Deck 7: Producers in the Short Run

Question 1

Which of the following statements is NOT true of a corporation?

A)It can enter into contracts.
B)It is an entity separate from the individuals who own it.
C)It can incur debt that is an obligation of the corporation but not of its individual owners.
D)It has the right to sue and be sued.
E)It is legally obliged to distribute all profits to shareholders.

Answer 1

It is legally obliged to distribute all profits to shareholders.

Question 2

Economists use the notation Q = f(L,K)to describe

A)the flow of labour (L)and capital (K)services that are available when output is (Q).
B)the financial relationship between the inputs that a firm uses and the outputs that it produces.
C)the arithmetic relationship between the outputs that a firm uses and the inputs that it produces.
D)the technological relationship between the inputs that a firm uses and the outputs that it produces.
E)the level of output (Q)required to fully employ labour (L)and capital (K).

Answer 2

the technological relationship between the inputs that a firm uses and the outputs that it produces.

Question 3

A firm that has two or more owners who share decision-making power as well as the firm's profits is called

A)a single proprietorship.
B)a partnership.
C)a corporation.
D)a non-profit organization.
E)a joint-stock company.

Answer 3

a partnership.

Question 4

A single proprietorship is a form of business organization which

A)has one owner-manager who is personally responsible for the firm's actions and debts.
B)has a single owner but has directors who are responsible for the firm's debts.
C)has limited liability.
D)has unlimited access to money capital.
E)allows easy transferability of ownership by the trading of shares.

Question 5

An example of debt financing for any form of business organization is

A)issuing new stock.
B)buying back bonds.
C)borrowing from a bank.
D)using undistributed profits.
E)buying back previously issued stock.

Question 6

When a corporation issues a bond

A)the purchaser of the bond assumes ownership rights in the corporation.
B)it is making a promise to pay interest each year and to repay the principal at a stated time in the future.
C)it is called equity capital.
D)it is called financing through the stock market.
E)it is making a promise to pay interest each year but not repay the principal.

Question 7

A limited partnership differs from an ordinary partnership by

A)having a limited number of partners.
B)having a limited number of partners,each with limited liability.
C)including some partners whose liability is restricted to the amount that they invested in the firm.
D)having limited liability of all partners.
E)having unlimited liability for all partners.

Question 8

The relationship between factors of production used in the production process and the resulting output is called a(n)

A)consumption possibilities boundary.
B)economic function.
C)production boundary.
D)cost function.
E)production function.

Question 9

"An objective of firms is to maximize profits." This statement

A)has been proven by empirical testing to be always true.
B)is an assumption used by economists to predict the behaviour of firms.
C)is a normative statement and thus cannot be tested.
D)applies only to corporations.
E)is an unrealistic assumption,and therefore of little use to economists.

Question 10

Undistributed profits of a firm are

A)earnings that are used to pay dividends to shareholders.
B)earnings that are used to cover the costs of production.
C)earnings that are used to cover interest expenses of the firm.
D)profits that are paid out to owners of the firm.
E)profits that are available to be reinvested in the firm's operations.

Question 11

Which of the following statements describes an advantage to the owner of a single proprietorship?

A)The owner's liability is limited to the amount he or she actually invests in the firm.
B)He or she has limited liability.
C)The owner can readily maintain full and complete control over every aspect of the firm's operation.
D)The firm has a legal existence separate from its owner.
E)Shares of the firm can be traded on any stock exchange.

Question 12

Churches,the YMCA,the Salvation Army,and the Nature Conservancy are examples of

A)single proprietorship.
B)partnership.
C)non-profit organizations.
D)limited partnership.
E)corporations.

Question 13

A firm can raise financial capital without incurring debt by

A)issuing bonds.
B)making extra dividend payments.
C)issuing new shares.
D)increasing its bank loans.
E)investing in new capital equipment.

Question 14

Which of the following is the best example of an input to production that is an intermediate product?

A)40 acres of farmland
B)the skills and training of a web designer
C)computer circuit boards
D)a textile factory
E)a sewing machine

Question 15

Real capital includes

A)a firm's physical assets.
B)corporate bonds.
C)corporate stock.
D)a firm's balance in its bank account.
E)owner's equity.

Question 16

The theory of the firm is based on the following two key assumptions:

A)Firms seek to become as large as possible,and they seek to maximize total revenue.
B)Each firm has a highly diversified product,and this leads to profit maximization.
C)Firms seek to maximize profit,and to distribute the maximum value in dividends.
D)Firms seek to maximize profits,and the firm is a single,consistent decision-making unit.
E)Firms seek to maximize revenues,and to maximize undistributed profits.

