Deck 13: The Costs of Production

Question 1

Profit equals marginal revenue minus marginal cost.

Answer 1

False

Question 2

The typical total-cost curve is U-shaped.

Answer 2

False

Question 3

When economists speak of a firm's costs,they are usually excluding the opportunity costs.

Answer 3

False

Question 4

The economic field of industrial organization examines how firms' decisions about prices and quantities depend on the market conditions they face.

Question 5

Profit equals total revenue minus total cost.

Question 6

Diminishing marginal productivity implies decreasing total product.

Question 7

A second or third worker may have a higher marginal product than the first worker in certain circumstances.

Question 8

Accounting profit is greater than or equal to economic profit.

Question 9

Accountants keep track of the money that flows into and out of firms.

Question 10

The average fixed cost curve is constant.

Question 11

Economists and accountants both include forgone income as a cost to a small business owner.

Question 12

Implicit costs are costs that do not require an outlay of money by the firm.

Question 13

Accountants often ignore implicit costs.

Question 14

The difference between economic profit and accounting profit is that economic profit is calculated based on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only.

Question 15

Diminishing marginal product exists when the production function becomes flatter as inputs increase.

Question 16

In the long run,a factory is usually considered a fixed input.

Question 17

Economists and accountants usually disagree on the inclusion of implicit costs into the cost analysis of a firm.

Question 18

Economic profit is greater than or equal to accounting profit.

Question 19

Diminishing marginal product exists when the total cost curve becomes flatter as outputs increases.

Question 20

Although economists and accountants treat many costs differently,they both treat the cost of capital the same.

Question 21

The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost curve.

Question 22

Variable costs equal fixed costs when nothing is produced.

Question 23

If the marginal cost of producing the tenth unit of output is $3,and if the average total cost of producing the tenth unit of output is $2,then at ten units of output,average total cost is rising.

Question 24

The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves.

Question 25

If a firm produces nothing,it still incurs its fixed costs.

Question 26

Assume Jack received all A's in his classes last semester.If Jack gets all B's in his classes this semester,his GPA may or may not fall.

Question 27

The marginal cost curve intersects the average total cost curve at the minimum point of the marginal cost curve.

Question 28

Several related measures of cost can be derived from a firm's total cost.

Question 29

Average variable cost is equal to total variable cost divided by quantity of output.

Question 30

The shape of the total cost curve is unrelated to the shape of the production function.

Question 31

Variable costs usually change as the firm alters the quantity of output produced.

Question 32

The shape of the total cost curve is related to the shape of the production function.

Question 33

The average total cost curve is unaffected by diminishing marginal product.

Question 34

If the marginal cost curve is rising,then so is the average total cost curve.

Question 35

If the marginal cost of producing the fifth unit of output is higher than the marginal cost of producing the fourth unit of output,then at five units of output,average total cost must be rising.

Question 36

The cost of producing an additional unit of a good is not the same as the average cost of the good.

Question 37

Marginal costs are costs that do not vary with the quantity of output produced.

Question 38

If the marginal cost of producing the tenth unit of output is $2.50,and if the average total cost of producing the tenth unit of output is $3,then at ten units of output,average total cost is rising.

Question 39

Average total cost and marginal cost express information that is already contained in a firm's total cost.

Question 40

In the short run,if a firm produces nothing,total costs are zero.

Question 41

Because of the greater flexibility that firms have in the long run,all short-run cost curves lie on or above the long-run curve.

Question 42

Fixed costs are those costs that remain fixed no matter how long the time horizon is.

Question 43

Table 13-1
Listed in the table are the long-run total costs for three different firms.


-Refer to Table 13-1.Firm A is experiencing economies of scale.

Question 44

The fact that many inputs are fixed in the short run but variable in the long run has little impact on the firm's cost curves.

Question 45

The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are.

Question 46

A key difference between accountants and economists is their different treatment of the cost of capital.Does this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.

Question 47

What effect,if any,does diminishing marginal product have on the shape of the marginal cost curve?

Question 48

In some cases,specialization allows larger factories to produce goods at a lower average cost than smaller factories.

Question 49

Adam Smith's example of the pin factory demonstrates that economies of scale result from specialization.

Question 50

The shape of the marginal cost curve tells a producer something about the marginal product of her workers.

Question 51

The production function depicts a relationship between which two variables? Also,draw a production function that exhibits diminishing marginal product.

Question 52

When average total cost rises if a producer either increases or decreases production,then the firm is said to be operating at efficient scale.

Question 53

As a firm moves along its long-run average cost curve,it is adjusting the size of its factory to the quantity of production.

Question 54

What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?

Question 55

There is general agreement among economists that the long-run time period exceeds one year.

