Question 1

In the linear breakeven model,the breakeven sales volume (in dollars)is equal to fixed costs divided by:

Accepted Answer

A)  unit selling price less unit variable cost 
B)  contribution margin per unit 
C)  one minus the variable cost ratio 
D)  a and b only 
E)  a,b,and c 
A)  unit selling price less unit variable cost 
B)  contribution margin per unit 
C)  one minus the variable cost ratio 
D)  a and b only 
E)  a,b,and c C

Question 2

For each of the following cost-output relationships,describe the shape (U-shape,decreasing,increasing,constant)of the average total cost and marginal cost functions (C = total cost,Q = output): (a) $\mathrm { C } = 42,500,000 + 2550 \mathrm { Q }$
(b) $\mathrm { C } = 8.48 + 0.65 \mathrm { Q } + .00220 \mathrm { Q } ^ { 2 }$

Accepted Answer

(a) $\quad \mathrm { AC } = \frac { 42,500,000 } { \mathrm { Q } } + 2550$
$\mathrm { AC }$ curve is continually decreasing
$\mathrm { MC } = 2550$
MC curve is constant

(b) $\mathrm { AC } = \frac { 8.48 } { \mathrm { Q } } + .065 + .00220 \mathrm { Q }$
$\mathrm { AC }$ curve is $\mathrm { U }$-shaped-first decreasing and then increasing.
$\mathrm { MC } = .065 + .00440 \mathrm { Q }$
MC is linear with a slope of 00440

Question 3

In the linear breakeven model,the relevant range of output is that range where the linearity assumptions of the model are assumed to hold.

Accepted Answer

A) True 
 B)False  True

Question 4

A ____ total cost function implies that marginal costs ____ as output is increased.

Accepted Answer

A)  linear; increase linearly 
B)  quadratic; are constant 
C)  cubic; increase linearly 
D)  linear; are constant 
E)  none of the above 
A)  linear; increase linearly 
B)  quadratic; are constant 
C)  cubic; increase linearly 
D)  linear; are constant 
E)  none of the above

Question 5

Evidence from empirical studies of long-run cost-output relationships lends support to the:

Accepted Answer

A)  existence of a non-linear cubic total cost function 
B)  hypothesis that marginal costs first decrease,then gradually increase over the normal operating range of the firm 
C)  hypothesis that total costs increase quadratically over the ranges of output examined 
D)  hypothesis that total costs increase linearly over some considerable range of output examined 
E)  none of the above 
A)  existence of a non-linear cubic total cost function 
B)  hypothesis that marginal costs first decrease,then gradually increase over the normal operating range of the firm 
C)  hypothesis that total costs increase quadratically over the ranges of output examined 
D)  hypothesis that total costs increase linearly over some considerable range of output examined 
E)  none of the above

Question 6

Which of the following is not a limitation of the survivor technique for measuring the optimum size of firms within an industry?

Accepted Answer

A)  since the technique does not employ actual cost data in the analysis,there is no way to assess the magnitude of the cost differentials between firms of varying size and efficiency. 
B)  the managerial and entrepreneurial aspects of the production process are not included in the analysis 
C)  because of legal factors,the long-run cost curve derived by this technique may be distorted and may not measure the cost curve postulated in economic theory 
D)  a and b 
E)  b and c 
A)  since the technique does not employ actual cost data in the analysis,there is no way to assess the magnitude of the cost differentials between firms of varying size and efficiency. 
B)  the managerial and entrepreneurial aspects of the production process are not included in the analysis 
C)  because of legal factors,the long-run cost curve derived by this technique may be distorted and may not measure the cost curve postulated in economic theory 
D)  a and b 
E)  b and c

Question 7

In a study of banking by asset size over time,we can find which asset sizes are tending to become more prominent.The size that is becoming more predominant is presumed to be least cost.This is called:

Accepted Answer

A)  regression to the mean analysis. 
B)  breakeven analysis. 
C)  survivorship analysis. 
D)  engineering cost analysis. 
E)  a Willie Sutton analysis. 
A)  regression to the mean analysis. 
B)  breakeven analysis. 
C)  survivorship analysis. 
D)  engineering cost analysis. 
E)  a Willie Sutton analysis.

Question 8

The short-run cost function is:

Accepted Answer

A)  where all inputs to the production process are variable 
B)  relevant to decisions in which one or more inputs to the production process are fixed 
C)  not relevant to optimal pricing and production output decisions 
D)  crucial in making optimal investment decisions in new production facilities 
E)  none of the above 
A)  where all inputs to the production process are variable 
B)  relevant to decisions in which one or more inputs to the production process are fixed 
C)  not relevant to optimal pricing and production output decisions 
D)  crucial in making optimal investment decisions in new production facilities 
E)  none of the above

Question 9

George Webb Restaurant collects on the average $5 per customer at its breakfast & lunch diner.Its variable cost per customer averages $3,and its annual fixed cost is $40,000.If George Webb wants to make a profit of $20,000 per year at the diner,it will have to serve__________ customers per year.

