Deck 9: Technology, Production, and Costs

Question 1

Which of the following is an example of a long run adjustment?

A)Your university offers Saturday morning classes next fall.
B)Ford Motor Company of Canada lays off 2,000 assembly line workers.
C)A soybean farmer turns on the irrigation system after a month long dry spell.
D)Rona builds another store.

Answer 1

D

Question 2

Is it possible for technological change to be negative? If so, give an example.

Answer 2

Technological change could be negative, for instance, when a natural disaster hits, or when a firm hires less-experienced workers.In these cases, the firm would produce a lower level of output with the same inputs.

Question 3

If a producer is not able to expand its plant capacity immediately, it is

A)bankrupt.
B)operating in the long run.
C)operating in the short run.
D)losing money.

Answer 3

C

Question 4

Academic book publishers hire editors, designers, and production and marketing managers who help prepare books for publication.Because these employees work on several books simultaneously, the number of people the company hires will not go up and down with the quantity of books the company publishes during any particular year.The salaries and benefits of people in these job categories will be included in

A)fixed cost and marginal cost but not variable cost.
B)fixed cost but not variable cost and total cost.
C)marginal cost and total cost but not fixed cost.
D)fixed cost and total cost but not variable cost.

Question 5

Suppose a chain of convenience stores reorganized its system of supplying its stores with food.This led to a sharp reduction in the number of trucks that the company had to use and increased the amount of fresh food on store shelves.Which of the following statements best describes the chain stores' actions?

A)The change implemented is not an example of technological change because it did not require the use of new machinery of equipment.
B)Technological change refers only to the introduction of new products or improvements to existing product. As such, the scenario described in the question is not technological change.
C)The firm is able to produce more output (increase its sales)using fewer inputs (less trucks). Therefore, the chain of convenience stores has implemented a positive technological change.
D)The scenario described is an example of management efficiency and not technological change. Essentially, the chain changes its way of operating its business.

Question 6

Which of the following is an example of positive technological change?

A)A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of surf boards.
B)A firm buys an additional machine that it uses to make surf boards. As a result, the firm is able to increase its weekly production of surf boards.
C)A firm conducts a new advertising campaign. As a result, the demand for the firm's surf boards increases.
D)A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.

Question 7

The difference between technology and technological change is that

A)technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs.
B)technology is carried out by firms producing physical goods but technological change is an intellectual exercise into seeking ways to improve production.
C)technology is product-centered, that is, developing new products with our limited resources while technological change is process-centered in that it focuses on developing new production techniques.
D)technology involves the use of capital equipment while technological change requires the use of brain power.

Question 8

Which of the following is an example of market "production", as used by economist?

A)Garvey takes out a low-cost government loan to start his pet-sitting business.
B)Heidi makes a pizza for her family's dinner.
C)Katrina works as a cashier at the local produce stand.
D)The theatre and film studies department in Fine Art's College stages a play at the local theatre.

Question 9

A firm's cost of production is determined by all of the following except

A)the technology used to produce its output.
B)the productivity of its workers.
C)the cost of raw material used in production.
D)the amount of corporate taxes it must pay on its profit.

Question 10

The process a firm uses to turn inputs into outputs of goods and services is called technology.

Question 11

Describe how Magna International has used positive technological change to manage its inventory.

Question 12

If a firm experiences positive technological change, it is able to produce more output using the same inputs.

Question 13

Which of the following is the best example of a short run adjustment?

A)A local bakery purchases another commercial oven as part of its capacity expansion.
B)Your local Rona hires two more associates.
C)Smith University completed negotiations to acquire a large piece of land to build its new library.
D)Toyota builds a new assembly plant in Ontario.

Question 14

A firm increased its production and sales because the firm's manager rearranged the layout of his factory floor.This is an example of

A)investment in human capital.
B)economies of scale.
C)positive technological change.
D)inspired management.

Question 15

A firm has successfully adopted a positive technological change when

A)it can produce more output using the same inputs.
B)it produces less pollution in its production process.
C)can pay its workers less yet increase its output.
D)it sees an increase in worker productivity.

Question 16

A characteristic of the long run is

A)there are fixed inputs.
B)all inputs can be varied.
C)plant capacity cannot be increased or decreased.
D)there are both fixed and variable inputs.

Question 17

Which of the following is not a source of technological advancement for a producer?

A)better trained workers
B)more efficient physical capital
C)higher skill level of managers
D)outsourcing some aspect of production

Question 18

Improvements in inventory control represent a positive technological change because they allow firms to produce the same output with fewer inputs.In recent years, many firms have adopted an inventory system in which firms accept shipments from suppliers as close as possible to the time they will be needed.Magna International has been a pioneer in using inventory control systems to adopt this in its stores.This type of inventory system is called a ________ inventory system.

