Question 1

Suppose you operate a factory that produces gadgets. Your current output is 1,000 gadgets. If your fixed cost is $10,000 and your total cost is $50,000, the:

Accepted Answer

A) average total cost of production is $500. 
B) average variable cost of production is $40. 
C) average variable cost of production is $50. 
D) marginal cost of production is $40,000. 
A) average total cost of production is $500. 
B) average variable cost of production is $40. 
C) average variable cost of production is $50. 
D) marginal cost of production is $40,000.

Question 2

Whenever the marginal cost curve lies below the average total cost curve, the:

Accepted Answer

A) average variable cost is increasing. 
B) average variable cost is decreasing. 
C) average total cost is increasing. 
D) average total cost is decreasing. 
A) average variable cost is increasing. 
B) average variable cost is decreasing. 
C) average total cost is increasing. 
D) average total cost is decreasing.

Question 3

When average total cost is rising, the marginal cost curve must be above the average total cost curve.

Accepted Answer

A) True 
 B)False

Question 4

The relationship between the quantity of inputs and the quantity of output is called the:

Accepted Answer

A) production function. 
B) average product. 
C) marginal product. 
D) law of diminishing returns. 
A) production function. 
B) average product. 
C) marginal product. 
D) law of diminishing returns.

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 implicit costs of the 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

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

Accepted Answer

A) correct. 
B) wrong because the average variable and average total cost curves are switched. 
C) wrong because the marginal cost curve should go through the minimum points of the AVC and ATC curves. 
D) wrong because the marginal cost curve does not intersect the average total cost curve. 
A) correct. 
B) wrong because the average variable and average total cost curves are switched. 
C) wrong because the marginal cost curve should go through the minimum points of the AVC and ATC curves. 
D) wrong because the marginal cost curve does not intersect the average total cost curve.

Question 7

The average variable cost curve is a mirror image of the:

Accepted Answer

A) total product curve. 
B) marginal product curve. 
C) average product curve. 
D) marginal cost curve. 
A) total product curve. 
B) marginal product curve. 
C) average product curve. 
D) marginal cost curve.

Question 8

Refer to the table shown. The average fixed cost of producing 5 units of output is: $\begin{array}{|c|c|}
\hline   \text { Units of output } & \text { Total cost } \
\hline0 & 5 \
\hline 1 & 11 \
\hline 2 & 16 \
\hline 3 & 20 \
\hline 4 & 23 \
\hline 5 & 25 \
\hline 6 & 26 \
\hline
\end{array}$

Accepted Answer

A) $0. 
B) $1. 
C) $2. 
D) $3. 
A) $0. 
B) $1. 
C) $2. 
D) $3.

Question 9

The diagram was intended to illustrate the MP and AP curves that correspond to each other.Explain why the diagram below is incorrect.

Accepted Answer

If the marginal product (MP)is below ave

Question 10

A firm's total variable cost increases from $4,000 to $4,020 as the firm increases its output from 400 to 401 units. What is the marginal cost of producing the 401st unit?

Accepted Answer

A) $10 
B) $4,000 
C) $20 
D) $4,020 
A) $10 
B) $4,000 
C) $20 
D) $4,020

Question 11

Can accounting profit be positive while economic profits are negative?

Accepted Answer

A) No. The two concepts are identical. 
B) Yes, if total revenue covers opportunity costs but not explicit costs. 
C) Yes, if total revenue covers explicit costs but not opportunity costs. 
D) No. Economic profits must always be larger than accounting profits. 
A) No. The two concepts are identical. 
B) Yes, if total revenue covers opportunity costs but not explicit costs. 
C) Yes, if total revenue covers explicit costs but not opportunity costs. 
D) No. Economic profits must always be larger than accounting profits.

Question 12

Implicit and explicit revenues minus implicit and explicit costs equals:

Accepted Answer

A) accounting profit. 
B) economic profit. 
C) zero profit. 
D) implicit profit. 
A) accounting profit. 
B) economic profit. 
C) zero profit. 
D) implicit profit.

Question 13

The following graph shows average fixed costs, average variable costs, average total costs, and marginal costs of production.   The average total cost curve is represented by which curve?

Accepted Answer

A) I 
B) II 
C) III 
D) IV 
A) I 
B) II 
C) III 
D) IV

Question 14

A regional airline owns 10 aircraft and employs 20 pilots. The airline makes an average of three trips per day with each of its 10 aircraft. The aircraft and their ground crews are idle part of the day. Minimum rest requirements for its pilots mean that if the airline wants to increase its flights, it must hire more pilots. The decision to hire more pilots is:

Accepted Answer

A) a short-run decision because the number of aircraft is held constant while the labor input is changed. 
B) a short-run decision because the number of pilots is being increased; if the number of ground crew were decreased instead, it would be a long-run decision. 
C) a long-run decision because hiring pilots will increase revenues over a long period of time for the airline. 
D) a long-run decision because customers will become accustomed to the new flight schedule. 
A) a short-run decision because the number of aircraft is held constant while the labor input is changed. 
B) a short-run decision because the number of pilots is being increased; if the number of ground crew were decreased instead, it would be a long-run decision. 
C) a long-run decision because hiring pilots will increase revenues over a long period of time for the airline. 
D) a long-run decision because customers will become accustomed to the new flight schedule.

