Deck 8: Production Costs

Question 1

What do firms seek to maximize?

A) the total amount of money that they receive from customers
B) costs
C) profit
D) utility

Answer 1

C

Question 2

How is profit calculated?

A) Profit = Total revenue - Total costs
B) Profit = Average revenue - Total costs
C) Profit = Total revenue - Average costs
D) Profit = Average revenue - Average costs

Answer 2

A

Question 3

A negative profit is called:

A) a loss.
B) the revenue.
C) negative revenue.
D) negative costs.

Answer 3

A

Question 4

Dave's Donuts sold 1,000 donuts. Total revenue was $400, and the cost of producing the 1,000 donuts was $300. What is the profit for Dave's Donuts?

A) $500
B) $400
C) $1,000
D) $100

Question 5

What costs involve an actual payment of money?

A) marginal costs
B) opportunity costs
C) explicit costs
D) implicit costs

Question 6

How is accounting profit calculated?

A) Accounting profit = Total revenue - Total explicit costs
B) Accounting profit = Total revenue - Total implicit costs
C) Accounting profit = Total revenue - Average costs
D) Accounting profit = Total revenue - (Total explicit costs + Total implicit costs)

Question 7

Mallory's Marble Shop received $110,000 from customers last year and had explicit costs of $30,000 and implicit costs of $70,000. What was Mallory's Marble Shop's accounting profit?

A) $110,000
B) $40,000
C) $80,000
D) $10,000

Question 8

Each year, a bicycle repair shop receives $120,000 in total revenue. Annual costs include $40,000 for labor, $5,000 in parts, and $30,000 in equipment rental. The owner of the bicycle repair shop owns the building and could rent it out for $12,000 per year. She could be making $50,000 per year if she worked as a project manager instead. What is the owner's accounting profit?

A) $75,000
B) $33,000
C) -$17,000
D) $45,000

Question 9

Each year, a bicycle repair shop receives $120,000 in total revenue. Annual costs include $40,000 for labor, $5,000 in parts, and $30,000 in equipment rental. The owner of the bicycle repair shop owns the building and could rent it out for $12,000 per year. She could be making $50,000 per year if she worked as a project manager instead. What is the owner's economic profit?

A) $75,000
B) $33,000
C) -$17,000
D) $45,000

Question 10

Last year, Reed's Financial Services received revenues of $500,000. Labor costs were $150,000, and equipment and building rental was $100,000. The owner Reed could be making $200,000 as a software engineer if he didn't operate the financial services firm. What is Reed's accounting profit?

A) $250,000
B) $350,000
C) -$200,000
D) $150,000

Question 11

What is an implicit cost?

A) the cost of a typical unit of production
B) a cost that does not involve a direct outlay of money
C) a cost that requires an outlay of money
D) the cost of one more unit of production

Question 12

How is economic profit calculated?

A) Total revenue - Total explicit costs
B) Total revenue - Total implicit costs
C) Total revenue - (Total explicit costs + Total implicit costs)
D) Total revenue - (Total explicit costs + Total implicit costs) - Total average costs

Question 13

Last year Reed's Financial Services received revenues of $500,000. Labor costs were $150,000, and equipment and building rental was $100,000. The owner Reed could be making $200,000 as a software engineer if he didn't operate the financial services firm. What is Reed's economic profit?

A) $250,000
B) $350,000
C) -$200,000
D) $50,000

Question 14

Which of the following is included in the calculation of economic profit that is NOT included in the calculation of accounting profit?

A) total revenue
B) explicit cost
C) implicit cost
D) marginal cost

Question 15

Which of the following statements about profit is NOT true?

A) Economic profit is always smaller than accounting profit.
B) Opportunity costs are the same as implicit costs.
C) All costs and benefits should be factored when making a decision.
D) A decision might still be rational if the benefit of that decision outweighs economic losses.

Question 16

A production function is a relationship that shows the:

A) difference between total revenues and total costs.
B) quantity of each input that a firm uses and the quantity of output that the firm can produce as a result.
C) satisfaction that a consumer derives from each unit of consumption.
D) product of the quantity of a good and the difference between the price of the good and the average total cost of the quantity produced.

Question 17

Which of the following is used to show the relationship between the amount of inputs that a firm uses and the quantity that is produced?

A) marginal product
B) profit function
C) utility function
D) production function

Question 18

What best describes the long run?

A) a period longer than six months
B) a period of time that at least one input cannot be changed
C) a period of time that labor can change
D) a period of time that all inputs can be changed

Question 19

What best describes the short run?

