Question 1

A firm's short- run marginal cost curve is decreasing when

Accepted Answer

A)  capacity is reached. 
B)  marginal product is decreasing. 
C)  marginal product is increasing. 
D)  average fixed cost is decreasing. 
E)  total fixed cost is decreasing. 
A)  capacity is reached. 
B)  marginal product is decreasing. 
C)  marginal product is increasing. 
D)  average fixed cost is decreasing. 
E)  total fixed cost is decreasing.

Question 2

In economics, the term "fixed costs" means

Accepted Answer

A)  costs incurred in the past that involve no implicit costs. 
B)  implicit costs. 
C)  costs that do not vary with the level of output produced. 
D)  opportunity costs. 
E)  costs that are never accounted for. 
A)  costs incurred in the past that involve no implicit costs. 
B)  implicit costs. 
C)  costs that do not vary with the level of output produced. 
D)  opportunity costs. 
E)  costs that are never accounted for.

Question 3

In the short run, total fixed costs

Accepted Answer

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

Question 4

When a firm's total- product curve is increasing at a decreasing rate

Accepted Answer

A)  the marginal- product curve lies below the average- product curve. 
B)  average product is falling. 
C)  marginal product is positive but declining. 
D)  marginal product is negative and decreasing. 
E)  average product is zero. 
A)  the marginal- product curve lies below the average- product curve. 
B)  average product is falling. 
C)  marginal product is positive but declining. 
D)  marginal product is negative and decreasing. 
E)  average product is zero.

Question 5

The table below provides the total revenues and costs for a small landscaping company in a recent year. $\begin{array}{|l|l|}
\hline \text { Total Revenues }(\$) & 250,000 \
\hline & \
\hline \text { Total Costs }(\$) & \
\hline \text { wages and salaries } & 150,000 \
\hline \text { risk- free return of } 2 \% \text { on owner's capital of } \$ 20 & 400 \000\
\hline \text { interest on bank loan } & 1500 \
\hline \text { cost of supplies } & 27000 \
\hline \text { - depreciation of capital equipment } & 8000 \
\hline \text { additional wages the ow ner could have earned } & 30,000 \
\text { in next best alternative }\
\hline \text { risk premium of } 4 \% \text { on owner's capital of } \$ 20&800\000\
\hline
\end{array}$
$\text { TABLE 7- } 2$
-Refer to Table 7- 2. The implicit costs for this firm are

Accepted Answer

A)  $800. 
B)  $31 200. 
C)  $30 800. 
D)  $400. 
E)  $30 400. 
A)  $800. 
B)  $31 200. 
C)  $30 800. 
D)  $400. 
E)  $30 400.

Question 6

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. $$\begin{array}{l}
\begin{array} { | l | l | } 
\hline \text { Labour per period } & \text { Total Output per period } \
\hline 0 & 0 \
\hline 1 & 10 \
\hline 2 & 30 \
\hline 3 & 90 \
\hline 4 & 132 \
\hline 5 & 150 \
\hline
\end{array}\
\text { TABLE 7- } 3
\end{array}$$
-Refer to Table 7- 3. If this firm is producing 111 units of output per period, its marginal cost is

Accepted Answer

A)  76 cents. 
B)  38 cents. 
C)  24 cents. 
D)  $1.00. 
E)  16.7 cents. 
A)  76 cents. 
B)  38 cents. 
C)  24 cents. 
D)  $1.00. 
E)  16.7 cents.

Question 7

FIGURE 7- 1
-Refer to Figure 7- 1. The marginal product of labour curve intersects the average product of labour curve when

Accepted Answer

A)  diminishing returns sets in. 
B)  total product is at its maximum. 
C)  the firm achieves increasing returns. 
D)  the firm is at its capacity. 
E)  average product is at its maximum. 
A)  diminishing returns sets in. 
B)  total product is at its maximum. 
C)  the firm achieves increasing returns. 
D)  the firm is at its capacity. 
E)  average product is at its maximum.

