Deck 7: Producers in the Short Run

Question 1

A firm's capacity is defined as the level of output where

A) short- run average total cost is at its minimum.
B) the upper limit on what can be produced is reached.
C) average total cost is at its maximum.
D) average fixed costs are at a minimum.
E) marginal cost equals average variable cost.

Answer 1

A

Question 2

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

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

Answer 2

A

Question 3

A limited partnership differs from an ordinary partnership by

A) having unlimited liability for all partners.
B) having a limited number of partners.
C) including some partners whose liability is restricted to the amount that they invested in the firm.
D) having limited liability of all partners.
E) having a limited number of partners, each with limited liability.

Answer 3

C

Question 4

Which of the following statements is NOT true of a corporation?

A) It can incur debt that is an obligation of the corporation but not of its individual owners.
B) It has the right to sue and be sued.
C) It is an entity separate from the individuals who own it.
D) It is legally obliged to distribute all profits to shareholders.
E) It can enter into contracts.

Question 5

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $$\begin{array}{l}\begin{array} { | l | l | } \hline \begin{array} { l } \text { Labour per unit of } \\\text { time }\end{array} & \text { Total Output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}\\\text { TABLE 7- } 4\end{array}$$

-Refer to Table 7- 4. The marginal product of labour is at its maximum when the firm changes the amount of labour hired from

A) 0 to 1 unit.
B) 1 to 2 units.
C) 2 to 3 units.
D) 3 to 4 units.
E) 4 to 5 units.

Question 6

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $$\begin{array}{l}\begin{array} { | c | c | } \hline \text { Labour per unit of time } & \text { Total Output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}\\\text { TABLE } 7 - 4\end{array}$$

-Refer to Table 7- 4. Marginal product of labour begins decreasing with the unit of labour hired. Average product of labour begins decreasing with the unit of labour hired.

A) 4th; 5th
B) 3rd; 4th
C) 4th; 3rd
D) 3rd; 2nd
E) 2nd; 3rd

Question 7

Which of the following statements describes an advantage to the owner of a single proprietorship?

A) The owner's liability is limited to the amount he or she actually invests in the firm.
B) Shares of the firm can be traded on any stock exchange.
C) The owner can readily maintain full and complete control over every aspect of the firm's operation.
D) He or she has limited liability.
E) The firm has a legal existence separate from its owner.

Question 8

A family of short- run cost curves shows how

A) the quality of the fixed factor depreciates over time.
B) technology is continuously changing.
C) each curve is associated with a different quantity of the fixed factor.
D) cost remains constant regardless of the factors used in production.
E) cost curves are always upward sloping.

Question 9

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $$\begin{array}{l}\begin{array} { | c | c | } \hline \text { Labour per unit of time } & \text { Total Output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}\\\text { TABLE } 7 - 4\end{array}$$

-Refer to Table 7- 4. Average variable costs for 175 units of output is approximately

A) 25 cents.
B) 32 cents.
C) 43 cents.
D) 57 cents.
E) $1.00.

Question 10

Which one of the following types of cost declines over the whole range of output?

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

Question 11

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $\begin{array}{|l|l|}\hline \begin{array}{l}\text { Labour per unit of } \\\text { time }\end{array} & \text { Total Output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$
$\text { TABLE 7- } 4$

-Refer to Table 7- 4. Diminishing marginal productivity of labour is first observed when the firm changes the amount of labour hired from

A) 0 to 1 unit.
B) 1 to 2 units.
C) 2 to 3 units.
D) 3 to 4 units.
E) 4 to 5 units.

Question 12

The opportunity cost of money that a firm's owner has invested in the firm is an example of

A) explicit costs.
B) direct production costs.
C) sunk costs.
D) implicit costs.
E) accounting costs.

Question 13

Marginal cost is defined as the

A) cost of an additional unit of a variable factor of production.
B) change in fixed cost resulting from an additional unit of output.
C) cost per unit when the firm is operating at capacity.
D) difference between average total cost and average variable cost.
E) change in total cost resulting from an additional unit of output.

Question 14

The diagram below shows some short- run cost curves for a firm. FIGURE 7- 2 4

-Refer to Figure 7- 2. Which of the following choices correctly identifies the cost curves in part (i) of the figure?

