Question 1

What is the relationship between the average fixed cost (AFC)curve and the marginal cost (MC)curve?

Accepted Answer

A) The MC curve intersects the AFC curve at its minimum point. 
B) When the MC curve is above the AFC curve, AFC must be increasing. 
C) Both a and b are true. 
D) There is no relationship between the AFC curve and the MC curve.. 
A) The MC curve intersects the AFC curve at its minimum point. 
B) When the MC curve is above the AFC curve, AFC must be increasing. 
C) Both a and b are true. 
D) There is no relationship between the AFC curve and the MC curve.. D

Question 2

As a firm produces more units of a good, its

Accepted Answer

A) fixed costs remain constant in the short run and its variable costs rise. 
B) variable costs decline in the short run and its fixed costs rise. 
C) fixed and variable costs remain constant in the short run. 
D) variable costs remain constant in the short run and its fixed costs fall. 
A) fixed costs remain constant in the short run and its variable costs rise. 
B) variable costs decline in the short run and its fixed costs rise. 
C) fixed and variable costs remain constant in the short run. 
D) variable costs remain constant in the short run and its fixed costs fall. A

Question 3

Exhibit 21-11   Refer to Exhibit 21-11. Average fixed cost at two units of output is

Accepted Answer

A) $50. 
B) $60. 
C) $100. 
D) $110. 
E) There is not enough information provided to answer this question. 
A) $50. 
B) $60. 
C) $100. 
D) $110. 
E) There is not enough information provided to answer this question. A

Question 4

Noble Prizewinner Ronald Coase argued that firms exist in order to reduce transaction costs.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is true?

Accepted Answer

A) If the marginal cost curve is above the AFC curve, the AFC curve must be rising. 
B) Average total cost equals average variable cost minus average fixed cost. 
C) As output increases, the average variable cost curve gets closer to the average total cost curve. 
D) The AFC curve is horizontal as output increases. 
A) If the marginal cost curve is above the AFC curve, the AFC curve must be rising. 
B) Average total cost equals average variable cost minus average fixed cost. 
C) As output increases, the average variable cost curve gets closer to the average total cost curve. 
D) The AFC curve is horizontal as output increases.

Question 6

Exhibit 21-9 ​
 
Refer to Exhibit 21-9. Let MC1 and ATC1 represent the initial cost curves of a peanut butter producer. In which of the following cases is it most likely that the firm's curves will shift leftward to MC2 and ATC2?

Accepted Answer

A) The market price of peanuts decreases. 
B) There is an improvement in technology in the production of peanut butter. 
C) The government raises taxes paid by peanut butter producers. 
D) The government raises subsidies to peanut butter producers. 
A) The market price of peanuts decreases. 
B) There is an improvement in technology in the production of peanut butter. 
C) The government raises taxes paid by peanut butter producers. 
D) The government raises subsidies to peanut butter producers.

Question 7

Exhibit 21-4 ​
 
Diseconomies of scale are present when the __________ average total cost curve is __________.

Accepted Answer

A) short-run; falling 
B) short-run; rising 
C) long-run; falling 
D) long-run; rising 
A) short-run; falling 
B) short-run; rising 
C) long-run; falling 
D) long-run; rising

Question 8

Accounting profit equals economic profit if __________ equals __________.

Accepted Answer

A) explicit costs; implicit costs 
B) total revenue; marginal cost 
C) implicit costs; zero 
D) explicit costs; zero 
E) unit cost; marginal cost 
A) explicit costs; implicit costs 
B) total revenue; marginal cost 
C) implicit costs; zero 
D) explicit costs; zero 
E) unit cost; marginal cost

Question 9

Exhibit 21-3   Refer to Exhibit 21-3. The average fixed cost of producing 25 units of output is

Accepted Answer

A) $500.00. 
B) $20.00. 
C) $50.00. 
D) $2.50. 
E) indeterminable with the information given. 
A) $500.00. 
B) $20.00. 
C) $50.00. 
D) $2.50. 
E) indeterminable with the information given.

Question 10

If a firm earns normal profit, then it has generated revenues

Accepted Answer

A) equal to the sum of implicit and explicit costs. 
B) greater than total opportunity costs. 
C) sufficient to cover explicit costs, but not implicit costs. 
D) sufficient to cover implicit costs, but not explicit costs. 
A) equal to the sum of implicit and explicit costs. 
B) greater than total opportunity costs. 
C) sufficient to cover explicit costs, but not implicit costs. 
D) sufficient to cover implicit costs, but not explicit costs.

Question 11

Making a manager a residual claimant is often a way of

Accepted Answer

A) forming a partnership. 
B) increasing the efficiency of a nonprofit firm. 
C) reducing the incentive of the manager to shirk. 
D) redirecting the firm to the objective of revenue maximization. 
A) forming a partnership. 
B) increasing the efficiency of a nonprofit firm. 
C) reducing the incentive of the manager to shirk. 
D) redirecting the firm to the objective of revenue maximization.

Question 12

Exhibit 21-8   Exhibit 21-8 shows how output varies with the only variable input used in its production. The table indicates that diminishing marginal returns set in with the hiring of which unit of labor?

Accepted Answer

A) first 
B) second 
C) third 
D) fourth 
E) fifth 
A) first 
B) second 
C) third 
D) fourth 
E) fifth

Question 13

Explain the difference between the law of diminishing marginal returns and diseconomies of scale.

