Deck 5: Supply Decisions

Question 1

The factors of production include:

A) Money.
B) Profit.
C) Land,labor,capital,and entrepreneurship.
D) Output in a production function.

Answer 1

C

Question 2

If the first,second,third and forth worker employed by the firm add 15,21,12 and 8 units of total product respectively,we can conclude that:

A) The marginal product of all four workers is 14.
B) The total product of two workers is 42.
C) That after the second worker marginal product declines.
D) That adding a forth worker will cause total product to decline.

Answer 2

C

Question 3

Marginal physical product is:

A) Equal to the average output of a worker.
B) The additional utility a consumer gets from the last unit of a product.
C) The additional output from using one more unit of labor.
D) Equal to the total product of labor.

Answer 3

C

Question 4

The maximum output that can be produced from a set of inputs is measured by:

A) The production function.
B) The demand schedule.
C) Fixed costs.
D) Marginal costs.

Question 5

Assume a restaurant hires an additional chef who is as qualified as the current chefs.As a result,the level of output increases but by a smaller amount than when the previous additional chef was hired.Which of the following best explains this occurrence?

A) The chefs are working with a fixed amount of space and equipment and they get in each other's way.
B) The additional wages cause profit to decrease.
C) The amount of food available for preparation is limited so output decreases.
D) The two chefs do not agree on food preparation and spend too much time arguing.

Question 6

Assume a toy company hires an additional worker to assemble toys,and the size of the factory and amount of equipment remain constant.As a result,the level of output increases but by a smaller amount than when the previous additional worker was hired.This is an example of:

A) The law of poor planning.
B) The law of diminishing returns.
C) Say's Law.
D) The law of substitution.

Question 7

Which of the following are factors of production for a typical college?

A) Sporting event tickets
B) Tuition
C) Parking fees
D) The library

Question 8

If more of an input factor is used,while holding other inputs constant,a firm will eventually experience:

A) Diminishing returns.
B) Falling marginal cost.
C) Rising marginal physical product.
D) Rising consumer demanD.

Question 9

The limits to the production of any good are reflected in the:

A) Law of demand.
B) Capacity curve.
C) Demand curve.
D) Production function.

Question 10

The change in total output that results from one additional unit of input is the:

A) Marginal physical product.
B) Average product of the input.
C) Unit cost of the input.
D) Input price.

Question 11

As more labor is hired in the short run,diminishing returns are observed because:

A) The new workers are lazy.
B) The new workers have less capital and land to work with.
C) All the workers begin to socialize more and work less.
D) The new workers are less skilleD.

Question 12

The law of diminishing returns can explain why:

A) Marginal cost eventually increases in the short run as more output is produced.
B) The demand curve is typically downward sloping.
C) The average fixed-cost curve declines as long as output increases.
D) Marginal cost decreases as more output is produceD.

Question 13

When a firm produces a level of output on the production function:

A) Marginal physical product is zero.
B) Maximum efficiency is achieved.
C) Opportunity cost for resources is at a maximum.
D) Profits are maximizeD.

Question 14

Land,labor,capital and entrepreneurship are called:

A) Factors of production.
B) Factors of demand.
C) Fixed costs.
D) Variable costs.

Question 15

Which of the following are factors of production for Terry's Taco Patio?

A) Economic costs and money
B) Average total cost and entrepreneurship
C) Productivity and labor
D) Corn tortillas and meat

Question 16

The law of diminishing returns indicates that the marginal physical product of a factor declines as more:

A) Output is produced with the most efficient combination of factors.
B) Of the factor is used,holding output constant.
C) Of the factor is used,holding other inputs constant.
D) Of the good is consumeD.

Question 17

The law of diminishing returns means that:

A) The total product production function will eventually increase at a decreasing rate.
B) The marginal product will increase at an increasing rate.
C) Average total costs are rising and then falling as output is increased.
D) Average fixed cost will fall as production increases.

Question 18

Which of the following is a factor of production for Cathy's Cookies?

A) Productivity
B) Flour
C) Money
D) Cookies

Question 19

Ceteris paribus,the law of diminishing returns states that beyond some point the:

A) Return on stocks and bonds diminish as more are purchased.
B) Addition to total utility declines as more units are consumed.
C) Marginal physical product of a variable input declines as more of it is used.
D) Output of any good or service increases as more variable input is useD.

