Question 1

The marginal cost will intersect the average variable cost curve

Accepted Answer

A) when the average variable cost curve is rising. 
B) where average variable cost curve equals price. 
C) at the minimum point of the average variable cost curve. 
D) The two will never intersect. 
A) when the average variable cost curve is rising. 
B) where average variable cost curve equals price. 
C) at the minimum point of the average variable cost curve. 
D) The two will never intersect. C

Question 2

You have opened your own word-processing service.You bought a personal computer,and paid $5,000 for it.However,due to the cost changes in the computer industry,the current price of an equivalent machine is $2,500.You could sell any used machine for $1,000.If you were not word processing,you could earn $20,000 per year at an alternative job.Assume that the interest rate is 10%.You can also hire an assistant who can do everything that you can do for $20,000 per year (you would still continue to do word processing).
One person using one computer can produce 11,000 typed pages per year,and the price per page for your service is $2.
You are considering three options: (1)expand your business by hiring an assistant; (2)leave your business the way it is; (3)shut down.Based on the costs and revenues above,which should you do? Explain and show any relevant calculations.

Accepted Answer

Option 1:
Revenue = $22,000
Opportunity cost of your time = 20,000
Opportunity cost of interest on salvage value of existing computer = 100
Economic profit = $1,900
Option 2:
You still earn $1,900 as above.
Revenue from additional worker = 22,000
Wages = 20,000
Opportunity cost of interest on purchase of new computer = 250
Depreciation = 1,500
Economic profit from additional worker = $250 Total economic profit = $2,150
Option 3:
Revenue = 0
No costs,since opportunity costs no longer apply,and fixed costs are sunk.
Economic profit = 0
(Could possibly view the $1,000 you get from selling the used computer as revenue,but makes no difference to final solution of problem.)
Option 2,expand your business,is the best option.

Question 3

As a firm attempts to increase its production,its long-run average costs eventually rise because of

Accepted Answer

A) the law of diminishing returns. 
B) diseconomies of scale. 
C) fixed capital. 
D) insufficient demand. 
A) the law of diminishing returns. 
B) diseconomies of scale. 
C) fixed capital. 
D) insufficient demand. B

Question 4

Match between columns
                        Premises: Marginal costs decrease as output increases because the firm can spread fixed costs over more units.
If average cost is increasing,marginal cost must be increasing.
If there are diminishing returns,the marginal cost curve must be positively sloped.

Accepted Answer

The Answer of False and True is...

Question 5

The learning curve

Accepted Answer

A) is really no different from a marginal cost curve. 
B) calculates average cost at a particular point in time. 
C) shows the decrease in unit cost as more of the same product is produced over time. 
D) None of the above 
A) is really no different from a marginal cost curve. 
B) calculates average cost at a particular point in time. 
C) shows the decrease in unit cost as more of the same product is produced over time. 
D) None of the above

Question 6

The major advantage of using cross-sectional analysis for long-run costs studies includes

Accepted Answer

A) the inclusion in the sample of different plants of different sizes. 
B) the avoidance of having to adjust for inflationary trends. 
C) the avoidance of having to account for interregional cost differences. 
D) All of the above 
E) A and B above 
A) the inclusion in the sample of different plants of different sizes. 
B) the avoidance of having to adjust for inflationary trends. 
C) the avoidance of having to account for interregional cost differences. 
D) All of the above 
E) A and B above

Question 7

To an economist,total costs include

Accepted Answer

A) explicit,but not implicit costs. 
B) implicit,but not explicit costs. 
C) explicit and implicit costs. 
D) neither explicit nor implicit costs. 
A) explicit,but not implicit costs. 
B) implicit,but not explicit costs. 
C) explicit and implicit costs. 
D) neither explicit nor implicit costs.

Question 8

Which of the following statements best represents a difference between short-run and long-run cost?

Accepted Answer

A) Less than one year is considered the short run; more than one year the long run. 
B) There are no fixed costs in the long run. 
C) In the short-run labor must always be considered the variable input and capital the fixed input. 
D) All of the above are true. 
A) Less than one year is considered the short run; more than one year the long run. 
B) There are no fixed costs in the long run. 
C) In the short-run labor must always be considered the variable input and capital the fixed input. 
D) All of the above are true.

