Question 1

All else constant, as the amount of a firm's implicit costs increases, the difference between economic profit and accounting profit will:

Accepted Answer

A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  cannot be determined without more information. 
A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  cannot be determined without more information. A

Question 2

From the manager's perspective:

Accepted Answer

A)  it is important to treat implicit costs as explicit in order to make sound strategic decisions. 
B)  implicit costs are simply a theoretical construct and should be ignored in the decision-making process. 
C)  only explicit costs matter because accounting profit is based on explicit costs. 
D)  there is no difference between implicit and explicit costs. As such, treating implicit costs as explicit would result in double counting and an overstatement of total costs. 
A)  it is important to treat implicit costs as explicit in order to make sound strategic decisions. 
B)  implicit costs are simply a theoretical construct and should be ignored in the decision-making process. 
C)  only explicit costs matter because accounting profit is based on explicit costs. 
D)  there is no difference between implicit and explicit costs. As such, treating implicit costs as explicit would result in double counting and an overstatement of total costs. A

Question 3

-Refer to Scenario 3. The average total cost of 5 units of output is

Accepted Answer

A)  $8. 
B)  $10. 
C)  $29. 
D)  $39. 
A)  $8. 
B)  $10. 
C)  $29. 
D)  $39. D

Question 4

All else constant, if the use of historic costs understates the opportunity costs associated with using a particular piece of capital, economic profit will be overstated.

Accepted Answer

A) True 
 B)False

Question 5

All else constant, an improvement in technology would cause a firm's total, average and marginal product functions to increase graphically, shift up).

Accepted Answer

A) True 
 B)False

Question 6

After the former CEO of the Coca-Cola Company began requiring employees to treat the rate of return on shareholder equity as an explicit cost, Coke's profits increased considerably.

Accepted Answer

A) True 
 B)False

Question 7

Explain the difference between the short run and the long run as it relates to the firm's production function. Why is this distinction important to a firm's manager?

Accepted Answer

In the short run, the amount of at least

Question 8

Empirical evidence indicates that most firms operate where marginal and average variable costs are constant.

Accepted Answer

A) True 
 B)False

Question 9

The term "fixed input" refers to:

Accepted Answer

A)  inputs to production that do not vary with respect to quality. 
B)  inputs to production that do not vary in price. 
C)  inputs to production that yield a constant or "fixed" marginal product. 
D)  inputs to production, the quantity of which cannot be varied in the short run. 
A)  inputs to production that do not vary with respect to quality. 
B)  inputs to production that do not vary in price. 
C)  inputs to production that yield a constant or "fixed" marginal product. 
D)  inputs to production, the quantity of which cannot be varied in the short run.

Question 10

All else constant, if the use of historic costs understates the opportunity costs associated with using a particular piece of capital, accounting profit will be understated.

Accepted Answer

A) True 
 B)False

Question 11

All else constant, an increase in productivity has the effect of causing:

Accepted Answer

A)  the marginal product of labor to increase and no effect on the average product of labor. 
B)  the average product of labor to increase and no effect on the marginal product of labor. 
C)  the marginal product of labor to increase and the average product of labor to decrease. 
D)  both the marginal and average product of labor to increase. 
A)  the marginal product of labor to increase and no effect on the average product of labor. 
B)  the average product of labor to increase and no effect on the marginal product of labor. 
C)  the marginal product of labor to increase and the average product of labor to decrease. 
D)  both the marginal and average product of labor to increase.

Question 12

Which of the following statements is true of the relationship among the average cost functions?

Accepted Answer

A)  ATC = AFC - AVC 
B)  AVC = AFC + ATC 
C)  AFC = ATC + AVC 
D)  AFC = ATC - AVC 
A)  ATC = AFC - AVC 
B)  AVC = AFC + ATC 
C)  AFC = ATC + AVC 
D)  AFC = ATC - AVC

Question 13

According to the text, much of the increase in productivity that has occurred more recently in the fast food industry was the result of improvements in capital and technology.

Accepted Answer

A) True 
 B)False

Question 14

Scenario 1: The following is a hypothetical short-run production function:
  
-Refer to Scenario 1. What is the average product of the first three hours of labor?

Accepted Answer

A)  60 
B)  80 
C)  100 
D)  240 
A)  60 
B)  80 
C)  100 
D)  240

Question 15

Which of the following is true of the relationship between the marginal cost function and the average total cost and average variable cost functions?

Accepted Answer

A)  If MC is greater than ATC and AVC, then ATC and AVC will increase. 
B)  The ATC and AVC curves intersect the MC curve at minimum MC. 
C)  The MC curve, ATC curve, and AVC curve all intersect at the same point. 
D)  At each level of output, MC is equal to difference between AVC and ATC. 
A)  If MC is greater than ATC and AVC, then ATC and AVC will increase. 
B)  The ATC and AVC curves intersect the MC curve at minimum MC. 
C)  The MC curve, ATC curve, and AVC curve all intersect at the same point. 
D)  At each level of output, MC is equal to difference between AVC and ATC.

Question 16

Explain how the value of marginal cost affects the values of average variable cost and average total cost and what this means for the relationship between the marginal cost curve and the average variable and total cost curves.

Accepted Answer

So long as the value of marginal cost is

Question 17

Assume a factory that currently employs 25 workers and owns a factory with 10,000 square feet of floor space is considering doubling the size of its factory. Economists would classify this as:

Accepted Answer

A)  a short-run decision. 
B)  a long-run decision. 
C)  neither a short-run nor a long-run decision. 
D)  both a short-run and a long-run decision. 
A)  a short-run decision. 
B)  a long-run decision. 
C)  neither a short-run nor a long-run decision. 
D)  both a short-run and a long-run decision.

