Deck 5: Production Technology and Cost

Question 1

In the short run

A) firms have the ability to enter or exit the industry.
B) firms are able to alter some, but not all, of their factors of production.
C) firms are unable to adjust their output choices.
D) None of the above are correct.

Answer 1

firms are able to alter some, but not all, of their factors of production.

Question 2

In the short run

A) all factors of production are fixed.
B) all factors of production are variable.
C) some factors of production are variable, while at least one factor of production is fixed.
D) None of the above are correct.

Answer 2

some factors of production are variable, while at least one factor of production is fixed.

Question 3

In the long run

A) firms have the ability to enter or exit the industry.
B) firms are able to alter some, but not all, of their resources.
C) firms are unable to adjust their output choices.
D) None of the above are correct.

Answer 3

firms have the ability to enter or exit the industry.

Question 4

Which of the following are included in calculating economic costs?

A) implicit costs
B) explicit costs
C) accounting costs
D) All of the above are correct.

Question 5

Which of the following is an example of something that economists would consider a cost but accountants would not?

A) the wages paid to employees of a firm
B) the wages that the owner of a firm could have earned in some alternative job
C) rent paid to a business's landlord
D) the cost of leather used in the production of footballs

Question 6

Which of the following is a long-run adjustment?

A) A firm hires two new workers.
B) The number of professional baseball teams increases by two.
C) GM buys more steel for its auto plants in Michigan.
D) A farmer buys twice her usual amount of fertilizer.

Question 7

Recall the Application about the opportunity cost of an entrepreneur to answer the following question(s).
According to this Application, which of the following is currently a popular way to earn an income?

A) driving a taxicab
B) driving for Uber or Lyft
C) driving a tractor trailer truck
D) none of the above

Question 8

Accountants include ________ costs as part of a firm's costs, while economists include ________ costs.

A) explicit; no explicit
B) implicit; no implicit
C) explicit and implicit; implicit
D) explicit; explicit and implicit

Question 9

Jane is a student at a university. She pays $10,000 per year in tuition, $4,000 per year in living expenses, and $800 per year for books. Were she not in school, she could earn $20,000 per year working as a bookkeeper and she would not live with her parents. What is her economic cost of a year in college?

A) $10,000
B) $13,000
C) $30,800
D) $34,800

Question 10

Which of the following is a short-run adjustment?

A) Three new firms enter the computer chip industry.
B) A firm hires six new workers.
C) The number of farms in Kansas increases by 10%.
D) A firm opens two new plants.

Question 11

An example of an implicit cost is

A) the wages paid to workers.
B) the interest on business loans.
C) the imputed rent on a store owned by the firm.
D) the materials used to produce the product.

Question 12

You are a student at a university. You pay $8,000 per year in tuition, $5,000 per year in living expenses, and $1,000 per year for books. Were you not in school, you could earn $15,000 per year and you would not live with your parents. What is your economic cost of a year in college?

A) $9,000
B) $15,000
C) $24,000
D) $29,000

Question 13

Joe runs a restaurant. He pays his employees $200,000 per year. His ingredients cost him $50,000 per year. Prior to running his restaurant, Joe was a lawyer earning $150,000 per year. What would economists say is Joe's cost of running the restaurant?

A) $150,000
B) $200,000
C) $250,000
D) $400,000

Question 14

Which of the following statements is INCORRECT?

A) A firm's total economic cost is at least as large as the firm's total accounting cost.
B) A firm's total economic cost includes both explicit cost and implicit cost of the firm.
C) A firm's implicit cost is the opportunity cost of non-purchased inputs.
D) A firm's total accounting cost is at least as large as the firm's implicit cost.

Question 15

________ are costs that do not require a monetary payment.

A) Implicit costs
B) Explicit costs
C) Accounting costs
D) All opportunity costs

Question 16

________ are costs that require a monetary payment.

A) Implicit costs
B) Explicit costs
C) Accounting costs
D) Both B and C are correct.

Question 17

In the long run

A) all factors of production are fixed.
B) all factors of production are variable.
C) some factors of production are variable, while at least one factor of production is fixed.
D) None of the above are correct.

Question 18

Which of the following is an example of something that economists would consider a cost but accountants would not?