Question 9

When the survivorship method of cost estimating is used,an increase,over time,in the proportion of industry product produced by medium size firms indicates the existence of

Accepted Answer

A) continuing economies of scale. 
B) continuing diseconomies of scale. 
C) a U-shaped long-run average cost curve. 
D) large technological changes. 
A) continuing economies of scale. 
B) continuing diseconomies of scale. 
C) a U-shaped long-run average cost curve. 
D) large technological changes.

Question 10

The learning curve indicates that

Accepted Answer

A) economies of scale are taking effect. 
B) repetition of various production tasks cause unit costs to decrease. 
C) workers must learn new skills in order to improve. 
D) it takes time to learn a new skill. 
A) economies of scale are taking effect. 
B) repetition of various production tasks cause unit costs to decrease. 
C) workers must learn new skills in order to improve. 
D) it takes time to learn a new skill.

Question 11

Economies of scale are indicated by

Accepted Answer

A) declining long-run AVC. 
B) declining long-run AFC. 
C) declining long-run AC. 
D) declining long-run TC. 
A) declining long-run AVC. 
B) declining long-run AFC. 
C) declining long-run AC. 
D) declining long-run TC.

Question 12

The main factor that explains the difference between accounting cost and economic cost is

Accepted Answer

A) opportunity cost. 
B) fixed cost. 
C) variable cost. 
D) All of the above help to explain the difference. 
A) opportunity cost. 
B) fixed cost. 
C) variable cost. 
D) All of the above help to explain the difference.

Question 13

If total cost equals $2,000 and quantity produced is 100 units,then

Accepted Answer

A) fixed cost is $200 and average variable cost is $18. 
B) fixed cost is $600 and average variable cost is $14. 
C) fixed cost is $500 and marginal cost is $15. 
D) Either A or B can be correct. 
A) fixed cost is $200 and average variable cost is $18. 
B) fixed cost is $600 and average variable cost is $14. 
C) fixed cost is $500 and marginal cost is $15. 
D) Either A or B can be correct.

Question 14

Consider a firm that has just built a plant,which cost $1,000.Each worker costs $5.00 per hour.Based on this information,fill in the table below.

Accepted Answer

The answer of Consider a firm that has just built...

Question 15

Diseconomies of scale can be caused by

Accepted Answer

A) the law of diminishing returns. 
B) bureaucratic inefficiencies. 
C) increasing advertising and promotional costs. 
D) All of the above 
A) the law of diminishing returns. 
B) bureaucratic inefficiencies. 
C) increasing advertising and promotional costs. 
D) All of the above

Question 16

How would each of the following affect the firm's marginal,average,and average variable cost curves?
a.An increase in wages
b.A decrease in material costs
c.The government imposes a fixed amount of tax.
d.The rent that the firm pays on the building that it leases decreases.

Accepted Answer

a.Wages are a variable cost,so MC,AVC,an

Question 17

Which of the following is most likely a fixed cost?

Accepted Answer

A) expenditures for raw materials 
B) wages for unskilled labor 
C) fuel cost 
D) property taxes 
A) expenditures for raw materials 
B) wages for unskilled labor 
C) fuel cost 
D) property taxes

Question 18

A short-run total cost function,TC = 100 + 32Q - 4Q2 + 0.4Q3,indicates the existence of

Accepted Answer

A) a linear total cost curve. 
B) a constant average variable cost curve. 
C) a U-shaped average variable cost curve. 
D) a constant marginal cost curve. 
A) a linear total cost curve. 
B) a constant average variable cost curve. 
C) a U-shaped average variable cost curve. 
D) a constant marginal cost curve.

Question 19

A firm experiences increasing returns to scale; that is,doubling all its inputs more than doubles its output.What can be inferred about the firm's short-run costs?

Accepted Answer

Returns to scale is a long-run phenomeno

Question 20

Given the total cost function TC = 100 + 40Q - 15Q2 + 5Q3,calculate the
a.average fixed cost function (AFC)
b.average variable cost function (AVC)
c.marginal cost function (MC)

Accepted Answer

a.AFC = 100/Q b.AVC

The marginal cost will intersect the average variable cost curve

As a firm attempts to increase its production,its long-run average costs eventually rise because of

The learning curve

The major advantage of using cross-sectional analysis for long-run costs studies includes

To an economist,total costs include

Which of the following statements best represents a difference between short-run and long-run cost?