A) Curve 1 is the total cost curve. Curve 2 is the total variable cost curve. Curve 3 is the average fixed cost curve.
B) Curve 1 is the total cost curve. Curve 2 is the total variable cost curve. Curve 3 is the total fixed cost curve.
C) Curve 1 is the total marginal cost curve. Curve 2 is the total average cost curve. Curve 3 is the total average fixed cost curve.
D) Curve 1 is the total fixed cost curve. Curve 2 is the total variable cost curve. Curve 3 is the total cost curve.
E) Curve 1 is the total variable cost curve. Curve 2 is the total cost curve. Curve 3 is the total fixed cost curve.

Question 15

When a firm's marginal cost is rising, we know that

A) average total cost must be rising.
B) marginal product must be falling.
C) average variable cost must be rising.
D) average fixed cost must be rising.
E) marginal product must be zero.

Question 16

The table below provides the total revenues and costs for a small landscaping company in a recent year. $\begin{array}{|l|l|}\hline \text { Total Revenues }(\$) & 250,000 \\\hline & \\\hline \text { Total Costs }(\$) & \\\hline \text { wages and salaries } & 150,000 \\\hline \text { risk- free return of } 2 \% \text { on owner's capital of } \$ 20 & 400 \\000\\\hline \text { interest on bank loan } & 1500 \\\hline \text { cost of supplies } & 27000 \\\hline \text { - depreciation of capital equipment } & 8000 \\\hline \text { additional wages the ow ner could have earned } & 30,000 \\\text { in next best alternative }\\\hline \text { risk premium of } 4 \% \text { on owner's capital of } \$ 20&800\\000\\\hline\end{array}$
$\text { TABLE 7- } 2$

-Refer to Table 7- 2. The implicit costs for this firm are

A) $800.
B) $31 200.
C) $30 800.
D) $400.
E) $30 400.

Question 17

The opportunity cost of any factor of production is

A) the benefit forgone by not using it in its best alternative.
B) the benefit forgone by not using it in its worst alternative.
C) the money actually paid to the factors of production.
D) its explicit cost.
E) its accounting cost.

Question 18

Suppose that when one additional unit of labour is hired, total product increases from 100 to 110 units of output per month. Marginal product must therefore be

A) constant.
B) positive.
C) zero.
D) decreasing.
E) increasing.

Question 19

A firm's short- run marginal cost curve is decreasing when

A) capacity is reached.
B) marginal product is decreasing.
C) marginal product is increasing.
D) average fixed cost is decreasing.
E) total fixed cost is decreasing.

Question 20

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $$\begin{array}{l}\begin{array} { | c | c | } \hline \text { Labour per unit of time } & \text { Total Output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}\\\text { TABLE } 7 - 4\end{array}$$

-Refer to Table 7- 4. The total fixed cost of producing 305 units of output is

A) $100.
B) $125.
C) $112.50.
D) $225
E) $305.

Question 21

FIGURE 7- 1
Refer to Figure 7- 1. Total product is increasing at a decreasing rate

A) from 0 to 20 units of output.
B) from 0 to 32 units of output.
C) between 140 to 200 units of output.
D) between 140 to 250 units of output.
E) over the whole production range.

Question 22

The table below provides the annual revenues and costs for a family- owned firm producing catered meals. $\begin{array}{|l|l|}\hline \text { Total Revenues }(\$) & 500,000 \\\hline & \\\hline \text { Total Costs (\$) } & \\\hline \text { wages and salaries } & 200,000 \\\hline \text { risk- free return of } 6 \% \text { on owners' capital of } 250,000 & 15,000 \\\hline \text { rent } & 105,000 \\\hline \text { - depreciation of capital equipment } & 25,000 \\\hline \text { risk premium of } 8 \% \text { on owners' capital of } 250,000 & 20,000 \\\hline \text { - intermediate inputs } & 150,000 \\\hline \text { forgone wages of owners in alternative employment } & 80,000 \\\hline \text { interest on bank loan } & 10,000 \\\hline\end{array}$
$\text { TABLE 7- } 1$

-Refer to Table 7- 1. To an accountant, this family- owned catering company is earning .To an economist, the same firm is earning _ .

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

Question 23

Consider a firm in the short run. If the AP curve is rising, then the MP curve

A) must be falling.
B) must lie above the average- product curve over this range and must also be rising.
C) can be either above or below the average- product curve, although it must be rising over the entire range.
D) must lie above the average- product curve over this range.
E) must lie below the average- product curve over this range.

