Deck 13: Production and Cost

Question 1

Economic profit equals total revenue minus total

A) implicit costs.
B) accounting costs.
C) explicit costs.
D) entrepreneur's costs.
E) opportunity costs.

Answer 1

opportunity costs.

Question 2

John fishes for a living. Last year, he sold $100,000 worth of fish. Bait, nets and other fishing supplies cost John $10,000 and he paid $40,000 in salaries to his helpers. Depreciation on his boat and other equipment, as calculated using ATO rules, was $15,000. What was John's profit as would be calculated by an accountant?

A) $165,000
B) $65,000
C) $100,000
D) $35,000
E) None of the above answers is correct.

Answer 2

$35,000

Question 3

Interest is considered a(n)

A) form of depreciation if the cost of borrowing increases.
B) implicit cost when the firm owner uses his or her own funds to buy capital.
C) explicit cost when the firm pays a bank to borrow money.
D) return to entrepreneurship if the firm owner uses his or her own funds to buy capital.
E) Both answers A and B are true.

Answer 3

Both answers A and B are true.

Question 4

Darryl runs a sheep station near Broken Hill. The interest on the debt he incurred to buy his sheep station totals $3,000 per year. For Darryl, the interest is

A) part of his economic profit.
B) his normal profit.
C) an implicit cost.
D) his normal cost.
E) an explicit cost.

Question 5

Which of the following are correct statements about implicit and explicit costs? i. Normal profit is an implicit cost.
Ii) Economic depreciation is an explicit cost.
Iii) Wages are an explicit cost.

A) i and iii
B) ii and iii
C) i, ii and iii
D) iii only
E) i only

Question 6

In economics, a 'normal profit' is the return to

A) land.
B) entrepreneurship.
C) labour.
D) capital.
E) Answers B and D are correct.

Question 7

When Ford hires Ernst and Young Consulting to help Ford redesign its marketing, Ford's payment to Ernst and Young is classified as

A) normal profit.
B) depreciation.
C) an implicit cost.
D) an explicit cost.
E) economic profit.

Question 8

________ cost is defined as a cost of production that does not entail a direct monetary payment.

A) An explicit
B) A marginal
C) A fixed
D) A total
E) An implicit

Question 9

Which of the following is an explicit cost in Jim's business venture?

A) The interest Jim does not earn because he invested his savings in his business.
B) Jim's normal profit.
C) The salary Jim could have earned at another job.
D) The wages Jim pays his workers.
E) Answers A, B and D are correct.

Question 10

Suppose a firm's total revenue is $1,000,000. The firm has incurred explicit costs of $750,000. There is also $50,000 of forgone wages by the owner, $10,000 of forgone interest by the owner, $3,000 worth of economic depreciation, and $20,000 worth of normal profit. What is the firm's economic profit?

A) $190,000
B) $180,000
C) $250,000
D) $200,000
E) $167,000

Question 11

When an economist uses the term 'cost' referring to a firm, the economist refers to the

A) implicit cost of producing a good or service, but not the explicit cost of producing a good or service.
B) explicit cost of producing a good or service, but not the implicit cost of producing a good or service.
C) opportunity cost of producing a good or service, which includes both implicit and explicit cost.
D) price of the good to the consumer.
E) cost that can be actually verified and measured.

Question 12

The primary goal of a business firm is to

A) promote fairness.
B) increase its production.
C) maximise profit.
D) make a quality product.
E) promote workforce job satisfaction.

Question 13

Dr. Khan starts his own dental practice after quitting his $150,000 job at The Mall Dental Clinic. His revenues for the first year are $500,000. He paid $90,000 in rent for the dental office, $60,000 for his office manager's salary, $24,000 for the dental hygienist, $150,000 for insurance, and $6,000 for other miscellaneous costs. The normal profit from running his business is $20,000. Therefore,

A) his economic profit is zero.
B) his implicit costs are $170,000.
C) his explicit costs are $330,000.
D) Only answers A and C are correct.
E) Answers A, B and C are correct.

Question 14

Normal profit is

A) the same as economic profit.
B) part of the firm's explicit costs.
C) part of the firm's opportunity costs.
D) Answers A and B are correct.
E) Answers A and C are correct.