Question 18

Which of the following statements is false?

Accepted Answer

A)  Economic costs include the opportunity costs of the resources owned by the firm. 
B)  Accounting costs typically include only explicit costs. 
C)  Economic profit will always be less than accounting profit if resources owned and used by the firm have any opportunity costs. 
D)  Accounting profit is equal to total revenue minus implicit costs. 
A)  Economic costs include the opportunity costs of the resources owned by the firm. 
B)  Accounting costs typically include only explicit costs. 
C)  Economic profit will always be less than accounting profit if resources owned and used by the firm have any opportunity costs. 
D)  Accounting profit is equal to total revenue minus implicit costs.

Question 19

When demand for a firm's product decreases, the firm can take a number of steps to adjust costs and quantities supplied to the market. Some are listed below. Which actions are short run and which are long run? Explain your reasoning.
a. Layoff 25 percent of the firm's existing employees.
b. Declare bankruptcy and sell all of the firm's plant and equipment.
c. Require management personnel to take a significant cut in pay.
d. Furlough employees for 3 days each month.
e. Move to a smaller production facility.

Accepted Answer

Options a, c, and d are all short-run op

Question 20

Which of the following is an example of an "implicit cost"?

Accepted Answer

A)  Interest that could have been earned on retained earnings used by the firm to finance expansion. 
B)  The payment of rent by the firm for the building in which it is housed. 
C)  The interest payment made by the firm for funds borrowed from a bank. 
D)  The payment of wages by the firm. 
A)  Interest that could have been earned on retained earnings used by the firm to finance expansion. 
B)  The payment of rent by the firm for the building in which it is housed. 
C)  The interest payment made by the firm for funds borrowed from a bank. 
D)  The payment of wages by the firm.

All else constant, as the amount of a firm's implicit costs increases, the difference between economic profit and accounting profit will:

From the manager's perspective:

-Refer to Scenario 3. The average total cost of 5 units of output is

All else constant, if the use of historic costs understates the opportunity costs associated with using a particular piece of capital, economic profit will be overstated.

All else constant, an improvement in technology would cause a firm's total, average and marginal product functions to increase graphically, shift up).

After the former CEO of the Coca-Cola Company began requiring employees to treat the rate of return on shareholder equity as an explicit cost, Coke's profits increased considerably.

Explain the difference between the short run and the long run as it relates to the firm's production function. Why is this distinction important to a firm's manager?

Empirical evidence indicates that most firms operate where marginal and average variable costs are constant.

The term "fixed input" refers to:

All else constant, if the use of historic costs understates the opportunity costs associated with using a particular piece of capital, accounting profit will be understated.

All else constant, an increase in productivity has the effect of causing:

Which of the following statements is true of the relationship among the average cost functions?

According to the text, much of the increase in productivity that has occurred more recently in the fast food industry was the result of improvements in capital and technology.

Scenario 1: The following is a hypothetical short-run production function: -Refer to Scenario 1. What is the average product of the first three hours of labor?

Which of the following is true of the relationship between the marginal cost function and the average total cost and average variable cost functions?

Explain how the value of marginal cost affects the values of average variable cost and average total cost and what this means for the relationship between the marginal cost curve and the average variable and total cost curves.

Assume a factory that currently employs 25 workers and owns a factory with 10,000 square feet of floor space is considering doubling the size of its factory. Economists would classify this as:

Which of the following statements is false?

Which of the following is an example of an "implicit cost"?

Managers and Economics

Demand, Supply, and Equilibrium Prices

Demand Elasticities

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, Firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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Exam 5: Production and Cost Analysis in the Short Run

All else constant, as the amount of a firm's implicit costs increases, the difference between economic profit and accounting profit will:

From the manager's perspective:

-Refer to Scenario 3. The average total cost of 5 units of output is

All else constant, if the use of historic costs understates the opportunity costs associated with using a particular piece of capital, economic profit will be overstated.

All else constant, an improvement in technology would cause a firm's total, average and marginal product functions to increase graphically, shift up).

After the former CEO of the Coca-Cola Company began requiring employees to treat the rate of return on shareholder equity as an explicit cost, Coke's profits increased considerably.

Explain the difference between the short run and the long run as it relates to the firm's production function. Why is this distinction important to a firm's manager?

Empirical evidence indicates that most firms operate where marginal and average variable costs are constant.

The term "fixed input" refers to:

All else constant, if the use of historic costs understates the opportunity costs associated with using a particular piece of capital, accounting profit will be understated.

All else constant, an increase in productivity has the effect of causing:

Which of the following statements is true of the relationship among the average cost functions?

According to the text, much of the increase in productivity that has occurred more recently in the fast food industry was the result of improvements in capital and technology.

Scenario 1: The following is a hypothetical short-run production function: -Refer to Scenario 1. What is the average product of the first three hours of labor?

Which of the following is true of the relationship between the marginal cost function and the average total cost and average variable cost functions?

Explain how the value of marginal cost affects the values of average variable cost and average total cost and what this means for the relationship between the marginal cost curve and the average variable and total cost curves.

Assume a factory that currently employs 25 workers and owns a factory with 10,000 square feet of floor space is considering doubling the size of its factory. Economists would classify this as:

Which of the following statements is false?

Which of the following is an example of an "implicit cost"?

Managers and Economics

Demand, Supply, and Equilibrium Prices

Demand Elasticities

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, Firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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