Accepted Answer

A)  10,000 customers 
B)  20,000 customers 
C)  30,000 customers 
D)  40,000 customers 
E)  50,000 customers 
A)  10,000 customers 
B)  20,000 customers 
C)  30,000 customers 
D)  40,000 customers 
E)  50,000 customers

Question 10

In the linear breakeven model,the breakeven sales volume (in dollars)can be found by multiplying the breakeven sales volume (in units)by:

Accepted Answer

A)  one minus the variable cost ratio 
B)  contribution margin per unit 
C)  selling price per unit 
D)  standard deviation of unit sales 
E)  none of the above 
A)  one minus the variable cost ratio 
B)  contribution margin per unit 
C)  selling price per unit 
D)  standard deviation of unit sales 
E)  none of the above

Question 11

Theoretically,in a long-run cost function:

Accepted Answer

A)  all inputs are fixed 
B)  all inputs are considered variable 
C)  some inputs are always fixed 
D)  capital and labor are always combined in fixed proportions 
E)  b and d 
A)  all inputs are fixed 
B)  all inputs are considered variable 
C)  some inputs are always fixed 
D)  capital and labor are always combined in fixed proportions 
E)  b and d

Question 12

​The difference between economies of scale and economies of scope is:

Accepted Answer

A)  ​economies of scale occur whenever inputs can be shared in the production of different products 
B)  ​economies of scope occur whenever inputs can be shared in the production of different products 
C)  ​economies of scale can occur when two or more products are produced 
D)  ​economies of scope can occur when two or more products are produced 
E)  both ​b and d 
A)  ​economies of scale occur whenever inputs can be shared in the production of different products 
B)  ​economies of scope occur whenever inputs can be shared in the production of different products 
C)  ​economies of scale can occur when two or more products are produced 
D)  ​economies of scope can occur when two or more products are produced 
E)  both ​b and d

Question 13

In the linear breakeven model,the difference between selling price per unit and variable cost per unit is referred to as:

Accepted Answer

A)  variable margin per unit 
B)  variable cost ratio 
C)  contribution margin per unit 
D)  target margin per unit 
E)  none of the above 
A)  variable margin per unit 
B)  variable cost ratio 
C)  contribution margin per unit 
D)  target margin per unit 
E)  none of the above

Question 14

A ____ total cost function yields a U-shaped average total cost function.

Accepted Answer

A)  cubic 
B)  quadratic 
C)  linear 
D)  a and b only 
E)  a,b,and c 
A)  cubic 
B)  quadratic 
C)  linear 
D)  a and b only 
E)  a,b,and c

Question 15

What is another term meaning the degree of operating leverage?

Accepted Answer

A)  The measure of the importance of fixed cost. 
B)  The operating profit elasticity. 
C)  The measure of business risk. 
D)  D.O.L. 
E)  All of the above. 
A)  The measure of the importance of fixed cost. 
B)  The operating profit elasticity. 
C)  The measure of business risk. 
D)  D.O.L. 
E)  All of the above.

Question 16

The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____.

Accepted Answer

A)  percentage; sales; percentage; EBIT 
B)  unit; sales; unit; EBIT 
C)  percentage; EBIT; percentage; sales 
D)  unit; EBIT; unit; sales 
E)  none of the above 
A)  percentage; sales; percentage; EBIT 
B)  unit; sales; unit; EBIT 
C)  percentage; EBIT; percentage; sales 
D)  unit; EBIT; unit; sales 
E)  none of the above

Question 17

A linear total cost function implies that:

Accepted Answer

A)  marginal costs are constant as output increases 
B)  average total costs are continually decreasing as output increases 
C)  a and b 
D)  none of the above 
A)  marginal costs are constant as output increases 
B)  average total costs are continually decreasing as output increases 
C)  a and b 
D)  none of the above

Question 18

The primary disadvantage of engineering methods for measuring cost functions is that they deal with the managerial and entrepreneurial aspects of the production process or plant.

Accepted Answer

A) True 
 B)False

Question 19

A ____ total cost function implies that marginal costs ____ as output is increased.

Accepted Answer

A)  linear; increase linearly 
B)  quadratic; increase linearly 
C)  cubic; increase linearly 
D)  a and b 
E)  none of the above 
A)  linear; increase linearly 
B)  quadratic; increase linearly 
C)  cubic; increase linearly 
D)  a and b 
E)  none of the above

Question 20

In the linear breakeven model,a firm incurs operating losses whenever output is less than the breakeven level.