A)first-in-first-out
B)cash-and-carry
C)just-in-time
D)buy-now-pay-later

Question 19

Which of the following is a factor of production that generally is fixed in the short run?

A)raw materials
B)labour
C)a factory building
D)water

Question 20

Which of the following is a fixed cost?

A)payment to hire a security worker to guard the gate to the factory around the clock
B)wages to hire assembly line workers
C)payments to an electric utility
D)costs of raw materials

Question 21

Vipsana's Gyros House sells gyros.The cost of ingredients (pita, meat, spices, etc.)to make a gyro is $2.00.Vipsana pays her employees $60 per day.She also incurs a fixed cost of $120 per day.What is Vipsana's total cost per day when she does not produce any gyros and does not hire any workers?

A)$0
B)$2
C)$60
D)$120

Question 22

Vipsana's Gyros House sells gyros.The cost of ingredients (pita, meat, spices, etc.)to make a gyro is $2.00.Vipsana pays her employees $60 per day.She also incurs a fixed cost of $120 per day.Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers?

A)$100
B)$124.40
C)$220
D)$240

Question 23

Implicit costs can be defined as

A)accounting profit minus explicit cost.
B)the non-monetary opportunity cost of using the firm's own resources.
C)the deferred cost of production.
D)total cost minus fixed costs.

Question 24

A characteristic of the long run that is not available in the short run is that a firm is free to vary its output.

Question 25

Vipsana's Gyros House sells gyros.The cost of ingredients (pita, meat, spices, etc.)to make a gyro is $2.00.Vipsana pays her employees $60 per day.She also incurs a fixed cost of $120 per day.Calculate Vipsana's total cost per day when she produces 50 gyros using two workers?

A)$100
B)$124.40
C)$220
D)$340

Question 26

Accounting costs exclude implicit costs.

Question 27

Which of the following is an implicit cost of production?

A)interest paid on a loan to a bank
B)wages paid to labour plus the cost of carrying benefits for workers
C)the utility bill paid to water, electricity, and natural gas companies
D)rent that could have been earned on a building owned and used by the firm

Question 28

The explicit cost of production is also called

A)variable cost.
B)accounting cost.
C)direct cost.
D)overhead cost.

Question 29

Golda Rush quit her job as a manager for Rona to start her own hair dressing salon, Goldilocks.She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest)and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year.In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material.Based on this information, what is the amount of her implicit costs?

A)$80,000
B)$70,000
C)$42,000
D)$41,500

Question 30

Economic costs of production differ from accounting costs in that

A)economic costs include expenditures for hired resources while accounting costs do not.
B)economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.
C)accounting costs include expenditures for hired resources while economic costs do not.
D)accounting costs are always larger than economic cost.

Question 31

Golda Rush quit her job as a manager for Rona to start her own hair dressing salon, Goldilocks.She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest)and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year.In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material.Based on this information, what is the amount of her explicit costs?

A)$45,000
B)$45,500
C)$47,000
D)$87,000

Question 32

Which of the following is an implicit cost of production?

A)the loss in the value of capital equipment due to wear and tear
B)the salary you pay yourself for running your business
C)the utility bill paid to water, electricity, and natural gas companies
D)the interest you pay your mother for the money she loaned you to start your business

Question 33

Which of the following are implicit costs for a typical firm?

A)opportunity costs of capital owned and used by the firm
B)the cost of labour hired by the firm
C)utilities cost
D)a business licensing fee

Question 34

Consider a manufacturing operation that uses specialized machinery and labour to produce its output.In this case, the input that is not fixed in the short run is labour.

Question 35

Vipsana's Gyros House sells gyros.The cost of ingredients (pita, meat, spices, etc.)to make a gyro is $2.00.Vipsana pays her employees $60 per day.She also incurs a fixed cost of $120 per day.Calculate Vipsana's average fixed cost per day when she produces 50 gyros using two workers?

A)$2.00
B)$2.40
C)$4.40
D)$6.80

Question 36

The production function shows

A)the total cost of producing a given quantity of output.
B)the maximum output that can be produced from each possible quantity of inputs.
C)the technology used to produce output.
D)the incremental output gained by improving the production process.

Question 37

Jayanthi moves her yoga studio from her home to a space she rents in Woodstock, Ontario.Holding everything else constant, as a result of this move,

A)her explicit cost falls and her implicit cost rises.
B)her implicit cost falls and her explicit cost rises.
C)her economic cost rises.
D)her opportunity cost rises.

