Deck 12: Production and the Costs of Production

Question 1

Of the classification systems listed below for grouping goods and services, and the firms that produce them, the broadest is:

A) overall cartels.
B) producing sectors.
C) industries.
D) competitive groups.

Answer 1

producing sectors.

Question 2

Producing sectors are:

A) groupings of firms by ownership.
B) groupings of firms that produce closely related goods.
C) groupings of markets by the degree and type of competition between sellers.
D) a broad classification system for grouping goods and services and the firms that produce them.

Answer 2

a broad classification system for grouping goods and services and the firms that produce them.

Question 3

A producing sector classification for grouping goods, services, and the firms that produce them:

A) is broader than an industry classification.
B) is narrower than an industry classification.
C) includes the same number of firms as an industry classification, but arranges the firms differently.
D) may be broader or narrower than an industry classification, depending upon the types of products classified.

Answer 3

is broader than an industry classification.

Question 4

Which of the following statements is FALSE?

A) The industry classification is narrower than the sector classification.
B) An individual firm may operate in several industries at the same time.
C) The industry classification is the narrowest classification possible for viewing data about firms.
D) Over the years, the relative importance of some of the producing sectors in the economy has changed.

Question 5

Each of the following would be in the same producing sector of the economy EXCEPT:

A) raising fish for profit.
B) raising a cash crop such as corn.
C) raising cattle for milk production.
D) selling corn and milk in a supermarket.

Question 6

Which of the following is NOT a producing sector of the economy?

A) Mining.
B) Services.
C) Education.
D) Retail trade.

Question 7

Over most of the twentieth century, the dominant producing sector in the U.S. economy was:

A) services.
B) retail trade.
C) manufacturing.
D) agriculture, forestry, and fishing.

Question 8

In 1989, the dominant producing sector in the U.S. economy changed from:

A) manufacturing to services.
B) retail trade to wholesale trade.
C) services to wholesale and retail trade.
D) wholesale and retail trade to manufacturing.

Question 9

In terms of the amount of output produced, the largest sector in the U.S. economy is currently the:

A) services sector.
B) retail trade sector.
C) manufacturing sector.
D) agriculture, forestry, and fishing sector.

Question 10

Firms are grouped into the same industry when they:

A) produce similar products.
B) use similar processes to produce their products.
C) both of the above.
D) none of the above.

Question 11

Industries are groups of firms that:

A) buy from the same suppliers.
B) compete in the same geographic markets.
C) produce similar products or use similar processes.
D) produce similar products or use similar processes, and are publicly owned.

Question 12

Industries:

A) are more narrowly defined than sectors.
B) are made up of firms that use similar processes.
C) are made up of firms that produce similar products.
D) all of the above.

Question 13

Which of the following does NOT apply to firms in the same industry?

A) The firms operate in different producing sectors.
B) Buyers view the firms' products as similar to one another.
C) There are similarities in the processes the firms use to produce their products.
D) None of the above.

Question 14

You would expect two firms to be in the same industry if they:

A) were chartered in the same state.
B) belonged in the same producing sector.
C) acquired their resources from the same source.
D) produced similar products or used similar processes.

Question 15

A cleaning services company and an accounting services firm are in:

A) the same producing sector and the same industry.
B) different producing sectors but the same industry.
C) the same producing sector but different industries.
D) different producing sectors and different industries.

Question 16

A firm that manufactures shoes, and a firm that manufactures the machines used to make shoes, would be in:

A) the same industry but different producing sectors.
B) the same producing sector and the same industry.
C) the same producing sector but different industries.
D) different producing sectors and different industries.

Question 17

A production function:

A) is a rule for maximizing net benefits.
B) is the body of knowledge that exists about production and its processes.
C) is the body of knowledge covering general truths and the operation of general laws.
D) shows the type and amount of output that can be attained from a set of inputs when those inputs are combined in a specific way.

Question 18

The type and amount of output that can be obtained from a particular group of inputs when they are combined in a certain way is shown by a:

A) production sector.
B) production function.
C) product supply curve.
D) production technology curve.

Question 19

Which of the following is NOT given in a production function for a particular product?