Question 24

Which of the following is most likely a long- run decision for a firm?

A) The amount of inventory to stock.
B) The price at which to sell the product.
C) The hours a store should stay open.
D) How many warehouses to build.
E) The number of workers to hire.

Question 25

An example of "real" capital is

A) a firm's computer systems.
B) corporate bonds.
C) shares in a corporation.
D) a firm's retained earnings.
E) a firm's balance in a bank account.

Question 26

Consider a firm in the short run. Average product is at its maximum when

A) the maximum quantity of the variable input is employed.
B) diminishing returns cease to operate.
C) average product equals marginal product and marginal product is falling.
D) marginal product is maximized.
E) total product is maximized.

Question 27

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. $$\begin{array}{l}\begin{array} { | l | l | } \hline \text { Lab our per period } & \text { T ot al Output per period } \\\hline 0 & 0 \\\hline 1 & 10 \\\hline 2 & 30 \\\hline 3 & 90 \\\hline 4 & 132 \\\hline 5 & 150 \\\hline\end{array}\\\text { TABLE 7- } 3\end{array}$$

-Refer to Table 7- 3. The average total cost for 150 units of output is approximately

A) 40 cents.
B) 67 cents.
C) $1.50.
D) 80 cents.
E) 33 cents.

Question 28

The table below provides the total revenues and costs for a small landscaping company in a recent year. $\begin{array}{|l|l|}\hline \text { Total Revenues }(\$) & 250,000 \\\hline & \\\hline \text { Total Costs }(\$) & \\\hline \text { - wages and salaries } & 150,000 \\\hline \text { risk- free return of } 2 \% \text { on owner's capital of } \$ 20 & 400 \\000\\\hline \text { interest on bank loan } & 1500 \\\hline \text { cost of supplies } & 27000 \\\hline \text { depreciation of capital equipment } & 8000 \\\hline \text { additional wages the ow ner could have earned } & 30000 \\\text {in next best alternative }\\\hline \text {- risk premium of } 4 \% \text { on owner's capital of } \$ 20&800\\000\\\hline\end{array}$
$\text { TABLE 7- } 2$

-Refer to Table 7- 2. The economic profits for this firm are

A) $31 200.
B) $63 500.
C) $32 700.
D) $33 500.
E) $32 300.

Question 29

In the short run, total fixed costs

A) decrease and then increase as output increases.
B) are equal to total variable costs.
C) increase and then decrease as output increases.
D) do not vary with output.
E) decrease as output increases.

Question 30

The table below shows output, marginal cost, and average variable cost for the production of pairs of shoes. All costs are in dollars. $$\begin{array}{l}\begin{array} { | l | l | l | } \hline \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Cost }\end{array} & \begin{array} { l } \text { Average } \\\text { Variable Cost }\end{array} \\\hline 50 & 60 & 140 \\\hline 70 & 45 & 115 \\\hline 90 & 35 & 95 \\\hline 110 & 30 & 80 \\\hline 130 & 35 & 65 \\\hline 150 & 60 & 60 \\\hline 170 & 105 & 65 \\\hline 190 & 180 & 75 \\\hline 210 & 230 & 90 \\\hline 230 & 290 & 110 \\\hline\end{array}\\\text { TABLE 7- } 6\end{array}$$

-Refer to Table 7- 6. Suppose there are no fixed costs. The firm reaches it's capacity level of output when its output is equal to units.

A) 110
B) 150
C) 210
D) 190
E) 50

Question 31

Jodi recently went into business producing widgets. Which of the following would be a fixed cost for her firm?
1. labour costs are $1000 per month
2. raw material costs are $5000 per month
3. a one- year lease on a building is $12 000

A) 1 only
B) 2 only
C) 3 only
D) 1 and 2
E) 2 and 3

Question 32

Suppose Jodi's widget business is using two inputs, labour and capital. Which of the following would happen if the price of labour increased?

A) Jodi would hire more labour.
B) The firm's marginal cost curve will remain unchanged.
C) The firm's average total cost curve will shift upward.
D) The firm's average fixed cost curve will shift upward.
E) Jodi will shut down her business.

Question 33

If a firm uses factor inputs that are personally owned by the firm's owner, then economists refer to the opportunity cost of these inputs as

A) sunk costs.
B) direct production costs.
C) implicit costs.
D) inverted costs.
E) accounting costs.

