Deck 4: Production and the Costs of Production

Question 1

The short run is a period in which the quantity of at least one input is fixed and the quantities of the other inputs can be varied.

Answer 1

True

Question 2

In response to a change in demand, a firm can employ more or fewer variable inputs, but not alter the capacity of its factory, in the short run.

Answer 2

True

Question 3

The long run is a period in which all inputs are considered as fixed in amounts.

Answer 3

False

Question 4

A production function specifies the minimum amount of output that we can produce with a given amount of resources.

Question 5

The marginal product of labor is equal to the change in output that results from changing labor by one unit, holding all other inputs fixed.

Question 6

The principle that explains the rising portion of the marginal product curve is the law of diminishing marginal returns.

Question 7

If the addition of yet ever more workers continues to increase output, but by successively smaller increments, a firm realizes increasing marginal returns.

Question 8

A technological change that increases productivity shifts a firm's total product curve and marginal product curve upward.

Question 9

A technological change that decreases productivity results in a firm moving to the right along its total product curve and marginal product curve.

Question 10

Managers often refer to their fixed costs as overhead costs.

Question 11

Average total cost is total cost per unit of output.

Question 12

Marginal cost measures how much total cost increases as another unit of output is produced.

Question 13

The marginal cost curve intersects the average total cost and average variable cost curves at their maximum points.

Question 14

When marginal cost lies below average total cost, it pulls average total cost downward.

Question 15

The long-run average total cost curve shows the minimum cost per unit of producing each output level when any desired size of factory can be constructed.

Question 16

When a firm realizes economies of scale, the short-run average total cost curve slopes downward.

Question 17

A 10 percent increase in all inputs results in Burger King's output increasing by 9 percent. As a result, Burger King's cost per unit rises and the long-run average total cost curve is increasing.

Question 18

The marginal cost curve and average total cost curve of General Electric will shift downward if the firm realizes technological advances, a reduction in resource prices, or a decrease in taxes.

Question 19

Cox Communication realizes an accounting profit if its total revenue more than covers its implicit costs.

Question 20

It's possible that Al's Auto Supply may not realize an economic profit, even though its total revenues exceed its costs on hired labor and auto parts.

Question 21

An economist would argue that accountants tend to understate profits and overstate losses.

Question 22

Marginal product is total product divided by the total number of workers hired to produce the product.

Question 23

Average total cost reaches a minimum at a lower level of output than average variable cost.

Question 24

The total costs of Fraggini's Pizza include implicit costs plus explicit costs.

Question 25

Diseconomies of scale take place when a firm's long-run average total cost curve is horizontal.

Question 26

Tires are considered to be a fixed cost of driving an automobile.

Question 27

If ATC=$4, AVC=3, then AFC must be $1.

Question 28

If a growing company benefits greatly from the specialization of labor and management, this most likely means it is experiencing economies of scale.

Question 29

If a firm's receipts are just sufficient to cover all of its economic costs, the firm is said to be earning a(n)

A) normal profit
B) implicit profit
C) explicit profit
D) economic profit

Question 30

The ______ is the period of time during which a firm cannot alter its plant size, although it may alter some resources such as raw materials and labor.

A) long run
B) short run
C) intermediate run
D) market period

Question 31

In the short run,

A) some of a firm's costs are fixed and others are variable
B) all of a firm's costs are fixed
C) all of a firm's costs are variable
D) all of a firm's cost are explicit

Question 32

In the ______, a firm can vary its plant size and does not view any cost as fixed.

A) short run
B) long run
C) intermediate run
D) market period

Question 33

In the ______, Toyota must choose the optimal plant size in which to produce automobiles.

A) long run
B) intermediate run
C) short run
D) market period

Question 34

A firm's explicit costs include all of the following except

A) rents paid for the use of buildings
B) interest paid on borrowed money
C) wages paid to hired labor
D) normal profit

Question 35

If a McDonald's franchise increases all resources used in the production process by 25 percent and output increases by less than 25 percent, the franchise realizes

A) constant returns to scale
B) increasing marginal productivity
C) economies of scale
D) diseconomies of scale

Question 36

Normal profit includes the opportunity cost of all of the following except the

A) owner's use of his own building for a production facility
B) owner's use of her own money capital
C) time that the owner spent running her business
D) wages that are paid to hired labor