Accepted Answer

The law of diminishing marginal returns

Question 14

As the marginal physical product of a variable input __________, the marginal cost __________.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) increase; remains constant 
A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) increase; remains constant

Question 15

Economies of scale refer to

Accepted Answer

A) the minimum point on the short-run average total cost curve. 
B) the flat portion of the long-run average total cost curve. 
C) a decrease in the long-run average total cost of production as output increases. 
D) the maximum point on the short-run average total cost curve. 
A) the minimum point on the short-run average total cost curve. 
B) the flat portion of the long-run average total cost curve. 
C) a decrease in the long-run average total cost of production as output increases. 
D) the maximum point on the short-run average total cost curve.

Question 16

Exhibit 21-5 ​
 
Refer to Exhibit 21-5. Diseconomies of scale are present between

Accepted Answer

A) points A and B. 
B) points A and C. 
C) points B and C. 
D) points B and D. 
E) points C and D. 
A) points A and B. 
B) points A and C. 
C) points B and C. 
D) points B and D. 
E) points C and D.

Question 17

A firm that earns zero accounting profit is earning a normal profit.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 21-4 ​
 
Refer to Exhibit 21-4. Curve D is a(n)__________ cost curve.

Accepted Answer

A) marginal 
B) average variable 
C) average total 
D) average fixed 
A) marginal 
B) average variable 
C) average total 
D) average fixed

Question 19

A fixed input is an input whose quantity

Accepted Answer

A) can be changed as output changes in the short run. 
B) cannot be changed as output changes in the short run. 
C) cannot be changed as output changes in the long run. 
D) rises, then falls in the short run. 
A) can be changed as output changes in the short run. 
B) cannot be changed as output changes in the short run. 
C) cannot be changed as output changes in the long run. 
D) rises, then falls in the short run.

Question 20

Which of the following situations would prompt individuals to try to form a team (firm), according to Alchian and Demsetz.

Accepted Answer

A) Jones, Smith, and Brown together produce 100 units of good X each day working alone and 90 units of good X each day working together. 
B) Jones, Smith, and Brown together produce 100 units of good X each day working alone and 120 units of good X each day working together. 
C) Jones, Smith, and Brown together produce 100 units of good X each day working alone and 100 units of good X each day working together. 
D) Jones produces more working alone than Smith or Brown produce working alone. 
E) Jones produces more working as a member of a team than Smith or Brown produce working as a member of a team. 
A) Jones, Smith, and Brown together produce 100 units of good X each day working alone and 90 units of good X each day working together. 
B) Jones, Smith, and Brown together produce 100 units of good X each day working alone and 120 units of good X each day working together. 
C) Jones, Smith, and Brown together produce 100 units of good X each day working alone and 100 units of good X each day working together. 
D) Jones produces more working alone than Smith or Brown produce working alone. 
E) Jones produces more working as a member of a team than Smith or Brown produce working as a member of a team.

Exam 8: Production and Costs

What is the relationship between the average fixed cost (AFC)curve and the marginal cost (MC)curve?

As a firm produces more units of a good, its

Exhibit 21-11 Refer to Exhibit 21-11. Average fixed cost at two units of output is

Noble Prizewinner Ronald Coase argued that firms exist in order to reduce transaction costs.

Which of the following statements is true?

Exhibit 21-9 ​ Refer to Exhibit 21-9. Let MC1 and ATC1 represent the initial cost curves of a peanut butter producer. In which of the following cases is it most likely that the firm's curves will shift leftward to MC2 and ATC2?

Exhibit 21-4 ​ Diseconomies of scale are present when the __________ average total cost curve is __________.

Accounting profit equals economic profit if __________ equals __________.

Exhibit 21-3 Refer to Exhibit 21-3. The average fixed cost of producing 25 units of output is

If a firm earns normal profit, then it has generated revenues

Making a manager a residual claimant is often a way of

Exhibit 21-8 Exhibit 21-8 shows how output varies with the only variable input used in its production. The table indicates that diminishing marginal returns set in with the hiring of which unit of labor?

Explain the difference between the law of diminishing marginal returns and diseconomies of scale.

As the marginal physical product of a variable input __________, the marginal cost __________.

Economies of scale refer to

Exhibit 21-5 ​ Refer to Exhibit 21-5. Diseconomies of scale are present between

A firm that earns zero accounting profit is earning a normal profit.

Exhibit 21-4 ​ Refer to Exhibit 21-4. Curve D is a(n)__________ cost curve.

A fixed input is an input whose quantity

Which of the following situations would prompt individuals to try to form a team (firm), according to Alchian and Demsetz.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages, Union, and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Filters

Exhibit 21-9 Refer to Exhibit 21-9. Let MC₁ and ATC₁ represent the initial cost curves of a peanut butter producer. In which of the following cases is it most likely that the firm's curves will shift leftward to MC₂ and ATC₂?

Exhibit 21-4 Diseconomies of scale are present when the average total cost curve is .

Accounting profit equals economic profit if equals .

As the marginal physical product of a variable input , the marginal cost .

Exhibit 21-5 Refer to Exhibit 21-5. Diseconomies of scale are present between

Exhibit 21-4 Refer to Exhibit 21-4. Curve D is a(n)__________ cost curve.