Question 1

Consider the production function for bottled water. All of the following would be considered variable inputs except:

Accepted Answer

A)  the plastic bottles. 
B)  the water the bottles are filled with. 
C)  the machine used to fill each bottle. 
D)  the electricity used to power the machine used to fill the bottles. 
A)  the plastic bottles. 
B)  the water the bottles are filled with. 
C)  the machine used to fill each bottle. 
D)  the electricity used to power the machine used to fill the bottles.

Question 2

According to a study by Blinder et al., on average, fixed costs account for about 44 percent of firms' total costs of production, suggesting that fixed costs are more important to many firms' decision-making processes than standard theory would suggest.

Accepted Answer

A) True 
 B)False

Question 3

A firm's production function is the relationship between the factors of production and the resulting outputs of the production process.

Accepted Answer

A) True 
 B)False

Question 4

-Refer to Scenario 3. The marginal cost of producing the sixth unit of output is:

Accepted Answer

A)  $33.33 approximate). 
B)  $55. 
C)  $200. 
D)  $250. 
A)  $33.33 approximate). 
B)  $55. 
C)  $200. 
D)  $250.

Question 5

Because it is a machine, a personal computer should be treated as a fixed input in the typical firm's short-run production function.

Accepted Answer

A) True 
 B)False

Question 6

Fred is considering opening a ski shop in Colorado. Assume Fred will incur the following costs: building rent = $100,000/year, inventory = $250,000/year, energy = $50,000/year, and labor one clerk) = $10,000/year. In addition, Fred's current income as a computer programmer is $40,000 per year. Assuming Fred would earn $460,000 in revenues, he could expect to earn:

Accepted Answer

A)  an accounting profit of $10,000 per year. 
B)  an accounting profit of $60,000 per year. 
C)  an economic profit of $10,000 per year. 
D)  an economic profit of $50,000 per year. 
A)  an accounting profit of $10,000 per year. 
B)  an accounting profit of $60,000 per year. 
C)  an economic profit of $10,000 per year. 
D)  an economic profit of $50,000 per year.

Question 7

Which of the following statements regarding historical costs is correct?

Accepted Answer

A)  Historical costs represent what the firm paid for an input when it was purchased, adjusted for inflation. 
B)  Historical costs vary depending on the method of depreciation a firm uses. 
C)  Historical costs are a good indicator of the current opportunity cost of a piece of capital. 
D)  Using historical costs can cause true economic profit to be under or over stated. 
A)  Historical costs represent what the firm paid for an input when it was purchased, adjusted for inflation. 
B)  Historical costs vary depending on the method of depreciation a firm uses. 
C)  Historical costs are a good indicator of the current opportunity cost of a piece of capital. 
D)  Using historical costs can cause true economic profit to be under or over stated.

Question 8

For a particular farmer and a single growing season, the amount of seed that is planted would be considered a variable input.

Accepted Answer

A) True 
 B)False

Question 9

Once a firm incurs diminishing marginal returns, total product will begin to decline as more of the variable input is employed.

Accepted Answer

A) True 
 B)False

Question 10

The marginal product of a variable input is calculated as:

Accepted Answer

A)  the change in total product divided by the change in output. 
B)  total product divided by the change in the variable input. 
C)  the change in total product divided by the change in the variable input. 
D)  total product divided by the total quantity of the variable input. 
A)  the change in total product divided by the change in output. 
B)  total product divided by the change in the variable input. 
C)  the change in total product divided by the change in the variable input. 
D)  total product divided by the total quantity of the variable input.

Question 11

Economic profit is equal to the difference between:

Accepted Answer

A)  total revenue and the full opportunity cost of all the resources used in production. 
B)  total revenue and implicit costs. 
C)  accounting profit and explicit costs. 
D)  implicit and explicit costs. 
A)  total revenue and the full opportunity cost of all the resources used in production. 
B)  total revenue and implicit costs. 
C)  accounting profit and explicit costs. 
D)  implicit and explicit costs.

Question 12

Which of the following would be classified as a short-run decision?

Accepted Answer

A)  A firm's decision to decrease in the amount of electricity used in day -to-day operations by encouraging employees to adopt conservation strategies, e.g., shut off lights when leaving a room. 
B)  A restaurant's decision to increase the number of patrons it can accommodate by adding on a new dining room. 
C)  A trucking firm's decision to move to a smaller facility. 
D)  A university's decision to add a new residence hall. 
A)  A firm's decision to decrease in the amount of electricity used in day -to-day operations by encouraging employees to adopt conservation strategies, e.g., shut off lights when leaving a room. 
B)  A restaurant's decision to increase the number of patrons it can accommodate by adding on a new dining room. 
C)  A trucking firm's decision to move to a smaller facility. 
D)  A university's decision to add a new residence hall.

Question 13

If, for a particular short-run production, we observe that marginal product is decreasing we can conclude that average product is decreasing as well.

Accepted Answer

A) True 
 B)False

Question 14

The main difference between the short run and the long run is that:

Accepted Answer

A)  in the short run all inputs are fixed, while in the long run all inputs are variable. 
B)  in the short run the firm varies all of its inputs to find the least-cost combination of inputs. 
C)  in the short run, at least one of the firm's input levels is fixed. 
D)  in the long run, the firm is making a constrained decision about how to use existing plant and equipment efficiently. 
A)  in the short run all inputs are fixed, while in the long run all inputs are variable. 
B)  in the short run the firm varies all of its inputs to find the least-cost combination of inputs. 
C)  in the short run, at least one of the firm's input levels is fixed. 
D)  in the long run, the firm is making a constrained decision about how to use existing plant and equipment efficiently.