Question 34

Economists use the notation Q = f(L,K) to describe

A) the technological relationship between the inputs that a firm uses and the outputs that it produces.
B) the flow of labour (L) and capital (K) services that are available when output is (Q).
C) the arithmetic relationship between the outputs that a firm uses and the inputs that it produces.
D) the financial relationship between the inputs that a firm uses and the outputs that it produces.
E) the level of output (Q) required to fully employ labour (L) and capital (K).

Question 35

Sport- fishermen on the Campbell River in British Columbia are catching fewer fish and are having to fish many more hours to catch them. However, the total number of fish caught on the river continues to increase. The river is experiencing

A) diminishing total returns.
B) increasing average returns.
C) constant marginal returns.
D) diminishing marginal returns.
E) increasing marginal returns.

Question 36

In the short run, when capital is a fixed factor, a rise in the cost of labour

A) shifts the AVC curve down.
B) shifts the marginal cost curve upwards.
C) leaves the ATC curve unchanged.
D) leaves the MC curve unchanged.
E) shifts the total product curve downwards.

Question 37

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. $$\begin{array}{l}\begin{array} { | l | l | } \hline \text { Labour per period } & \text { Total Output per period } \\\hline 0 & 0 \\\hline 1 & 10 \\\hline 2 & 30 \\\hline 3 & 90 \\\hline 4 & 132 \\\hline 5 & 150 \\\hline\end{array}\\\text { TABLE 7- } 3\end{array}$$

-Refer to Table 7- 3. The marginal product of labour is at its maximum when the firm changes the amount of labour hired from

A) 0 to 1 unit.
B) 1 to 2 units.
C) 2 to 3 units.
D) 3 to 4 units.
E) 4 to 5 units.

Question 38

The table below provides the total revenues and costs for a small landscaping company in a recent year. $\begin{array}{|l|l|}\hline \text { Total Revenues }(\$) & 250,000 \\\hline & \\\hline \text { Total Costs }(\$) & \\\hline \text { - wages and salaries } & 150,000 \\\hline \text { risk- free return of } 2 \% \text { on owner's capital of } \$ 20 & 400 \\000\\\hline \text { interest on bank loan } & 1500 \\\hline \text { cost of supplies } & 27000 \\\hline \text { depreciation of capital equipment } & 8000 \\\hline \text { additional wages the ow ner could have earned } & 30000 \\\text {in next best alternative }\\\hline \text {- risk premium of } 4 \% \text { on owner's capital of } \$ 20&800\\000\\\hline\end{array}$
$\text { TABLE 7- } 2$

-Refer to Table 7- 2. The accounting profits for this firm are

A) $71 500.
B) $63 100.
C) $32 300.
D) $32 700.
E) $63 500.

Question 39

Economic profits are less than accounting profits because the calculation of economic profit

A) includes the implicit charges for the use of capital owned by the firm and for risk taking.
B) is stipulated in regulations set forth by the Canada Revenue Agency.
C) includes the implicit charges for the use of capital owned by the firm and for income taxes.
D) includes an explicit charge for risk taking.
E) includes an amount for depreciation.

Question 40

With regard to economic decision making for firms, the short run is

A) a period over which the quantities of all factors of production and technology are variable.
B) a definite number of months.
C) a period over which the quantity of at least one significant factor of production is fixed.
D) less than one year.
E) a period over which the quantities of all factors of production are variable but technology is fixed.

Question 41

The table below provides information on output per month and short- run costs for a firm producing outdoor wooden lounge chairs. $$\begin{array}{l}\begin{array} { | l | l | l | } \hline \text { TFC } & \text { TVC } & \text { TC } \\\hline 200 & 200 & 400 \\\hline 200 & 220 & 420 \\\hline 200 & 240 & 440 \\\hline 200 & 260 & 460 \\\hline 200 & 350 & 550 \\\hline 200 & 810 & 1010 \\\hline\end{array}\\\text { TABLE 7- } 5\end{array}$$

-Refer to Table 7- 5. Given the information in the table about short- run costs, this firm would minimize the average total cost of production when producing

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

Question 42

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

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

Question 43

Which of the following factors of production is most likely to be variable in the short run?

