Deck 8: Cost Theory and Estimation

Question 1

Use the following to answer questions below:


-Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost increasing?

A) 1
B) 4
C) 8
D) None of the above is correct.

Answer 1

8

Question 2

Use the following to answer questions below:


-Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost decreasing?

A) 1
B) 4
C) 8
D) None of the above is correct.

Answer 2

1

Question 3

Use the following to answer questions below:


-Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost equal to average total cost?

A) 9.5
B) 10
C) 11
D) None of the above is correct.

Answer 3

10

Question 4

Use the following to answer questions below:


-Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost equal to average variable cost?

A) 9.5
B) 10
C) 11
D) None of the above is correct.

Question 5

Use the following to answer questions below:


-Refer to the graph of the short-run total cost and total variable cost curves. At approximately what level of output is marginal cost closest to its minimum value?

A) 2
B) 4
C) 8
D) 11

Question 6

Use the following to answer questions below:


-Refer to the short-run per-unit cost curves graph. Which of the four curves represents average total cost?

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

Question 7

Use the following to answer questions below:


-Refer to the short-run per-unit cost curves graph. Which of the four curves represents average variable cost?

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

Question 8

Use the following to answer questions below:


-Refer to the short-run per-unit cost curves graph. Which of the four curves represents average fixed cost?

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

Question 9

Use the following to answer questions below:


-Refer to the short-run per-unit cost curves graph. Which of the four curves represents marginal cost?

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

Question 10

Use the following to answer questions below:


-Refer to the long-run average cost (LAC) curve graph. At which level of output is the firm experiencing increasing returns to scale?

A) Output level A
B) Output level B
C) Output level C
D) None of the above is correct.

Question 11

Use the following to answer questions below:


-Refer to the long-run average cost (LAC) curve graph. At which level of output is the firm experiencing decreasing returns to scale?

A) Output level A
B) Output level B
C) Output level C
D) None of the above is correct.

Question 12

Use the following to answer questions below:


-Refer to the long-run average cost (LAC) curve graph. At which level of output is the firm experiencing constant returns to scale?

A) Output level A
B) Output level B
C) Output level C
D) None of the above is correct.

Question 13

A firm that has total fixed costs of $40,000 sells its output for $250 per unit and has an average variable cost of $150. If the firm's cost and revenue curves are linear, how much output must the firm produce to break even?

A) 500
B) 400
C) 300
D) The firm cannot break even.

Question 14

A firm that has total fixed costs of $20,000 sells its output for $150 per unit and has an average variable cost of $200. If the firm's cost and revenue curves are linear, how much output must the firm produce to break even?

A) 500
B) 400
C) 300
D) The firm cannot break even.

Question 15

A firm that has total fixed costs of $40,000 sells its output for $250 per unit and has an average variable cost of $150. If the firm's cost and revenue curves are linear and output is equal to 500 units, what is the firm's degree of operating leverage?

A) 5
B) 4
C) 3
D) None of the above is correct.

Question 16

A firm that has total fixed costs of $2,000 sells its output for $25 per unit and has an average variable cost of $20. If the firm's cost and revenue curves are linear and output is equal to 600 units, what is the firm's degree of operating leverage?

A) 5
B) 4
C) 3
D) None of the above is correct.

Question 17

A firm currently produces 2,500 units of output per week. After an additional worker is hired, output rises to 2,620 units per week. If the weekly wage paid to a worker is $480, what is the firm's short-run marginal cost?

A) $4
B) $120
C) $480
D) None of the above is correct.

Question 18

A firm currently produces 3,500 units of output per week. After an additional worker is hired, output rises to 3,750 units per week. If the weekly wage paid to a worker is $500, what is the firm's short-run marginal cost?

A) $500
B) $250
C) $2
D) None of the above is correct.

Question 19

A firm has determined, from past experience, that the learning curve for a new electronic component has a log-linear form with a slope coefficient of -0.10. What is the predicted short-run average variable cost after 10,000 units of a new product have been produced? The beginning short-run average total cost of the product is expected to be $1,000.

A) $398
B) $1,000,000
C) $10,000,000
D) None of the above is correct.

Question 20

A firm has determined, from past experience, that the learning curve for a new electronic component has a log-linear form with a slope coefficient of -0.05. What is the predicted short-run average variable cost after 12,000 units of a new product have been produced? The beginning short-run average total cost of the product is expected to be $400.

A) $250
B) $8,894
C) $4,800,000
D) None of the above is correct.

Question 21

Logistics is also referred to as

A) supply chain management.
B) revenue management.
C) total quality management.
D) None of the above is correct.

Question 22

Which of the following is a business function that is a part of logistics?

A) Purchasing
B) Transportation
C) Warehousing
D) All of the above are correct.

Question 23

The centralized management of all functions involved in a firm's relationships with suppliers and customers is called

A) chief executive management.
B) logistics.
C) cost-revenue control.
D) elasticity.