Question 20

Which of the following statements concerning the relationship between total product (TP)and marginal physical product (MPP)is not correct?

A) TP will continue to rise even though MPP is falling but greater than zero.
B) TP is increasing at an increasing rate if MPP is increasing.
C) TP will fall if MPP is negative.
D) TP will fall if MPP is falling.

Question 21

Total revenue minus total cost equals:

A) Profit.
B) Variable costs.
C) Economic costs.
D) Marginal revenue.

Question 22

Which of the following is equivalent to average total cost?

A) Fixed cost plus variable cost.
B) Fixed cost and variable cost added together and then divided by output.
C) The change in total cost divided by the change in output.
D) Marginal cost plus variable cost.

Question 23

Which of the following will always increase as output increases?

A) Total cost
B) Average total cost
C) Marginal cost
D) Fixed costs

Question 24

A firm can be identified as profitable if the:

A) Sum of total revenue and total costs is high.
B) Difference between its total revenue and total costs is negative.
C) Difference between its total revenue and total costs is positive.
D) Total costs and marginal costs are low.

Question 25

Average total cost is defined as:

A) Total cost divided by the quantity produced.
B) The change in total cost because of a one-unit increase in output.
C) The change in total output divided by the change in total cost.
D) Total output times total cost.

Question 26

Costs of production that do not change with the rate of output are:

A) Nonexistent.
B) Variable costs.
C) Fixed costs.
D) Marginal costs.

Question 27

Total cost is equal to _____ costs at an output level of zero.

A) Variable
B) Fixed
C) Economic
D) Marginal

Question 28

The most desirable rate of output is the one that:

A) Minimizes total costs.
B) Maximizes total profit.
C) Minimizes marginal costs.
D) Maximizes total revenue.

Question 29

The average total cost curve is:

A) Always upward sloping.
B) U-shaped.
C) Flat.
D) Always downward sloping.

Question 30

The sum of fixed cost and variable cost at any rate of output is equal to:

A) Average total cost.
B) Total profit.
C) Total cost.
D) Marginal cost.

Question 31

Costs of production that change with the rate of output are:

A) Sunk costs.
B) Fixed costs.
C) Opportunity costs.
D) Variable costs.

Question 32

It is impossible to:

A) Determine total costs in the short run.
B) Identify variable costs in the long run.
C) Identify variable costs in the short run.
D) Avoid fixed costs in the short run.

Question 33

Which of the following is most likely a fixed cost?

A) Raw materials
B) Labor cost
C) Shipping costs
D) Property taxes

Question 34

The market value of all resources used in producing a good or service is expressed by:

A) Implicit costs.
B) Total costs.
C) Fixed costs.
D) Variable costs.

Question 35

When producing jeans,which of the following are not a variable cost in the short run?

A) Wages
B) Zippers
C) Rent for the factory
D) Denim material

Question 36

Which of the following is the best explanation of why the law of diminishing returns does not apply in the long run?

A) All factors of production are variable in the long run.
B) The MPP does not change in the long run.
C) In the long run,firms have enough time to find more qualified workers.
D) All factors of production are fixed in the long run.

Question 37

Profit is the difference between:

A) Total cost and variable cost.
B) Total revenue and total cost.
C) Marginal cost and fixed cost.
D) Average total cost and economic cost.

Question 38

Which of the following is most likely a variable cost in the short run?

A) Labor
B) Property taxes
C) Rent
D) A business license

Question 39

If a firm increases output,total costs will rise because of a change in:

A) Fixed costs.
B) Absolute costs.
C) Variable costs.
D) Regular costs.

Question 40

Which of the following is equivalent to total cost?

A) Fixed costs plus variable costs.
B) Variable costs plus marginal costs.
C) Economic costs plus accounting costs.
D) Marginal costs plus implicit costs.

Question 41

Marginal cost:

A) Is the change in fixed cost divided by the change in quantity.
B) May initially decline and then increases as more output is produced.
C) May initially increase and then falls as more output is produced.
D) Is fixed cost and variable cost added together and then divided by quantity.