Question 8

A firm's short- run cost curves, as conventionally drawn, show that

Accepted Answer

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

Question 9

Undistributed profits of a firm are

Accepted Answer

A)  profits that are available to be reinvested in the firm's operations. 
B)  earnings that are used to cover interest expenses of the firm. 
C)  earnings that are used to pay dividends to shareholders. 
D)  profits that are paid out to owners of the firm. 
E)  earnings that are used to cover the costs of production. 
A)  profits that are available to be reinvested in the firm's operations. 
B)  earnings that are used to cover interest expenses of the firm. 
C)  earnings that are used to pay dividends to shareholders. 
D)  profits that are paid out to owners of the firm. 
E)  earnings that are used to cover the costs of production.

Question 10

A single proprietorship is a form of business organization which

Accepted Answer

A)  has unlimited access to money capital. 
B)  has a single owner but has directors who are responsible for the firm's debts. 
C)  allows easy transferability of ownership by the trading of shares. 
D)  has limited liability. 
E)  has one owner- manager who is personally responsible for the firm's actions and debts. 
A)  has unlimited access to money capital. 
B)  has a single owner but has directors who are responsible for the firm's debts. 
C)  allows easy transferability of ownership by the trading of shares. 
D)  has limited liability. 
E)  has one owner- manager who is personally responsible for the firm's actions and debts.

Question 11

The choices listed below involve costs to the firm. For which is the implicit cost potentially different than its explicit cost?

Accepted Answer

A)  The use of firm- owned assets. 
B)  The use of rented land. 
C)  The services of hired workers. 
D)  The purchase of raw materials used in production. 
E)  The interest paid on borrowed money. 
A)  The use of firm- owned assets. 
B)  The use of rented land. 
C)  The services of hired workers. 
D)  The purchase of raw materials used in production. 
E)  The interest paid on borrowed money.

Question 12

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

Question 13

Consider a firm in the short run. If the AP curve is rising, then the MP curve

Accepted Answer

A)  must be falling. 
B)  must lie above the average- product curve over this range and must also be rising. 
C)  can be either above or below the average- product curve, although it must be rising over the entire range. 
D)  must lie above the average- product curve over this range. 
E)  must lie below the average- product curve over this range. 
A)  must be falling. 
B)  must lie above the average- product curve over this range and must also be rising. 
C)  can be either above or below the average- product curve, although it must be rising over the entire range. 
D)  must lie above the average- product curve over this range. 
E)  must lie below the average- product curve over this range.

Question 14

Sport- fishermen on the Campbell River in British Columbia are catching fewer fish and are having to fish many more hours to catch them. However, the total number of fish caught on the river continues to increase. The river is experiencing

Accepted Answer

A)  diminishing total returns. 
B)  increasing average returns. 
C)  constant marginal returns. 
D)  diminishing marginal returns. 
E)  increasing marginal returns. 
A)  diminishing total returns. 
B)  increasing average returns. 
C)  constant marginal returns. 
D)  diminishing marginal returns. 
E)  increasing marginal returns.

Question 15

Suppose that a firm's capital is fixed and one more unit of labour is hired, thereby increasing the firm's total output. Which of the following statements can be correct?
1. Marginal cost would remain constant.
2. Marginal cost would increase.
3. Marginal cost would decrease.

Accepted Answer

A)  1 only 
B)  2 only 
C)  3 only 
D)  Any of 1, 2, and 3 is possible. 
E)  None are possible. 
A)  1 only 
B)  2 only 
C)  3 only 
D)  Any of 1, 2, and 3 is possible. 
E)  None are possible.

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

Accepted Answer

A)  $100. 
B)  $125. 
C)  $225. 
D)  $305. 
E)  $325. 
A)  $100. 
B)  $125. 
C)  $225. 
D)  $305. 
E)  $325.

Question 17

The table below provides the annual revenues and costs for a family- owned firm producing catered meals. $\begin{array}{|l|l|}
\hline \text { Total Revenues }(\$) & 500,000 \
\hline & \
\hline \text { Total Costs (\$) } & \
\hline \text { wages and salaries } & 200,000 \\hline \text { risk- free return of } 6 \% \text { on owners' capital of } 250,000 & 15,000 \
\hline \text { rent } & 105,000 \
\hline \text { - depreciation of capital equipment } & 25,000 \
\hline \text { risk premium of } 8 \% \text { on owners' capital of } 250,000 & 20,000 \
\hline \text { - intermediate inputs } & 150,000 \
\hline \text { forgone wages of owners in alternative employment } & 80,000 \
\hline \text { interest on bank loan } & 10,000 \
\hline
\end{array}$
$\text { TABLE 7- } 1$
-Refer to Table 7- 1. The implicit costs for this family- owned firm are

