Question 1

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 2

Suppose that when one additional unit of labour is hired, total product increases from 100 to 110units of output per month. Marginal product must therefore be

Accepted Answer

A)  constant. 
B)  positive. 
C)  zero. 
D)  decreasing. 
E)  increasing. 
A)  constant. 
B)  positive. 
C)  zero. 
D)  decreasing. 
E)  increasing.

Question 3

The relationship between factors of production used in the production process and the resulting output is called a(n)

Accepted Answer

A)  economic function. 
B)  production function. 
C)  production boundary. 
D)  cost function. 
E)  consumption possibilities boundary. 
A)  economic function. 
B)  production function. 
C)  production boundary. 
D)  cost function. 
E)  consumption possibilities boundary.

Question 4

If a firm uses factor inputs that are personally owned by the firm's owner, then economists refer to the opportunity cost of these inputs as

Accepted Answer

A)  sunk costs. 
B)  direct production costs. 
C)  implicit costs. 
D)  inverted costs. 
E)  accounting costs. 
A)  sunk costs. 
B)  direct production costs. 
C)  implicit costs. 
D)  inverted costs. 
E)  accounting costs.

Question 5

A firm that has two or more owners who share decision-making power as well as the firm's profitsis called

Accepted Answer

A)  a joint-stock company. 
B)  a corporation. 
C)  a single proprietorship. 
D)  a non-profit organization. 
E)  a partnership. 
A)  a joint-stock company. 
B)  a corporation. 
C)  a single proprietorship. 
D)  a non-profit organization. 
E)  a partnership.

Question 6

The theory of the firm is based on the following two key assumptions:

Accepted Answer

A)  Each firm has a highly diversified product, and this leads to profit maximization. 
B)  Firms seek to maximize profit, and to distribute the maximum value in dividends. 
C)  Firms seek to maximize revenues, and to maximize undistributed profits. 
D)  Firms seek to maximize profits, and the firm is a single, consistent decision-making unit. 
E)  Firms seek to become as large as possible, and they seek to maximize total revenue. 
A)  Each firm has a highly diversified product, and this leads to profit maximization. 
B)  Firms seek to maximize profit, and to distribute the maximum value in dividends. 
C)  Firms seek to maximize revenues, and to maximize undistributed profits. 
D)  Firms seek to maximize profits, and the firm is a single, consistent decision-making unit. 
E)  Firms seek to become as large as possible, and they seek to maximize total revenue.

Question 7

We can predict that resources will move into an industry whenever

Accepted Answer

A)  economic profits for firms in that industry are greater than zero. 
B)  accounting profits for firms in that industry are greater than zero. 
C)  economic profits for firms in that industry are zero. 
D)  accounting profits for firms in that industry are zero. 
E)  economic losses for firms in that industry are minimized. 
A)  economic profits for firms in that industry are greater than zero. 
B)  accounting profits for firms in that industry are greater than zero. 
C)  economic profits for firms in that industry are zero. 
D)  accounting profits for firms in that industry are zero. 
E)  economic losses for firms in that industry are minimized.

Question 8

Suppose a firm's fixed costs are $100 and average variable costs are constant regardless of output.Which of the following is then true?

Accepted Answer

A)  Average total cost will decrease when output is increased. 
B)  Average total costs will be constant. 
C)  Marginal cost will be less than average variable cost. 
D)  Marginal cost will be rising as output rises. 
E)  Marginal cost will equal average total cost. 
A)  Average total cost will decrease when output is increased. 
B)  Average total costs will be constant. 
C)  Marginal cost will be less than average variable cost. 
D)  Marginal cost will be rising as output rises. 
E)  Marginal cost will equal average total cost.

Question 9

When a firm's marginal cost is rising, we know that

Accepted Answer

A)  average total cost must be rising. 
B)  marginal product must be falling. 
C)  average variable cost must be rising. 
D)  average fixed cost must be rising. 
E)  marginal product must be zero. 
A)  average total cost must be rising. 
B)  marginal product must be falling. 
C)  average variable cost must be rising. 
D)  average fixed cost must be rising. 
E)  marginal product must be zero.