Question 17

Which of the following statements about the organization of firms is true?

A)Partnerships are the most common form of business organization in Canada.
B)Owners of a corporation have unlimited liability.
C)Corporations have limited access to money markets.
D)Owners of a corporation are not personally liable for the firm's actions,though its directors may be.
E)Crown corporations are never interested in increasing profits because they have other goals.

Question 18

It is assumed in standard economic theory that a firm makes decisions in an effort to

A)become as large as possible.
B)have a highly diversified product.
C)be favoured politically.
D)maximize its revenue.
E)maximize its profits.

Question 19

An example of "real" capital is

A)shares in a corporation.
B)corporate bonds.
C)a firm's balance in a bank account.
D)a firm's computer systems.
E)a firm's retained earnings.

Question 20

Which of the following items is part of a firm's financial capital as distinct from its real capital?

A)a new bulldozer
B)a $500 000 balance in a bank account
C)a network of personal computers
D)a fleet of delivery trucks
E)inventory of goods valued at $1 000 000

Question 21

Suppose a production function for a firm takes the following algebraic form: Q = 2KL - (0.2)L²,where Q is the output of sweaters per day.Now suppose the firm is operating with 8 units of capital (K=8)and 10 units of labour (L=10).What is the output of sweaters?

A)30 sweaters per day
B)60 sweaters per day
C)80 sweaters per day
D)140 sweaters per day
E)155 sweaters per day

Question 22

Suppose a production function for a firm takes the following algebraic form: Q = (0.25)K × (1.5)L²,where Q is the output of garage doors produced per month.Now suppose the firm is operating with 10 units of capital (K = 10)and 8 units of labour (L = 8).What is the output of garage doors per month?

A)24
B)240
C)300
D)2400
E)3000

Question 23

If Michelle used $1000 from her savings account,which was paying 6% interest annually,to invest in her brother's new sporting-goods store,the opportunity cost of her investment on an annual basis would be

A)$60.
B)$1000.
C)$1060.
D)her share of the store's profits.
E)the dividend paid to her by her brother.

Question 24

The choices listed below involve costs to the firm.For which is the implicit cost potentially different than its explicit cost?

A)The use of firm-owned assets.
B)The services of hired workers.
C)The use of rented land.
D)The interest paid on borrowed money.
E)The purchase of raw materials used in production.

Question 25

Economic profits are less than accounting profits because the calculation of economic profit

A)includes an amount for depreciation.
B)includes an explicit charge for risk taking.
C)includes the implicit charges for the use of capital owned by the firm and for risk taking.
D)includes the implicit charges for the use of capital owned by the firm and for income taxes.
E)is stipulated in regulations set forth by the Canada Revenue Agency.

Question 26

The table below provides the total revenues and costs for a small landscaping company in a recent year.
TABLE 7-2
Refer to Table 7-2.The explicit costs for this firm are

A)$178 500.
B)$186 500.
C)$186 900.
D)$217 300.
E)$217 700.

Question 27

The table below provides the annual revenues and costs for a family-owned firm producing catered meals.
TABLE 7-1
Refer to Table 7-1.The accounting profits for this family-owned firm are

A)-$15 000.
B)$0.
C)$10 000.
D)$30 000.
E)$500 000.

Question 28

The opportunity cost of any factor of production is

A)its accounting cost.
B)the money actually paid to the factors of production.
C)the benefit forgone by not using it in its worst alternative.
D)the benefit forgone by not using it in its best alternative.
E)its explicit cost.

Question 29

The opportunity cost of money that a firm's owner has invested in the firm is an example of

A)direct production costs.
B)accounting costs.
C)sunk costs.
D)implicit costs.
E)explicit costs.

Question 30

The opportunity cost to a firm of using an asset is zero if

A)the asset is already owned by the firm.
B)no money was spent to acquire the asset.
C)the asset has no alternative uses.
D)the asset has zero sunk costs associated with it.
E)the asset was given to the firm for free.

Question 31

The table below provides the annual revenues and costs for a family-owned firm producing catered meals.
TABLE 7-1
Refer to Table 7-1.The implicit costs for this family-owned firm are

A)$35 000.
B)$80 000.
C)$100 000.
D)$115 000.
E)$490 000.

Question 32

The equation Q = 0.5KL - (0.4)L + 2L² is an example of

A)a factor of production equation.
B)an economic input function.
C)a technological change equation.
D)an arithmetic expression of output quantities.
E)a production function.

Question 33

The table below provides the annual revenues and costs for a family-owned firm producing catered meals.
TABLE 7-1
Refer to Table 7-1.The economic profits for this family-owned firm are

A)$115 000.
B)$10 000.
C)$0.
D)-$10 000.
E)-$105 000.