A) a period less than six months
B) a period of time that at least one input cannot be changed
C) a period less than one year
D) a period of time that all inputs can be changed

Question 20

An input that cannot be changed in the short run is a:

A) fixed input.
B) variable input.
C) average input.
D) natural resource.

Question 21

During the back-to-school shopping season, a large store hires extra workers to work the 20 cash registers in the store. What are the variable inputs in this situation?

A) workers
B) cash registers
C) workers and cash registers
D) neither workers nor cash registers

Question 22

During the back-to-school shopping season, a large store hires extra workers to work the 20 cash registers in the store. What are the fixed inputs in this situation?

A) workers
B) the store
C) workers and cash registers
D) neither workers nor cash registers

Question 23

Variable inputs are often _____, and fixed inputs are often:

A) capital; labor.
B) capital; natural resources.
C) labor; capital.
D) labor; money.

Question 24

There are NO fixed inputs in:

A) production functions.
B) profit functions.
C) the long run.
D) the short run.

Question 25

The marginal _____ of an input is the increase in output that is gained from employment of an additional unit of that input.

A) revenue product
B) revenue
C) product
D) cost

Question 26

Ali has a firm that provides accounting services for 300 households. If he hires an executive assistant to assist the accountants but he doesn't hire any more accountants, he can serve 320 households. What is the marginal product of the executive assistant?

A) We cannot tell without knowing what each household is charged.
B) 20 households
C) 320 households
D) 620 households

Question 27

Use the table Workers and Croissants Produced. What is the marginal product of labor of the fourth worker?

A) 420
B) 70
C) 105
D) 80

Question 28

Use the table Workers and Croissants Produced. At what quantity of workers is the marginal product the highest?

A) one worker
B) two workers
C) four workers
D) five workers

Question 29

Use the table Workers and Buns Produced. How many buns are produced when four workers are hired?
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A) 195
B) 205
C) 30
D) 40

Question 30

Use the table Workers and Buns Produced. What is the marginal product of the fifth worker?
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A) 5
B) 205
C) 30
D) 10

Question 31

Use the table Workers and Buns Produced. How many buns are produced when seven workers are hired?
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A) 5
B) 205
C) 220
D) 40

Question 32

Use the table Workers and Buns Produced. If the manager wants to maximize total output, how many workers should be hired?
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A) 2
B) 6
C) 7
D) 8

Question 33

Use the table Workers and Buns Produced. At what quantity of workers is the marginal product the greatest?
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A) one worker
B) two workers
C) three workers
D) seven workers

Question 34

Use the table Workers and Buns Produced. What is the marginal product of the eighth worker?
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A) 215
B) 205
C) -5
D) 5

Question 35

The additional unit of output gained from one more unit of capital is the:

A) marginal product of capital.
B) marginal product of labor.
C) average product of capital.
D) average product of labor.

Question 36

Melanie is a freelance writer. If she buys a second screen for her computer, she can increase the articles she writes by 20 articles per week. What do these 20 articles represent?

A) the marginal product of labor
B) the average product of labor
C) the production function
D) the marginal product of capital

Question 37

The city of Montrose cannot hire any more workers, but it can buy new garbage trucks. If it buys one more garbage truck it can serve 100 more households each day. What do the 100 additional households represent?

A) the marginal product of capital
B) the marginal product of labor
C) the average product of natural resources
D) the production function

Question 38

The change in production when one more piece of equipment is added, holding labor constant, is the:

A) total product of labor.
B) total product of capital.
C) marginal product of labor.
D) marginal product of capital.

Question 39

Use the table Workers and Croissants Produced. Which of the following statements is true?

A) The marginal product of the third worker is negative.
B) The total product of the second worker is negative.
C) The marginal product of the second worker is less than the marginal product of the first worker.
D) The marginal product of the third worker is less than the marginal product of the second worker.

Question 40

If total output increases when one more worker is added, then marginal product of labor is:

A) negative.
B) positive.
C) equal to zero.
D) greater than the marginal product of the previous unit.

Question 41

X and Y are inputs used to produce good Z. If another unit of X increases but the units of Y are constant, then what is true according to the law of diminishing marginal returns?

A) The total amount of Z decreases.
B) The marginal product of Y increases.
C) The marginal product of Z decreases.
D) The marginal product of X decreases.

Question 42

Reed's Accounting Firm has 100 workers and 90 computers and currently serves 200 households. If Reed adds another accountant to his staff, he can serve 220 households. What does the law of diminishing marginal returns predict if he adds two more accountants?

A) The marginal product of labor for the second additional accountant will be less than 20 households.
B) The marginal product of capital for the second additional accountant will be 220 households.
C) The marginal product of labor for the second additional accountant will be at least 20 households.
D) The marginal product of capital for the second additional accountant will be 200 households.

