Deck 11: Technology, production, and Costs

Question 1

Which of the following statements is false?

A)An explicit cost is a nonmonetary opportunity cost.
B)In the short run: total cost = fixed cost + variable cost.
C)Variable costs are costs that change as output changes.
D)In the long run there are no fixed costs.

Answer 1

An explicit cost is a nonmonetary opportunity cost.

Question 2

In the long run which of the following is true?

A)Total cost = fixed cost + variable cost.
B)The size of a firm's physical plant can be changed but the firm cannot adopt new technology.
C)There are no fixed costs.
D)The firm can vary its explicit costs but not its implicit costs.

Answer 2

There are no fixed costs.

Question 3

When firms analyze the relationship between their level of production and their costs they separate the time period involved into

A)morning and evening.
B)6 months or less; 6 months to 1 year; more than 1 year.
C)a fixed period and a variable period.
D)the short run and the long run.

Answer 3

the short run and the long run.

Question 4

A "stockout" occurs when

A)brokers run out of shares of stock to sell of a particular company.
B)a disruption due to a power outage,etc.,causes a temporary production shutdown.
C)a company holds too many goods in inventories.
D)a firm loses sales because goods consumers want are not available.

Question 5

Technological change is a key reason why Wal-Mart has become one of the largest firms in the world.Which of the following is a change in technology implemented by Wal-Mart?

A)Wal-Mart developed a supply chain that allows it to manage inventories efficiently.
B)Instead of buying goods it sells from other companies,Wal-Mart makes many of these goods in its own factories.
C)Wal-Mart employs hundreds of scientists and engineers who develop new cost-saving techniques.
D)Wal-Mart hires managers from many of the top business schools in the United States.

Question 6

When a firm experiences a positive technological change

A)the price of a share of the firm's stock rises.
B)the firm is able to produce more output using the same inputs,or the same output using fewer inputs.
C)the value of the firm's assets rises.
D)the firm will hire additional workers in order to increase production.

Question 7

The long run refers to a time period

A)during which a firm is able to purchase all of its inputs,including its plant and equipment.
B)long enough for a firm to vary all of its inputs,to adopt new technology and change the size of its physical plant.
C)long enough for a firm to pay all of its creditors in full.
D)long enough for a firm to change the use of its variable inputs.

Question 8

Which of the following are examples of a firm experiencing a positive technological change?
a.A firm is able to reduce its inputs by 15 percent and still produce the same level of output.
b.A seminar attended by the firm's workers makes them more productive.
c.A firm adds 5 percent to its workforce and is able to maintain its initial level of output.
d.A firm restructures its distribution system and is able to save on its shipping times.
e.A firm rearranges its warehouse and finds that it can use fewer workers to maintain its productivity level.

Question 9

When a firm experiences negative technological change it can produce the same output with fewer inputs.

Question 10

Which of the following is typically considered a fixed cost by academic book publishers but a variable cost by companies that print books?

A)postage and supplies
B)travel
C)rent
D)wages and salaries

Question 11

Improvements in technology used to produce solar panels allow manufacturers such as 1366 Technologies to produce

A)more output using the same inputs,thereby reducing average total cost.
B)the same output using more inputs,thereby reducing average total cost.
C)more output using more inputs,thereby reducing total fixed cost.
D)the same output using fewer inputs,thereby reducing total fixed cost.

Question 12

Which of the following statements best describes the economic short run?

A)It is a period of one year or less.
B)It is a period during which firms are free to vary all of their inputs.
C)It is a period during which at least one of the firm's inputs is fixed.
D)It is a period during which fixed inputs become variable inputs because of depreciation.

Question 13

In economics,technology only refers to the development of new products.

Question 14

When a firm produces more output using the same inputs or the same output using fewer inputs we say that the firm

A)experiences an increase in demand.
B)experiences positive technological change.
C)will hire more workers in order to produce more output.
D)is operating in the short run.

Question 15

The processes a firm uses to turn inputs into outputs of goods and services is called

A)technology.
B)technological change.
C)marginal analysis.
D)positive economic analysis.

Question 16

Which of the following are implicit costs for a typical firm?

A)the cost of labor
B)the opportunity cost of capital owned and used by the firm
C)the cost of energy used in production
D)a business licensing fee

Question 17

Which of the following can a firm do in the long run but not in the short run?