Question 38

The average total cost of production

A)is the extra cost required to produce one more unit.
B)equals the explicit cost of production.
C)equals total cost of production divided by the level of output.
D)equals total cost of production multiplied times the level of output.

Question 39

The short run is the time period during which a firm has at least one input constraint.

Question 40

Which of the following would be categorized as an opportunity cost?
A)not being able to spend your $10,000 savings if you sink the money in your business
B)the cost of purchasing supplies for your house-cleaning business
C)the cost of purchasing auto insurance for your dry-cleaning delivery business

A)a only
B)a and c only
C)b and c only
D)all of the above

Question 41

If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is

A)60 units.
B)54 units.
C)48 units.
D)5 units.

Question 42

The law of diminishing marginal returns states

A)that at some point, adding more of a fixed input to a given amount of variable inputs will cause the marginal product of the variable input to decline.
B)that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.
C)that in the presence of a fixed factor, at some point average product of labour starts to fall as more and more variable inputs are added.
D)average total costs of production initially fall and after some point starts to rise at a decreasing rate as output increases.

Question 43

Figure 9.1

Refer to Figure 9.1.The marginal product of the 3rd worker is

A)57.
B)19.
C)15.
D)11.

Question 44

Figure 9.1

Refer to Figure 9.1.The marginal product of the 7th worker is

A)66.
B)9)43.
C)2)
D)-2.

Question 45

As a firm hires more labour in the short run, the

A)level of total product stays constant.
B)output per worker rises.
C)extra output of another worker may rise at first, but eventually must fall.
D)costs of production are increasing at a fixed rate per unit of output.

Question 46

Explain whether each of the following is a fixed cost or a variable cost for Damian Dandridge's tattoo parlor.
a.The payment he makes to buy tattoo ink.
b.The wages he pays his employees.
c.The $500-per-month payment he makes to advertise his shop on highway billboards.
d.The lease payment he makes to the landlord who owns the building where his shop is located.
e.The payment he makes on his liability insurance policy.

Question 47

The law of diminishing marginal returns

A)explains why the average total cost and marginal cost curves are U-shaped in the short run.
B)explains why the average total cost, average fixed cost and the marginal cost curves are U-shaped in the short run.
C)causes average total costs to rise at a decreasing rate as output increases.
D)causes the difference between average total cost and average variable cost to get smaller as output increases.

Question 48

Figure 9.1

Refer to Figure 9.1.In a diagram that shows the marginal product of labour on the vertical axis and labour on the horizontal axis, the marginal product curve

A)never intersects the horizontal axis.
B)intersects the horizontal axis at a point corresponding to the 5th worker.
C)intersects the horizontal axis at a point corresponding to the 6th worker.
D)intersects the horizontal axis at a point corresponding to the 8th worker.

Question 49

Figure 9.1

Refer to Figure 9.1.The average product of the 4th worker

A)is 68.
B)is 17.
C)is 11.
D)cannot be determined.

Question 50

If diminishing marginal returns have already set in for Golden Lark Woodworks, and the marginal product of the 6th carpenter is 8 chairs, then the marginal product of the 7th carpenter is

A)negative.
B)less than 8 chairs.
C)more than 8 chairs.
D)zero.

Question 51

The marginal product of labour is defined as

A)the additional sales revenue that results when one more worker is hired.
B)the additional output that results when one more worker is hired, holding all other resources constant.
C)the additional number of workers required to produce one more unit of output.
D)the cost of hiring one more worker.

Question 52

Figure 9.1

Refer to Figure 9.1.Diminishing marginal productivity sets in after

A)the 2nd worker is hired.
B)the 3rd worker is hired.
C)the 4th worker is hired.
D)the 5th worker is hired.

Question 53

In the short run, marginal product of labour increases at first and then falls because

A)as more labour is hired, they are not as skilled as the first ones hired.
B)there are fewer opportunities for division of labour and specialization when additional workers are hired.
C)managerial inefficiency sets in when a firm gets too large.
D)the new workers do not have as much experience as those who have been with the firm for a long time and therefore are not as productive.

Question 54

If the firm is producing no output in the short run, then its total costs are zero.

Question 55

Red Stone Creamery currently hires 5 workers.When it added a 6th worker, its output actually fell.Which of the following statements is true?

A)The marginal product of the sixth worker must be negative.
B)The average product of the sixth worker is negative.
C)The sixth worker is not as skilled as the fifth worker.
D)The total product becomes negative.

Question 56

If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is

A)2 chairs.
B)3 chairs.
C)4 chairs.
D)38 chairs.