Question 42

The main difference to an economist between "short-run" and "long-run" is that:

A) Variable costs are short-run investment decisions where as fixed costs are long-run production decisions.
B) In the short-run all resources are fixed where as in the long-run all resources are variable.
C) In the long-run all resources are variable where as in the short-run at least one resource is fixed.
D) Fixed costs are more important then variable costs in the short-run.

Question 43

If an additional unit of labor costs $30 and has an MPP of 50 units of output,the marginal cost is:

A) $0.60.
B) $1.66.
C) $15.00.
D) $1500.

Question 44

If an additional unit of labor costs $40 and has an MPP of 50 units of output,the marginal cost is:

A) $2,000.00.
B) $40.00.
C) $1.25.
D) $0.

Question 45

When a firm makes an investment decision,it views all inputs as:

A) Variable over the long run.
B) Variable over the short run.
C) Fixed over the long run.
D) Fixed over the short run.

Question 46

If price is greater than marginal cost for the last unit produced:

A) Profit is increasing.
B) Profit is decreasing.
C) Only economic costs are being covered.
D) Average total cost is covereD.

Question 47

Which of the following must be considered in long run planning?

A) Production choices.
B) Fixed costs.
C) Investment choices.
D) Declining marginal physical product.

Question 48

If an additional unit of labor costs $25 and has an MPP of 40 units of output,the marginal cost is:

A) $0.63.
B) $1.60.
C) $25.00.
D) $1,000.

Question 49

Rising marginal costs result from:

A) Rising marginal physical product.
B) Falling prices of variable inputs.
C) Falling marginal physical product.
D) Rising prices of fixed inputs.

Question 50

The selection of the short-run rate of output is the:

A) Production decision.
B) Investment decision.
C) Marginal decision.
D) Industrial decision.

Question 51

In the long run,a company will stay in business as long as price is:

A) Greater than or equal to marginal costs.
B) Equal to variable costs.
C) Equal to marginal physical product.
D) Greater than or equal to average total costs.

Question 52

The decision to build,buy,or lease a plant is known as the:

A) Output decision.
B) Profit-maximizing decision.
C) Production decision.
D) Investment decision.

Question 53

If price is greater than marginal cost but not average total cost,then:

A) Total revenues are greater than total costs.
B) The firm is earning a profit.
C) Eventually the firm will go out of business.
D) The firm is experiencing diminishing marginal utility.

Question 54

In the short run,a manufacturer should produce the next unit of output as long as:

A) Marginal cost is greater than price.
B) Price is greater than total cost.
C) Price is greater than marginal cost.
D) Price equals total cost.

Question 55

Marginal cost will increase with greater output if:

A) Marginal physical product is declining.
B) Marginal physical product is increasing.
C) Total variable cost is decreasing.
D) Total fixed cost is increasing.

Question 56

Marginal cost is equal to:

A) Total cost divided by output.
B) The change in total cost divided by the change in output.
C) The change in total cost divided by the change in price.
D) Total cost divided by total revenue.

Question 57

The short-run supply decision focuses on:

A) Marginal output versus price.
B) Marginal cost versus price.
C) Average total cost versus marginal revenue.
D) Variable costs versus fixed costs.

Question 58

Which of the following is not a long-run investment decision?

A) Whether to buy or lease equipment.
B) The size of the factory.
C) Whether or not to enter into the industry.
D) How intensively to use the existing plant.

Question 59

The reason the average total cost curve declines initially is because of:

A) Falling average fixed cost.
B) Falling average variable costs.
C) Falling marginal cost.
D) Falling average fixed cost and falling average variable costs.

Question 60

Rising marginal costs are the result of:

A) Increasing returns to scale.
B) Rising marginal physical product.
C) The law of variable returns.
D) The law of diminishing returns.

Question 61

Which of the following definitions is correct?

A) Economic costs + accounting costs = Profit.
B) Economic profit = accounting profit - implicit costs.
C) Economic profit - implicit costs = accounting profits.
D) Economic costs + explicit costs + implicit costs.

Question 62

In defining costs,economists recognize:

A) Explicit and implicit costs while accountants recognize only implicit costs.
B) Explicit and implicit costs while accountants recognize only explicit costs.
C) Only explicit costs while accountants recognize only implicit costs.
D) Only explicit costs while accountants recognize explicit and implicit costs.

