Question 1

Suppose a firm is producing 100 units of output,incurring a total cost of $10 000 and total variable cost of $6000.It can be concluded that average fixed cost is

Accepted Answer

A) $40. 
B) $60. 
C) $100. 
D) $160. 
E) $4000. 
A) $40. 
B) $60. 
C) $100. 
D) $160. 
E) $4000.

Question 2

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

Accepted Answer

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

Question 3

Consider a firm's short-run cost curves.If average total cost is increasing as output rises,then

Accepted Answer

A) total fixed costs must be increasing. 
B) average fixed costs must be increasing. 
C) average variable cost must be increasing. 
D) marginal cost must be below average total cost. 
E) average total cost is no longer equal to the sum of average variable cost and average fixed cost. 
A) total fixed costs must be increasing. 
B) average fixed costs must be increasing. 
C) average variable cost must be increasing. 
D) marginal cost must be below average total cost. 
E) average total cost is no longer equal to the sum of average variable cost and average fixed cost.

Question 4

The table below provides the annual revenues and costs for a family-owned firm producing catered meals.
   TABLE 7-1
-Refer to Table 7-1.The accounting profits for this family-owned firm are

Accepted Answer

A) -$15 000. 
B) $0. 
C) $10 000. 
D) $30 000. 
E) $500 000. 
A) -$15 000. 
B) $0. 
C) $10 000. 
D) $30 000. 
E) $500 000.

Question 5

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.What is the total output per period when this firm is employing labour such that the marginal product of labour is at its maximum?

Accepted Answer

A) 30 
B) 60 
C) 90 
D) 132 
E) 150 
A) 30 
B) 60 
C) 90 
D) 132 
E) 150

Question 6

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 product of labour is highest when the firm hires

Accepted Answer

A) 1 unit of labour. 
B) 2 units of labour. 
C) 3 units of labour. 
D) 4 units of labour. 
E) 5 units of labour. 
A) 1 unit of labour. 
B) 2 units of labour. 
C) 3 units of labour. 
D) 4 units of labour. 
E) 5 units of labour.

Question 7

The choices listed below involve costs to the firm.For which is the implicit cost potentially different than its explicit cost?

Accepted Answer

A) The use of firm-owned assets. 
B) The services of hired workers. 
C) The use of rented land. 
D) The interest paid on borrowed money. 
E) The purchase of raw materials used in production. 
A) The use of firm-owned assets. 
B) The services of hired workers. 
C) The use of rented land. 
D) The interest paid on borrowed money. 
E) The purchase of raw materials used in production.

Question 8

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

Question 9

The table below provides the annual revenues and costs for a family-owned firm producing catered meals.
   TABLE 7-1
-Refer to Table 7-1.The implicit costs for this family-owned firm are

Accepted Answer

A) $35 000. 
B) $80 000. 
C) $100 000. 
D) $115 000. 
E) $490 000. 
A) $35 000. 
B) $80 000. 
C) $100 000. 
D) $115 000. 
E) $490 000.

Question 10

Consider the production costs for a firm,one of which is the cost of depreciation.Depreciation costs are

Accepted Answer

A) payments to outside suppliers. 
B) the cost of money borrowed to buy a durable asset. 
C) an estimate of the loss of value of the firm's physical capital. 
D) a measure of the depreciation of financial assets of the firm. 
E) irrelevant to an accounting of the firm's total costs. 
A) payments to outside suppliers. 
B) the cost of money borrowed to buy a durable asset. 
C) an estimate of the loss of value of the firm's physical capital. 
D) a measure of the depreciation of financial assets of the firm. 
E) irrelevant to an accounting of the firm's total costs.

Question 11

Which of the following statements about the relationship between marginal product and average product is correct?

Accepted Answer

A) When average product exceeds marginal product,marginal product must be rising. 
B) When marginal product is falling,average product is falling. 
C) When marginal product exceeds average product,average product must be rising. 
D) Average product equals marginal product at marginal product's lowest point. 
E) Average product equals marginal product when marginal product is at its maximum. 
A) When average product exceeds marginal product,marginal product must be rising. 
B) When marginal product is falling,average product is falling. 
C) When marginal product exceeds average product,average product must be rising. 
D) Average product equals marginal product at marginal product's lowest point. 
E) Average product equals marginal product when marginal product is at its maximum.

Question 12

The table below provides the annual revenues and costs for a family-owned firm producing catered meals.
   TABLE 7-1
-Refer to Table 7-1.To an accountant,this family-owned catering company is earning ________.To an economist,the same firm is earning ________.

Accepted Answer

A) zero profit; economic losses 
B) zero profit; normal profits 
C) positive profits; economic losses 
D) economic profits; economic profits 
E) economic profits; economic losses 
A) zero profit; economic losses 
B) zero profit; normal profits 
C) positive profits; economic losses 
D) economic profits; economic profits 
E) economic profits; economic losses

Question 13

Suppose that a firm's capital is fixed and one more unit of labour is hired,thereby increasing the firm's total output.Which of the following statements can be correct? 1.Marginal cost would remain constant.
2.Marginal cost would increase.
3.Marginal cost would decrease.

Accepted Answer

A) 1 only 
B) 2 only 
C) 3 only 
D) Any of 1,2,and 3 is possible. 
E) None are possible. 
A) 1 only 
B) 2 only 
C) 3 only 
D) Any of 1,2,and 3 is possible. 
E) None are possible.

Question 14

The law of diminishing returns states that if increasing quantities of a variable factor are applied to a given quantity of fixed factors,then

Accepted Answer

A) the MP and the AP of the variable factor will eventually decrease. 
B) the MP will eventually decrease with constant AP. 
C) the AP will eventually decrease with constant MP. 
D) the AP will eventually decrease,but only if TP is held constant. 
E) TP will eventually begin to fall. 
A) the MP and the AP of the variable factor will eventually decrease. 
B) the MP will eventually decrease with constant AP. 
C) the AP will eventually decrease with constant MP. 
D) the AP will eventually decrease,but only if TP is held constant. 
E) TP will eventually begin to fall.

