Deck 12: The Firm Production and Costs

Question 1

A company can protect itself from the opportunity cost of rising rents in an area by buying its own building.

Answer 1

False

Question 2

If a firm that had to pay an explicit rent of $5,000 a month bought its own building, at which point it could rent that building to another firm for $4,500 a month, it faces a lower opportunity cost of occupying the building when it owns it.

Answer 2

True

Question 3

If someone you know offers far more to hire you to work for than you could ever have imagine, the opportunity cost of working for yourself would rise.

Answer 3

True

Question 4

Economists and accountants both think of profits as total revenue minus total cost, but what they include in costs may differ.

Question 5

If a firm's implicit costs are greater than its explicit costs, it tells us nothing about whether a firm is earning economic or accounting profits.

Question 6

Farmers who work for themselves with their own equipment on their own land could earn accounting profits and economic losses at the same time.

Question 7

If Bob's business earned a $500,000 accounting profit, but had $1,000,000 in implicit costs, it would earn an economic profit.

Question 8

The tuition you paid at the beginning of the term is a sunk cost, when determining the opportunity cost of attending a session of the class.

Question 9

If you pay a parking fee that lets you park at your job for free every day, its average cost per day is irrelevant to your decision whether to part at your job on a given day of the year.

Question 10

Beth recently began running her husband's lumber mill. Last month she took in $5,000 in sales revenue and paid $3,400 in out-of-pocket costs. She made an economic profit last month if her implicit costs were:

A)$1000.
B)$1600.
C)$2400.
D)$3300.

Question 11

Campbell recently began running his brother's lumber mill. Last month he took in $10,000 in sales revenue and paid $6,800 in out-of-pocket costs. He made an economic profit last month if his implicit costs were:

A)$2000.
B)$3200.
C)$4800.
D)$6600.

Question 12

Dave recently began running his father's farm. Last year he took in $15,000 in sales revenue and paid $10,200 in out-of-pocket costs. He made an economic loss last year:

A)if his implicit costs were $3000.
B)if his implicit costs were $4000.
C)if his implicit costs were $5000.
D)In none of the above cases.

Question 13

Dave recently began running his father's farm. Last year he took in $15,000 in sales revenue and paid $10,200 in out-of-pocket costs. He made an economic profit last year:

A)if his implicit costs were $3000.
B)if his implicit costs were $4000.
C)if his implicit costs were $5000.
D)In both cases a. and b.

Question 14

Accountants calculate __________ differently than do economists:

A)Total revenue.
B)Total costs.
C)Profits.
D)Both total costs and profits.

Question 15

Accountants do not calculate __________ differently than do economists.

A)Total revenue.
B)Total costs.
C)Profits.
D)Any of the above.

Question 16

If there are zero implicit costs, accounting profits _________economic profits.

A)Are greater than
B)Are equal to
C)Are less than
D)Have no inherent relationship to

Question 17

Economic profits are equal to accounting profits:

A)In all cases
B)In no cases
C)When implicit costs are zero
D)When implicit costs equal explicit costs

Question 18

A firm experiencing economic losses could be earning accounting profits:

A)If implicit costs are greater than zero.
B)If implicit costs are equal to zero.
C)If implicit costs are less than zero.
D)In none of the above scenarios.

Question 19

In the table below, which of the following is not true?

A)the marginal product of the 4^th worker is 20.
B)the marginal product of the 5^th worker is 30.
C)the marginal product of the 7^th worker is 10.
D)the marginal product of the 8^th worker is 10.

Question 20

In the table below, which of the following is true?

A)the marginal product of the 3rd worker is 50.
B)the marginal product of the 5^th worker is 60.
C)the marginal product of the 8^th worker is -30.
D)The region of declining total product not illustrated anywhere in the available data.

Question 21

In the table below, which of the following is true?

A)the marginal product of the 3rd worker is 50.
B)the marginal product of the 5^th worker is 60.
C)the marginal product of the 7^th worker is -30.
D)The region of declining total product not illustrated anywhere in the available data.