When the survivorship method of cost estimating is used,an increase,over time,in the proportion of industry product produced by medium size firms indicates the existence of

The learning curve indicates that

Economies of scale are indicated by

The main factor that explains the difference between accounting cost and economic cost is

If total cost equals $2,000 and quantity produced is 100 units,then

Consider a firm that has just built a plant,which cost $1,000.Each worker costs $5.00 per hour.Based on this information,fill in the table below.

Diseconomies of scale can be caused by

How would each of the following affect the firm's marginal,average,and average variable cost curves? a.An increase in wages b.A decrease in material costs c.The government imposes a fixed amount of tax. d.The rent that the firm pays on the building that it leases decreases.

Which of the following is most likely a fixed cost?

A short-run total cost function,TC = 100 + 32Q - 4Q² + 0.4Q³,indicates the existence of

A firm experiences increasing returns to scale; that is,doubling all its inputs more than doubles its output.What can be inferred about the firm's short-run costs?

Given the total cost function TC = 100 + 40Q - 15Q² + 5Q³,calculate the a.average fixed cost function (AFC) b.average variable cost function (AVC) c.marginal cost function (MC)

Introduction

The Firm and Its Goals

Supply and Demand

Demand Elasticity

Demand Estimation and Forecasting Appendices 5A and 5B

The Theory and Estimation of Production Appendices 6A,6B,and 6C

Pricing and Output Decisions: Perfect Competition and Monopoly Appendices 8A and 8B

Pricing and Output Decisions: Monopolistic Competition and Oligopoly

Special Pricing Practices

Game Theory and Asymmetric Information

Capital Budgeting and Risk

The Multinational Corporation in a Global Setting

Government and Industry: Challenges and Opportunities for Todays Manager

The Global Soft Drink Industry

Filters

Exam 7: The Theory and Estimation of Cost Appendices 7A,7B,and 7C

The marginal cost will intersect the average variable cost curve

As a firm attempts to increase its production,its long-run average costs eventually rise because of

The learning curve

The major advantage of using cross-sectional analysis for long-run costs studies includes

To an economist,total costs include

Which of the following statements best represents a difference between short-run and long-run cost?

When the survivorship method of cost estimating is used,an increase,over time,in the proportion of industry product produced by medium size firms indicates the existence of

The learning curve indicates that

Economies of scale are indicated by

The main factor that explains the difference between accounting cost and economic cost is

If total cost equals $2,000 and quantity produced is 100 units,then

Consider a firm that has just built a plant,which cost $1,000.Each worker costs $5.00 per hour.Based on this information,fill in the table below.

Diseconomies of scale can be caused by

How would each of the following affect the firm's marginal,average,and average variable cost curves? a.An increase in wages b.A decrease in material costs c.The government imposes a fixed amount of tax. d.The rent that the firm pays on the building that it leases decreases.

Which of the following is most likely a fixed cost?

A short-run total cost function,TC = 100 + 32Q - 4Q2 + 0.4Q3,indicates the existence of

A firm experiences increasing returns to scale; that is,doubling all its inputs more than doubles its output.What can be inferred about the firm's short-run costs?

Given the total cost function TC = 100 + 40Q - 15Q2 + 5Q3,calculate the a.average fixed cost function (AFC) b.average variable cost function (AVC) c.marginal cost function (MC)

Introduction

The Firm and Its Goals

Supply and Demand

Demand Elasticity

Demand Estimation and Forecasting Appendices 5A and 5B

The Theory and Estimation of Production Appendices 6A,6B,and 6C

Pricing and Output Decisions: Perfect Competition and Monopoly Appendices 8A and 8B

Pricing and Output Decisions: Monopolistic Competition and Oligopoly

Special Pricing Practices

Game Theory and Asymmetric Information

Capital Budgeting and Risk

The Multinational Corporation in a Global Setting

Government and Industry: Challenges and Opportunities for Todays Manager

The Global Soft Drink Industry

Filters

A short-run total cost function,TC = 100 + 32Q - 4Q² + 0.4Q³,indicates the existence of

Given the total cost function TC = 100 + 40Q - 15Q² + 5Q³,calculate the a.average fixed cost function (AFC) b.average variable cost function (AVC) c.marginal cost function (MC)