A) the cost of materials and supplies purchased by a firm
B) the salary that the firm actually pays to the firm's owner
C) the interest income foregone by the firm's owner because the owner invested funds into the firm
D) the cost of advertising

Question 19

In the short run, ________ factors of production are fixed, while in the long run, ________ of them are.

A) some; none
B) all; none
C) no; at least some
D) all; at least some

Question 20

Which of the following is a long-run adjustment?

A) A firm lays off two workers.
B) Two firms exit the asbestos removal industry.
C) A manufacturer increases its purchase of raw materials.
D) A farmer buys twice her usual amount of herbicide.

Question 21

Economic cost differs from accounting cost because accountants do not consider implicit costs.

Question 22

What is economic profit?

Question 23

Can a firm's accounting profit be smaller than the economic profit? Assume that all costs are positive.

Question 24

Implicit cost is the opportunity cost of the inputs that do not require monetary payment.

Question 25

Recall the Application about the opportunity cost of an entrepreneur to answer the following question(s).
Recall the Application. Which of the following would be included as an opportunity cost of driving for Uber?

A) salary received from a regular job
B) paid sick leave and vacation days
C) subsidized health insurance
D) all of the above

Question 26

Diminishing marginal returns implies that firms

A) require fewer and fewer workers to produce each additional unit of output.
B) require more and more workers to produce each additional unit of output.
C) get decreasing amounts of revenue for each unit of output they produce.
D) get increasing amounts of revenue for each unit of output they produce.

Question 27

Explain the difference between the short run and the long run.

Question 28

Economic cost is always less than accounting cost.

Question 29

Diminishing marginal returns implies that

A) marginal costs are decreasing.
B) marginal costs are increasing.
C) marginal costs are constant.
D) marginal costs may be increasing or decreasing.

Question 30

Diminishing marginal returns implies that

A) marginal product is decreasing.
B) marginal product is increasing.
C) marginal product is constant.
D) marginal product may be increasing or decreasing.

Question 31

Which of the following is NOT true when the firm experiences diminishing marginal product?

A) The total product is decreasing.
B) The marginal product of the previous worker is higher than the current worker.
C) The firm is operating in the short run.
D) The firm's total cost is increasing.

Question 32

What is the explicit and implicit cost?

Question 33

Explain the relationship between average fixed cost and marginal cost.

Question 34

What are the differences between economic cost and accounting cost?

Question 35

The interest on a business loan is an implicit cost.

Question 36

In the short run, at least one factor of production is fixed. This implies that beyond some level of output a firm will

A) "learn by doing."
B) experience diminishing marginal returns.
C) experience increasing marginal returns.
D) have a U-shaped long-run average cost curve.

Question 37

Economic profit is total revenue less economic costs.

Question 38

A firm experiences diminishing marginal returns because

A) all factors of production are variable.
B) people "learn by doing."
C) all factors of production are fixed.
D) at least one factor of production is fixed.

Question 39

Explain the difference between fixed costs in the short run and in the long run.

Question 40

Since all costs are positive, then economic profit would always be smaller than accounting profit.

Question 41

Marginal product in the short run

A) increases at all levels of production.
B) diminishes at all levels of production.
C) may initially increase, then eventually decrease.
D) may initially decrease, then eventually increase.

Question 42

Table 5.1
Refer to Table 5.1, which gives a firm's production function. Assume that all non-labor inputs are fixed. Diminishing marginal returns set in with the addition of the

A) third worker.
B) fourth worker.
C) fifth worker.
D) sixth worker.

Question 43

Average total cost is defined as

A) total variable cost divided by quantity.
B) quantity divided by total variable cost.
C) the change in total variable cost divided by the change in quantity.
D) total cost divided by quantity.

Question 44

Marginal product is defined as the change in ________ resulting from a one-unit increase in ________.

A) total product; input
B) total product; output
C) output; total product
D) total cost; output

Question 45

Table 5.2
Refer to Table 5.2, which gives a firm's production function. Assume that all non-labor inputs are fixed. The marginal product is maximized when the firm hires

A) 2 workers.
B) 3 workers.
C) 4 workers.
D) 5 workers.