Question 15

Suppose Billy owns a hair salon in Collingwood. He has one large hair dryer for which he paid $1,000. If he can sell the dryer one year later for $800, his total economic depreciation equals

A) $800.
B) $200.
C) $1,000.
D) $1,800.
E) None of the above answers is correct.

Question 16

April quit her job as an accountant at Ernst and Young, where she was paid $45,000 per year. She started her own landscaping business. She rents machines and tools for $50,000 and pays $10,000 as wages to her help. These are her only costs. April earned total revenue of $100,000. Which of the following statements is true?

A) She has an economic loss.
B) Her accountant calculates her profit as $40,000.
C) Her explicit cost is $105,000.
D) Both answers A and B are correct.
E) Both answers A and C are correct.

Question 17

A firm has explicit costs of $110,000 and total revenue of $120,000. Which of the following is true about the firm?

A) The firm might be making an economic profit but we need more information about implicit costs to know for sure.
B) The firm is incurring an economic loss if implicit costs are $10,000.
C) The firm is definitely making an economic profit because it must be minimising its opportunity cost.
D) The firm is making a normal profit if implicit costs are $0.
E) The firm may be making an economic profit but only if implicit costs are negative.

Question 18

Which of the following is an implicit cost? i. Wages paid to workers
Ii) The normal profit
Iii) The electricity bill

A) i only
B) ii only
C) i and ii
D) ii and iii
E) Neither i, ii nor iii

Question 19

A normal profit is defined as

A) the same thing as accounting profit.
B) the economic profit minus the implicit costs.
C) the return to entrepreneurship.
D) total revenue minus explicit costs.
E) total revenue minus implicit costs.

Question 20

Lauren runs a Mexican restaurant in Carlton. Her total revenue last year was $110,000. The rent on her restaurant was $48,000, her labour costs were $42,000, and her materials, food and other variable costs were $20,000. Lauren could have worked as a biologist and earned $50,000 per year. An economist calculates her implicit costs as

A) $50,000.
B) $63,000.
C) $150,000.
D) $110,000.
E) $0 because Lauren did not work as a biologist.

Question 21

Increasing marginal returns to labour

A) are the result of specialisation and division of labour in the production process.
B) occur only when there are increasing marginal returns to capital.
C) describe the portion of a total product curve where the marginal product is negative.
D) mean that two workers produce less than twice the output of one worker.
E) occur when a particularly efficient worker is employed.

Question 22

Bill is an economics lecturer who earns $40,000 teaching, but decides to quit his job and fulfill his dream of catering barbecues. During his first year of barbecuing he earned total revenue of $60,000. He spent $30,000 on food and supplies. He also paid his wife $10,000 to help serve food. The normal profit for an entrepreneur running a barbecue business is $3,000. He also rented an industrial grill/fry truck for $12,000. An accountant would conclude that Bill's profit was

A) $20,000.
B) $8,000.
C) -$2,000.
D) $30,000.
E) $40,000.

Question 23

If 9 workers can produce 1,550 units of output and 10 workers can produce 1,700 units of output, then the marginal product of the 10th worker is

A) 155 units.
B) 150 units.
C) 1,550 units.
D) 170 units.
E) 1,700 units.

Question 24

The total product curve shows the relationship between total product and

A) cost.
B) the marginal product.
C) the quantity of labour.
D) the average product.
E) the marginal cost.

Question 25

The table above shows the total product schedule for The X Firm. The average product of labour is maximised at ________ workers because ________.

A) 3; output starts to decrease with the 4th worker
B) 5; the APL exceeds the MPL for the 5th worker
C) 5; output is maximised with the 5th worker
D) 4; the marginal product of labour is increasing with the 4th worker
E) 4; productivity is maximised when the 4th worker is employed

Question 26

Which of the following is an example of an implicit cost?

A) Interest paid to a bank on a building loan.
B) Liability insurance payments made only once a year.
C) The cost of using capital an owner donates to the business.
D) Dollars paid to a supplier for materials used in production.
E) Wages paid to employees.