Question 22

In the table below, which of the following is false?

A)the marginal product of the 3rd worker is not known from the data given.
B)the marginal product of the 5^th worker is 90.
C)the marginal product of the 8^th worker is 30.
D)The region of declining total product begins with the 8^th unit of labor hired.

Question 23

In the table below, which of the following is not true?

A)the marginal product of the 4^th worker is the same as the marginal product of the 6^th worker.
B)the marginal product of the 7^th worker is half that of the 4^th worker.
C)the marginal product of the 8^th worker is -10.
D)The 8^th worker hired is inherently less productive than the other workers hired before him.

Question 24

Exhibit
?


-Refer to Exhibit. The total product of labor diminishes with the addition of the ____ picker.

A)fifth
B)seventh
C)eighth
D)ninth

Question 25

Exhibit
?


-Refer to Exhibit. Which of the following is false?

A)The marginal product of the first, second and third worker hired is the same.
B)The marginal product of the sixth worker is higher than for any other worker.
C)A firm trying to increase its profits would hire nine workers based on the information provided.
D)If the prices of oranges are high enough that it is worth hiring five workers, it would also be worth hiring six workers.

Question 26

Exhibit


-Refer to Exhibit. The total product of labor diminishes with the addition of the ____ picker.

A)fifth
B)seventh
C)eighth
D)ninth

Question 27

Exhibit


-Refer to Exhibit. Which of the following is true?

A)The marginal product of the first, second and third worker hired is the same.
B)The marginal product of the sixth worker is higher than for any other worker.
C)A firm trying to increase its profits would never want to hire a ninth worker given the information provided.
D)All of the above are true.

Question 28

A baseball player who is currently batting .350 will increase his batting average on a day that he goes _____ at the plate.

A)1 for 4.
B)1 for 3.
C)2 for 5.
D)2 for 6.

Question 29

When marginal product is rising, marginal costs will:

A)rising.
B)remaining unchanged.
C)falling.
D)rising by an equal amount.

Question 30

Total variable costs:

A)Increase when quantity produced increases.
B)Decrease when quantity produced increases.
C)Sometime increase and sometime decrease when quantity produced increases.
D)Can sometimes be constant over a substantial range of output.

Question 31

Total costs:

A)Decrease when quantity produced increases.
B)Increase when quantity produced increases.
C)Sometime increase and sometime decrease when quantity produced increases.
D)Can sometimes be constant over a substantial range of output.

Question 32

Refer to Exhibit. How much are average fixed costs (in dollars) at 4 units of output?

A)10
B)20
C)30
D)40

Question 33

Exhibit


-Refer to Exhibit. How much are total fixed costs (in dollars)?

A)40
B)60
C)80
D)100

Question 34

Exhibit


-Refer to Exhibit. How much are average fixed costs (in dollars) at 4 units of output?

A)20
B)40
C)60
D)840

Question 35

Exhibit


-Refer to Exhibit. Which of the following is true?

A)The third unit has the lowest marginal cost.
B)The sixth unit has the highest marginal cost.
C)Average variable cost falls for the first 5 units, then rises with the 6th unit.
D)All of the above are true.

Question 36

Exhibit


-Refer to Exhibit. Which of the following is false?

A)The third unit has the lowest marginal cost.
B)The sixth unit has the highest marginal cost.
C)Average variable cost falls for all 6 units of output.
D)All of the above are true.

Question 37

Exhibit
A factory producing DVD players finds that its output varies with the number of workers employed each week in the following way:
?


-Refer to Exhibit. Marginal product begins to diminish with the ____ worker employed.

A)first
B)second
C)third
D)fourth

Question 38

Exhibit
A factory producing DVD players finds that its output varies with the number of workers employed each week in the following way:
?


-Refer to Exhibit. The marginal product of the fifth worker hired is:

A)112 units of output.
B)94 units of output.
C)20 units of output.
D)18 units of output.

Question 39

If average fixed cost exceeds average variable cost at a particular level of output:

A)Profits must be negative.
B)That fact is meaningless for deciding the quantity of output to produce.
C)Output levels are probably quite low relative to the designed capacity of the production facility.
D)Both b and c. are likely true.