A)decrease the size of its physical plant
B)reduce its rate of output by laying off workers
C)increase its variable costs
D)increase its use of raw materials

Question 18

Describe the difference between technology and positive technological change.

Question 19

The basic activity of a firm is

A)to set the prices of its products as high as possible.
B)to compete with other firms that produce similar products.
C)to provide jobs for its employees.
D)to use inputs to produce outputs of goods and services.

Question 20

Which of the following statements correctly describes the distinction between technology and technological change?

A)Technology refers to the processes used by a firm to transform inputs into output of goods and services while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs.
B)Technology refers to the ability of a firm to increase its maximum output from a given quantity of inputs and technological change is the process by which the firm achieves this productivity gain.
C)Technology is product-centered; its refers to developing new products with limited resources while technological change is process-centered in that it focuses on developing new production techniques.
D)Technology involves research and development while technological change involves the use of more efficient machinery.

Question 21

In the long run,all of a firm's inputs are variable.

Question 22

Sally quit her job as an auto mechanic earning $50,000 per year to start her own business.To save money she operates her business out of a small building she owns which,until she started her own business,she had rented out for $10,000 per year.She also invested her $20,000 savings (which earned a market interest rate of 5% per year)in her business.You are given the following information about the first year of her operations.
Total revenue $120,000
Cost of labor 40,000
Cost of materials 15,000
Equipment rental 5,000
a.Calculate her economic costs.
b.Calculate her accounting costs.
c.Calculate her implicit costs.
d.Sally tells you that she would really like to move to a location closer to town but she decided against it because "right now I don't pay any rent and it will cost me $10,000 a year to rent near town." Do you agree with her reasoning?

Question 23

The relationship between the inputs employed by a firm and the maximum output that it can produce with those inputs is the firm's

A)production function.
B)supply curve,or supply schedule.
C)marginal product of labor.
D)average product of labor.

Question 24

Are the costs of utilities always fixed,always variable,or can they be both? Briefly explain.

Question 25

The Santa Fe Spark Plug Company supplies spark plugs to automotive parts dealers.An increase in the demand for its product led Santa Fe to hire 150 new workers.Santa Fe also plans to expand the capacity of its plant but this project will take 2 years to complete.Which of the following statements is true?

A)The wages and benefits paid to the new workers are implicit costs.
B)The long run for Santa Fe is longer than 1 year.
C)The short run for Santa Fe is 1 year.
D)In the short run Santa Fe's variable costs increase but its fixed costs decrease.

Question 26

Which of the following statements is false?

A)An implicit cost is a nonmonetary opportunity cost.
B)Economic costs include both accounting costs and implicit costs.
C)An explicit cost is a cost that involves spending money.
D)Economists consider all costs to be implicit costs.

Question 27

Economic costs include implicit costs but not explicit costs.

Question 28

Which of the following statements is true?

A)Opportunity cost = explicit cost - implicit cost.
B)Total cost = fixed cost + implicit cost.
C)Total cost = fixed cost + variable cost.
D)Variable cost = wages + salaries + benefits.

Question 29

In the short-run,changes in output can only be brought about by a change in the quantity of variable inputs.

Question 30

Costs that change as output changes are called incremental costs.

Question 31

Bill owns "Bill's Home of Blues" a store that specializes in selling CDs and DVDs of blues musicians of the 1960s and 1970s.Bill took out a loan from his bank to pay for his store and its initial inventory.Bill pays the bank $900 per week for his loan.The $900 bank payment

A)is a long-run implicit cost.
B)is a fixed cost.
C)is a short-run implicit cost.
D)is a variable cost.

Question 32

Stan owns a software design business.He does not have time to expand his office space or redesign the layout of his office.He can increase the amount of work he does by working more hours,asking his current employees to work more hours,or hiring more employees.The relationship between Stan's inputs and the maximum output his firm can produce is called his

A)long-run production function.
B)production possibilities frontier.
C)short-run production function.
D)cost function.

Question 33

Average total cost is

A)total cost divided by the quantity of output produced.
B)total explicit costs divided by the quantity of output produced.
C)variable cost divided by the quantity of output produced.
D)the change in fixed plus variable cost divided by the quantity of output produced.

Question 34

An explicit cost is defined as

A)a cost that does not change as output changes.
B)a nonmonetary opportunity cost.
C)a cost that involves spending money.
D)a nonmonetary accounting cost.