Question 34

The table below provides the annual revenues and costs for a family-owned firm producing catered meals.
TABLE 7-1
Refer to Table 7-1.To an accountant,this family-owned catering company is earning ________.To an economist,the same firm is earning ________.

A)zero profit; economic losses
B)zero profit; normal profits
C)positive profits; economic losses
D)economic profits; economic profits
E)economic profits; economic losses

Question 35

If a firm uses factor inputs that are personally owned by the firm's owner,then economists refer to the opportunity cost of these inputs as

A)direct production costs.
B)accounting costs.
C)sunk costs.
D)implicit costs.
E)inverted costs.

Question 36

Consider the production costs for a firm,one of which is the cost of depreciation.Depreciation costs are

A)payments to outside suppliers.
B)the cost of money borrowed to buy a durable asset.
C)an estimate of the loss of value of the firm's physical capital.
D)a measure of the depreciation of financial assets of the firm.
E)irrelevant to an accounting of the firm's total costs.

Question 37

Suppose a production function for a firm takes the following algebraic form: Q = (0.5)KL - 40L,where Q is the output of paintbrushes per week.Now suppose the firm is operating with 100 units of capital (K = 100)and 30 000 units of labour (L = 30 000).What is the output of paintbrushes per week?

A)30 000
B)300 000
C)1 200 000
D)1 500 000
E)3 000 000

Question 38

The table below provides the total revenues and costs for a small landscaping company in a recent year.
TABLE 7-2
Refer to Table 7-2.The implicit costs for this firm are

A)$31 200.
B)$30 800.
C)$30 400.
D)$400.
E)$800.

Question 39

We can predict that resources will move into an industry whenever

A)accounting profits for firms in that industry are greater than zero.
B)accounting profits for firms in that industry are zero.
C)economic profits for firms in that industry are zero.
D)economic profits for firms in that industry are greater than zero.
E)economic losses for firms in that industry are minimized.

Question 40

The table below provides the annual revenues and costs for a family-owned firm producing catered meals.
TABLE 7-1
Refer to Table 7-1.The explicit costs for this family-owned firm are

A)$115 000.
B)$490 000.
C)$500 000.
D)$505 000.
E)$605 000.

Question 41

Which of the following is most likely a long-run decision for a firm?

A)The hours a store should stay open.
B)How many warehouses to build.
C)The number of workers to hire.
D)The amount of inventory to stock.
E)The price at which to sell the product.

Question 42

The period of time over which at least one factor of production is fixed is called the

A)very-short run.
B)short run.
C)long run.
D)very-long run.
E)immediate run.

Question 43

The period of time over which the firm can vary any of its inputs for a given production technology is called the

A)very-short run.
B)short run.
C)long run.
D)very-long run.
E)immediate run.

Question 44

FIGURE 7-1
Refer to Figure 7-1.Total product is increasing at a decreasing rate

A)from 0 to 20 units of output.
B)from 0 to 32 units of output.
C)between 140 to 200 units of output.
D)between 140 to 250 units of output.
E)over the whole production range.

Question 45

With regard to economic decision making for firms,the long run is a period in which

A)all factors of production are variable but technology is fixed.
B)technology is variable.
C)only some of the factors of production are variable.
D)technology may be variable,but some factors of production are fixed.
E)only capital is variable.

Question 46

With regard to economic decision making for firms,the short run is

A)a definite number of months.
B)a period over which the quantities of all factors of production and technology are variable.
C)a period over which the quantity of at least one significant factor of production is fixed.
D)a period over which the quantities of all factors of production are variable but technology is fixed.
E)less than one year.

Question 47

The period of time over which all factors of production and technology are variable is known as the

A)very-short run.
B)short run.
C)long run.
D)very-long run.

Question 48

Consider a firm in the short run.Average product is at its maximum when

A)total product is maximized.
B)marginal product is maximized.
C)the maximum quantity of the variable input is employed.
D)diminishing returns cease to operate.
E)average product equals marginal product and marginal product is falling.

Question 49

Which of the following factors of production is most likely to be variable in the short run?

A)capital equipment
B)land
C)labour
D)entrepreneurship
E)technology

Question 50

Consider a firm in the short run.If total product is at its maximum,then

A)average product must equal marginal product.
B)average product must be rising and must lie above marginal product.
C)marginal product must be greater than zero and must be falling.
D)marginal product must be falling and be equal to zero.
E)average product must be falling and be equal to zero.