Question 57

What is the difference between explicit costs and implicit costs? List three examples each of explicit costs and implicit costs that may be experienced by a small business.

Question 58

If another worker adds 9 units of output to a group of workers who had an average product of 7 units, then the average product of labour

A)will remain the same.
B)will increase.
C)will decrease.
D)and what will happen to it cannot be determined.

Question 59

Table 9.1

Table 9.1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May 2011.
Refer to Table 9.1.What is the marginal product of the 4th worker?

A)137 pounds
B)50 pounds
C)12.5 pounds
D)5 pounds

Question 60

In economics, what is the difference between the short run and the long run?

Question 61

When a firm produces 50,000 units of output, its total cost equals $6.5 million.When it increases its production to 70,000 units of output, its total cost increases to $9.4 million.Within this range, the marginal cost of an additional unit of output is

A)$41.43.
B) $134.29.
C)$135.
D)$145.

Question 62

If average product is decreasing, then marginal product must be negative.

Question 63

Marginal cost is equal to the

A)change in total cost divided by the change in output.
B)change in average total costs divided by the change in output.
C)change in total product divided by the change in output.
D)change in average product divided by the change in output.

Question 64

Figure 9.2

Refer to Figure 9.2.The curve labeled "F" is

A)the total product curve.
B)the average product curve.
C)the marginal product curve.
D)the output supply curve.

Question 65

Marginal cost is the

A)change in average cost when an additional unit of output is produced.
B)the additional output when total cost is increased by one dollar.
C)additional cost of producing an additional unit of output.
D)change in the price of inputs if a firm buys more inputs to produce an additional unit of output.

Question 66

Fill in the missing values in the following table.Draw one graph showing how total output increases with the quantity of workers hired, and another graph showing the marginal product of labour and the average product of labour.

Question 67

Table 9.1

Table 9.1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May 2011.
Refer to Table 9.1.Diminishing marginal returns sets in when the ________ worker is hired.

A)2nd
B)3rd
C)4th
D)None of the above; the production function displays increasing marginal returns.

Question 68

Table 9.1

Table 9.1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May 2011.
Refer to Table 9.1.What is the average product of labour when the farm hires 5 workers?

A)4 pounds
B)10.8 bushels
C)38.2 pounds
D)54 pounds

Question 69

If we have information about workers' marginal products, then total and average product can be found by

A)dividing marginal costs by the number of workers.
B)multiplying the average marginal product times the number of workers.
C)summing the marginal values to find the total and multiplying it times the number of workers to get the average.
D)summing the marginal values to find the total and dividing it by the number of workers to get the average.

Question 70

Figure 9.2

Refer to Figure 9.2.Diminishing returns to labour set in

A)after L₁.
B)after L₂.
C)after L₃.
D)immediately.

Question 71

Damian owns a tattoo parlor and has hired three tattoo artists to work for him.The marginal product of labour is 8 for the first artist, 12 for the second artist, and 7 for the third artist.What is Damian's average product of labour for these three tattoo artists?

Question 72

State the law of diminishing marginal returns.

Question 73

Figure 9.2

Refer to Figure 9.2.The average product of labour declines after L₂ because

A)the marginal product of labour is below the average product of labour.
B)the marginal product of labour is falling.
C)the marginal product of labour is negative.
D)the marginal product of labour is positive.

Question 74

Figure 9.2

Refer to Figure 9.2.The curve labeled "E" is

A)the total product curve.
B)the average product curve.
C)the marginal product curve.
D)the output supply curve.

Question 75

Figure 9.2

Refer to Figure 9.2.Short run output is maximized at

A)L₁.
B)L₂.
C)L₃.
D)insufficient information to determine

Question 76

If, after hiring the 6th worker, a firm's output falls, then the marginal product of the 6th worker is negative.

Question 77

A downward sloping marginal product of labour curve demonstrates the law of diminishing marginal returns.

Question 78

Who was the economist who first analyzed the advantages of specialization and the division of labour?

A)David Ricardo
B)Arthur C. Pigou
C)Ronald Coase
D)Adam Smith

Question 79

One reason why, in the short run, the marginal product of labour might increase initially as more workers are hired is that

A)the first workers hired get to use the best equipment.
B)specialization allows a worker to focus on one task, thereby increasing her proficiency at that task.
C)the best workers are hired first and later hires are not as skillful.
D)beyond some point, a firm has hired too many workers.

Question 80

In the short run, if marginal product is at its maximum, then

A)average cost is at its minimum.
B)average variable cost is at its minimum.
C)marginal cost is at its minimum.
D)total cost is at its maximum.