Question 56

Diseconomies of scale often arise because higher production levels allow specialization among workers.

Question 57

How would a production function that exhibits decreasing marginal product affect the shape of the total cost curve? Explain or draw a graph.

Question 58

If long-run average total cost is rising,then the firm is experiencing economies of scale.

Question 59

Economies of scale often arise because higher production levels allow specialization among workers.

Question 60

Average total cost reveals how much total cost will change as the firm alters its level of production.

Question 61

Economists assume that the goal of the firm is to maximize total

A) revenue.
B) profits.
C) costs.
D) satisfaction.

Question 62

Economists normally assume that the goal of a firm is to

A) (i)and (ii)are true.
B) (ii)and (iii)are true.
C) (iii)is true.
D) (i)and (iii)are true.

Question 63

If the average total cost curve is falling,what is necessarily true of the marginal cost curve? If the average total cost curve is rising,what is necessarily true of the marginal cost curve?

Question 64

Bob Edwards owns a bagel shop.Bob hires an economist who assesses the shape of the bagel shop's average total cost (ATC)curve as a function of the number of bagels produced.The results indicate a U-shaped average total cost curve.Bob's economist explains that ATC is U-shaped for two reasons.The first is the existence of diminishing marginal product,which causes it to rise.What would be the second reason? Assume that the marginal cost curve is linear.(Hint: The second reason relates to average fixed cost)

Question 65

To an economist,the field of industrial organization answers which of the following questions?

A) Why are consumers subject to the law of demand?
B) Why do firms experience diminishing marginal products of inputs?
C) How does the number of firms affect prices and the efficiency of market outcomes?
D) Why do firms consider production costs when determining product supply?

Question 66

According to the mathematical laws that govern the relationship between average total cost and marginal cost,where must these two curves intersect?

Question 67

Analyzing the behavior of the firm enhances our understanding of

A) what decisions lie behind the market supply curve.
B) how consumers allocate their income to purchase scarce resources.
C) how financial institutions set interest rates.
D) whether resources are allocated fairly.

Question 68

Total revenue equals

A) price x quantity.
B) price/quantity.
C) (price x quantity)- total cost.
D) output - input.

Question 69

Economists normally assume that the goal of a firm is to earn

A) (i)and (ii)are true.
B) (i)and (iii)are true.
C) (ii)and (iii)are true.
D) (i),(ii),and (iii)are true.

Question 70

When a firm is making a profit-maximizing production decision,which of the following principles of economics is likely to be most important to the firm's decision?

A) The cost of something is what you give up to get it.
B) A country's standard of living depends on its ability to produce goods and services.
C) Prices rise when the government prints too much money.
D) Governments can sometimes improve market outcomes.

Question 71

An entrepreneur's motivation to start a business arises from

A) an innate love for the type of business that he or she starts.
B) a desire to earn a profit.
C) an altruistic desire to provide the world with a good product.
D) All of the above could be correct.

Question 72

Which field of economics studies how the number of firms affects the prices in a market and the efficiency of market outcomes?

A) macro economics
B) industrial organization
C) labor economics
D) monetary economics

Question 73

A student might describe information about the costs of production as

A) dry and technical.
B) boring.
C) crucial to understanding firms and market structures.
D) All of the above could be correct.

Question 74

Economists normally assume that the goal of a firm is to

A) maximize its total revenue.
B) maximize its profit.
C) minimize its explicit costs.
D) minimize its total cost.

Question 75

The amount of money that a firm pays to buy inputs is called

A) total cost.
B) variable cost.
C) marginal cost.
D) fixed cost.

Question 76

Total cost is the

A) amount a firm receives for the sale of its output.
B) fixed cost less variable cost.
C) market value of the inputs a firm uses in production.
D) quantity of output minus the quantity of inputs used to make a good.

Question 77

Economists assume that the typical person who starts her own business does so with the intention of

A) donating the profits from her business to charity.
B) capturing the highest number of sales in her industry.
C) maximizing profits.
D) minimizing costs.

Question 78

Economists in the field of industrial organization study how

A) central banking policies affect financial markets.
B) firms' demand for labor and individuals' supply of labor affect resource markets.
C) firms' decisions about prices and quantities depend on market conditions.
D) externalities and public goods affect the environment.

Question 79

The amount of money that a firm receives from the sale of its output is called

A) total gross profit.
B) total net profit.
C) total revenue.
D) net revenue.

Question 80

Industrial organization is the study of how

A) labor unions organize workers in industries.
B) profitable firms are in organized industries.
C) industries organize for political advantage.
D) firms' decisions regarding prices and quantities depend on the market conditions they face.