A) The prices of the inputs.
B) The type and amount of output that results.
C) The types of inputs required to produce the product.
D) How the inputs are combined in producing the product.

Question 20

Which of the following is NOT a production function?

A) 10Y = 4X₁ + 2X₂.
B) One dozen eggs = 12 eggs.
C) Water = two atoms of hydrogen and one atom of oxygen.
D) One baccalaureate degree = study and passing 120 semester hours.

Question 21

For which of the following activities could a production function be developed?

A) Having a group of musicians record a composition.
B) Cutting your grass.
C) Maintaining a high grade-point-average.
D) All of the above.

Question 22

The efficient method of production:

A) is the least-cost method.
B) uses the smallest number of inputs.
C) produces the largest quantity of output.
D) all of the above.

Question 23

In economics it is most often assumed that the main concern of a firm in choosing a production technique is to:

A) maximize profit.
B) maximize revenue.
C) use the latest available technology.
D) produce the largest attainable output.

Question 24

The most efficient method of production for a firm in a particular industry is:

A) the least-cost method of production.
B) the method that has been most recently developed.
C) highly dependent on labor if the industry is in the services sector.
D) the same method that is most efficient for all other firms in that industry.

Question 25

The most efficient method of production for a firm is the:

A) least-cost method.
B) method that uses the greatest amount of capital.
C) method that requires the smallest number of resources.
D) method that produces the product in the shortest amount of time.

Question 26

According to Application 12.1, "Do You Know a Modern-Day Luddite?,"

A) musical compact discs werepart of the creative destruction of vinyl albums and record stores.
B) creative destruction may bring a loss of jobs in some areas and new jobs in others.
C) modern-day Luddites is a term used for people who 'fight' the creative destruction process.
D) all of the above.

Question 27

Technology is best defined as:

A) all production methods and processes that increase a firm's profit.
B) the body of knowledge that exists about production and its processes.
C) the purchase of new machinery and equipment to replace old machinery and equipment.
D) new machinery and processes that cause the disappearance of old machinery and processes.

Question 28

Technology:

A) is a net benefit maximizing rule.
B) is the body of knowledge that exists about production and its processes.
C) is the body of knowledge covering general truths and the operation of general laws.
D) shows the type and amount of output that can be attained from a set of inputs when those inputs are combined in a specific way.

Question 29

The relationship between production and technology is important because:

A) technological change can make existing production methods obsolete.
B) technology defines the range of production methods from which a firm can choose.
C) the technology and production methods chosen by a firm will impact its profit.
D) all of the above.

Question 30

Which of the following statements about technology is true?

A) Technology refers only to our knowledge about the design of machinery.
B) All businesses adopt the latest technology available in production.
C) Technology has no impact on production functions.
D) Technology is leading the way in advancements in the testing and treating of medical problems.

Question 31

Which of the following statements is FALSE?

A) Technology affects the design of machinery and processes such as inventory control.
B) Technological change can bring more efficient ways of production and distribution.
C) Sometimes businesses maximize profit by keeping older, less efficient technology.
D) While technology drives new methods of production, it has little impact on profit.

Question 32

The concept that new, technologically advanced processes and machinery cause the disuse and ultimate disappearance of old processes and machinery is called:

A) industrial unrest.
B) capital switching.
C) creative destruction.
D) capital-intensive production.

Question 33

A decrease in the demand for cameras using conventional film caused by the development of digital cameras is an example of:

A) product upgrade.
B) input adjustment.
C) creative destruction.
D) technology creep.

Question 34

Creative destruction benefits an economy because:

A) replacing old technology with new technology increases efficiency.
B) the destroyed equipment must be always be replaced.
C) replacing old equipment lowers the demand for that equipment and restrains inflation.
D) all of the above.

Question 35

Creative destruction occurs on an international level when:

A) war and sabotage destroy another country's capital base.
B) industrial espionage is used to take another country's technical know-how.
C) technological advances adopted by firms in one country adversely affect competing firms in another country.
D) countries ignore patents and copyrights and exploit intellectual property without paying royalties.

Question 36

Which of the following is most likely to have been a victim of creative destruction?