Question 24

Which of the following has contributed most to the emergence and growth of logistics?

A) Firms have become more interested in earning profits.
B) The growth of a culture of consumerism in industrialized countries.
C) Computers and computer programs have become cheaper and more powerful.
D) None of the above is correct.

Question 25

What percent of corporations currently have expertise in logistics?

A) Less than 25 percent
B) Between 25 percent and 50 percent
C) Between 50 percent and 75 percent
D) More than 75 percent

Question 26

Which of the following is a variable cost?

A) Interest payments
B) Raw materials costs
C) Property taxes
D) All of the above are variable costs.

Question 27

Which of the following is an implicit cost?

A) The salary earned by a corporate executive
B) Depreciation in the value of a company-owned car as it wears out
C) Property taxes
D) All of the above are implicit costs.

Question 28

If the output levels at which short-run marginal and average cost curves reach a minimum are listed in order from smallest to greatest, then the order would be:

A) AVC, MC, ATC
B) ATC, AVC, MC
C) MC, AVC, ATC
D) AVC, ATC, MC

Question 29

Learning curves represent the relationship between

A) average variable cost and the number of units produced per time period.
B) average variable cost and the cumulative number of units produced.
C) total cost and technology.
D) average variable cost and the rate of increase in technology.

Question 30

If an input is owned and used by a firm, then its

A) explicit cost is zero.
B) implicit cost is zero.
C) opportunity cost is zero.
D) economic cost is zero.

Question 31

Short-run marginal cost is equal to

A) the change in total cost divided by the change in output.
B) the change in total variable cost divided by the change in output.
C) the cost per unit of the variable input divided by the marginal product of the variable input.
D) All of the above are correct.

Question 32

Short-run average variable cost is equal to

A) total variable cost divided by output.
B) average total cost minus average fixed cost.
C) the cost per unit of the variable input divided by the average product of the variable input.
D) All of the above are correct.

Question 33

The law of diminishing returns begins at the level of output where

A) marginal cost is at a minimum.
B) average variable cost is at a minimum.
C) average fixed cost is at a maximum.
D) None of the above is correct.

Question 34

The long-run average cost curve is at a minimum at a level of output where

A) the firm is experiencing constant returns to scale.
B) it is equal to long-run marginal cost.
C) the long-run average cost curve is tangent to the lowest point on a short-run average total cost curve.
D) all of the above occur.

Question 35

If a firm has a downward-sloping long-run average cost curve, then

A) it is experiencing decreasing returns to scale.
B) it is experiencing decreasing returns.
C) it is a natural monopoly.
D) marginal cost is greater than average cost.

Question 36

One reason that a firm may experience increasing returns to scale is that greater levels of output make it possible for the firm to

A) employ more specialized machinery.
B) obtain bulk purchase discounts.
C) employ a greater division of labor.
D) All of the above are correct.

Question 37

One reason that a firm may experience decreasing returns to scale is that greater levels of output can result in

A) a greater division of labor.
B) an increase in meetings and paperwork.
C) smaller inventories per unit of output.
D) All of the above are correct.

Question 38

Economies of scope refers to the decrease in average total cost that can occur when a firm

A) produces more than one product.
B) has monopoly power in world markets.
C) controls the raw materials used as inputs.
D) narrows the scope of its regional markets.

Question 39

Breakeven analysis identifies the

A) profit-maximizing level of output.
B) level of output where economic profit is equal to zero.
C) level of output where marginal revenue is equal to marginal cost.
D) All of the above are correct.

Question 40

Which of the following is not an assumption of linear breakeven analysis?

A) Output price is constant.
B) Average variable cost is constant.
C) Average fixed cost is constant.
D) All of the above are assumptions of linear breakeven analysis.

Question 41

The responsiveness or sensitivity of a firm's profits to changes in output is measured by a firm's

A) operating leverage.
B) contribution margin per unit.
C) degree of operating leverage.
D) returns to scale.

Question 42

Which of the following values cannot be calculated at the firm's breakeven level of output?

A) Operating leverage
B) Contribution margin per unit
C) Degree of operating leverage
D) Profit

Question 43

If a linear short-run variable cost function is estimated using cross-sectional data, then the corresponding marginal cost function will be

A) U-shaped.
B) upward sloping.
C) downward sloping.
D) horizontal.

Question 44

The survival technique

A) can be used to estimate short-run total variable cost functions.
B) is based on a technical knowledge of a firm's production function.
C) uses regression analysis in combination with time-series or cross-sectional data.
D) None of the above is correct.

Question 45

The process whereby firms reduce their production costs by taking advantage of international differences in the prices of inputs and international similarities in preferences is referred to as the

A) strategic opportunity concept.
B) new international economics of scale.
C) global dictum.
D) transnational cost theorem.

Question 46

Which of the following would be referred to as "outsourcing"?