Question 63

Economic costs are greater than accounting costs:

A) Only if implicit costs are greater than zero.
B) Only if explicit costs are greater than implicit costs.
C) Only in the long run.
D) In the short run but not the long run.

Question 64

Economic profit is equal to total revenue minus:

A) Explicit costs.
B) Implicit costs.
C) Both implicit costs and explicit costs.
D) Marginal costs.

Question 65

Which of the following government policies is least likely to increase productivity?

A) Subsidies for schools
B) Student loans
C) Tax incentives for firms that invest in capital
D) Transfer payments to unemployed workers

Question 66

The planning period over which at least one resource input is fixed in quantity is the:

A) Long run.
B) Production run.
C) Short run.
D) Investment decision.

Question 67

Suppose a firm has the following expenditures per day: $240 for wages,$150 for materials,and $80 for equipment rental.The owner of the firm owns the building in which it operates.If the firm were not operating in the building,he could rent the building for $70 per day.Total daily revenue is $600.
What are the daily explicit costs for the firm described above?

A) $320
B) $390
C) $400
D) $470

Question 68

During the long run:

A) Output is limited by the law of diminishing returns.
B) The firm can build or lease any size factory.
C) Some inputs are fixed and some are variable.
D) There are no economic costs.

Question 69

During the short run:

A) All inputs can be changed.
B) Some inputs are fixed.
C) Factory size can be changed.
D) The number of workers cannot be changeD.

Question 70

A firm's rising factor costs can be offset by:

A) Increases in productivity.
B) Diminishing marginal product.
C) Diminishing marginal utility.
D) Rising marginal cost.

Question 71

Based on the law of diminishing returns,if the number of workers increases and capital investments do not keep pace then,ceteris paribus:

A) Marginal physical product of labor will increase.
B) Marginal physical product of labor will decrease.
C) The production function will definitely shift upward.
D) The average total cost curve will definitely decrease.

Question 72

The best measure of the economic cost of doing your homework is:

A) The tuition you pay for the class.
B) The amount you would have to pay to get someone else to do it.
C) Your instructor's salary.
D) The best opportunity you give up when you do your homework.

Question 73

Economic cost is:

A) Equal to explicit costs minus implicit costs.
B) The same as dollar costs.
C) Equal to the accounting cost minus implicit costs.
D) The value of all resources used to produce a good or service.

Question 74

Economic and accounting costs will differ:

A) Whenever there is more than one factor of production.
B) Whenever the firm fails to maximize its profits.
C) Whenever any factor of production is not paid an explicit factor payment equal to its market value.
D) In every case.

Question 75

Suppose a firm has the following expenditures per day: $240 for wages,$150 for materials,and $80 for equipment rental.The owner of the firm owns the building in which it operates.If the firm were not operating in the building,he could rent the building for $70 per day.Total daily revenue is $600.
What are the daily accounting costs for the firm described above?

A) $320
B) $390
C) $470
D) $540

Question 76

Suppose a firm has the following expenditures per day: $240 for wages,$150 for materials,and $80 for equipment rental.The owner of the firm owns the building in which it operates.If the firm were not operating in the building,he could rent the building for $70 per day.Total daily revenue is $600.
What are the daily implicit costs for the firm described above?

A) $70
B) $80
C) $150
D) $220

Question 77

Suppose a firm incurred explicit costs of $900 and implicit costs of $200 during a day.If that day the firm sold 8 units at $300 per unit its accounting profits are:

A) $1,500 and its economic profits are $1,700
B) $1,500 and its economic profits are $1,300
C) $1,300 and its economic profits are $1,700
D) $1,300 and its economic profits are $1,300

Question 78

Which of the following is true about the short run?

A) Some inputs are fixed.
B) It is less than one year.
C) It is one to two years.
D) All inputs are variable.

Question 79

Explicit costs:

A) Include only payments to labor.
B) Are the sum of actual monetary payments made for resources used to produce a good.
C) Include the market value of all resources used to produce a good.
D) Are the total value of resources used to produce a good but for which no monetary payment is actually made.

Question 80

The long run refers to:

A) A time period longer than one year.
B) A time period less than one year.
C) A period of time long enough for all inputs to be varied.
D) The time period required for a firm to cycle its inventory.