Accepted Answer

A) True 
 B)False

In the linear breakeven model,the breakeven sales volume (in dollars)is equal to fixed costs divided by:

In the linear breakeven model,the relevant range of output is that range where the linearity assumptions of the model are assumed to hold.

A total cost function implies that marginal costs as output is increased.

Evidence from empirical studies of long-run cost-output relationships lends support to the:

Which of the following is not a limitation of the survivor technique for measuring the optimum size of firms within an industry?

In a study of banking by asset size over time,we can find which asset sizes are tending to become more prominent.The size that is becoming more predominant is presumed to be least cost.This is called:

The short-run cost function is:

George Webb Restaurant collects on the average $5 per customer at its breakfast & lunch diner.Its variable cost per customer averages $3,and its annual fixed cost is $40,000.If George Webb wants to make a profit of $20,000 per year at the diner,it will have to serve__________ customers per year.

In the linear breakeven model,the breakeven sales volume (in dollars)can be found by multiplying the breakeven sales volume (in units)by:

Theoretically,in a long-run cost function:

The difference between economies of scale and economies of scope is:

In the linear breakeven model,the difference between selling price per unit and variable cost per unit is referred to as:

A ____ total cost function yields a U-shaped average total cost function.

What is another term meaning the degree of operating leverage?

The degree of operating leverage is equal to the change in divided by the change in .

A linear total cost function implies that:

The primary disadvantage of engineering methods for measuring cost functions is that they deal with the managerial and entrepreneurial aspects of the production process or plant.

A total cost function implies that marginal costs as output is increased.

In the linear breakeven model,a firm incurs operating losses whenever output is less than the breakeven level.

Introduction and Goals of the Firm

Fundamental Economic Concepts

Demand Analysis

Estimating Demand

Business and Economic Forecasting

Managing in the Global Economy

Production Economics

Cost Analysis

Prices,output,and Strategy: Pure and Monopolistic Competition

Price and Output Determination: Monopoly and Dominant Firms

Price and Output Determination: Oligopoly

Best-Practice Tactics: Game Theory

Pricing Techniques and Analysis

Contracting,governance,and Organizational Form

Government Regulation

Long-Term Investment Analysis

Filters

Exam 9: Applications of Cost Theory

In the linear breakeven model,the breakeven sales volume (in dollars)is equal to fixed costs divided by:

In the linear breakeven model,the relevant range of output is that range where the linearity assumptions of the model are assumed to hold.

A ____ total cost function implies that marginal costs ____ as output is increased.

Evidence from empirical studies of long-run cost-output relationships lends support to the:

Which of the following is not a limitation of the survivor technique for measuring the optimum size of firms within an industry?

In a study of banking by asset size over time,we can find which asset sizes are tending to become more prominent.The size that is becoming more predominant is presumed to be least cost.This is called:

The short-run cost function is:

George Webb Restaurant collects on the average $5 per customer at its breakfast & lunch diner.Its variable cost per customer averages $3,and its annual fixed cost is $40,000.If George Webb wants to make a profit of $20,000 per year at the diner,it will have to serve__________ customers per year.

In the linear breakeven model,the breakeven sales volume (in dollars)can be found by multiplying the breakeven sales volume (in units)by:

Theoretically,in a long-run cost function:

​The difference between economies of scale and economies of scope is:

In the linear breakeven model,the difference between selling price per unit and variable cost per unit is referred to as:

A ____ total cost function yields a U-shaped average total cost function.

What is another term meaning the degree of operating leverage?

The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____.

A linear total cost function implies that:

The primary disadvantage of engineering methods for measuring cost functions is that they deal with the managerial and entrepreneurial aspects of the production process or plant.

A ____ total cost function implies that marginal costs ____ as output is increased.

In the linear breakeven model,a firm incurs operating losses whenever output is less than the breakeven level.

Introduction and Goals of the Firm

Fundamental Economic Concepts

Demand Analysis

Estimating Demand

Business and Economic Forecasting

Managing in the Global Economy

Production Economics

Cost Analysis

Prices,output,and Strategy: Pure and Monopolistic Competition

Price and Output Determination: Monopoly and Dominant Firms

Price and Output Determination: Oligopoly

Best-Practice Tactics: Game Theory

Pricing Techniques and Analysis

Contracting,governance,and Organizational Form

Government Regulation

Long-Term Investment Analysis

Filters

A total cost function implies that marginal costs as output is increased.

The difference between economies of scale and economies of scope is:

The degree of operating leverage is equal to the change in divided by the change in .

A total cost function implies that marginal costs as output is increased.