Question 27

At the Punjab Bakery, two workers can decorate 14 cakes in an hour and three workers can decorate 18 cakes in an hour. The marginal product of the third worker is

A) 18 cakes, and the average product for three workers is 6 cakes.
B) 4 cakes, and the average product for three workers is 6 cakes.
C) 9 cakes and is equal to the average product.
D) 32 cakes, and the average product for three workers is 9 cakes.
E) 6 cakes, and the average product for three workers is also 6 cakes.

Question 28

Decreasing marginal returns occur in the short run as more labour is hired to work in a fixed sized plant because

A) the plant becomes less specialised.
B) adding more workers exhausts the possible gains from specialisation.
C) the entrepreneur does not know how to manage more workers.
D) less efficient and less productive workers are hired.
E) each worker will produce more than the worker previously hired.

Question 29

The long run is defined as

A) the period of time when most resources are variable.
B) any time after one year.
C) the period of time when all resources are fixed.
D) any time after six months.
E) the period of time when all resources are variable.

Question 30

The short run is the time frame

A) during which all costs are implicit costs.
B) that is less than a year.
C) during which the quantities of some resources are fixed.
D) during which the quantities of all resources are fixed.
E) during which the quantities of all resources are variable.

Question 31

In the long run,

A) some resources are fixed.
B) output cannot be varied.
C) all resources are fixed.
D) all resources are variable.
E) Both answers B and C are correct.

Question 32

The opportunity cost of a firm using its own capital is

A) self-ownership depreciation.
B) capital loss.
C) economic depreciation.
D) normal loss.
E) economic loss.

Question 33

Jill runs a factory in Canberra that makes lie detectors. This month, Jill's 34 workers produced 680 machines. Jill's average product of labour equalled ________ lie detectors per worker.

A) 34
B) 23
C) 680
D) 20
E) None of the above answers is correct.

Question 34

The short run is a time period that is

A) equal to a day.
B) too short to change the amount of labour hired.
C) too short to change the amount of ANY resource the firm employs.
D) too short to change the size of the firm's plant.
E) long enough to change the size of the firm's plant.

Question 35

Which of the following is a list of fixed inputs for a hospital?

A) The lobby, the doctors, and the electricity the hospital uses.
B) The emergency room, intensive care unit and other facilities.
C) The nurses, receptionists and other employees.
D) Bandages, casts and other materials.
E) Antibiotics, pain medication and other prescription drugs.

Question 36

The marginal product of labour is the change in

A) average product from employing one more worker.
B) total revenue from employing one more worker.
C) total cost from employing one more worker.
D) total output from employing one more worker.
E) total output divided by the change in cost from employing one more worker.

Question 37

The table above shows the total product schedule for The X Firm. Increasing marginal returns occur until the ________ worker because ________.

A) 4th; the marginal product of the 4th worker exceeds the 3rd worker, but not the 5th worker
B) 5th; output declines with the 6th worker
C) 5th; output is maximised
D) 4th; the average product of labour is also increasing
E) 3rd; the average product of labour is also increasing

Question 38

The table above shows the total product schedule for The X Firm. Decreasing marginal returns occur with the ________ worker because ________.

A) 6th; the marginal product of labour is greater than the average product of labour
B) 6th; output starts to decline
C) 5th; the marginal product of labour for the 5th worker is less than the marginal product of the 4th worker
D) 5th; the average product of labour is also declining
E) 4th; output reaches is maximum

Question 39

The marginal product of labour is

A) total product minus the quantity of labour.
B) a measure of labour.
C) total product divided by labour.
D) the change in total product divided by the increase in labour.
E) output that does not meet quality specifications.

Question 40

For a business, opportunity cost measures

A) all of the firm's costs including its normal profit AND its economic profit.
B) only the cost of labour and materials.
C) only the implicit costs of the business.
D) the cost of all the factors of production the firm employs.
E) only the explicit costs the firm must pay.

Question 41

If total fixed cost increases, which of the following will NOT change?

A) Average fixed cost
B) Marginal cost
C) Average total cost
D) Total cost
E) ALL costs increase when total fixed cost increases.

Question 42

If 25 workers can pick 100 punnets of strawberries per hour, then average product is

A) 125 punnets per hour.
B) 4 punnets per hour.
C) 75 punnets per hour.
D) 100 punnets per hour.
E) More information is needed about how many punnets 24 workers can pick.