A) The floppy computer disc.
B) A polluted stream.
C) The American bison.
D) An historic landmark.

Question 37

The disappearance of cassette tape recordings is best explained by:

A) the expiring of patents that kept tape production costs low.
B) increases in the cost of producing tapes caused by foreign competition.
C) creative destruction caused by the development of compact discs and mp3 players.
D) a movement toward dependence on foreign production in the recording industry.

Question 38

In economics, production time frames are determined by

A) months.
B) years.
C) decades.
D) none of the above.

Question 39

To an economist, the short run refers to a time period:

A) of less than one year.
B) during which all factors of production are variable.
C) during which production takes place using only fixed factors of production.
D) during which production takes place using some variable and some fixed factors of production.

Question 40

If a business can change the amounts of some, but not all, of the resources it uses, the business is:

A) operating in the long run.
B) operating in the short run.
C) using the least-cost method of production.
D) in the manufacturing sector, but not the services sector.

Question 41

In the short run, all factors of production are:

A) fixed.
B) variable.
C) semi-fixed.
D) either fixed or variable.

Question 42

To an economist, the long run refers to a time period:

A) of one year or longer.
B) during which all factors of production are owned by the firm.
C) during which all factors of production are variable in amount.
D) during which some factors of production are variable in amount.

Question 43

A firm can vary the amounts of all of its factors of production in:

A) the short run but not the long run.
B) the long run but not the short run.
C) both the short run and the long run.
D) neither the short run nor the long run.

Question 44

Fixed factors of production:

A) do not exist in the long run.
B) do not change in amount as the level of output changes.
C) have costs that must be paid regardless of whether or not the firm produces.
D) all of the above.

Question 45

A business incurs:

A) fixed costs in the short run but not the long run.
B) variable costs in the short run but not the long run.
C) both fixed and variable costs in the short run and the long run.
D) none of the above.

Question 46

The cost that does not change as the level of output changes, and that must be paid even when output falls to zero is:

A) sunk cost.
B) fixed cost.
C) variable cost.
D) committed cost.

Question 47

A factor of production that does not change in amount as the level of output changes is a:

A) fixed factor.
B) locked factor.
C) variable factor.
D) unadjusted factor.

Question 48

The monthly payment that a business makes on a building it has leased for the next five years:

A) is a fixed cost.
B) need not be paid if the business produces nothing.
C) is a long-run cost since the building has been leased for five years.
D) all of the above.

Question 49

The agreed upon monthly payment that a business makes on a building it has contracted to lease for the next five years:

A) is a fixed cost.
B) must be paid if the business produces nothing.
C) remains the same regardless of how much the business produces.
D) all of the above.

Question 50

In the long run, all factors of production are:

A) fixed.
B) variable.
C) semi-fixed.
D) either fixed or variable.

Question 51

The period of time over which all factors of production are variable is the:

A) long run.
B) short run.
C) horizon period.
D) intermediate run.

Question 52

A cost that increases or decreases as the level of output increases or decreases:

A) is a variable cost.
B) can only be a long-run cost.
C) can only be a short-run cost.
D) is beyond the control of the business incurring the cost.

Question 53

A cost that does not change as the amount of output produced changes is a:

A) fixed cost.
B) variable cost.
C) semi-fixed cost.
D) semi-variable cost.

Question 54

The short-run cost that is zero when nothing is produced but changes as the level of output changes is:

A) total cost.
B) total fixed cost.
C) total variable cost.
D) none of the above.

Question 55

The cost that is greater than zero when nothing is produced but changes as the level of output changes is:

A) total fixed cost.
B) total variable cost.
C) long-run total cost.
D) short-run total cost.

Question 56

In the short run, all costs are:

A) fixed.
B) variable.
C) semi-fixed.
D) either fixed or variable.

Question 57

Over the short run, total cost is equal to:

A) average total cost plus marginal cost.
B) total fixed cost plus total variable cost.
C) total variable cost multiplied by average total cost.
D) average fixed cost multiplied by average variable cost.