Question 46

Average variable cost is defined as

A) total variable cost divided by quantity.
B) quantity divided by total variable cost.
C) the change in total variable cost divided by the change in quantity.
D) the change in quantity divided by the change in total variable cost.

Question 47

When at least one factor of production is fixed, firms require more and more workers to produce each additional unit of output. This describes

A) increasing marginal returns.
B) diminishing marginal returns.
C) learning by doing.
D) short-run adjustments.

Question 48

Table 5.2
Refer to Table 5.2, which gives a firm's production function. Assume that all non-labor inputs are fixed. The marginal product of the fourth worker is

A) 0 units.
B) 10 units.
C) 25 units.
D) 30 units.

Question 49

Figure 5.4
One can tell that Figure 5.4 shows short run costs because

A) the slope of total costs and variable costs are the same.
B) costs are rising.
C) total costs are positive when output is zero implying fixed costs.
D) all of the above.

Question 50

Table 5.2
Refer to Table 5.2, which gives a firm's production function. Assume that all non-labor inputs are fixed. Diminishing returns set in with the addition of the

A) third worker.
B) fourth worker.
C) fifth worker.
D) sixth worker.

Question 51

Table 5.2
Refer to Table 5.2, which gives a firm's production function. Assume that all non-labor inputs are fixed. The marginal product of the fifth worker is

A) 0 units.
B) 10 units.
C) 25 units.
D) 30 units.

Question 52

Average fixed cost is defined as

A) total variable cost divided by quantity.
B) quantity divided by total variable cost.
C) the change in total variable cost divided by the change in quantity.
D) total fixed cost divided by quantity.

Question 53

________ is a cost that is independent of the quantity produced by the firm and is incurred by the firm in the short run.

A) Fixed cost
B) Economic cost
C) Variable cost
D) Average total cost

Question 54

Figure 5.4
In Figure 5.4, the difference between total costs and variable cost is

A) average total cost.
B) fixed cost.
C) total costs are positive when output is zero implying fixed costs.
D) all of the above.

Question 55

Table 5.1
Refer to Table 5.1, which gives a firm's production function. Assume that all non-labor inputs are fixed. The marginal product of the fourth worker is

A) 12 units.
B) 11 units.
C) 5 units.
D) 0 units.

Question 56

Average total cost equals

A) total fixed cost plus total variable cost.
B) average fixed cost minus average variable cost.
C) average fixed cost plus average variable cost.
D) total cost minus average cost.

Question 57

Average variable cost equals

A) total fixed cost plus total variable cost.
B) average total cost minus average fixed cost.
C) average total cost plus average fixed cost.
D) total cost minus average cost.

Question 58

In the short run, the firm's total cost equals

A) the total fixed costs + the total variable costs.
B) the average fixed costs + average variable costs.
C) the average fixed cost + the marginal cost.
D) the total variable costs only.

Question 59

Table 5.1
Refer to Table 5.1, which gives a firm's production function. Assume that all non-labor inputs are fixed. Marginal product is maximized when the firm hires

A) 2 workers.
B) 3 workers.
C) 4 workers.
D) 5 workers.

Question 60

________ is a cost that changes with the quantity produced by the firm and is incurred by the firm in the short run.

A) Fixed cost
B) Economic cost
C) Variable cost
D) Average total cost

Question 61

Table 5.4
Table 5.4 presents the cost schedule for David's Figs. If David produces two figs, David's average variable costs are

A) $80.
B) $85.
C) $90.
D) $170.

Question 62

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average total cost at a given level of output is represented by

A) the vertical distance between Curve 1 and Curve 2 at a given level of output.
B) the vertical sum of Curve 1 and Curve 2 at a given level of output.
C) the vertical sum of Curve 2 and Curve 3 at a given level of output.
D) the vertical distance between Curve 2 and Curve 3 at a given level of output.

Question 63

Which of the following is TRUE?

A) ATC = AVC - AFC
B) TVC/Q = TC/Q + TFC/Q
C) ΔTC/ΔQ = ΔAVC/ΔQ
D) ΔTC/ΔQ = MC

Question 64

In the short run, the marginal cost of the first unit of output is $20, the average variable cost of producing three units of output is $16, and the marginal cost of producing the second unit of output is $16. What is the marginal cost of producing the third unit of output?

