Deck 4: Costs of Production

Question 1

For the following output data, assume that the amounts of all nonlabour resources are fixed

$\begin{array} { | l | c | c | c | c | c | c | c | } \hline & \mathrm { A } & \mathrm { B } & \mathrm { C } & \mathrm { D } & \mathrm { E } & \mathrm { F } & \mathrm { G } \\\hline \text { Number of Workers } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Outputs (units) } & 0 & 40 & 90 & 126 & 150 & 165 & 174 \\\hline\end{array}$

-The law of diminishing marginal returns becomes evident with the addition of the:

A)fifth worker
B)fourth worker
C)third worker
D)second worker
E)first worker

Answer 1

third worker

Question 2

Which of the following is an output?

A)a computer used by a programmer at a software company
B)a plough used by wheat farmers
C)a refrigerator used to store frozen foods in grocery stores
D)an accountant hired by the Canadian Apple Cider Company
E)a CD being sold at popular music stores

Answer 2

E

Question 3

Which of the following definitions is correct?

A)Accounting profit + economic profit = normal profit
B)Economic profit - accounting profit = explicit costs
C)Economic profit = accounting profit - implicit costs
D)Economic profit - implicit costs = accounting profit
E)Economic profit - accounting profit = normal profit

Answer 3

C

Question 4

If,in the production of boxer shorts,labour is the variable input and sewing machinery is the fixed input,total product can be found by determining output:

A)at each level of labour employment holding capital employment constant
B)at various levels of labour and capital employment
C)divided by the number of workers employed for each unit of labour employment
D)multiplied by each additional labourer who is employed
E)using various numbers of sewing machines with the same amount of labour

Question 5

Marginal product is the:

A)increase in average product attributable to the employment of one more worker
B)increase in total revenue attributable to the employment of one more worker
C)increase in total cost attributable to the employment of one more worker
D)total product divided by the number of the workers employed
E)increase in total output attributable to the employment of one more worker

Question 6

For the following output data, assume that the amounts of all nonlabour resources are fixed

$\begin{array} { | l | c | c | c | c | c | c | c | } \hline & \mathrm { A } & \mathrm { B } & \mathrm { C } & \mathrm { D } & \mathrm { E } & \mathrm { F } & \mathrm { G } \\\hline \text { Number of Workers } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Outputs (units) } & 0 & 40 & 90 & 126 & 150 & 165 & 174 \\\hline\end{array}$

-The average product for the fifth worker hired is:

A)165 units of output
B)33 units of output
C)15 units of output
D)157.50 units of output
E)3 units of output

Question 7

A labour-intensive process of production employs:

A)an equal amount of labour, capital, and technology
B)more capital and less labour than other possible production processes
C)more labour and less capital than other possible production processes
D)more labour and more capital than other possible production processes
E)less labour and less capital than other possible production processes

Question 8

The operation of all businesses and industries typically fall into these three sectors of production:

A)primary, secondary, and capital-intensive
B)manufacturing, service, and telecommunications
C)mining, forestry, and fishing
D)agriculture, manufacturing, and service
E)the cultivation of nature resources, the processing and fabrication of goods, and the provision of services

Question 9

Marginal product:

A)diminishes at all levels of production
B)may initially increase, then diminishes, but never becomes negative
C)may initially increase, then diminishes, and ultimately becomes negative
D)is always less than average product
E)is always greater than average product

Question 10

Which of the following is an implicit cost to the Johnston Manufacturing Company?

A)payments of wages to its office workers
B)property taxes
C)rent paid for the use of equipment owned by the Schultz Machinery Company
D)returns that the shareholders could have received if they had not bought shares in the Johnson Manufacturing Company
E)payments made for its purchases of electrical power

Question 11

Consider the following table: If the price of capital is $1 per unit and the price of labour is $2 per unit,the method that maximizes Simply Cotton's productive efficiency is:

A)F
B)A
C)E
D)E or D
E)B

Question 12

Suppose that a business had implicit costs of $500 000 and had explicit costs of $5 million in a specific year.If in that year the firm sold 100 000 units of its output at $50 per unit,its accounting:

A)profits were $100 000 and economic profits were zero
B)losses were $500 000 and its economic losses were zero
C)profits were $500 000 and its economic profits were $1 million
D)profits were zero and its economic profits were $500 000
E)profits were zero and its economic losses were $500 000

Question 13

To economists,the main difference between "the short run" and "the long run" is that:

A)the law of diminishing marginal returns applies in the long run but not in the short run
B)in the long run, all resources are variable while in the short run, at least one resource is fixed
C)fixed costs are more important to decision making in the long run than they are in the short run
D)in the short run all resources are fixed, while in the long run all resources are variable
E)in the short run all resources are variable, while in the long run all resources are fixed

Question 14

For the following output data, assume that the amounts of all nonlabour resources are fixed

$\begin{array} { | l | c | c | c | c | c | c | c | } \hline & \mathrm { A } & \mathrm { B } & \mathrm { C } & \mathrm { D } & \mathrm { E } & \mathrm { F } & \mathrm { G } \\\hline \text { Number of Workers } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Outputs (units) } & 0 & 40 & 90 & 126 & 150 & 165 & 174 \\\hline\end{array}$

-The marginal product of the sixth worker is:

A)174 units of output
B)29 units of output
C)9 units of output
D)15 units of output
E)negative

Question 15

An explicit cost is:

A)omitted when accounting profits are calculated
B)a payment made for resources not owned by the business itself
C)an implicit cost to the resource owner who receives that payment
D)always in excess of a resource's opportunity cost
E)the only cost taken into account when economic profits are calculated

Question 16

Implicit and explicit costs are different in that:

A)explicit costs are relevant only in the short run
B)implicit costs are relevant only in the short run
C)explicit costs are relevant only in the long run
D)explicit costs refer to the nonexpenditure costs and implicit costs to out-of-pocket costs
E)implicit costs refer to nonexpenditure costs and explicit costs to out-of-pocket costs

Question 17

The first,second,and third workers employed by a firm add 24,18,and 9 units to total product,respectively.On the basis of this information,we can say that:

A)the marginal product of the third worker is 9
B)the total product of the three workers is 9
C)the average product of the three workers is 3
D)the law of diminishing marginal returns becomes evident with the addition of the third worker
E)the law of diminishing marginal returns is not evident in this example

Question 18

Which of the following statements best expresses the law of diminishing marginal returns?

A)Because large-scale production allows the realization of increasing returns to scale, the costs of production vary directly with the level of output.
B)Population growth automatically adjusts to that level at which the average product per worker will be at a maximum.
C)As successive amounts of one resource (labour) are added to fixed amounts of other resources, beyond some point the resulting extra output will decline.
D)The same percentage increase in all inputs will result in a lower percentage increase in total output.
E)The same percentage increase in all inputs will result in a higher percentage increase in total output.

Question 19

Which of the following is a variable input?

A)production plants
B)machinery
C)land available for cultivation
D)labour
E)office buildings

Question 20

Businesses choose from several production processes by:

A)producing a given level of output with a process that minimizes costs
B)selecting the most efficient process of production given the price of each unit of output
C)using a balanced mix of inputs
D)choosing to be capital-intensive at all times
E)choosing to be labour-intensive at all times

Question 21

Which of the following is most likely to be a variable cost?

A)the purchase price of machinery
B)interest on bonds
C)rental payments on a business's leased photocopying equipment
D)real estate taxes
E)fuel and power payments

Question 22

If in the short run a business's total product is increasing,we know that:

A)marginal product must also be increasing
B)marginal product must be decreasing
C)marginal product could be either increasing or decreasing
D)average product must also be increasing
E)average product must be decreasing

Question 23

Average fixed cost:

A)is intersected by marginal cost at its minimum point
B)may be found for any output by adding average variable cost and average cost
C)graphs as a U-shaped curve
D)declines so long as output increases
E)graphs as a hill-shaped curve

Question 24

Marginal cost:

A)intersects both the average variable cost and the average cost curves at their minimum points
B)is defined as the difference between total cost and variable cost
C)rises for a time, but then begins to decline once the law of diminishing marginal returns begins to apply
D)declines so long as output increases
E)intersects the average fixed cost curve at its minimum point

Question 25

If average cost is declining,then:

A)marginal cost must be greater than average cost
B)the average fixed cost curve must lie above the average variable cost curve
C)the average fixed cost curve must lie below the average variable cost curve
D)total cost must also be declining
E)marginal cost must be less than average cost

Question 26

At output level 0Q:

A)marginal product is falling
B)marginal product is rising
C)marginal product is negative
D)marginal product is constant
E)one cannot determine whether marginal product is falling, rising, or staying constant

Question 27

Which of the following statements concerning the relationships among total product (TP),average product (AP),and marginal product (MP)is not correct?