A) land
B) entrepreneurship
C) capital equipment
D) labour
E) technology

Question 44

When a plant is operating at the level of output where its short- run average total cost is at its minimum,

A) more of the variable factor of production should be employed.
B) average fixed cost is at a minimum.
C) the plant is operating at its capacity.
D) marginal cost is at a minimum.
E) average variable cost is at a minimum.

Question 45

The opportunity cost to a firm of using an asset is zero if

A) no money was spent to acquire the asset.
B) the asset has no alternative uses.
C) the asset was given to the firm for free.
D) the asset has zero sunk costs associated with it.
E) the asset is already owned by the firm.

Question 46

The table below provides the total revenues and costs for a small landscaping company in a recent year. $\begin{array}{|l|l|}\hline \text { Total Revenues }(\$) & 250,000 \\\hline & \\\hline \text { Total Costs }(\$) & \\\hline \text { - wages and salaries } & 150,000 \\\hline \text { risk- free return of } 2 \% \text { on owner's capital of } \$ 20 & 400 \\000\\\hline \text { interest on bank loan } & 1500 \\\hline \text { cost of supplies } & 27000 \\\hline \text { depreciation of capital equipment } & 8000 \\\hline \text { additional wages the ow ner could have earned } & 30000 \\\text {in next best alternative }\\\hline \text {- risk premium of } 4 \% \text { on owner's capital of } \$ 20&800\\000\\\hline\end{array}$
$\text { TABLE 7- } 2$

-Refer to Table 7- 2. The explicit costs for this firm are

A) $217 300.
B) $217 700.
C) $178 500.
D) $186 900.
E) $186 500.

Question 47

Which of the following items is part of a firm's financial capital as distinct from its real capital?

A) a $500 000 balance in a bank account
B) a fleet of delivery trucks
C) a network of personal computers
D) inventory of goods valued at $1 000 000
E) a new bulldozer

Question 48

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

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

Question 49

The point of diminishing marginal productivity is the point where

A) the total product begins to fall.
B) marginal product has reached its maximum.
C) the marginal product curve lies below the average product curve.
D) average product has reached its maximum.
E) the marginal product begins to fall at an increasing rate.

Question 50

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

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

Question 51

Consider a firm in the short run. If AP = MP and both are positive, then total product

A) is at its minimum.
B) is increasing as extra units of the variable factor are employed.
C) is at a maximum.
D) may be either increasing or decreasing as extra units of the variable factor are employed.
E) is decreasing as extra units of the variable factor are employed.

Question 52

In economics, the term "fixed costs" means

A) costs incurred in the past that involve no implicit costs.
B) implicit costs.
C) costs that do not vary with the level of output produced.
D) opportunity costs.
E) costs that are never accounted for.

Question 53

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

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

Question 54

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $\begin{array}{|l|l|}\hline\begin{array}{l}\text { Labour per unit of } \\\text { time }\end{array}&\text { Total Output }\\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$
$\text { TABLE 7- } 4$

-Refer to Table 7- 4. The average total cost for 250 units of output is approximately

A) 33 cents.
B) 40 cents.
C) 63 cents.
D) 80 cents.
E) $1.00.

Question 55

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. $$\begin{array}{l}\begin{array} { | l | l | } \hline \text { Labour per period } & \text { Total Output per period } \\\hline 0 & 0 \\\hline 1 & 10 \\\hline 2 & 30 \\\hline 3 & 90 \\\hline 4 & 132 \\\hline 5 & 150 \\\hline\end{array}\\\text { TABLE 7- } 3\end{array}$$

-Refer to Table 7- 3. If this firm is producing 111 units of output per period, its marginal cost is

A) 76 cents.
B) 38 cents.
C) 24 cents.
D) $1.00.
E) 16.7 cents.

Question 56

A single proprietorship is a form of business organization which

A) has unlimited access to money capital.
B) has a single owner but has directors who are responsible for the firm's debts.
C) allows easy transferability of ownership by the trading of shares.
D) has limited liability.
E) has one owner- manager who is personally responsible for the firm's actions and debts.

Question 57

A firm that has two or more owners who share decision- making power as well as the firm's profits is called

A) a joint- stock company.
B) a corporation.
C) a single proprietorship.
D) a non- profit organization.
E) a partnership.