Question 35

Jennifer Borts moves her office from the premises she rents at a local mall to her home.As a result of this move

A)Jennifer's explicit costs fall and her implicit costs rise.
B)Jennifer's total costs fall.
C)Jennifer's implicit costs fall.
D)Jennifer's opportunity costs fall.

Question 36

The rules of accounting generally require that ________ costs be used for purposes of keeping a company's financial records and for paying taxes.These costs are sometimes called ________ costs.

A)economic; legal
B)real; explicit
C)total; economic
D)explicit; accounting

Question 37

Stan owns a software design business.He obtained a bank loan to buy computer equipment for his business.He pays $1,000 per month for interest on the loan.He has 10 employees,each of whom is paid $4,000 per month.Because his business has been successful,next month he will increase employee wages to $5,000.If the revenue from his business remains at its current level,Stan is considering an addition to his office.Which of the following statements regarding Stan's business is false?

A)The payments Stan makes to his employees are variable costs and explicit costs.
B)The monthly payment Stan makes for his bank loan is an implicit cost.
C)The monthly payment Stan makes for his bank loan is a fixed cost.
D)The time and effort Stan spends on his software design business is an implicit cost.

Question 38

The total cost schedule shows the relationship between different amounts of inputs and the resulting level of output.

Question 39

What is the difference between between total costs,variable costs,and fixed costs?

Question 40

Which of the following statements is true?

A)An explicit cost is an actual cost; an implicit cost is a theoretical cost.
B)Economic costs include both explicit costs and implicit costs.
C)An explicit cost is more important,dollar for dollar,than an implicit cost.
D)Explicit costs are accounting costs,not economic costs; implicit costs are economic costs,not accounting costs.

Question 41

The law of diminishing marginal returns

A)sets in because not all workers are equally productive.
B)applies only in the short run.
C)holds even when there are no fixed factors.
D)ultimately explains why production displays diseconomies of scale.

Question 42

Gertrude Stork's Chocolate Shoppe normally employs 4 workers.When the Chocolate Shoppe hired a 5th worker the Shoppe's total output decreased.Therefore,

A)the marginal product of the 5th worker is negative.
B)the total output of Gertrude Stork's Chocolate Shoppe is negative.
C)the average product of the 5th worker is negative.
D)the 5th worker should be hired only if he is willing to accept a wage lower than the wage paid to the other 4 workers.

Question 43

The total output produced by a firm divided by the quantity of workers employed by the firm is the definition of

A)the marginal product of labor.
B)the division of labor.
C)the average product of labor.
D)the average cost of production.

Question 44

The division of labor and specialization explain

A)why,when the marginal product of labor increases,so does the average product of labor.
B)why the average product of labor falls when firms use more capital or change the layout of their businesses.
C)why the marginal product of labor rises as a firm hires its first units of labor.
D)why firms may find it profitable to use more workers when the marginal product of labor is negative.

Question 45

Which of the following describes how output changes in the short run? Because of specialization and the division of labor,as more workers are hired

A)output will first increase at an increasing rate,then output will increase at a decreasing rate.
B)output will first decrease at an increasing rate,then increase at a decreasing rate.
C)the marginal product of labor will first decrease,then increase at a decreasing rate.
D)the marginal product of labor will first be negative and then will be positive.

Question 46

Diminishing marginal product of labor occurs when adding another unit of labor

A)decreases output.
B)changes output by an amount smaller than the output added by the previous unit of labor.
C)increases output by an amount larger than the output added by the previous unit of labor.
D)decreases output by an amount smaller than the output added by the previous unit of labor.

Question 47

In the short run,why does a production function eventually display diminishing returns to labor?

A)As the number of workers increases it becomes difficult to monitor them.
B)As a firm hires more workers the skills and the work ethic of the additional workers will eventually decline.
C)As the number of workers increases eventually the gains from the division of labor and specialization are used up.
D)The opportunity cost of hiring additional workers must eventually rise.

Question 48

The marginal product of labor is calculated using the formula

A)L/Q.
B)ΔL/ΔQ.
C)ΔQ/ΔL.
D)Q/L.