Question 43

Before long, when you add an additional worker to a firm, the next one won't contribute as much as the previous one. This statement reflects the idea of:

A) diminishing marginal utility.
B) diminishing total output.
C) increasing returns to scale.
D) diminishing marginal product.

Question 44

The cost of a unit of labor is the:

A) rental rate.
B) wage.
C) profit.
D) input.

Question 45

The cost of a unit of capital is the:

A) utility.
B) wage.
C) input.
D) rental rate.

Question 46

If a firm owns the building that it is located in, what is the firm's rental rate?

A) the opportunity cost of renting it to someone else
B) the additional output that can be produced with another building
C) It has no rental rate because the firm owns the resource.
D) the difference between the marginal product of capital and the marginal product of labor

Question 47

If Mackenzie owns the equipment that she uses to bake pies, then her:

A) wage rate is zero.
B) rental rate is zero.
C) rental rate is what she could earn renting the equipment to someone else.
D) rental rate is what she could earn if she replaced all of her workers with equipment.

Question 48

The cost minimizing combination of inputs is the combination:

A) that minimizes the rental rate and the wage rate.
B) where the marginal product of each input relative to its cost is equal.
C) that produces the highest possible quantity without regard to cost.
D) where the marginal product of labor is equal to zero.

Question 49

Mackenzie wants to produce more pies. If she rents another oven for $100, she can make another 200 pies. If she hires another worker at a wage of $15, she can make another 45 pies. What statement is true based on this information?

A) Using either another oven or another worker will minimize costs.
B) She should use another oven to minimize costs.
C) She should hire another worker to minimize costs.
D) The marginal product of labor per dollar spent is less than the marginal product of capital per dollar spent.

Question 50

Generally, a firm can lower its cost of producing a given level of output by hiring:

A) more of whatever input has the highest marginal product.
B) less of what has a higher marginal utility per dollar spent.
C) any combination of inputs.
D) more of the input with the highest marginal product per dollar spent.

Question 51

The cost of any amount of output is minimized when the:

A) marginal product per dollar spent is the same for all inputs.
B) total product per dollar spent is the same for all inputs.
C) average product per dollar spent is the same for all inputs.
D) difference between the additional production of two goods is equal.

Question 52

The cost of inputs that cannot be changed in the short run is the _____ cost.

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

Question 53

What cost cannot be changed in the short run?

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

Question 54

The amount spent on something that cannot be changed is a _____ cost.

A) variable
B) fixed
C) marginal
D) total

Question 55

The cost of all inputs that can be changed in the short run are a firm's _____ cost.

A) total
B) fixed
C) variable
D) average total

Question 56

What is the difference between fixed cost and variable cost?

A) Fixed cost can be changed in the short run only, but variable cost can be changed in the short run or the long run.
B) Fixed cost be changed in the long run only, but variable cost can be changed in the short run or the long run.
C) Fixed cost can be changed in the short run or the long run, but variable cost can be changed only in the short run.
D) Fixed cost can be changed in the long run only, and variable cost cannot change.

Question 57

An airline finds itself with so many potential customers that all of its flights sell out. It decides to offer more flights around the clock with its existing fleet. Which of the following is NOT example of a variable cost of offering more flights?

A) the cost of purchasing another plane
B) the cost of hiring more pilots
C) the cost of hiring more flight attendants
D) the cost of more in-flight snacks

Question 58

A firm's total cost is equal to its:

A) Marginal cost + Variable cost.
B) Variable cost + Average cost.
C) Profit - Average total cost.
D) Fixed cost + Variable cost.

Question 59

Jason's carpentry business has a fixed cost of $5,000 from equipment and tool rental and a variable cost of $40,000 when he builds 100 bookshelves per year. The total cost of producing 100 bookshelves is:

A) $5,000.
B) $45,000.
C) $4,500.
D) $35,000.

Question 60

Roger makes short films. After he rents his film equipment for $20,000, he cannot change that decision. It costs him $5,000 per film for editing, location expenses, and other expenses incurred for each film. What is his variable cost if he produces 10 films?

A) $5,000
B) $50,000
C) $70,000
D) $7,000

Question 61

Alex's total cost to mow 10 lawns is $500. If he spends $400 on gas, labor, and other costs that change when quantity changes, what is his fixed cost?

A) $100
B) $500
C) $400
D) $90

Question 62

No matter how many kolaches Nora bakes, she has to pay $500 in rent and equipment rental. If she makes 100 kolaches, the costs that change based on quantity are $700. What is Nora's total cost of making 100 kolaches?