Question 37

The declining portion of Wal-Mart's long-run average total cost curve is explained by

A) the law of diminishing returns
B) constant returns to scale
C) economies of scale
D) diseconomies of scale

Question 38

In the short run, Boeing cannot

A) hire more engineers to design jetliners
B) use additional rubber and steel in jetliner production
C) employ more clerical workers in the finance department
D) increase the size of its jetliner assembly plant

Question 39

Smith Tire Co. has total fixed costs of $100,000 per year. The firm's average variable cost is $80 for 10,000 tires. At that level of output, the firm's average total costs equal

A) $90
B) $100
C) $110
D) $120

Question 40

If Whitey's Baseball Bat Manufacturing realizes increasing marginal returns, its total product is

A) increasing at an increasing rate
B) increasing at a decreasing rate
C) increasing at a constant rate
D) decreasing

Question 41

Suppose that Sara's Sandwich Shop initially encounters diminishing marginal returns when it begins production of meatball sandwiches. In this range of output, its marginal product is

A) increasing
B) decreasing
C) zero
D) infinite

Question 42

The total costs of a firm consist of

A) implicit costs only
B) explicit costs only
C) implicit costs plus explicit costs
D) implicit costs plus economic profit

Question 43

If Sharpe Electronics is operating on the increasing portion of its short-run average total cost curve, we can conclude that marginal cost is

A) increasing
B) decreasing
C) above average total cost
D) below average total cost

Question 44

Miller Technologies has average variable costs of $6 and average total costs of $10 when it produces 1,000 units of output. The firm's total fixed costs equal

A) $2,000
B) $3,000
C) $4,000
D) $5,000

Question 45

The fixed costs of General Foods would include all of the following except

A) monthly rent payments on a warehouse
B) pension payments to retired workers
C) interest payments on money borrowed from the bank
D) weekly expenditures for raw materials

Question 46

______ represents the minimum profit necessary to keep a firm in operation.

A) Accounting profit
B) Economic profit
C) Normal profit
D) Explicit profit

Question 47

Diseconomies of scale cause a firm's

A) long-run average total cost curve to turn upward
B) long-run average total cost curve to turn downward
C) short-run average total cost curve to turn upward
D) short-run average total cost curve to turn downward

Question 48

Economies of scale cause a firm's

A) long-run average total cost curve to turn upward
B) long-run average total cost curve to turn downward
C) short-run average total cost curve to turn upward
D) short-run average total cost curve to turn downward

Question 49

The accounting profit of a KFC franchise equals total revenue minus

A) total cost
B) implicit cost
C) explicit cost
D) total fixed cost

Question 50

During the 1980s, foreign competition forced Ford, General Motors, and Chrysler to alter their production methods in order to become more competitive. Which policy did not lead to increased competitiveness for these firms?

A) competitive bidding for steel and other resources
B) cutting fixed costs and other overhead expenses
C) increasing wages to workers assembling automobiles
D) slashing redundant managerial jobs and streamlining operations

Question 51

When Sunoco realizes economies of scale, its long-run average total cost curve

A) turns upward
B) turns downward
C) shifts upward
D) shifts downward

Question 52

A production function shows the

A) maximum output that can be obtained from existing inputs
B) most profitable combination of outputs for a firm to produce
C) least profitable combination of outputs for a firm to produce
D) most expensive combination of inputs needed to produce a given output

Question 53

A long-run adjustment is best represented by

A) a carrot farmer using an extra dose of pesticide to kill insects
B) the owner of a Pizza Hut franchise hiring an extra cook
C) General Electric reducing its employment of electrical engineers
D) Ford building a new plant to assemble automobiles

Question 54

If Microsoft finds that a 15 percent increase in all inputs results in a 15 percent increase in total output, the firm realizes

A) diseconomies of scale
B) economies of scale
C) constant returns to scale
D) increasing marginal productivity

Question 55

Which of the following explains why the average variable cost and average total cost curves converge as output increases?

A) average fixed cost becomes smaller
B) average fixed cost becomes larger
C) marginal cost becomes smaller
D) marginal cost becomes larger

Question 56

A technological improvement that increases productivity will

A) cause a firm to move upward along its existing total product curve
B) cause a firm to move downward along its existing total product curve
C) shift a firm's total product curve upward
D) shift a firm's total product curve downward

Question 57

When the law of diminishing returns sets in,

A) total costs increase at a decreasing rate
B) total costs increase at a constant rate
C) marginal costs increase
D) marginal costs decrease

Question 58

Marginal cost is defined as

A) total cost divided by the level of output
B) the addition to total fixed cost of an additional unit of output
C) the addition to total cost of an additional unit of output
D) explicit cost plus implicit cost

Question 59

Which of the following is not a source of economies of scale?