Question 43

Chuck owns a factory that produces leather footballs. His total fixed cost equalled $86,000 last year. His total cost equalled $286,000 last year. Hence Chuck's

A) total variable cost equalled $372,000.
B) total variable cost was zero.
C) factory incurred an economic loss.
D) total variable cost equalled $200,000.
E) None of the above answers is correct.

Question 44

In the short run, total variable cost

A) includes the cost of capital.
B) is positive when output is zero.
C) includes both the cost of capital and of labour.
D) does not change when production changes.
E) includes the cost of labour.

Question 45

Kenya owns a lawn-mowing company. His total product schedule is in the above table. When 4 workers are employed, the average product is ________ lawns mowed per week.

A) 25
B) 80
C) 20
D) 5
E) 320

Question 46

In the short run, firms increase output

A) only by increasing the size of their plant.
B) only by increasing the amount of labour used.
C) only by decreasing the size of their plant.
D) only by decreasing the amount of labour used.
E) either increasing the amount of labour used or increasing the size of their plant.

Question 47

Under which of the following sets of circumstances is it DEFINITELY the case that the average product increases as more labour is hired?

A) The marginal product is equal to the average product.
B) The marginal product is less than the average product.
C) The marginal product is positive.
D) Total product increases as more labour is hired.
E) The marginal product is greater than the average product.

Question 48

Which of the following costs can be positive when output is zero?

A) Marginal cost
B) Average variable cost
C) Total fixed cost
D) Total variable cost
E) None of the above because when output is zero there are no costs.

Question 49

The table above shows the total product schedule for Rick's Lawn Service, a garden-care company. Decreasing marginal returns start to occur after the ________ worker is hired.

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

Question 50

The table above shows the total product schedule for Rick's Lawn Service, a garden-care company. When does the average product of labour equal the marginal product of labour?

A) Between the 5th and 6th workers.
B) At the 5th worker.
C) Between the 4th and 5th workers.
D) Between zero workers and the 3rd worker.
E) Between the 6th and 7th workers.

Question 51

In the short run, a firm cannot change the amount of capital it uses. Therefore the cost of capital is a

A) variable cost.
B) marginal cost.
C) fixed cost.
D) productivity cost.
E) short-run cost.

Question 52

The above table shows the total product schedule for Hair Today, a hair-styling salon. The average product when four workers are hired is

A) 15 hair stylings.
B) 20 hair stylings.
C) 240 hair stylings.
D) 10 hair stylings.
E) the same as when five workers are hired.

Question 53

The table above shows the total product schedule for Rick's Lawn Service, a garden-care company. Increasing marginal returns

A) occur as long as output increases.
B) occur at all levels of employment.
C) end when the second worker is hired.
D) never occur.
E) end when the fourth worker is hired.

Question 54

If 6 workers can wash 42 cars a day and 7 workers can wash 50 cars a day, then the marginal product of the 7th worker equals

A) 50 cars a day.
B) 7 cars a day.
C) 42 cars a day.
D) 7.1 cars a day.
E) 8 cars a day.

Question 55

If 10 workers can produce 1,500 units of output and 11 workers can produce 1,600 units of output, then the average product of 11 workers is

A) 136.4 units.
B) 145.5 units.
C) 100 units.
D) 1,600 units.
E) 1,500 units.

Question 56

Kenya owns a lawn-mowing company. His total product schedule is in the above table. The marginal product of the fourth worker is ________ lawns mowed per week.

A) 320
B) 25
C) 5
D) 80
E) 20

Question 57

The change in cost that results from a one-unit increase in output is called the

A) average cost change.
B) per-unit variable cost.
C) marginal cost.
D) per-unit total cost.
E) average fixed cost.

Question 58

If Melissa owns a software company that incurs no fixed costs, then

A) her total cost equals her total variable cost.
B) her total cost equals zero.
C) her total variable cost is less than her total cost.
D) she will earn an economic profit.
E) her marginal cost must equal zero.

Question 59

The table above shows the total product schedule for Rick's Lawn Service, a garden-care company. The average product of labour ________ when the 7th worker is hired.