Question 10

Suppose a firm is producing 500 units of output, incurring a total cost of $700 000 and total fixed cost of $100 000. It can be concluded that average variable cost is

Accepted Answer

A)  $1200. 
B)  $1600. 
C)  $600. 
D)  $1400. 
E)  $200. 
A)  $1200. 
B)  $1600. 
C)  $600. 
D)  $1400. 
E)  $200.

Question 11

Marginal cost is defined as the

Accepted Answer

A)  cost of an additional unit of a variable factor of production. 
B)  change in fixed cost resulting from an additional unit of output. 
C)  cost per unit when the firm is operating at capacity. 
D)  difference between average total cost and average variable cost. 
E)  change in total cost resulting from an additional unit of output. 
A)  cost of an additional unit of a variable factor of production. 
B)  change in fixed cost resulting from an additional unit of output. 
C)  cost per unit when the firm is operating at capacity. 
D)  difference between average total cost and average variable cost. 
E)  change in total cost resulting from an additional unit of output.

Question 12

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.   TABLE 7-4
-Refer to Table 7-4.hired. Average product of labour begins decreasing with the unit of labour hired.

Accepted Answer

A)  4th; 5th 
B)  3rd; 4th 
C)  4th; 3rd 
D)  3rd; 2nd 
E)  2nd; 3rd 
A)  4th; 5th 
B)  3rd; 4th 
C)  4th; 3rd 
D)  3rd; 2nd 
E)  2nd; 3rd

Question 13

Which of the following statements describes an advantage to the owner of a single proprietorship?

Accepted Answer

A)  The owner's liability is limited to the amount he or she actually invests in the firm. 
B)  Shares of the firm can be traded on any stock exchange. 
C)  The owner can readily maintain full and complete control over every aspect of the firm's operation. 
D)  He or she has limited liability. 
E)  The firm has a legal existence separate from its owner. 
A)  The owner's liability is limited to the amount he or she actually invests in the firm. 
B)  Shares of the firm can be traded on any stock exchange. 
C)  The owner can readily maintain full and complete control over every aspect of the firm's operation. 
D)  He or she has limited liability. 
E)  The firm has a legal existence separate from its owner.

Question 14

The vertical distance between the total cost curve and the total variable cost curve is

Accepted Answer

A)  average total cost. 
B)  total fixed cost. 
C)  average fixed cost. 
D)  marginal cost. 
E)  average variable cost. 
A)  average total cost. 
B)  total fixed cost. 
C)  average fixed cost. 
D)  marginal cost. 
E)  average variable cost.

Question 15

A firm that maximizes its profits by producing a certain level of output must also

Accepted Answer

A)  minimize its cost of producing that output. 
B)  maximize its output. 
C)  minimize its variable costs. 
D)  maximize its sales. 
E)  maximize its revenue. 
A)  minimize its cost of producing that output. 
B)  maximize its output. 
C)  minimize its variable costs. 
D)  maximize its sales. 
E)  maximize its revenue.

Question 16

With regard to economic decision making for firms, the short run is

Accepted Answer

A)  a period over which the quantities of all factors of production and technology are variable. 
B)  a definite number of months. 
C)  a period over which the quantity of at least one significant factor of production is fixed. 
D)  less than one year. 
E)  a period over which the quantities of all factors of production are variable but technology is fixed. 
A)  a period over which the quantities of all factors of production and technology are variable. 
B)  a definite number of months. 
C)  a period over which the quantity of at least one significant factor of production is fixed. 
D)  less than one year. 
E)  a period over which the quantities of all factors of production are variable but technology is fixed.

Question 17

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.   TABLE 7-3
-Refer to Table 7-3. The average total cost for 150 units of output is approximately

Accepted Answer

A)  40 cents. 
B)  67 cents. 
C)  $1.50. 
D)  80 cents. 
E)  33 cents. 
A)  40 cents. 
B)  67 cents. 
C)  $1.50. 
D)  80 cents. 
E)  33 cents.