Question 40

If average variable cost exceeds average fixed cost at a particular level of output:

A)Profits must be positive.
B)That fact is meaningless for deciding the quantity of output to produce.
C)It is more likely that the output level is low relative to the designed capacity of the production facility than that the output level is low relative to the designed capacity of the production facility.
D)Both b and c. are likely true.

Question 41

?Exhibit
?

-Refer to Exhibit. At a quantity of five units of output, ____ represents total cost, ____ represents total fixed cost, and ____ represents total variable cost.

A)X; Y; Z
B)Y; Z; X
C)X; Z; Y
D)Z; Y; X

Question 42

?Exhibit
?

-Refer to Exhibit. The distance Y between the two curves in the diagram is:

A)the total cost of producing five units of output.
B)the total variable cost of producing five units of output.
C)the total fixed cost of producing five units of output.
D)the average variable cost of producing five units of output.

Question 43

?Exhibit


-Refer to Exhibit. The average fixed cost curve is the curve labeled:

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

Question 44

?Exhibit


-Refer to Exhibit. The marginal cost curve is the curve labeled:

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

Question 45

?Exhibit


-Refer to Exhibit. The short-run average total cost curve is the curve labeled:

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

Question 46

?Exhibit


-Refer to Exhibit. The average variable cost curve is the curve labeled:

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

Question 47

If Jason's fixed cost totals $800 with variable cost per unit of $10 at a quantity of 80 units, what would his average total cost at 80 units of output equal?

A)$10
B)$18
C)$20
D)$810

Question 48

If Jason's fixed cost totals $400 with variable cost per unit of $10 at a quantity of 80 units, what would his average total cost at 80 units of output equal?

A)$10
B)$14
C)$15
D)$805

Question 49

?Exhibit


-Refer to Exhibit. At output level 0Q, average fixed cost equals:

A)QF.
B)ED.
C)QD.
D)both (a) and (b)

Question 50

?Exhibit


-Refer to Exhibit. At output level 0Q, average variable cost equals:

A)QF.
B)FE.
C)QD.
D)QE.

Question 51

?Exhibit


-Refer to Exhibit. At output level 0Q, average total cost equals ____ and marginal cost equals ____.

A)QD; QF
B)QF; QD
C)QE; DE
D)QD; QD

Question 52

A firm's total fixed cost equals $2,500. The firm's average fixed cost at 1, 5, and 10 units of output, respectively, will be:

A)$2,500, $2,500, and $2,500.
B)$2,500, $500, and $250.
C)$2,500, $12,500, and $25,000.
D)$2,500, $1,250, and $250.

Question 53

Exhibit
The table below shows how total cost varies with output in a factory producing watches:?


-Refer to Exhibit. The marginal cost of producing a third watch equals:

A)$50.
B)$69.
C)$5.
D)$4.

Question 54

Exhibit
The table below shows how total cost varies with output in a factory producing watches:?


-Refer to Exhibit. If the output equals four watches per week, then the average total cost of producing a watch equals:

A)$72.
B)$3.
C)$18.
D)$5.50.

Question 55

Exhibit
The table below shows how total cost varies with output in a factory producing watches:?


-Refer to Exhibit. If the output equals five watches per week, the average fixed cost and average variable cost of production equal ____ and ____, respectively.

A)$9; $10
B)$10; $9
C)$45; $50
D)$50; $45

Question 56

Exhibit
The table below shows how total cost varies with output in a factory producing watches:
?


-Refer to Exhibit The marginal cost of producing a third watch equals:

A)$120.
B)$138.
C)$10.
D)$8.

Question 57

Exhibit
The table below shows how total cost varies with output in a factory producing watches:
?


-Refer to Exhibit. If the output equals four watches per week, then the average total cost of producing a watch equals:

A)$144.
B)$6.
C)$36.
D)$11.

Question 58

Exhibit
The table below shows how total cost varies with output in a factory producing watches:
?


