curve down. 
B)  shifts the marginal cost curve upwards. 
C)  leaves the ATC curve unchanged. 
D)  leaves the MC curve unchanged. 
E)  shifts the total product curve downwards. 
A)  shifts the AVC curve down. 
B)  shifts the marginal cost curve upwards. 
C)  leaves the ATC curve unchanged. 
D)  leaves the MC curve unchanged. 
E)  shifts the total product curve downwards.

Question 10

In the short run, the firm's product curves show

Accepted Answer

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

Question 11

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

Accepted Answer

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

Question 12

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. $\begin{array}{|l|l|}
\hline\begin{array}{l}
\text { Labour per unit of } \
\text { time }
\end{array}&\text { Total Output }\\hline 0 & 0 \
\hline 1 & 25 \
\hline 2 & 75 \
\hline 3 & 175 \
\hline 4 & 250 \
\hline 5 & 305 \
\hline
\end{array}$
$\text { TABLE 7- } 4$
-Refer to Table 7- 4. The average total cost of producing 75 units of output is

Accepted Answer

A)  $1. 
B)  $2. 
C)  $0.80. 
D)  $0.67. 
E)  $1.33. 
A)  $1. 
B)  $2. 
C)  $0.80. 
D)  $0.67. 
E)  $1.33.

Question 13

The period of time over which the firm can vary its technology of production is the

Accepted Answer

A)  very- short run. 
B)  short run. 
C)  long run. 
D)  very- long run. 
E)  none of the above; technology cannot be varied. 
A)  very- short run. 
B)  short run. 
C)  long run. 
D)  very- long run. 
E)  none of the above; technology cannot be varied.

Question 14

Which of the following is most likely a long- run decision for a firm?

Accepted Answer

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

Question 15

A limited partnership differs from an ordinary partnership by

Accepted Answer

A)  having unlimited liability for all partners. 
B)  having a limited number of partners. 
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 a limited number of partners, each with limited liability. 
A)  having unlimited liability for all partners. 
B)  having a limited number of partners. 
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 a limited number of partners, each with limited liability.

Question 16

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. $\begin{array}{|l|l|}\hline\text { Labour per unit of }&\text {Total Output } \
\text { time }\
\hline 0 & 0 \
\hline 1 & 25 \
\hline 2 & 75 \
\hline 3 & 175 \
\hline 4 & 250 \
\hline 5 & 305 \
\hline
\end{array}$
$\text { TABLE 7- } 4$
-Refer to Table 7- 4. The total cost of producing 175 units of output is

Accepted Answer

A)  $75. 
B)  $100. 
C)  $150. 
D)  $175. 
E)  $350. 
A)  $75. 
B)  $100. 
C)  $150. 
D)  $175. 
E)  $350.

Question 17

The diagram below shows some short- run cost curves for a firm.   FIGURE 7- 2
-Refer to Figure 7- 2. Which of the following choices correctly identifies the cost curves in part (ii) of the figure?

Accepted Answer

A)  Curve 4 is the average total cost curve. Curve 5 is the marginal cost curve. Curve 6 is the average variable cost curve. Curve 7 is the average fixed cost curve. 
B)  Curve 4 is the marginal cost curve. Curve 5 is the average total cost curve. Curve 6 is the average variable cost curve. Curve 7 is the average fixed cost curve. 
C)  Curve 4 is the marginal cost curve. Curve 5 is the average variable cost curve. Curve 6 is the average fixed cost curve.
Curve 7 is the average total cost curve. 
D)  Curve 4 is the marginal cost curve. Curve 5 is the average fixed cost curve. Curve 6 is the average variable cost curve. Curve 7 is the average total cost curve. 
E)  Curve 4 is the average fixed cost curve. Curve 5 is the average total cost curve. Curve 6 is the marginal cost curve. Curve 7 is the average variable cost curve. 
A)  Curve 4 is the average total cost curve. Curve 5 is the marginal cost curve. Curve 6 is the average variable cost curve. Curve 7 is the average fixed cost curve. 
B)  Curve 4 is the marginal cost curve. Curve 5 is the average total cost curve. Curve 6 is the average variable cost curve. Curve 7 is the average fixed cost curve. 
C)  Curve 4 is the marginal cost curve. Curve 5 is the average variable cost curve. Curve 6 is the average fixed cost curve.
Curve 7 is the average total cost curve. 
D)  Curve 4 is the marginal cost curve. Curve 5 is the average fixed cost curve. Curve 6 is the average variable cost curve. Curve 7 is the average total cost curve. 
E)  Curve 4 is the average fixed cost curve. Curve 5 is the average total cost curve. Curve 6 is the marginal cost curve. Curve 7 is the average variable cost curve.