Question 15

Refer to the graph shown. The line segment that represents average fixed costs of producing Q* is:

Accepted Answer

A) AC. 
B) CB. 
C) AB. 
D) cannot be determined. 
A) AC. 
B) CB. 
C) AB. 
D) cannot be determined.

Question 16

Refer to the table shown. The average variable cost of producing 5 units of output is: $\begin{array}{|c|c|}
\hline   \text { Units of output } & \text { Total cost } \
\hline0 & 5 \
\hline 1 & 11 \
\hline 2 & 16 \
\hline 3 & 20 \
\hline 4 & 23 \
\hline 5 & 25 \
\hline 6 & 26 \
\hline
\end{array}$

Accepted Answer

A) $2. 
B) $3. 
C) $4. 
D) $5. 
A) $2. 
B) $3. 
C) $4. 
D) $5.

Question 17

If the average cost of producing 10 sweaters is $6.50 and the marginal cost of producing the tenth sweater is $6.25, the average cost of producing 10 sweaters will be:

Accepted Answer

A) $6.50. 
B) more than $6.50. 
C) less than $6.50. 
D) exactly $6.25. 
A) $6.50. 
B) more than $6.50. 
C) less than $6.50. 
D) exactly $6.25.

Question 18

Draw and correctly label a typical set of AFC,ATC,AVC,and MC cost curves.

Accepted Answer

The correc

Question 19

Owen runs a delivery business and currently employs three drivers. He owns three vans that employees use to make deliveries, but he is considering hiring a fourth driver. If he hires a fourth driver, he can schedule breaks and lunch hours so that all three vans are in constant use, allowing him to increase deliveries per day from 60 to 75. It will cost an additional $75 per day to hire the fourth driver. The marginal cost per delivery of increasing output beyond 60 deliveries per day:

Accepted Answer

A) is $0 since Owen does not have to purchase another van. 
B) is $5. 
C) is $75. 
D) cannot be calculated without knowing Owen's total fixed costs. 
A) is $0 since Owen does not have to purchase another van. 
B) is $5. 
C) is $75. 
D) cannot be calculated without knowing Owen's total fixed costs.

Question 20

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

Accepted Answer

A) correct. 
B) wrong because the average total cost and the marginal cost curves are reversed. 
C) wrong because the average fixed cost curve is drawn incorrectly. 
D) wrong because the average fixed cost curve is shown to be below the average variable cost. 
A) correct. 
B) wrong because the average total cost and the marginal cost curves are reversed. 
C) wrong because the average fixed cost curve is drawn incorrectly. 
D) wrong because the average fixed cost curve is shown to be below the average variable cost.

Exam 11: Production and Cost Analysis I

Suppose you operate a factory that produces gadgets. Your current output is 1,000 gadgets. If your fixed cost is $10,000 and your total cost is $50,000, the:

Whenever the marginal cost curve lies below the average total cost curve, the:

When average total cost is rising, the marginal cost curve must be above the average total cost curve.

The relationship between the quantity of inputs and the quantity of output is called the:

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

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

The average variable cost curve is a mirror image of the:

Refer to the table shown. The average fixed cost of producing 5 units of output is: Units of output Total cost 0 5 1 11 2 16 3 20 4 23 5 25 6 26

The diagram was intended to illustrate the MP and AP curves that correspond to each other.Explain why the diagram below is incorrect.

A firm's total variable cost increases from $4,000 to $4,020 as the firm increases its output from 400 to 401 units. What is the marginal cost of producing the 401st unit?

Can accounting profit be positive while economic profits are negative?

Implicit and explicit revenues minus implicit and explicit costs equals:

The following graph shows average fixed costs, average variable costs, average total costs, and marginal costs of production. The average total cost curve is represented by which curve?

Refer to the graph shown. The line segment that represents average fixed costs of producing Q* is:

Refer to the table shown. The average variable cost of producing 5 units of output is: Units of output Total cost 0 5 1 11 2 16 3 20 4 23 5 25 6 26

If the average cost of producing 10 sweaters is $6.50 and the marginal cost of producing the tenth sweater is $6.25, the average cost of producing 10 sweaters will be:

Draw and correctly label a typical set of AFC,ATC,AVC,and MC cost curves.

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

Economics and Economic Reasoning

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