Question 18

A firm's capacity is defined as the level of output where

Accepted Answer

A)  short-run average total cost is at its minimum. 
B)  the upper limit on what can be produced is reached. 
C)  average total cost is at its maximum. 
D)  average fixed costs are at a minimum. 
E)  marginal cost equals average variable cost. 
A)  short-run average total cost is at its minimum. 
B)  the upper limit on what can be produced is reached. 
C)  average total cost is at its maximum. 
D)  average fixed costs are at a minimum. 
E)  marginal cost equals average variable cost.

Question 19

If increasing quantities of a variable factor are applied to a given quantity of fixed factors, then the law of diminishing returns tells us that

Accepted Answer

A)  total product will eventually begin to fall. 
B)  the marginal product will eventually decrease with constant average product. 
C)  the marginal product and the average product of the variable factor will eventually decrease. 
D)  the average product will eventually decrease, but only if total product is held constant. 
E)  the average product will eventually decrease with constant marginal product. 
A)  total product will eventually begin to fall. 
B)  the marginal product will eventually decrease with constant average product. 
C)  the marginal product and the average product of the variable factor will eventually decrease. 
D)  the average product will eventually decrease, but only if total product is held constant. 
E)  the average product will eventually decrease with constant marginal product.

Question 20

The opportunity cost of money that a firm's owner has invested in the firm is an example of

Accepted Answer

A)  explicit costs. 
B)  direct production costs. 
C)  sunk costs. 
D)  implicit costs. 
E)  accounting costs. 
A)  explicit costs. 
B)  direct production costs. 
C)  sunk costs. 
D)  implicit costs. 
E)  accounting costs.

In the short run, total fixed costs

Suppose that when one additional unit of labour is hired, total product increases from 100 to 110units of output per month. Marginal product must therefore be

The relationship between factors of production used in the production process and the resulting output is called a(n)

If a firm uses factor inputs that are personally owned by the firm's owner, then economists refer to the opportunity cost of these inputs as

A firm that has two or more owners who share decision-making power as well as the firm's profitsis called

The theory of the firm is based on the following two key assumptions:

We can predict that resources will move into an industry whenever

Suppose a firm's fixed costs are $100 and average variable costs are constant regardless of output.Which of the following is then true?

When a firm's marginal cost is rising, we know that

Suppose a firm is producing 500 units of output, incurring a total cost of $700 000 and total fixed cost of $100 000. It can be concluded that average variable cost is

Marginal cost is defined as the

Which of the following statements describes an advantage to the owner of a single proprietorship?

The vertical distance between the total cost curve and the total variable cost curve is

A firm that maximizes its profits by producing a certain level of output must also

With regard to economic decision making for firms, the short run is

A firm's capacity is defined as the level of output where

If increasing quantities of a variable factor are applied to a given quantity of fixed factors, then the law of diminishing returns tells us that

The opportunity cost of money that a firm's owner has invested in the firm is an example of

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

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Exam 7: Producers in the Short Run

In the short run, total fixed costs

Suppose that when one additional unit of labour is hired, total product increases from 100 to 110units of output per month. Marginal product must therefore be

The relationship between factors of production used in the production process and the resulting output is called a(n)

If a firm uses factor inputs that are personally owned by the firm's owner, then economists refer to the opportunity cost of these inputs as

A firm that has two or more owners who share decision-making power as well as the firm's profitsis called

The theory of the firm is based on the following two key assumptions:

We can predict that resources will move into an industry whenever

Suppose a firm's fixed costs are $100 and average variable costs are constant regardless of output.Which of the following is then true?

When a firm's marginal cost is rising, we know that

Suppose a firm is producing 500 units of output, incurring a total cost of $700 000 and total fixed cost of $100 000. It can be concluded that average variable cost is

Marginal cost is defined as the

Which of the following statements describes an advantage to the owner of a single proprietorship?

The vertical distance between the total cost curve and the total variable cost curve is

A firm that maximizes its profits by producing a certain level of output must also

With regard to economic decision making for firms, the short run is

A firm's capacity is defined as the level of output where

If increasing quantities of a variable factor are applied to a given quantity of fixed factors, then the law of diminishing returns tells us that

The opportunity cost of money that a firm's owner has invested in the firm is an example of

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

Filters