Question 1

If fixed costs equal $120, variable costs equal $800, and output is 10, average variable cost equals:

Accepted Answer

A) $ 40. 
B) $ 80. 
C) $ 92. 
D) $120. 
A) $ 40. 
B) $ 80. 
C) $ 92. 
D) $120. B

Question 2

Average fixed cost:

Accepted Answer

A) remains constant and doesn't vary with output. 
B) increases as output increases. 
C) decreases as output increases. 
D) equals total cost divided by output. 
A) remains constant and doesn't vary with output. 
B) increases as output increases. 
C) decreases as output increases. 
D) equals total cost divided by output. C

Question 3

In which part of the production function (increasing marginal productivity,diminishing marginal productivity,or diminishing absolute productivity)is a firm most likely to operate? Explain.

Accepted Answer

A firm is most likely to operate in the area of the production function where there is diminishing marginal productivity.The reason for this is that the firm will not want to be in either the area of increasing marginal productivity or the area of decreasing absolute productivity.If the firm is operating in the area of increasing marginal productivity this means it can increase its existing worker's output by hiring more workers - so the firm will want to hire more workers and move out of this range of the production function.If the firm is operating in the area of diminishing absolute productivity this means that hiring additional workers actually cuts total output - so the firm will want to lay off workers and move out of this range of the production function.

Question 4

Total cost is:

Accepted Answer

A) the sum of variable costs and fixed costs. 
B) average variable cost times quantity. 
C) the sum of average fixed cost and marginal cost. 
D) the sum of fixed cost and average variable cost. 
A) the sum of variable costs and fixed costs. 
B) average variable cost times quantity. 
C) the sum of average fixed cost and marginal cost. 
D) the sum of fixed cost and average variable cost.

Question 5

Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her explicit costs for her new business include:

Accepted Answer

A) only the expenses incurred for office space, equipment, and supplies. 
B) only her forgone salary of $42,000 per year. 
C) both the expenses incurred for office space, equipment, and supplies and her forgone salary of $42,000 per year. 
D) neither the expenses incurred for office space, equipment, and supplies nor her forgone salary of $42,000 per year. 
A) only the expenses incurred for office space, equipment, and supplies. 
B) only her forgone salary of $42,000 per year. 
C) both the expenses incurred for office space, equipment, and supplies and her forgone salary of $42,000 per year. 
D) neither the expenses incurred for office space, equipment, and supplies nor her forgone salary of $42,000 per year.

Question 6

At the level of output where marginal product begins to fall, marginal costs will:

Accepted Answer

A) begin to fall. 
B) begin to rise. 
C) remain constant. 
D) equal marginal product. 
A) begin to fall. 
B) begin to rise. 
C) remain constant. 
D) equal marginal product.

Question 7

If output changes by 10 units while total costs rise by $500, marginal cost is approximately:

Accepted Answer

A) $500. 
B) $10. 
C) $50. 
D) $5,000. 
A) $500. 
B) $10. 
C) $50. 
D) $5,000.

Question 8

Refer to the graph shown. Within which section(s)of the production function is marginal product decreasing?

Accepted Answer

A) A 
B) B 
C) A and B 
D) B and C 
A) A 
B) B 
C) A and B 
D) B and C

Question 9

Refer to the table shown. A firm would be most likely to hire between:

$\begin{array}{|c|c|}
\hline   \text { Number of workers } & \text { Marginal product of workers } \
\hline 1 & 5 \
\hline 2 & 7 \
\hline 3 & 8 \
\hline 4 & 10 \
\hline 5 & 11 \
\hline 6 & 7 \
\hline 7 & 5 \
\hline 8 & 3 \
\hline 9 & 0 \
\hline 10 & -1 \
\hline
\end{array}$

Accepted Answer

A) 1 and 3 workers. 
B) 3 and 4 workers. 
C) 5 and 8 workers. 
D) 8 and 10 workers. 
A) 1 and 3 workers. 
B) 3 and 4 workers. 
C) 5 and 8 workers. 
D) 8 and 10 workers.

Question 10

The difference between economic profit and accounting profit is equal to:

Accepted Answer

A) zero. 
B) implicit and explicit costs. 
C) implicit and explicit revenues. 
D) implicit revenues minus implicit costs. 
A) zero. 
B) implicit and explicit costs. 
C) implicit and explicit revenues. 
D) implicit revenues minus implicit costs.

Question 11

What are the definitions of the following cost concepts: fixed costs,variable costs,and total cost?

Accepted Answer

Fixed costs are costs that are independe

Question 12

If a firm's average fixed cost is $4 and its average total cost is $6, its average variable cost is:

Accepted Answer

A) $1. 
B) $2. 
C) $10. 
D) $20. 
A) $1. 
B) $2. 
C) $10. 
D) $20.

Question 13

A factory producing calculators employs four workers. At current levels of operation each worker produces 40 calculators per week. Assuming labor is the only variable input and the weekly wage is $400 per worker:

Accepted Answer

A) average variable cost is $10. 
B) variable cost is $10. 
C) average variable cost is $40. 
D) average fixed cost is $10. 
A) average variable cost is $10. 
B) variable cost is $10. 
C) average variable cost is $40. 
D) average fixed cost is $10.