-Refer to Exhibit. If the output equals five watches per week, the average fixed cost and average variable cost of production equal ____ and ____, respectively.

A)$18; $20
B)$20; $18
C)$38; $30
D)$30; $38

Question 59

Exhibit


-Refer to Exhibit. What is the level of the firm's total fixed cost (in thousands)?

A)$0
B)$10
C)$16
D)$50

Question 60

Given the following information about the cost function for Bob's Beautiful Bowling Balls:?Which of the following is false?

A)The average fixed cost of producing 5 units is $2.
B)The total cost of producing 1 unit is $70.
C)The total cost of producing 5 units is 36.
D)All of the above are true.

Question 61

Assume that you know the following cost information about Fred's widget company: Its fixed cost is $9, and its total variable cost is $6 for 1 unit; $11 for 2; $ 15 for 3; 20 for 4; and 26 for 5. Given the above information,

A)the marginal cost of the third unit is greater than the marginal cost of the first unit.
B)the marginal cost of the fourth unit is the same as the marginal cost of the second unit.
C)the average variable cost of four units is the same as for three units.
D)both (b) and (c) are correct.

Question 62

?Exhibit


-Refer to Exhibit. In the short run the firm can move from

A)A to D
B)A to C
C)C to A
D)all of the above

Question 63

?Exhibit


-Refer to Exhibit. In the long run the firm can move from

A)A to B
B)A to C
C)B to A
D)all of the above

Question 64

?Exhibit


-Refer to Exhibit. For very small output levels, say q₁, costs are lowest with plant size

A)1
B)2
C)3
D)None of the above

Question 65

?Exhibit


-Refer to Exhibit. If the firm planned to produce output level q₂, costs with plant size __________ are lower that those with _____________.

A)SRATC₁; SRATC₂
B)SRATC₂; SRATC₁
C)SRATC₃; SRATC₁
D)Both a. and c. are correct.

Question 66

A firm is operating at a scale where diseconomies of scale are present. Which of the following could help explain what that means?

A)The firm is operating at a scale where the average total cost of production is falling as output expands.
B)The firm is operating at a scale where total fixed costs are not minimized.
C)The firm is operating at a scale where average total cost is constant as output expands.
D)The firm has grown so large that average total cost increases as output expands.

Question 67

?Figure
Figure shows the long-run average total cost curve for a firm that produces basketballs, along with four short-run average total cost curves. Each of the short-run average total cost curves corresponds to a different plant size. SRATC₁ corresponds to Plant size 1, SRATC₂ corresponds to Plant size 2, and so forth.

-In Figure, which plant is optimal if the firm is going to produce 500 basketballs per week?

A)Plant 4
B)Plant 3
C)Plant 2
D)Plant 1

Question 68

?Figure
Figure shows the long-run average total cost curve for a firm that produces basketballs, along with four short-run average total cost curves. Each of the short-run average total cost curves corresponds to a different plant size. SRATC₁ corresponds to Plant size 1, SRATC₂ corresponds to Plant size 2, and so forth.

-In Figure, what is the total cost of producing 1,500 basketballs per week assuming the firm uses the optimal plant size?

A)$1500
B)$15,000
C)$22,500
D)$36,000
E) ?$150,000

Question 69

?Figure


-In Figure, which plant size is optimal for the firm to produce q_B units of output each week?

A)Plant 5
B)Plant 4
C)Plant 3
D)Plant 2

Question 70

?Figure


-In Figure, which plant size is optimal for the firm to produce q_C units of output each week?

A)Plant 5
B)Plant 4
C)Plant 3
D)Plant 2

Question 71

A firm's total product of labor curve is represented by the following data: 1 worker can produce 4 units of output; 2 workers, 10 units; 3 workers, 17 units; 4 workers, 25 units; 5 workers, 30 units; 6 workers, 35 units; 7 workers, 38 units; 8 workers, 39 units; and 9 workers, 38 units. What is the marginal product of the seventh worker? When does the law of diminishing marginal product set in? Under these circumstances would you ever choose to employ nine workers?