Question 51

FIGURE 7-1
Refer to Figure 7-1.Total product is increasing at an increasing rate

A)from 0 to 32 units of output.
B)from 0 to 140 units of output.
C)between 140 to 200 units of output.
D)between 200 to 250 units of output.
E)over the whole production range.

Question 52

The table below provides the total revenues and costs for a small landscaping company in a recent year.
TABLE 7-2
Refer to Table 7-2.The accounting profits for this firm are

A)$32 300.
B)$32 700.
C)$63 100.
D)$63 500.
E)$71 500.

Question 53

Consider a firm in the short run.If AP = MP and both are positive,then total product

A)is at a maximum.
B)is decreasing as extra units of the variable factor are employed.
C)is increasing as extra units of the variable factor are employed.
D)may be either increasing or decreasing as extra units of the variable factor are employed.
E)is at its minimum.

Question 54

What information is provided by average,marginal,and total product curves?

A)They demonstrate that each of these measures of output increase as more inputs are applied.
B)They demonstrate that,in the short run,all inputs are variable.
C)They relate the prices of inputs (factors of production)to the prices of products.
D)They relate the price of output to the quantity supplied.
E)They express relationships between physical inputs and physical outputs.

Question 55

The table below provides the total revenues and costs for a small landscaping company in a recent year.
TABLE 7-2
Refer to Table 7-2.The economic profits for this firm are

A)$63 500.
B)$32 700.
C)$33 500.
D)$31 200.
E)$32 300.

Question 56

FIGURE 7-1
Refer to Figure 7-1.The marginal product of labour curve intersects the average product of labour curve when

A)the firm is at its capacity.
B)the firm achieves increasing returns.
C)average product is at its maximum.
D)diminishing returns sets in.
E)total product is at its maximum.

Question 57

Consider a firm in the short run.When the total-product curve is increasing at an increasing rate

A)average product is zero.
B)marginal product is positive but declining.
C)the marginal-product curve lies below the average-product curve.
D)marginal product is positive and increasing.
E)average product is falling.

Question 58

Which of the following statements about the relationship between marginal product and average product is correct?

A)When average product exceeds marginal product,marginal product must be rising.
B)When marginal product is falling,average product is falling.
C)When marginal product exceeds average product,average product must be rising.
D)Average product equals marginal product at marginal product's lowest point.
E)Average product equals marginal product when marginal product is at its maximum.

Question 59

Consider a firm in the short run.If the AP curve is rising,then the MP curve

A)must lie above the average-product curve over this range and must also be rising.
B)must lie above the average-product curve over this range.
C)can be either above or below the average-product curve,although it must be rising over the entire range.
D)must lie below the average-product curve over this range.
E)must be falling.

Question 60

The period of time over which the firm can vary its technology of production is the

A)very-short run.
B)short run.
C)long run.
D)very-long run.
E)none of the above; technology cannot be varied.

Question 61

The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.Assume that the wage per unit of labour is $10 and the cost of the capital is $50.
TABLE 7-3
Refer to Table 7-3.The average product of labour is highest when the firm hires

A)1 unit of labour.
B)2 units of labour.
C)3 units of labour.
D)4 units of labour.
E)5 units of labour.

Question 62

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.
TABLE 7-4
Refer to Table 7-4.The marginal product of labour is at its maximum when the firm changes the amount of labour hired from

A)0 to 1 unit.
B)1 to 2 units.
C)2 to 3 units.
D)3 to 4 units.
E)4 to 5 units.

Question 63

The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.Assume that the wage per unit of labour is $10 and the cost of the capital is $50.
TABLE 7-3
Refer to Table 7-3.Diminishing marginal product of labour is first observed when the firm changes the amount of labour hired from

A)0 to 1 units.
B)1 to 2 units.
C)2 to 3 units.
D)3 to 4 units.
E)4 to 5 units.

Question 64

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.
TABLE 7-4
Refer to Table 7-4.Marginal product of labour begins decreasing with the ________ unit of labour hired.Average product of labour begins decreasing with the ________ unit of labour hired.

A)4th; 3rd
B)3rd; 2nd
C)2nd; 3rd
D)3rd; 4th
E)4th; 5th

Question 65

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.
TABLE 7-4
Refer to Table 7-4.Diminishing marginal productivity of labour is first observed when the firm changes the amount of labour hired from

A)0 to 1 unit.
B)1 to 2 units.
C)2 to 3 units.
D)3 to 4 units.
E)4 to 5 units.

Question 66

The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.Assume that the wage per unit of labour is $10 and the cost of the capital is $50.
TABLE 7-3
Refer to Table 7-3.The marginal product of labour is at its maximum when the firm changes the amount of labour hired from

A)0 to 1 unit.
B)1 to 2 units.
C)2 to 3 units.
D)3 to 4 units.
E)4 to 5 units.

