Question 1

Assume Congress decides that oil companies are making too much profit and decides to increase the tax on oil companies for each gallon of gasoline produced. This would

Accepted Answer

A) guarantee a decrease in profits. 
B) guarantee an increase in profits. 
C) guarantee an increase in tax revenues. 
D) None of the above. 
A) guarantee a decrease in profits. 
B) guarantee an increase in profits. 
C) guarantee an increase in tax revenues. 
D) None of the above. D

Question 2

Suppose a firm can only vary the quantity of labor hired in the short run. An increase in the cost of capital will

Accepted Answer

A) increase the firm's marginal cost. 
B) decrease the firm's marginal cost. 
C) have no effect on the firm's marginal cost. 
D) More information is needed to answer the question. 
A) increase the firm's marginal cost. 
B) decrease the firm's marginal cost. 
C) have no effect on the firm's marginal cost. 
D) More information is needed to answer the question. C

Question 3

Joey's Lawncutting Service rents office space from Joey's dad for $300 per month. Joey's dad is thinking of increasing the rent to $400 per month. As a result Joey's marginal cost of cutting grass will

Accepted Answer

A) increase by $100 divided by the amount of grass cut. 
B) increase by $100. 
C) decrease by $100. 
D) not change. 
A) increase by $100 divided by the amount of grass cut. 
B) increase by $100. 
C) decrease by $100. 
D) not change. D

Question 4

The long run average cost curve may initially slope downward due to

Accepted Answer

A) decreasing average fixed costs. 
B) increasing marginal returns. 
C) economies of scale. 
D) All of the above. 
A) decreasing average fixed costs. 
B) increasing marginal returns. 
C) economies of scale. 
D) All of the above.

Question 5

Which of the following is most likely to have declining opportunity costs?

Accepted Answer

A) A delivery van. 
B) An apartment building in Manhattan. 
C) An acre of land in San Francisco. 
D) A park in downtown London. 
A) A delivery van. 
B) An apartment building in Manhattan. 
C) An acre of land in San Francisco. 
D) A park in downtown London.

Question 6

Average variable cost (AVC)

Accepted Answer

A) always increases with increased output. 
B) always decreases with increased output. 
C) are always flat. 
D) may either increase, decrease, or remain flat with increased output. 
A) always increases with increased output. 
B) always decreases with increased output. 
C) are always flat. 
D) may either increase, decrease, or remain flat with increased output.

Question 7

Which of the following statements is NOT true?

Accepted Answer

A) AC = AFC + AVC 
B) C = F + VC 
C) AVC = wage/MPL 
D) AFC = AC - AVC 
A) AC = AFC + AVC 
B) C = F + VC 
C) AVC = wage/MPL 
D) AFC = AC - AVC

Question 8

The total cost of producing one unit is $50. The total cost of producing two units is $75. At a production level of two units, the cost function exhibits

Accepted Answer

A) economies of scale. 
B) rising average costs. 
C) increasing marginal costs. 
D) constant returns to scale. 
A) economies of scale. 
B) rising average costs. 
C) increasing marginal costs. 
D) constant returns to scale.

Question 9

If a firm buys a delivery van for $18,000 and can resell it in 2 years for $7,500, the sunk cost is

Accepted Answer

A) $10,500. 
B) $7,500. 
C) $18,000. 
D) $0. 
A) $10,500. 
B) $7,500. 
C) $18,000. 
D) $0.

Question 10

Which of the following does NOT represent a possible shape of the long-run average cost curve?

Accepted Answer

A) downward-sloping 
B) upward-sloping 
C) U-shaped 
D) vertical 
A) downward-sloping 
B) upward-sloping 
C) U-shaped 
D) vertical

Question 11

If a firm buys a specialized metal stamping machine that will last 4 years for $125,000 and cannot resell it, the sunk cost is

Accepted Answer

A) $0. 
B) $31,250. 
C) $125,000. 
D) $93,750. 
A) $0. 
B) $31,250. 
C) $125,000. 
D) $93,750.

Question 12

Suppose the short-run production function is q = 10 ∗ L. If the wage rate is $10 per unit of labor, then MC equals

Accepted Answer

A) q. 
B) q/10. 
C) 10/q. 
D) 1. 
A) q. 
B) q/10. 
C) 10/q. 
D) 1.

Question 13

"If the wage rate paid to one form of labor is twice the cost of another form of labor, the first type of labor must be twice as productive." Comment.

Accepted Answer

A) True 
 B)False

Question 14

A sunk cost is

Accepted Answer

A) the cost for drilling certain types of wells, such as a well for water. 
B) a past cost that cannot be recovered. 
C) a cost that is highly relevant for decision-making. 
D) an opportunity cost. 
A) the cost for drilling certain types of wells, such as a well for water. 
B) a past cost that cannot be recovered. 
C) a cost that is highly relevant for decision-making. 
D) an opportunity cost.

Question 15

Long-run average cost is never greater than short-run average cost because in the long run,

Accepted Answer

A) capital costs equal zero. 
B) the firm can move to the lowest possible isocost curve. 
C) wages always increase over time. 
D) wages always decrease over time. 
A) capital costs equal zero. 
B) the firm can move to the lowest possible isocost curve. 
C) wages always increase over time. 
D) wages always decrease over time.