Question 58

The period of time over which the firm can vary any of its inputs for a given production technology is called the

A) very- short run.
B) short run.
C) long run.
D) very- long run.
E) immediate run.

Question 59

In the short run, the firm's product curves show

A) TP is at its maximum when MP is at its maximum.
B) when MP < AP, AP is increasing.
C) AP is at its minimum when MP = AP.
D) when the MP curve cuts the AP curve from above, the AP curve begins to fall.
E) TP begins to decrease when AP begins to decrease.

Question 60

The table below shows output, marginal cost, and average variable cost for the production of pairs of shoes. All costs are in dollars. $$\begin{array}{l}\begin{array} { | l | l | l | } \hline \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Cost }\end{array} & \begin{array} { l } \text { Average } \\\text { Variable Cost }\end{array} \\\hline 50 & 60 & 140 \\\hline 70 & 45 & 115 \\\hline 90 & 35 & 95 \\\hline 110 & 30 & 80 \\\hline 130 & 35 & 65 \\\hline 150 & 60 & 60 \\\hline 170 & 105 & 65 \\\hline 190 & 180 & 75 \\\hline 210 & 230 & 90 \\\hline 230 & 290 & 110 \\\hline\end{array}\\\text { TABLE 7- } 6\end{array}$$

-Refer to Table 7- 6. Suppose this firm is producing 210 pairs of shoes per time period and that the variable factor of production is labour. Which of the following statements best describes this firm's production?

A) Additional units of labour employed will increase the average variable cost of producing shoes.
B) The firm is producing below its capacity.
C) Marginal cost is higher than average variable cost, so marginal product must be rising.
D) Marginal cost is higher than average variable cost, so average product must be rising.
E) Each additional unit of labour employed reduces the average variable cost of the pairs of shoes.

Question 61

The period of time over which the firm can vary its technology of production is the

A) very- short run.
B) short run.
C) long run.
D) very- long run.
E) none of the above; technology cannot be varied.

Question 62

Which of the following statements about the organization of firms is true?

A) Owners of a corporation have unlimited liability.
B) Corporations have limited access to money markets.
C) Owners of a corporation are not personally liable for the firm's actions, though its directors may be.
D) Partnerships are the most common form of business organization in Canada.
E) Crown corporations are never interested in increasing profits because they have other goals.

Question 63

The relationship between factors of production used in the production process and the resulting output is called a(n)

A) economic function.
B) production function.
C) production boundary.
D) cost function.
E) consumption possibilities boundary.

Question 64

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $\begin{array}{|l|l|}\hline\begin{array}{l}\text { Labour per unit of } \\\text { time }\end{array}&\text { Total Output }\\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$
$\text { TABLE 7- } 4$

-Refer to Table 7- 4. The average product of labour is highest when the firm hires units of labour.

A) 1
B) 2
C) 3
D) 4
E) 5

Question 65

Real capital includes

A) corporate bonds.
B) a firm's physical assets.
C) owner's equity.
D) corporate stock.
E) a firm's balance in its bank account.

Question 66

With regard to economic decision making for firms, the long run is a period in which

A) technology is variable.
B) all factors of production are variable but technology is fixed.
C) technology may be variable, but some factors of production are fixed.
D) only some of the factors of production are variable.
E) only capital is variable.

Question 67

A firm's short- run cost curves, as conventionally drawn, show that

A) ATC decreases and then increases as output increases.
B) ATC = TFC + TVC
C) the MC curve intersects the AVC and ATC curves at their maximum points.
D) AVC decreases as long as MC > AVC.
E) AFC increases as output increases.

Question 68

Which of the following is an example of an input that is an intermediate product?

A) land
B) a product produced by another firm
C) labour
D) capital
E) money

Question 69

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. $$\begin{array}{l}\begin{array} { | l | l | } \hline \text { Labour per period } & \text { Total Output per period } \\\hline 0 & 0 \\\hline 1 & 10 \\\hline 2 & 30 \\\hline 3 & 90 \\\hline 4 & 132 \\\hline 5 & 150 \\\hline\end{array}\\\text { TABLE 7- } 3\end{array}$$

-Refer to Table 7- 3. The average product of labour is highest when the firm hires

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 70

"An objective of firms is to maximize profits". This statement

A) is a normative statement and thus cannot be tested.
B) is an unrealistic assumption, and therefore of little use to economists.
C) has been proven by empirical testing to be always true.
D) applies only to corporations.
E) is an assumption used by economists to predict the behaviour of firms.