Question 15

Which of the following statements is correct?

Accepted Answer

A)  Workers employed by General Motors are approximately twice as productive as their Japanese counterparts. 
B)  Between 1979 and 1998, Chrysler and Ford eliminated the productivity gap between all of their production facilities and their Japanese counterparts. 
C)  The increase in productivity Japanese manufacturers experienced in the early 1980s was the result primarily of long-run changes in management focusing on inventory systems and plant layout. 
D)  Auto workers in the United States are less productive than their Japanese counterparts primarily due to the higher wages U.S. workers receive. 
A)  Workers employed by General Motors are approximately twice as productive as their Japanese counterparts. 
B)  Between 1979 and 1998, Chrysler and Ford eliminated the productivity gap between all of their production facilities and their Japanese counterparts. 
C)  The increase in productivity Japanese manufacturers experienced in the early 1980s was the result primarily of long-run changes in management focusing on inventory systems and plant layout. 
D)  Auto workers in the United States are less productive than their Japanese counterparts primarily due to the higher wages U.S. workers receive.

Question 16

Economists recognize what is sometimes referred to as "psychic income" such as the value some people attach to being their own boss. As such, failure to factor in psychic income when calculating economic profit could result in an understatement of the actual economic profit received from a particular enterprise.

Accepted Answer

A) True 
 B)False

Question 17

-Refer to Scenario 2. Diminishing marginal returns starts to occur between units:

Accepted Answer

A)  2 and 3. 
B)  3 and 4. 
C)  4 and 5. 
D)  5 and 6. 
A)  2 and 3. 
B)  3 and 4. 
C)  4 and 5. 
D)  5 and 6.

Question 18

So long as a firm is enjoying increasing marginal returns, a one unit increase in output will cause marginal costs to and total costs to .

Accepted Answer

A)  increase; increase 
B)  decrease; increase 
C)  increase; decrease 
D)  decrease; decrease 
A)  increase; increase 
B)  decrease; increase 
C)  increase; decrease 
D)  decrease; decrease

Question 19

Which of the following inputs is most likely to be "fixed" in the short run?

Accepted Answer

A)  Labor. 
B)  Capital. 
C)  Energy. 
D)  Raw Material. 
A)  Labor. 
B)  Capital. 
C)  Energy. 
D)  Raw Material.

Question 20

Scenario 1: The following is a hypothetical short-run production function:
  
-Refer to Scenario 1. What is the total output when 2 hours of labor are employed?

Accepted Answer

A)  80 
B)  100 
C)  180 
D)  200 
A)  80 
B)  100 
C)  180 
D)  200

Consider the production function for bottled water. All of the following would be considered variable inputs except:

According to a study by Blinder et al., on average, fixed costs account for about 44 percent of firms' total costs of production, suggesting that fixed costs are more important to many firms' decision-making processes than standard theory would suggest.

A firm's production function is the relationship between the factors of production and the resulting outputs of the production process.

-Refer to Scenario 3. The marginal cost of producing the sixth unit of output is:

Because it is a machine, a personal computer should be treated as a fixed input in the typical firm's short-run production function.

Which of the following statements regarding historical costs is correct?

For a particular farmer and a single growing season, the amount of seed that is planted would be considered a variable input.

Once a firm incurs diminishing marginal returns, total product will begin to decline as more of the variable input is employed.

The marginal product of a variable input is calculated as:

Economic profit is equal to the difference between:

Which of the following would be classified as a short-run decision?

If, for a particular short-run production, we observe that marginal product is decreasing we can conclude that average product is decreasing as well.

The main difference between the short run and the long run is that:

Which of the following statements is correct?

-Refer to Scenario 2. Diminishing marginal returns starts to occur between units:

So long as a firm is enjoying increasing marginal returns, a one unit increase in output will cause marginal costs to and total costs to .

Which of the following inputs is most likely to be "fixed" in the short run?

Scenario 1: The following is a hypothetical short-run production function: -Refer to Scenario 1. What is the total output when 2 hours of labor are employed?

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

Consider the production function for bottled water. All of the following would be considered variable inputs except:

According to a study by Blinder et al., on average, fixed costs account for about 44 percent of firms' total costs of production, suggesting that fixed costs are more important to many firms' decision-making processes than standard theory would suggest.

A firm's production function is the relationship between the factors of production and the resulting outputs of the production process.

-Refer to Scenario 3. The marginal cost of producing the sixth unit of output is:

Because it is a machine, a personal computer should be treated as a fixed input in the typical firm's short-run production function.

Which of the following statements regarding historical costs is correct?

For a particular farmer and a single growing season, the amount of seed that is planted would be considered a variable input.

Once a firm incurs diminishing marginal returns, total product will begin to decline as more of the variable input is employed.

The marginal product of a variable input is calculated as:

Economic profit is equal to the difference between:

Which of the following would be classified as a short-run decision?

If, for a particular short-run production, we observe that marginal product is decreasing we can conclude that average product is decreasing as well.

The main difference between the short run and the long run is that:

Which of the following statements is correct?

-Refer to Scenario 2. Diminishing marginal returns starts to occur between units:

So long as a firm is enjoying increasing marginal returns, a one unit increase in output will cause marginal costs to and total costs to .

Which of the following inputs is most likely to be "fixed" in the short run?

Scenario 1: The following is a hypothetical short-run production function: -Refer to Scenario 1. What is the total output when 2 hours of labor are employed?

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

Filters