Question 16

Assume baseball player salaries are fully determined before the season starts. From the point of view of the baseball team owner, player salaries during the course of the season are then

Accepted Answer

A) variable costs. 
B) marginal costs. 
C) fixed costs. 
D) average costs. 
A) variable costs. 
B) marginal costs. 
C) fixed costs. 
D) average costs.

Question 17

Learning by doing, which leads to lower costs in the long run, is often

Accepted Answer

A) increased when new machinery is brought into the production process. 
B) a function of cumulative output, that is producing more of the good or service. 
C) improved through better use of computers in the production process. 
D) not very important to most firms. 
A) increased when new machinery is brought into the production process. 
B) a function of cumulative output, that is producing more of the good or service. 
C) improved through better use of computers in the production process. 
D) not very important to most firms.

Question 18

When you have diminishing marginal returns to labor,

Accepted Answer

A) variable costs remain constant as more output is produced. 
B) variable costs fall as more output is produced. 
C) variable costs rise as more output is produced. 
D) fixed costs rise as more output is produced because you have to buy more equipment to compensate. 
A) variable costs remain constant as more output is produced. 
B) variable costs fall as more output is produced. 
C) variable costs rise as more output is produced. 
D) fixed costs rise as more output is produced because you have to buy more equipment to compensate.

Question 19

The slope of the isoquant tells the firm how much

Accepted Answer

A) output increases when labor increases by one unit. 
B) output increases when capital and labor are doubled. 
C) capital must decrease to keep output constant when labor increases by one unit. 
D) a unit of capital costs relative to the cost of labor. 
A) output increases when labor increases by one unit. 
B) output increases when capital and labor are doubled. 
C) capital must decrease to keep output constant when labor increases by one unit. 
D) a unit of capital costs relative to the cost of labor.

Question 20

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. The average cost of the 5th T-shirt is

Accepted Answer

A) 2. 
B) 12. 
C) 52. 
D) 60. 
A) 2. 
B) 12. 
C) 52. 
D) 60.

Assume Congress decides that oil companies are making too much profit and decides to increase the tax on oil companies for each gallon of gasoline produced. This would

Suppose a firm can only vary the quantity of labor hired in the short run. An increase in the cost of capital will

Joey's Lawncutting Service rents office space from Joey's dad for $300 per month. Joey's dad is thinking of increasing the rent to $400 per month. As a result Joey's marginal cost of cutting grass will

The long run average cost curve may initially slope downward due to

Which of the following is most likely to have declining opportunity costs?

Average variable cost (AVC)

Which of the following statements is NOT true?

The total cost of producing one unit is $50. The total cost of producing two units is $75. At a production level of two units, the cost function exhibits

If a firm buys a delivery van for $18,000 and can resell it in 2 years for $7,500, the sunk cost is

Which of the following does NOT represent a possible shape of the long-run average cost curve?

If a firm buys a specialized metal stamping machine that will last 4 years for $125,000 and cannot resell it, the sunk cost is

Suppose the short-run production function is q = 10 ∗ L. If the wage rate is $10 per unit of labor, then MC equals

"If the wage rate paid to one form of labor is twice the cost of another form of labor, the first type of labor must be twice as productive." Comment.

A sunk cost is

Long-run average cost is never greater than short-run average cost because in the long run,

Assume baseball player salaries are fully determined before the season starts. From the point of view of the baseball team owner, player salaries during the course of the season are then

Learning by doing, which leads to lower costs in the long run, is often

When you have diminishing marginal returns to labor,

The slope of the isoquant tells the firm how much

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. The average cost of the 5th T-shirt is

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Government and Business

Global Business

Filters

Exam 6: Costs

Assume Congress decides that oil companies are making too much profit and decides to increase the tax on oil companies for each gallon of gasoline produced. This would

Suppose a firm can only vary the quantity of labor hired in the short run. An increase in the cost of capital will

Joey's Lawncutting Service rents office space from Joey's dad for $300 per month. Joey's dad is thinking of increasing the rent to $400 per month. As a result Joey's marginal cost of cutting grass will

The long run average cost curve may initially slope downward due to

Which of the following is most likely to have declining opportunity costs?

Average variable cost (AVC)

Which of the following statements is NOT true?

The total cost of producing one unit is $50. The total cost of producing two units is $75. At a production level of two units, the cost function exhibits

If a firm buys a delivery van for $18,000 and can resell it in 2 years for $7,500, the sunk cost is

Which of the following does NOT represent a possible shape of the long-run average cost curve?

If a firm buys a specialized metal stamping machine that will last 4 years for $125,000 and cannot resell it, the sunk cost is

Suppose the short-run production function is q = 10 ∗ L. If the wage rate is $10 per unit of labor, then MC equals

"If the wage rate paid to one form of labor is twice the cost of another form of labor, the first type of labor must be twice as productive." Comment.

A sunk cost is

Long-run average cost is never greater than short-run average cost because in the long run,

Assume baseball player salaries are fully determined before the season starts. From the point of view of the baseball team owner, player salaries during the course of the season are then

Learning by doing, which leads to lower costs in the long run, is often

When you have diminishing marginal returns to labor,

The slope of the isoquant tells the firm how much

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. The average cost of the 5th T-shirt is

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Government and Business

Global Business

Filters