A)AP continues to rise so long as TP is rising.
B)AP reaches a maximum before TP reaches a maximum.
C)TP reaches a maximum when the MP of the variable input becomes zero.
D)MP cuts AP at the maximum of AP.
E)MP reaches a maximum before AP reaches a maximum

Question 28

Which of the following statements is correct?

A)When total product is rising, both average product and marginal product must also be rising.
B)When marginal product is falling, total product must be falling.
C)When marginal product is falling, average product must also be falling.
D)Marginal product rises faster than average product, but falls more slowly than average product.
E)Marginal product rises faster than average product and also falls faster than average product.

Question 29

Average variable cost:

A)may be found for any output level by adding average cost and average fixed cost
B)decreases as output rises
C)increases as output rises
D)equals fixed costs divided by total product
E)graphs as a saucer-shaped curve

Question 30

Which of the following statements is correct?

A)Average variable cost intersects marginal cost at the latter's minimum point.
B)Marginal cost intersects average cost at the latter's minimum point.
C)Average fixed cost intersects marginal cost at the latter's minimum point.
D)Marginal cost intersects average fixed cost at the latter's minimum point.
E)Average variable cost intersects average fixed cost at the latter's minimum point

Question 31

Marginal cost:

A)is the total cost of producing each unit of output
B)is the change in total cost divided by the change in average product
C)rises as long as marginal product continues to fall
D)is average product divided by the change in total cost
E)is marginal product divided by the change in total cost

Question 32

Marginal cost may be defined as the:

A)rate of change in fixed costs that results from producing one more unit of output
B)change in total cost that results from producing one more unit of output
C)change in average variable cost that results from producing one more unit of output
D)change in average cost that results from producing one more unit of output
E)change in average fixed cost that results from producing one more unit of output

Question 33

The total output of a firm will be maximum where:

A)AP is zero
B)MP is at a maximum
C)AP is at a minimum
D)MP is zero
E)TP is zero

Question 34

Kline Shirts employs labour at $5 per hour and uses capital equipment that costs $80 per day to produce women's cotton shirts.The company's total cost,given 100 hours of labour,is:

A)$480
B)$500
C)$80
D)$580
E)$800

Question 35

At output level 0Q,average fixed cost:

A)is equal to EF
B)is equal to QE
C)is equal to QF
D)is equal to QD
E)must be increasing

Question 36

Which of the following is most likely to be a fixed cost?

A)shipping charges
B)property insurance premiums
C)wages for unskilled workers
D)expenditures for raw materials
E)wages for skilled workers

Question 37

If the difference between average cost (AC)and average variable cost (AVC)at 200 units is $5,at 400 units of output,the difference between AC and AVC must be:

A)less than $5
B)greater than $5
C)equal to $2
D)equal to $0.50
E)equal to $10

Question 38

In this diagram,curves 1,2,and 3 represent the:

A)average, marginal, and total product curves, respectively
B)marginal, average, and total product curves, respectively
C)total, average, and marginal product curves, respectively
D)total, marginal, and average product curves, respectively
E)marginal, total, and average product curves respectively

Question 39

The relationship between the marginal cost and the average cost schedules is such that:

A)the behaviour of one schedule does not affect the other
B)if AC exceeds MC, MC must be rising
C)if MC is declining, AC may be either declining or rising
D)if AC exceeds MC, MC must be declining
E)if MC is below AC, AC must be declining

Question 40

If total cost is $30 at 10 units of output and $32 at 11 units of output,in this range of output,marginal cost is:

A)$2
B)$31
C)$32
D)$1
E)zero

Question 41

Consider the following cost data:

$\begin{array} { | l | c | c | c | c | c | c | c | } \hline \text { Output } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Total Cost (\$) } & 24 & 33 & 41 & 48 & 54 & 61 & 69 \\\hline\end{array}$

-In the long run:

A)all costs are variable costs
B)all costs are fixed costs
C)variable costs equal fixed costs
D)fixed costs are greater than variable costs
E)all costs become implicit costs

Question 42

Suppose your firm is in a range of production where it is experiencing increasing returns to scale.Knowing this,we can predict that:

A)the long-run average cost curve is upward-sloping
B)the firm operates within a primary industry
C)the method of production used is characterized by the repetition of exactly the same tasks
D)production techniques may include the use of assembly lines
E)the long-run average cost curve is horizontal

Question 43

Consider the following cost data:

$\begin{array} { | l | c | c | c | c | c | c | c | } \hline \text { Output } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Total Cost (\$) } & 24 & 33 & 41 & 48 & 54 & 61 & 69 \\\hline\end{array}$

-In the long run:

A)very few inputs can be adjusted
B)the law of diminishing marginal returns no longer has the same importance as in the short run
C)more variable inputs become fixed
D)business decisions become less efficient
E)output cannot be adjusted

Question 44

The separation of ownership and control in a corporation results in:

A)co-operative decision-making by management and owners
B)decisions by management that represent the best interests of the corporation's owners
C)the removal of any threats of takeover
D)the possibility that management actions will go against the interests of owners
E)decision-making power resting in the hands of owners and not managers

Question 45

Increasing returns to scale are indicated by:

A)the rising segment of the average variable cost curve
B)the declining segment of the long-run average cost curve
C)the difference between total revenue and total cost
D)a rising marginal cost curve
E)the falling segment of the average fixed cost curve

Question 46

Consider the following cost data:

$\begin{array} { | l | c | c | c | c | c | c | c | } \hline \text { Output } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Total Cost (\$) } & 24 & 33 & 41 & 48 & 54 & 61 & 69 \\\hline\end{array}$

-The variable cost of producing 5 units of output is:

A)$61
B)$48
C)$37
D)$24
E)$5

Question 47

Primary industries are generally characterized by:

A)long-run average cost curves that become positively sloped at relatively low levels of output
B)production techniques using a high degree of specialization
C)decreasing average costs as production rises
D)assembly-line techniques
E)a significant range of production with constant returns to scale

Question 48

Decreasing returns to scale may occur because:

A)there are unlimited wants in any society
B)natural resources are limited
C)management easily co-ordinates operations to ensure efficient production
D)inventions of new technology are on the rise
E)there are limited wants in any society

Question 49

Increasing returns to scale in an industry:

A)give all businesses a competitive advantage
B)increase a business's chance of becoming larger in size
C)generally means that businesses are relatively small
D)lead to an increase in small business entries within the industry
E)are more common in resource-based industries

Question 50

The position of these five curves in relation to one another reflects:

A)the law of opportunity costs
B)increasing and decreasing returns to scale
C)the effect of fixed costs upon AC as output increases
D)the law of constant costs
E)the law of demand

Question 51

Consider the following cost data:

$\begin{array} { | l | c | c | c | c | c | c | c | } \hline \text { Output } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Total Cost (\$) } & 24 & 33 & 41 & 48 & 54 & 61 & 69 \\\hline\end{array}$

-The average fixed cost of producing 3 units of output is:

A)$8
B)$7.40
C)$5.50
D)$6
E)$16

Question 52

When decreasing returns to scale occur:

A)the long-run average cost curve falls
B)marginal cost intersects average cost
C)the long-run average cost curve rises
D)average fixed cost will rise
E)average variable cost will fall

Question 53

Consider the following cost data:

$\begin{array} { | l | c | c | c | c | c | c | c | } \hline \text { Output } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Total Cost (\$) } & 24 & 33 & 41 & 48 & 54 & 61 & 69 \\\hline\end{array}$

-The average cost of producing 3 units of output is:

A)$14
B)$12
C)$13.67
D)$16
E)$48

Question 54

The advantages of the corporate form of business include:

A)the ability to operate without being taxed
B)the fact that owners are subject to unlimited liability
C)guaranteed co-operation between management and owners
D)the guarantee to shareholders of a positive return on their financial investments
E)the ability to raise money capital by selling stocks and bonds

Question 55

Refer to the above diagram.To produce output 0x,in the long run the firm should choose a plant of size:

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

Question 56

One possible explanation for increasing returns to scale is:

A)the use of more inputs in production
B)a decrease in the price of inputs
C)an increase in the price of inputs
D)increased specialization in production tasks

Question 57

The long-run average cost curve:

A)will rise once the law of diminishing marginal returns begins to apply
B)will fall once the law of diminishing marginal returns begins to apply
C)will rise if increasing returns to scale apply
D)will be vertical if constant returns to scale apply
E)is based on the assumption that all resources are variable

Question 58

Constant returns to scale result when:

A)making a product involves repeating exactly the same tasks every time the item is made
B)a business uses exactly the same total amount of inputs
C)output increases by a greater percentage than an increase in inputs
D)specialized machinery is used in production
E)output increases by a smaller percentage than an increase in inputs

Question 59

Decreasing returns to scale occur when a business:

A)increases output by the same percentage as it increases all inputs for a certain product
B)increases inputs by a given percentage to increase output by a higher percentage
C)decreases inputs to produce a higher percentage increase in output
D)increases inputs in order to produce a smaller percentage increase in output
E)decreases both inputs and output simultaneously