Question 15

When a firm's total-product curve is increasing at a decreasing rate

Accepted Answer

A) average product is zero. 
B) marginal product is positive but declining. 
C) the marginal-product curve lies below the average-product curve. 
D) marginal product is negative and decreasing. 
E) average product is falling. 
A) average product is zero. 
B) marginal product is positive but declining. 
C) the marginal-product curve lies below the average-product curve. 
D) marginal product is negative and decreasing. 
E) average product is falling.

Question 16

Consider a firm in the short run.When the total-product curve is increasing at an increasing rate

Accepted Answer

A) average product is zero. 
B) marginal product is positive but declining. 
C) the marginal-product curve lies below the average-product curve. 
D) marginal product is positive and increasing. 
E) average product is falling. 
A) average product is zero. 
B) marginal product is positive but declining. 
C) the marginal-product curve lies below the average-product curve. 
D) marginal product is positive and increasing. 
E) average product is falling.

Question 17

Diminishing marginal product of labour is said to exist when there is

Accepted Answer

A) an increase in the amount of capital available for each unit of labour. 
B) a reduction in the level of labour input that causes output to increase. 
C) an increase in the division and specialization of labour. 
D) technological advancement. 
E) a successively smaller increase in output with each successive unit increase in labour input. 
A) an increase in the amount of capital available for each unit of labour. 
B) a reduction in the level of labour input that causes output to increase. 
C) an increase in the division and specialization of labour. 
D) technological advancement. 
E) a successively smaller increase in output with each successive unit increase in labour input.

Question 18

Suppose a production function for a firm takes the following algebraic form: Q = (0.25)K × (1.5)L2,where Q is the output of garage doors produced per month.Now suppose the firm is operating with 10 units of capital (K = 10)and 8 units of labour (L = 8).What is the output of garage doors per month?

Accepted Answer

A) 24 
B) 240 
C) 300 
D) 2400 
E) 3000 
A) 24 
B) 240 
C) 300 
D) 2400 
E) 3000

Question 19

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 variable cost when producing 132 units of output is approximately

Accepted Answer

A) 24 cents. 
B) 30 cents. 
C) 45 cents. 
D) 68 cents. 
E) 89 cents. 
A) 24 cents. 
B) 30 cents. 
C) 45 cents. 
D) 68 cents. 
E) 89 cents.

Question 20

The table below provides information on output per month and short-run costs for a firm producing outdoor wooden lounge chairs.All costs are in dollars.
   TABLE 7-5
-Refer to Table 7-5.At what level of output is this firm at its capacity?

Accepted Answer

A) 10 chairs 
B) 15 chairs 
C) 20 chairs 
D) 25 chairs 
E) 30 chairs 
A) 10 chairs 
B) 15 chairs 
C) 20 chairs 
D) 25 chairs 
E) 30 chairs

Exam 7: Producers in the Short Run

Suppose a firm is producing 100 units of output,incurring a total cost of $10 000 and total variable cost of $6000.It can be concluded that average fixed cost is

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

Consider a firm's short-run cost curves.If average total cost is increasing as output rises,then

The table below provides the annual revenues and costs for a family-owned firm producing catered meals. TABLE 7-1 -Refer to Table 7-1.The accounting profits for this family-owned firm are

The choices listed below involve costs to the firm.For which is the implicit cost potentially different than its explicit cost?

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 table below provides the annual revenues and costs for a family-owned firm producing catered meals. TABLE 7-1 -Refer to Table 7-1.The implicit costs for this family-owned firm are

Consider the production costs for a firm,one of which is the cost of depreciation.Depreciation costs are

Which of the following statements about the relationship between marginal product and average product is correct?

The table below provides the annual revenues and costs for a family-owned firm producing catered meals. TABLE 7-1 -Refer to Table 7-1.To an accountant,this family-owned catering company is earning ________.To an economist,the same firm is earning ________.

Suppose that a firm's capital is fixed and one more unit of labour is hired,thereby increasing the firm's total output.Which of the following statements can be correct? 1.Marginal cost would remain constant. 2.Marginal cost would increase. 3.Marginal cost would decrease.

The law of diminishing returns states that if increasing quantities of a variable factor are applied to a given quantity of fixed factors,then

When a firm's total-product curve is increasing at a decreasing rate

Consider a firm in the short run.When the total-product curve is increasing at an increasing rate

Diminishing marginal product of labour is said to exist when there is

Suppose a production function for a firm takes the following algebraic form: Q = (0.25)K × (1.5)L2,where Q is the output of garage doors produced per month.Now suppose the firm is operating with 10 units of capital (K = 10)and 8 units of labour (L = 8).What is the output of garage doors per month?

The table below provides information on output per month and short-run costs for a firm producing outdoor wooden lounge chairs.All costs are in dollars. TABLE 7-5 -Refer to Table 7-5.At what level of output is this firm at its capacity?

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How Factor Markets Work

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Interest Rates and the Capital Market

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Taxation and Public Expenditure

What Macroeconomics Is All About

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Adding Government and Trade to the Simple Macro Model

Output and Prices in the Short Run

From the Short Run to the Long Run: The Adjustment of Factor Prices

Long-Run Economic Growth

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Monetary Policy in Canada

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Unemployment Fluctuations and the Nairu

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Filters

The table below provides the annual revenues and costs for a family-owned firm producing catered meals. TABLE 7-1 -Refer to Table 7-1.To an accountant,this family-owned catering company is earning .To an economist,the same firm is earning .