A) red tape and bureaucracy
B) specialization of management and labor
C) productive capital
D) efficient development and design

Question 60

If the Minneapolis Cement Co. employs just one worker, that person has to perform all of the aspects of cement manufacturing. If the firm hires a second person, the two workers can specialize in different aspects of cement manufacturing and thus produce more than twice as much as one. When this occurs, the firm realizes

A) economies of scale
B) diseconomies of scale
C) increasing marginal returns
D) diminishing marginal returns

Question 61

Which cost curve intersects the average total cost curve at its lowest point?

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

Question 62

Figure 4.1 Total Product Curves


-Refer to Figure 4.1. The shift in the total product curve represents an increase in the firm's

A) costs of production
B) productivity
C) diseconomies of scale
D) market share

Question 63

Figure 4.1 Total Product Curves


-Refer to Figure 4.1. Which of the following could explain why the total product curve shifted?

A) a reduction in capital equipment
B) labor skills becoming rusty and obsolete
C) the development of new technology
D) a higher price for the product

Question 64

Figure 4.2 Short-Run Cost Curves


-Refer to Figure 4.2. Curve 1 represents

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

Question 65

Figure 4.2 Short-Run Cost Curves


-Refer to Figure 4.2. Curve 3 represents

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

Question 66

Figure 4.2 Short-Run Cost Curves


-Refer to Figure 4.2. Even if this firm produces zero units of output, it will still

A) have no fixed costs
B) make a profit
C) be producing other products
D) have fixed costs

Question 67

Which of the following statements is true with respect to the U.S. steel industry?

A) Its production costs per ton are among the lowest in the world.
B) It has never had a very large share of total world output.
C) It is burdened by healthcare benefits it pays to its retired workers.
D) It has benefited in recent years from a strong U.S. dollar.

Question 68

In an attempt to keep costs low, McDonald's is taking steps to

A) achieve constant returns to scale
B) place detailed instructions on each cash register
C) develop a standardized menu across the country
D) reduce manager training time at Hamburger University

Question 69

An increased tax on each newpaper sold will

A) cause newpaper firms to sell more newspapers
B) not have any effect on newspaper firms' cost curves
C) cause the newspaper firms' cost curves to shift upward
D) cause the newspaper firms' cost curves to shift downward

Question 70

Which of the following statements is true about U.S. steel production?

A) The U.S. currently has the lowest average costs of steel production in the world.
B) Japan can now produce steel more cheaply than the U.S.
C) U.S. steel producers still use the same obsolete plants and technology as they did 75 years ago.
D) In 1950, the U.S. steel industry accounted for about one-half of world steel output.

Question 71

If a firm's owner finds that the firm's total revenue is exactly equal to the sum of its explicit and implicit costs, the owner

A) should close the business right away and find another line of work
B) is doing as well in this business as she could in her next-best another line of work
C) should downsize immediately to see if this helps
D) can continue to produce only if she has enough personal funds to keep the business going

Question 72

In 1921, Henry Ford's customers could have a car painted any color as long as it was

A) black
B) glossy
C) a custom design
D) an imported version

Question 73

In producing the Model T car, beginning in 1908, Henry Ford pioneered the concept of

A) custom design production
B) quality control production
C) assembly line production
D) just in time production

Question 74

Economies of scale tend to dominate industries that

A) have a relatively small required infrastructure
B) are goods rather than services
C) have a high marginal cost of production
D) deliver their goods or services through a network

Question 75

Toyota has become known for its concept of

A) using specialized parts for each model
B) lean manufacturing
C) mass production of identical vehicles
D) introducing new models slowly

Question 76

ATM's located at banks, service stations, and stores are a good example of

A) economies of scale
B) constant returns to scale
C) increasing marginal returns
D) fixed inputs

Question 77

In the pharmaceuticals industry, the principle of ____ long-run average cost is present with the development of a new prescription drug.

A) increasing
B) constant
C) decreasing
D) fixed