Question 58

If a firm incurs a cost of $5 million even though it is producing nothing, that $5 million is a:

A) fixed cost, and the firm is operating in the short run.
B) variable cost, and the firm is operating in the long run.
C) fixed cost, and the firm could be operating in the short run or the long run.
D) variable cost, and the firm could be operating in the short run or the long run.

Question 59

A firm has a fixed cost of $1,000, a total cost of $1,050 when one unit of output is produced, and a total variable cost of $80 when two units of output are produced.

-This firm:

A) is producing in the long run.
B) has a total cost of $0 when its output is zero.
C) has a total cost of $1,000 when its output is zero.
D) none of the above.

Question 60

A firm has a fixed cost of $1,000, a total cost of $1,050 when one unit of output is produced, and a total variable cost of $80 when two units of output are produced.

-At one unit of output this firm has a total variable cost of:

A) $50.
B) $75.
C) $100.
D) $150.

Question 61

A firm has a fixed cost of $1,000, a total cost of $1,050 when one unit of output is produced, and a total variable cost of $80 when two units of output are produced.

-At two units of output this firm has a total cost of:

A) $80.
B) $230.
C) $1,080.
D) $1,130.

Question 62

A firm has a fixed cost of $1,000, a total cost of $1,050 when one unit of output is produced, and a total variable cost of $80 when two units of output are produced.

-At two units of output this firm's total fixed cost is:

A) $770.
B) $920.
C) $1,000.
D) $1,080.

Question 63

Total variable costs:

A) increase as output increases, and are zero when no output is produced.
B) increase as output increases, and are positive when no output is produced.
C) do not increase as output increases, and are zero when no output is produced.
D) do not increase as output increases, and are positive when no output is produced.

Question 64

Short-run total cost:

A) increases as output increases, and is zero when no output is produced.
B) increases as output increases, and is positive when no output is produced.
C) does not increase when output increases, and is zero when no output is produced.
D) does not increase when output increases, and is positive when no output is produced.

Question 65

Average total cost is the:

A) cost per unit of output produced.
B) cost of all fixed factors of production.
C) cost of all variable factors of production.
D) change in total cost when one additional unit of output is produced.

Question 66

The cost per unit of output produced:

A) is average total cost.
B) cannot be calculated for short-run production.
C) is equal to total fixed cost plus total variable cost at all units of output produced.
D) all of the above.

Question 67

Marginal cost is the change in:

A) total cost minus the change in total variable cost.
B) total cost when one more unit of output is produced.
C) total fixed cost when one more unit of output is produced.
D) average total cost when one more unit of output is produced.

Question 68

Given the following table, what is the average total cost of producing 20 units of output?

A) $2.50.
B) $10.00.
C) $25.00.
D) $50.00.

Question 69

Given the following table, what is the marginal cost of the third unit of output?

A) $40.00.
B) $55.00.
C) $80.00.
D) $110.00.

Question 70

Given the following table, what is the total cost of producing 30 units of output?

A) $123.00.
B) $440.00.
C) $1,140.00.
D) $1,480.00.

Question 71

Given the following table, what is the average total cost of producing 30 units of output?

A) $30.00.
B) $35.00.
C) $100.00.
D) $200.00.

Question 72

-The total cost of producing three units of output is:

A) $12.
B) $36.
C) $106.
D) $108.

Question 73

-The marginal cost of the third unit produced is:

A) $6.
B) $18.
C) $48.
D) $76.

Question 74

-Short-run total cost is best illustrated in these figures by line:

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

Question 75

-Short-run marginal cost is best illustrated in these figures by line:

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

Question 76

-Short-run average total cost is best illustrated in these figures by line:

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

Question 77

-Short-run total fixed cost is best illustrated in these figures by line:

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

Question 78

-According to this table, the firm is producing in:

A) the long run.
B) the short run.
C) either the long run or the short run.
D) not enough information to answer the question.

Question 79

-When nothing is produced, the firm's total fixed cost and total variable cost are, respectively:

A) zero and $800.
B) $400 and $400.
C) $800 and zero.
D) $800 and $400.

Question 80

-When one unit of output is produced, the firm's total cost and total variable cost are, respectively:

A) $600 and $600.
B) $800 and $400.
C) $1,200 and $400.
D) $1,300 and $400.