Question 14

You are given that the average variable cost of producing 25 units of output is $4 and the total cost is $200.Calculate VC,FC,ATC,and AFC.

Accepted Answer

VC = AVC × Q = $4 × 25 = $100.

Question 15

You have been hired by the Tootsie Roll Company to analyze their production process.Your predecessor in the position left you with the following table: $$\begin{array} { | c | c | l | c | } 
\hline \text { Number of Workers } & \begin{array} { c } 
\text { Total Output } \
\text { (thousands of bags of } \
\text { Tootsie Rolls) }
\end{array} & \text { Marginal Product } & \begin{array} { c } 
\text { Average } \
\text { Product }
\end{array} \
\hline 0 & 0 & & \
\hline 1 & 4 & & \
\hline 2 & 10 & & \
\hline 3 & 17 & & \
\hline 4 & 23 & & \
\hline 5 & 28 & & \
\hline 6 & 31 & & \
\hline 7 & 32 & & \
\hline 8 & 32 & & \
\hline 9 & 30 & & \
\hline 10 & 25 & & \
\hline
\end{array}$$ (NOTE: Marginal product represents changes between numbers of workers.Therefore,leave the first row blank in the "Marginal Product" column and put the marginal product from 0 workers to 1 worker in the second row of that column. )
(a)Fill in the blank values in the table above.
(b)Do the values in the table represent short-run or long-run production relationships? Explain.
(c)Are these production values consistent with the law of diminishing marginal productivity? Explain.
(Extra Credit: Between what levels of output is the firm most likely to operate? Explain your answer. )

Accepted Answer

(a)The completed table: \[\begin{array}

Question 16

At very high levels of output, total cost tends to:

Accepted Answer

A) increase at a constant rate. 
B) increase at a decreasing rate. 
C) increase at an increasing rate. 
D) decrease at an increasing rate. 
A) increase at a constant rate. 
B) increase at a decreasing rate. 
C) increase at an increasing rate. 
D) decrease at an increasing rate.

Question 17

Explain why the ATC and AVC curves get closer and closer together as output increases.

Accepted Answer

The reason that the ATC and AVC curves g

Question 18

Refer to the following graph.   This set of cost curves is:

Accepted Answer

A) correct. 
B) wrong because the average total cost and marginal cost curves are switched. 
C) wrong because the average total cost and average variable cost curves are reversed. 
D) wrong because the AFC should always be downward-sloping. 
A) correct. 
B) wrong because the average total cost and marginal cost curves are switched. 
C) wrong because the average total cost and average variable cost curves are reversed. 
D) wrong because the AFC should always be downward-sloping.

Question 19

If marginal cost is greater than average total cost, average total cost:

Accepted Answer

A) is minimized. 
B) is falling. 
C) will not change. 
D) is rising. 
A) is minimized. 
B) is falling. 
C) will not change. 
D) is rising.

Question 20

In the short run:

Accepted Answer

A) some inputs are variable and no inputs are fixed. 
B) some inputs are variable and some inputs are fixed. 
C) no inputs are variable and all inputs are fixed. 
D) no inputs are variable and some inputs are fixed. 
A) some inputs are variable and no inputs are fixed. 
B) some inputs are variable and some inputs are fixed. 
C) no inputs are variable and all inputs are fixed. 
D) no inputs are variable and some inputs are fixed.

Exam 11: Production and Cost Analysis I

If fixed costs equal $120, variable costs equal $800, and output is 10, average variable cost equals:

Average fixed cost:

In which part of the production function (increasing marginal productivity,diminishing marginal productivity,or diminishing absolute productivity)is a firm most likely to operate? Explain.

Total cost is:

Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her explicit costs for her new business include:

At the level of output where marginal product begins to fall, marginal costs will:

If output changes by 10 units while total costs rise by $500, marginal cost is approximately:

Refer to the graph shown. Within which section(s)of the production function is marginal product decreasing?

Refer to the table shown. A firm would be most likely to hire between: Number of workers Marginal product of workers 1 5 2 7 3 8 4 10 5 11 6 7 7 5 8 3 9 0 10 -1

The difference between economic profit and accounting profit is equal to:

What are the definitions of the following cost concepts: fixed costs,variable costs,and total cost?

If a firm's average fixed cost is $4 and its average total cost is $6, its average variable cost is:

A factory producing calculators employs four workers. At current levels of operation each worker produces 40 calculators per week. Assuming labor is the only variable input and the weekly wage is $400 per worker:

You are given that the average variable cost of producing 25 units of output is $4 and the total cost is $200.Calculate VC,FC,ATC,and AFC.

At very high levels of output, total cost tends to:

Explain why the ATC and AVC curves get closer and closer together as output increases.

Refer to the following graph. This set of cost curves is:

If marginal cost is greater than average total cost, average total cost:

In the short run:

Economics and Economic Reasoning

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Production and Cost Analysis II

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The Logic of Individual Choice: the Foundation of Supply and Demand

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