Accepted Answer

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

Question 18

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. $$\begin{array}{l}
\begin{array} { | l | l | } 
\hline \text { Labour per period } & \text { Total Output per period } \
\hline 0 & 0 \
\hline 1 & 10 \
\hline 2 & 30 \
\hline 3 & 90 \
\hline 4 & 132 \
\hline 5 & 150 \
\hline
\end{array}\
\text { TABLE 7- } 3
\end{array}$$
-Refer to Table 7- 3. If this firm is producing 20 units of output per period its marginal cost is

Accepted Answer

A)  $1.67. 
B)  $10.00. 
C)  $1.00. 
D)  50 cents. 
E)  16.7 cents. 
A)  $1.67. 
B)  $10.00. 
C)  $1.00. 
D)  50 cents. 
E)  16.7 cents.

Question 19

In the short run, if average total cost is increasing as output rises, then

Accepted Answer

A)  marginal cost must be below average total cost. 
B)  average total cost is no longer equal to the sum of average variable cost and average fixed cost. 
C)  average variable cost must be increasing. 
D)  average fixed costs must be increasing. 
E)  total fixed costs must be increasing. 
A)  marginal cost must be below average total cost. 
B)  average total cost is no longer equal to the sum of average variable cost and average fixed cost. 
C)  average variable cost must be increasing. 
D)  average fixed costs must be increasing. 
E)  total fixed costs must be increasing.

Question 20

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

Accepted Answer

A)  TP is at its maximum when MP = O. 
B)  AP is at its minimum when MP = AP. 
C)  when MP > AP, AP is decreasing. 
D)  TP begins to decrease when AP begins to decrease. 
E)  when the MP curve cuts the AP curve from below, the AP curve begins to fall. 
A)  TP is at its maximum when MP = O. 
B)  AP is at its minimum when MP = AP. 
C)  when MP > AP, AP is decreasing. 
D)  TP begins to decrease when AP begins to decrease. 
E)  when the MP curve cuts the AP curve from below, the AP curve begins to fall.

A firm's short- run marginal cost curve is decreasing when

In economics, the term "fixed costs" means

In the short run, total fixed costs

When a firm's total- product curve is increasing at a decreasing rate

FIGURE 7- 1 -Refer to Figure 7- 1. The marginal product of labour curve intersects the average product of labour curve when

A firm's short- run cost curves, as conventionally drawn, show that

Undistributed profits of a firm are

A single proprietorship is a form of business organization which

The choices listed below involve costs to the firm. For which is the implicit cost potentially different than its explicit cost?

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?

Consider a firm in the short run. If the AP curve is rising, then the MP curve

Sport- fishermen on the Campbell River in British Columbia are catching fewer fish and are having to fish many more hours to catch them. However, the total number of fish caught on the river continues to increase. The river is experiencing

Suppose that a firm's capital is fixed and one more unit of labour is hired, thereby increasing the firm's total output. Which of the following statements can be correct? 1. Marginal cost would remain constant. 2. Marginal cost would increase. 3. Marginal cost would decrease.

In the short run, if average total cost is increasing as output rises, then

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

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

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Exam 7: Producers in the Short Run

A firm's short- run marginal cost curve is decreasing when

In economics, the term "fixed costs" means

In the short run, total fixed costs

When a firm's total- product curve is increasing at a decreasing rate

FIGURE 7- 1 -Refer to Figure 7- 1. The marginal product of labour curve intersects the average product of labour curve when

A firm's short- run cost curves, as conventionally drawn, show that

Undistributed profits of a firm are

A single proprietorship is a form of business organization which

The choices listed below involve costs to the firm. For which is the implicit cost potentially different than its explicit cost?

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?

Consider a firm in the short run. If the AP curve is rising, then the MP curve

Sport- fishermen on the Campbell River in British Columbia are catching fewer fish and are having to fish many more hours to catch them. However, the total number of fish caught on the river continues to increase. The river is experiencing

Suppose that a firm's capital is fixed and one more unit of labour is hired, thereby increasing the firm's total output. Which of the following statements can be correct? 1. Marginal cost would remain constant. 2. Marginal cost would increase. 3. Marginal cost would decrease.

In the short run, if average total cost is increasing as output rises, then

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

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