A) $12
B) $16
C) $20
D) $48

Question 65

Mark's Baseballs produces baseballs. Mark's Baseballs has total fixed costs of $500. Mark's average variable cost is $20, and his average total cost is $25. Mark is currently producing

A) 5 baseballs.
B) 25 baseballs.
C) 100 baseballs.
D) a number of baseballs that cannot be determined from the information provided.

Question 66

Table 5.3
Table 5.3 presents the cost schedule for Candy's Cakes. If Candy produces one cake, Candy's total variable costs are

A) $0.
B) $30.
C) $50.
D) $80.

Question 67

In the short run, the marginal cost of the first unit of output is $40, the average variable cost of producing three units of output is $32, and the marginal cost of producing the second unit of output is $32. What is the marginal cost of producing the third unit of output?

A) $24
B) $32
C) $40
D) $96

Question 68

Table 5.4
Table 5.4 presents the cost schedule for David's Figs. If David produces zero figs, David's total costs are

A) $0.
B) $90.
C) $100.
D) $130.

Question 69

Table 5.3
Table 5.3 presents the cost schedule for Candy's Cakes. If Candy produces three cakes, Candy's marginal costs are

A) $0.
B) $25.
C) $41.67.
D) $75.

Question 70

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average variable cost at a given level of output is represented by

A) the vertical distance between Curve 1 and Curve 3 at a given level of output.
B) the vertical distance between Curve 1 and Curve 2 at a given level of output.
C) the vertical sum of Curve 1 and Curve 3 at a given level of output.
D) the vertical sum of Curve 1 and Curve 2 at a given level of output.

Question 71

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average fixed cost curve is represented by

A) Curve 1.
B) Curve 2.
C) Curve 3.
D) the vertical sum of curve 1 and curve 2.

Question 72

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average total cost curve is represented by

A) Curve 1.
B) Curve 2.
C) Curve 3.
D) the vertical sum of curve 1 and curve 2.

Question 73

Table 5.3
Table 5.3 presents the cost schedule for Candy's Cakes. If Candy produces two cakes, Candy's marginal cost is

A) $0.
B) $20.
C) $25.
D) $50.

Question 74

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. Why does the vertical distance between Curve 1 and Curve 2 decrease as output increases from Q₁ to Q₂?

A) Because average variable cost first decreases, then increases as output increases from Q₁ to Q₂.
B) Because average fixed cost decreases as output increases from Q₁ to Q₂.
C) Because average total cost first decreases, then increases as output increases from Q₁ to Q₂.
D) Because average variable cost increases faster than average fixed cost as output level approaches Q₂.

Question 75

In the short run, the marginal cost of the first unit of output is $20, the marginal cost of producing the second unit of output is $16, and the marginal cost of producing the third unit of output is $12. The firm's total variable cost of producing three units of output is

A) $12.
B) $16.
C) $20.
D) $48.

Question 76

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average fixed cost at a given level of output is represented by

A) the vertical distance between Curve 1 and Curve 2 at a given level of output.
B) the vertical distance between Curve 1 and Curve 3 at a given level of output.
C) the vertical sum of Curve 1 and Curve 2 at a given level of output.
D) the vertical sum of Curve 1 and Curve 3 at a given level of output.

Question 77

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average variable cost curve is represented by

A) Curve 1.
B) Curve 2.
C) Curve 3.
D) the vertical sum of curve 2 and curve 3.

Question 78

In the short run, the marginal cost of producing the first unit of output is $50, the marginal cost of the second unit of output is $20, and the marginal cost of producing the third unit of output is $16. The firm's total cost of producing three units of output is

A) $16.
B) $48.
C) $86.
D) cannot be determined from the information provided

Question 79

Table 5.3
Table 5.3 presents the cost schedule for Candy's Cakes. If Candy produces zero cake, Candy's total costs are

A) $0.
B) $50.
C) $100.
D) $150.

Question 80

If a firm's total fixed costs are $30, the firm's marginal cost of producing the first unit of output is $30, and the average total cost of producing two units of output is $42, the marginal cost of the second unit of output is

A) $84.
B) $54.
C) $42.
D) $24.