A) equals 28 lawns mowed
B) reaches its maximum
C) equals 4 lawns mowed
D) equals 1 lawn mowed
E) equals 2 lawns mowed

Question 60

Because the amount of labour a firm employs can be changed, the cost of labour is known as

A) minimum cost.
B) an unavoidable cost.
C) fixed cost.
D) variable cost.
E) maximum cost.

Question 61

Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average variable cost equals

A) $2,400.
B) $6.00.
C) $10.00.
D) $600.
E) $300.

Question 62

The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labour costs are the only variable costs of production. What is the total variable cost of producing 60 bikes?

A) $200
B) $300
C) $400
D) $500
E) None of the above answers is correct.

Question 63

Average total cost equals

A) average fixed cost plus average variable cost plus marginal cost.
B) total fixed cost divided by output.
C) total cost minus total variable cost.
D) the change in total cost divided by the change in output.
E) average fixed cost plus average variable cost.

Question 64

The vertical distance between the total cost curve and the total variable cost curve is equal to

A) marginal cost.
B) average fixed cost.
C) total fixed cost.
D) average variable cost.
E) average total cost.

Question 65

Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average total cost equals

A) $2,400.
B) $300.
C) $12.00.
D) $1,200.
E) $10.00.

Question 66

Paulette owns a pizza parlour. Her total cost schedule is in the above table. Her total fixed cost is equal to

A) $20.
B) $79.
C) $35.
D) $85.
E) some amount, but more information is needed to determine her fixed cost.

Question 67

Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 6 workers, her total cost equals

A) $2,400.
B) $7.50.
C) $10.00.
D) $300.
E) $1,800.

Question 68

Scott owns a law-enforcement training operation in Collingwood. He employs three trainers. The last trainer Scott hired increased Scott's total cost by $466 per week even though the trainer brought in only one new client. Hence Scott's

A) total variable cost equals $466.
B) marginal cost of the last client equals $466.
C) marginal cost of the last worker equals $233.
D) total fixed cost of the last client equals $466.
E) total variable cost equals $233.

Question 69

Paulette owns a pizza parlour. Her total cost schedule is in the above table. Her total variable cost of producing four pizzas per hour is

A) $20.
B) $71.
C) $51.
D) $49.
E) some amount, but more information is needed to determine the total variable cost.

Question 70

Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 6 workers, her average total cost equals

A) $2,400.
B) $10.00.
C) $7.50.
D) $300.
E) $4,200.

Question 71

Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average fixed cost equals

A) $2,400.
B) $7.50.
C) $10.00.
D) $600.
E) $6.00.

Question 72

Paulette owns a pizza parlour. Her total cost schedule is in the above table. Her marginal cost of producing the fifth pizza is

A) between $10.01 and $14.00.
B) between $8.01 and $10.00.
C) between $14.01 and $78.00.
D) more than $78.01.
E) $8.

Question 73

In the above figure, curve A is the ________ curve and curve B is the ________ curve.

A) total cost; total fixed cost
B) total fixed cost; total variable cost
C) total variable cost; total cost
D) total cost; total variable cost
E) total variable cost; total fixed cost

Question 74

Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her total cost equals

A) $300.
B) $1,200.
C) $600.
D) $12.00.
E) $10.00.

Question 75

If average variable costs increase as output increases, then

A) output must be zero.
B) total cost must be constant.
C) total fixed cost must be increasing also.
D) marginal cost must be greater than average variable cost.
E) average total cost must be increasing also.

Question 76

Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 6 workers, her average fixed cost equals

A) $10.00.
B) $2.50.
C) $600.
D) $7.50.
E) $6.00.

Question 77

The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labour costs are the only variable costs of production. What is the total cost of producing 50 bikes?

A) $100
B) $200
C) $300
D) $400
E) $500

Question 78

The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labour costs are the only variable costs of production. What is the total fixed cost of producing 64 bikes?

A) $200
B) $300
C) $400
D) $500
E) $600

Question 79

The total product is 10 units. The average total cost is $30 and the average fixed cost is $10. What is the amount of the TOTAL variable cost?

A) $300
B) $10
C) $200
D) $20
E) It is impossible to determine with the information given.

Question 80

Anna owns a dog-grooming salon in Brunswick. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 6 workers, her average variable cost equals

A) $7.50.
B) $300.
C) $2,400.
D) $10.00.
E) $1,800.