Question 18

Jodi recently went into business producing widgets. Which of the following would be a fixed cost for her firm?
1. labour costs are $1000 per month
2. raw material costs are $5000 per month
3. a one- year lease on a building is $12 000

Accepted Answer

A)  1 only 
B)  2 only 
C)  3 only 
D)  1 and 2 
E)  2 and 3 
A)  1 only 
B)  2 only 
C)  3 only 
D)  1 and 2 
E)  2 and 3

Question 19

If increasing quantities of a variable factor are applied to a given quantity of fixed factors, then the law of diminishing returns tells us that

Accepted Answer

A)  total product will eventually begin to fall. 
B)  the marginal product will eventually decrease with constant average product. 
C)  the marginal product and the average product of the variable factor will eventually decrease. 
D)  the average product will eventually decrease, but only if total product is held constant. 
E)  the average product will eventually decrease with constant marginal product. 
A)  total product will eventually begin to fall. 
B)  the marginal product will eventually decrease with constant average product. 
C)  the marginal product and the average product of the variable factor will eventually decrease. 
D)  the average product will eventually decrease, but only if total product is held constant. 
E)  the average product will eventually decrease with constant marginal product.

Question 20

Suppose Jodi's widget business is using two inputs, labour and capital. Which of the following would happen if the price of labour increased?

Accepted Answer

A)  Jodi would hire more labour. 
B)  The firm's marginal cost curve will remain unchanged. 
C)  The firm's average total cost curve will shift upward. 
D)  The firm's average fixed cost curve will shift upward. 
E)  Jodi will shut down her business. 
A)  Jodi would hire more labour. 
B)  The firm's marginal cost curve will remain unchanged. 
C)  The firm's average total cost curve will shift upward. 
D)  The firm's average fixed cost curve will shift upward. 
E)  Jodi will shut down her business.

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

When a plant is operating at the level of output where its short- run average total cost is at its minimum,

A firm can raise financial capital without incurring debt by issuing new shares and/or

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

Consider a firm in the short run. If AP = MP and both are positive, then total product

"An objective of firms is to maximize profits". This statement

Suppose a firm is producing 500 units of output, incurring a total cost of $700 000 and total fixed cost of $100 000. It can be concluded that average variable cost is

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, when capital is a fixed factor, a rise in the cost of labour

In the short run, the firm's product curves show

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

The period of time over which the firm can vary its technology of production is the

Which of the following is most likely a long- run decision for a firm?

A limited partnership differs from an ordinary partnership by

The diagram below shows some short- run cost curves for a firm. FIGURE 7- 2 -Refer to Figure 7- 2. Which of the following choices correctly identifies the cost curves in part (ii) of the figure?

Jodi recently went into business producing widgets. Which of the following would be a fixed cost for her firm? 1. labour costs are $1000 per month 2. raw material costs are $5000 per month 3. a one- year lease on a building is $12 000

If increasing quantities of a variable factor are applied to a given quantity of fixed factors, then the law of diminishing returns tells us that

Suppose Jodi's widget business is using two inputs, labour and capital. Which of the following would happen if the price of labour increased?

Economic Issues and Concepts

Economic Theories, Data, and Graphs

Demand, Supply, and Price

Elasticity

Markets in Action

Consumer Behaviour

Producers in the Long Run

Competitive Markets

Monopoly, Cartels, and Price Discrimination

Imperfect Competition

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets

Interest Rates and the Capital Market

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

The Gains From International Trade

Trade Policy

Filters

Exam 7: Producers in the Short Run

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

When a plant is operating at the level of output where its short- run average total cost is at its minimum,

A firm can raise financial capital without incurring debt by issuing new shares and/or

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

Consider a firm in the short run. If AP = MP and both are positive, then total product

"An objective of firms is to maximize profits". This statement

Suppose a firm is producing 500 units of output, incurring a total cost of $700 000 and total fixed cost of $100 000. It can be concluded that average variable cost is

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, when capital is a fixed factor, a rise in the cost of labour

In the short run, the firm's product curves show

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

The period of time over which the firm can vary its technology of production is the

Which of the following is most likely a long- run decision for a firm?

A limited partnership differs from an ordinary partnership by

The diagram below shows some short- run cost curves for a firm. FIGURE 7- 2 -Refer to Figure 7- 2. Which of the following choices correctly identifies the cost curves in part (ii) of the figure?

Jodi recently went into business producing widgets. Which of the following would be a fixed cost for her firm? 1. labour costs are $1000 per month 2. raw material costs are $5000 per month 3. a one- year lease on a building is $12 000

If increasing quantities of a variable factor are applied to a given quantity of fixed factors, then the law of diminishing returns tells us that

Suppose Jodi's widget business is using two inputs, labour and capital. Which of the following would happen if the price of labour increased?

Economic Issues and Concepts

Economic Theories, Data, and Graphs

Demand, Supply, and Price

Elasticity

Markets in Action

Consumer Behaviour

Producers in the Long Run

Competitive Markets

Monopoly, Cartels, and Price Discrimination

Imperfect Competition

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets

Interest Rates and the Capital Market

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

The Gains From International Trade

Trade Policy

Filters