A) Marketing products outside of a firm's home country
B) Hiring temporary workers on a contract basis
C) Subcontracting production to firms in other countries
D) Identifying and implementing production innovations

Question 47

When a firm designs a core product for the entire world that can be adapted in a number of ways to accommodate different types of markets, it is taking advantage of the

A) strategic opportunity concept.
B) new international economies of scale.
C) global dictum.
D) transnational cost theorem.

Question 48

The Japanese cost-management system involves

A) designing a product and then determining the cost of producing it.
B) a new system of accounting for capital depreciation.
C) determining how much a product should cost and then determining how much should be produced.
D) minimizing international transportation costs.

Question 49

The contribution margin per unit is equal to the

A) difference between price and average variable cost.
B) difference between total revenue and total cost.
C) difference between price and average total cost.
D) price of a good.

Question 50

The following figure best represents which of the following firms?

A) Perfectly competitive firm.
B) Natural monopoly.
C) Imperfectly competitive firm.
D) Not enough information.

Question 51

The value of the inputs owned and used by the firm in its own production activity is known as

A) explicit costs.
B) implicit costs.
C) Accounting costs.
D) all of the above.

Question 52

The actual expenditures of the firm to hire, rent, or purchase the inputs it requires in production is known as

A) explicit costs.
B) implicit costs.
C) sunk costs.
D) all of the above.

Question 53

Which of the following costs are irrelevant in managerial decision making?

A) Explicit costs.
B) Implicit costs.
C) Sunk costs.
D) All of these costs are relevant.

Question 54

If the firm's total costs are $2,200,000 and total variable costs are $1,300,000, what are the total fixed costs?

A) 900,000
B) 1,200,000
C) 4,500,000
D) None of the above.

Question 55

If the firm's average total costs are $200 per unit and average fixed costs are $70 per unit, what are the average variable costs?

A) $70 per unit
B) $90 per unit
C) $110 per unit
D) $130 per unit

Question 56

If the firm produces 200,000 toothbrushes, its total cost is 300,00 and total variable cost is 200,000, what is the average fixed cost?

A) $0.50 per unit
B) $1.00 per unit
C) $1.50 per unit
D) $2.00 per unit

Question 57

If the firm produces 200,000 toothbrushes, its total cost is 400,00 and total fixed cost is 100,000, what is the average variable cost?

A) $0.50 per unit
B) $1.00 per unit
C) $1.50 per unit
D) $2.00 per unit

Question 58

The firm increased production by 5 units and the total variable cost increased from $3,000 to $4,500. What is the marginal cost associated with this increase in production?

A) $300
B) $500
C) $1,500
D) $4,500

Question 59

The firm increased production from 200,000 to 400,000 units and the total costs increased from $5,000,000 to $7,000,000. What is the marginal cost associated with this increase in production?

A) $1
B) $10
C) $10,000
D) $100,000

Question 60

In order to produce the desired quantity, the firm needs to hire 50 employees and rent 10 units of capital. If the wage rate is $100 per employee and the rental rate is $200 per unit, what is the total cost of producing the desired quantity?

A) $3,000
B) $5,000
C) $7,000
D) $9,000

Question 61

The value of the inputs owned and used by a firm is an explicit cost.

Question 62

Economic cost is generally lower than accounting cost.

Question 63

Sunk costs are not relevant to managerial decisions.

Question 64

Total variable cost is equal to short-run total cost minus total fixed cost.

Question 65

The law of diminishing returns is reflected in the downward-sloping portion of the short-run marginal cost curve.

Question 66

If the long-run average cost curve slopes upward over some range of output, then the firm is experiencing increasing returns to scale over that range of output.

Question 67

If marginal cost is greater than average total cost, then average total cost is rising.

Question 68

The minimum short-run average total cost occurs at a level of output that is greater than that at which average variable cost is at a minimum.

Question 69

All costs are variable costs in the long run.

Question 70

The long-run average cost curve is tangent to the lowest points on all possible short-run average total cost curves.

Question 71

Long-run average cost slopes downward over a range of output where a firm experiences decreasing returns to scale.

Question 72

If long-run marginal cost is greater than long-run average cost, then the firm is experiencing decreasing returns to scale.

Question 73

Industries where the long-run average cost curve has a positive slope over a wide range of output are referred to as natural monopolies.

Question 74

Firms that produce more than one type of product cannot benefit from economies of scope.

Question 75

The brain drain refers to the emigration of highly skilled workers from their home countries.

Question 76

The contribution margin per unit is equal to price minus short-run average variable cost.

Question 77

The degree of operating leverage is equal to the ratio of the firm's total fixed cost to total variable cost.

Question 78

The survival technique is used to estimate short-run total variable cost functions.

Question 79

While it may contribute to cost savings, logistics is not a source of competitive advantage.

Question 80

International outsourcing can potentially expose a firm to increased risks of delay in production and quality issues.