Question 71

The period of time over which at least one factor of production is fixed is called the

A) very- short run.
B) short run.
C) long run.
D) very- long run.
E) immediate run.

Question 72

It is assumed in standard economic theory that a firm makes decisions in an effort to

A) become as large as possible.
B) have a highly diversified product.
C) maximize its profits.
D) maximize its revenue.
E) be favoured politically.

Question 73

The table below provides the annual revenues and costs for a family- owned firm producing catered meals. $\begin{array}{|l|l|}\hline \text { Total Revenues }(\$) & 500,000 \\\hline & \\\hline \text { Total Costs (\$) } & \\\hline \text { wages and salaries } & 200,000 \\\hline \text { risk- free return of } 6 \% \text { on owners' capital of } 250,000 & 15,000 \\\hline \text { rent } & 105,000 \\\hline \text { - depreciation of capital equipment } & 25,000 \\\hline \text { risk premium of } 8 \% \text { on owners' capital of } 250,000 & 20,000 \\\hline \text { - intermediate inputs } & 150,000 \\\hline \text { forgone wages of owners in alternative employment } & 80,000 \\\hline \text { interest on bank loan } & 10,000 \\\hline\end{array}$
$\text { TABLE 7- } 1$

-Refer to Table 7- 1. The implicit costs for this family- owned firm are

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

Question 74

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $\begin{array}{|l|l|}\hline\begin{array}{l}\text { Labour per unit of } \\\text { time }\end{array}&\text { Total Output }\\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 75 \\\hline 3 & 175 \\\hline 4 & 250 \\\hline 5 & 305 \\\hline\end{array}$
$\text { TABLE 7- } 4$

-Refer to Table 7- 4. The marginal product of labour curve intersects the average product of labour curve from above when the firm changes the amount of labour per unit of time from

A) 0 to 1 units.
B) 1 to 2 units.
C) 2 to 3 units.
D) 3 to 4 units.
E) 4 to 5 units.

Question 75

The table below shows output, marginal cost, and average variable cost for the production of pairs of shoes. All costs are in dollars. $$\begin{array}{l}\begin{array} { | l | l | l | } \hline \text { Output } & \begin{array} { l } \text { Marginal } \\\text { Cost }\end{array} & \begin{array} { l } \text { Average } \\\text { Variable Cost }\end{array} \\\hline 50 & 60 & 140 \\\hline 70 & 45 & 115 \\\hline 90 & 35 & 95 \\\hline 110 & 30 & 80 \\\hline 130 & 35 & 65 \\\hline 150 & 60 & 60 \\\hline 170 & 105 & 65 \\\hline 190 & 180 & 75 \\\hline 210 & 230 & 90 \\\hline 230 & 290 & 110 \\\hline\end{array}\\\text { TABLE 7- } 6\end{array}$$

-Refer to Table 7- 6. If the firm produces 130 pairs of shoes, and the fixed cost is $550, then the firm's total cost is

A) $8000.
B) $7000.
C) $12 000.
D) $9000.
E) $10 000.

Question 76

Suppose NHL hockey player Jarome Iginla is averaging three points per game going into the last game of the season in which he collects four points, thereby changing his average for the season. To use an analogy in economics, it could be said that average product increases

A) whenever marginal product is positive.
B) when marginal product increases.
C) when total product increases.
D) when marginal product exceeds average product.
E) when average product exceeds marginal product.

Question 77

A firm's depreciation costs

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

Question 78

Undistributed profits of a firm are

A) profits that are available to be reinvested in the firm's operations.
B) earnings that are used to cover interest expenses of the firm.
C) earnings that are used to pay dividends to shareholders.
D) profits that are paid out to owners of the firm.
E) earnings that are used to cover the costs of production.

Question 79

FIGURE 7- 1
Refer to Figure 7- 1. If the firm hires the 15th unit of labour,

A) the extra output will be zero.
B) average product will fall.
C) marginal product will be unchanged.
D) the firm will reach its capacity.
E) both A and B are correct.

Question 80

Suppose a firm producing digital cameras is operating such that marginal costs are higher than average costs. If the firm produces one more camera, average costs will

A) rise.
B) reach a point of diminishing returns.
C) fall.
D) reach their maximum.
E) remain constant.