Question 67

In the short run,the firm's product curves show

A)AP is at its minimum when MP = AP.
B)TP is at its maximum when MP is at its maximum.
C)TP begins to decrease when AP begins to decrease.
D)when MP < AP,AP is increasing.
E)when the MP curve cuts the AP curve from above,the AP curve begins to fall.

Question 68

Suppose NHL hockey player Jarome Iginla is averaging three points per game going into the last game of the season in which he collects four points,thereby changing his average for the season.To use an analogy in economics,it could be said that average product increases

A)when total product increases.
B)when marginal product exceeds average product.
C)when average product exceeds marginal product.
D)when marginal product increases.
E)whenever marginal product is positive.

Question 69

The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.Assume that the wage per unit of labour is $10 and the cost of the capital is $50.
TABLE 7-3
Refer to Table 7-3.The average product of labour when the firm hires 3 units of labour is ________.The average product of labour when the firm hires 4 units of labour is ________.

A)30; 33
B)90; 132
C)60; 42
D)90; 222
E)30; 90

Question 70

Consider a basket-producing firm with fixed capital.If the firm can produce 36 baskets per day with 3 workers and then increases productivity to 44 baskets per day with 4 workers,then which of the following statements is true?

A)The marginal product of the fourth worker is 11.
B)The firm has passed the point of diminishing average productivity.
C)The marginal product is above the average product.
D)The firm has not yet reached the point of diminishing marginal productivity.
E)With 4 workers,the firm's average product of labour is 13.

Question 71

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.
TABLE 7-4
Refer to Table 7-4.The marginal product of labour curve intersects the average product of labour curve from above when the firm changes the amount of labour per unit of time from

A)0 to 1 units.
B)1 to 2 units.
C)2 to 3 units.
D)3 to 4 units.
E)4 to 5 units.

Question 72

The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.Assume that the wage per unit of labour is $10 and the cost of the capital is $50.
TABLE 7-3
Refer to Table 7-3.What is the total output per period when this firm is employing labour such that the marginal product of labour is at its maximum?

A)30
B)60
C)90
D)132
E)150

Question 73

FIGURE 7-1
Refer to Figure 7-1.If the firm hires the 15th unit of labour,

A)the extra output will be zero.
B)average product will rise.
C)marginal product will be unchanged.
D)the firm will reach its capacity.
E)output will increase by 2 units of output.

Question 74

FIGURE 7-1
Refer to Figure 7-1.Suppose each unit of labour represents one worker for one month.What is the maximum number of workers the firm could hire so that the final worker hired still raises the average product of the other workers?

A)7
B)8
C)9
D)11
E)15

Question 75

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.
TABLE 7-4
Refer to Table 7-4.The average product of labour is highest when the firm hires ________ units of labour.

A)1
B)2
C)3
D)4
E)5

Question 76

The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.Assume that the wage per unit of labour is $10 and the cost of the capital is $50.
TABLE 7-3
Refer to Table 7-3.What is the marginal product of the 4th unit of labour hired by the firm?

A)42
B)60
C)132
D)900
E)1320

Question 77

In the short run,the firm's product curves show

A)AP is at its minimum when MP = AP.
B)TP is at its maximum when MP = O.
C)TP begins to decrease when AP begins to decrease.
D)when MP > AP,AP is decreasing.
E)when the MP curve cuts the AP curve from below,the AP curve begins to fall.

Question 78

Consider a basket-producing firm with fixed capital.If the firm can produce 36 baskets per day with 3 workers and then increases production to 44 baskets per day with 4 workers,then which of the following statements is true?

A)The marginal product of the fourth worker is 11.
B)With 4 workers,the marginal product is above the average product.
C)The firm has not yet reached the point of diminishing marginal productivity.
D)The firm has passed the point of diminishing marginal productivity.
E)With 4 workers,the firm's average product of labour is 8.

Question 79

Consider a basket-producing firm with fixed capital.If the firm can produce 24 baskets per day with 3 workers and then increases production to 36 baskets per day with 4 workers,then which of the following statements is definitely true?

A)The firm has passed the point of diminishing marginal productivity.
B)The marginal productivity of the fourth worker is 9.
C)The firm has passed the point of diminishing average productivity.
D)With 4 workers,the average product is greater than the marginal product.
E)With 4 workers,the marginal product is greater than the average product.

Question 80

Suppose that when a firm hires one additional unit of labour,total product increases from 100 to 110 units of output per month.Marginal product must therefore be

A)increasing.
B)positive.
C)decreasing.
D)constant.
E)zero.