A) $700
B) $500
C) $120
D) $1,200

Question 63

Total cost divided by the quantity of output is a firm's _____ cost.

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

Question 64

The cost, on average, of producing a good is its average _____ cost.

A) total
B) fixed
C) marginal
D) variable

Question 65

Which of the following MUST be true in order for a firm to make a profit?

A) Price must be greater than average total cost.
B) Price must be greater than marginal cost.
C) Price must be greater than fixed cost.
D) Price must be greater than variable cost.

Question 66

Jason's carpentry business has a fixed cost of $5,000 from equipment and tool rental and a variable cost of $40,000 when he builds 100 bookshelves per year. The average total cost of producing 100 bookshelves is:

A) $5,000.
B) $45,000.
C) $450.
D) $4,000.

Question 67

Roger makes short films. After he rents his film equipment for $20,000, he cannot change that decision. It costs him $5,000 per film for editing, location expenses, and other expenses incurred for each film. What is average total cost if he produces 10 films?

A) $5,000
B) $50,000
C) $70,000
D) $7,000

Question 68

Alex's total fixed cost to mow 10 lawns is $500. If he spends $400 on gas, labor, and other costs that change when quantity changes, what is his average total cost of producing 10 mown lawns?

A) $100
B) $500
C) $400
D) $90

Question 69

Jennifer's fixed cost of providing consulting services to clients is $1,000 per month. Her variable cost of consulting 10 clients is $2,000. What is Jennifer's average total cost of consulting 10 clients?

A) $3,000
B) $1,000
C) $300
D) $500

Question 70

Henrietta's fixed cost of catering meals is $1,000. She spends $14,000 on the cost of food to make meals and labor when she caters 100 meals. What is her average total cost of catering 100 meals?

A) $15
B) $14
C) $140
D) $150

Question 71

Henrietta's fixed cost of catering meals is $1,000. She spends $14,000 on the cost of food to make meals and labor when she caters 100 meals. Which of the following is true if the price that she gets for catering a meal is $10?

A) She is making a profit.
B) She is making a loss.
C) Her price is higher than her average total cost.
D) She can reduce the fixed cost of catering meals in the short run.

Question 72

When Frank produces 200 hot dogs, his fixed cost is $200, and his variable cost is $500. If he gets a price of $7 per hot dog when he sells them at a ball game, which of the following is true?

A) He is making a profit.
B) He is making a loss.
C) His fixed costs are increasing.
D) His price is less than his marginal cost.

Question 73

As the marginal product of labor _____, it takes a _____ increase in the quantity of labor to produce another unit of output, which makes marginal cost increase.

A) increases; greater
B) increases; smaller
C) decreases; greater
D) decreases; smaller

Question 74

Why does marginal cost increase as more is produced?

A) The marginal product of labor increases, so more additional labor must be used to increase output, increasing total cost.
B) The marginal product of labor increases, so less additional labor must be used to increase output, increasing total cost.
C) The marginal product of labor decreases, so more additional labor must be used to increase output, decreasing average cost.
D) The marginal product of labor decreases, so more additional labor must be used to increase output, increasing total cost.

Question 75

Use the table The Cost of Swing Sets. Eleanor's costs of producing swing sets are given in this table, but the labels for several columns are missing. What column represents Eleanor's fixed costs?
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A) A
B) B
C) C
D) D

Question 76

Use the table The Cost of Swing Sets. Eleanor's costs of producing swing sets are given in this table, but the labels for several columns are missing. What column represents Eleanor's marginal costs?

A) A
B) B
C) C
D) D

Question 77

Use the table The Cost of Swing Sets. Eleanor's costs of producing swing sets are given in this table, but the labels for several columns are missing. What column represents Eleanor's variable cost?

A) A
B) B
C) C
D) D

Question 78

Use the table The Cost of Swing Sets. Eleanor's costs of producing swing sets are given in this table, but the labels for several columns are missing. What column represents Eleanor's total cost?

A) A
B) B
C) C
D) D

Question 79

Use Table: The Cost of Swing Sets. Eleanor's costs of producing swing sets are given in this table, but the labels for several columns are missing. What is the average cost of producing two swings?

A) $2,500
B) $5,200
C) $2,000
D) $2,625

Question 80

Use the table The Cost of Swing Sets. Eleanor's costs of producing swing sets are given in this table, but the labels for several columns are missing. What is true if she can sell four swings for $3,000?

A) She is making a profit.
B) Her marginal product of labor is decreasing at the fourth swing.
C) Her average total cost is $150.
D) Her marginal cost is greater than her variable cost.