Question 49

Sam Lewis owns a firm in New York City's garment district.If Sam keeps adding workers to use the same number of sewing machines,eventually the workplace will become so crowded that workers will get in each other's way.At this point

A)the marginal product of labor in Sam's business would be negative and his total output would decrease.
B)Sam should encourage his workers to share their sewing machines.
C)Sam's business will be in violation of safety rules that have been established by the New York City government.
D)Sam should begin using a division of labor in his business.

Question 50

Table 11-1
Table 11-1 summarizes production at the Crunchy Apple Orchard for the month of April 2005.
Refer to Table 11-1.What is the marginal product of the 4th worker?

A)230 bushels
B)57.4 bushels
C)50 bushels
D)12.4 bushels

Question 51

The marginal product of labor is defined as

A)the change in total revenue that results when an additional unit of a labor is hired.
B)the additional labor required to produce one more unit of output.
C)the additional labor cost of producing one more unit of output.
D)the change in output that a firm produces as a result of hiring one more worker.

Question 52

Figure 11-1 Fancy Footwear manufactures shoes.Figure 11-1 shows Fancy Footwear's marginal product of labor and average product of labor curves in the short run.
Refer to Figure 11-1.For what quantity of labor does production display diminishing returns?

A)for more than 1 units of labor
B)for more than 4 unit of labor
C)for more than 5 units of labor
D)for more than 8 units of labor

Question 53

If 11 workers can produce 53 units of output while 12 workers can produce 56 units of output,what is the marginal product of the 12th worker?

A)0.16
B)3
C)4.67
D)36

Question 54

Figure 11-1 Fancy Footwear manufactures shoes.Figure 11-1 shows Fancy Footwear's marginal product of labor and average product of labor curves in the short run.
Refer to Figure 11-1.Which of the following statements correctly describes the curves in the figure?

A)The marginal product of labor curve is represented by curve A and the average product of labor curve is represented by curve B.
B)The marginal product of labor curve is represented by curve B and the average product of labor curve is represented by curve A.
C)Curve A could represent either the average product curve or the marginal product and curve.Curve B represents the total product curve.
D)Curve B could represent either the average product curve or the marginal product curve.Curve A represents the total product curve.

Question 55

An avocado orchard employs five full-time workers.Currently,the average product of labor is 120 pounds of avocados per day.The orchard hires a 6th full-time worker and his marginal product is 150 pounds of avocados.The average product of the six workers will now be

A)more than 120 pounds.
B)less than 120 pounds.
C)equal to 120 pounds.
D)less than the marginal product of labor.

Question 56

Which of the following statements is true?

A)The average product of labor is at its maximum when the average product of labor equals the marginal product of labor.
B)The average product of labor is at its minimum when the average product of labor equals the marginal product of labor.
C)The average product of labor tells us how much output changes as the quantity of workers hired changes.
D)Whenever the marginal product of labor is greater than the average product of labor the average product of labor must be decreasing.

Question 57

After Suzie,owner of Suzie's Sweet Shop,hires her 8th worker the average product of labor declines.Which of the following statements must be true?

A)The marginal product of the 8th worker is negative.
B)The marginal product of the 8th worker is less than the average product of labor before the 8th worker was hired.
C)Suzie's profits would be greater if she did not hire the 8th worker.
D)The average product of labor is negative.

Question 58

Table 11-1
Table 11-1 summarizes production at the Crunchy Apple Orchard for the month of April 2005.
Refer to Table 11-1.What is the average product of labor when the orchard employs 5 workers?

A)270 bushels
B)54 bushels
C)40 bushels
D)8 bushels

Question 59

Increases in the marginal product of labor result from

A)the use of new technology.
B)hiring more efficient workers.
C)the division of labor and specialization.
D)increasing the usage of all inputs.

Question 60

In his book The Wealth of Nations,Adam Smith employed the example of a pin factory in order to explain what economic concept?

A)the relationship between the marginal and average product of labor
B)the law of diminishing returns
C)why no firm would want to hire so many workers as to experience a negative marginal product of labor
D)the division of labor

Question 61

If marginal product is equal to average product,then total product is at a maximum.

Question 62

If production displays increasing marginal returns,then

A)total product rises by a constant amount throughout.
B)each new worker hired adds more to output than previous hires.
C)the firm must be adding new capital to keep boosting productivity.
D)total product reaches a maximum sooner than if production displayed decreasing returns.

Question 63

Table 11-2

Refer to Table 11-2.The table above refers to the relationship between the quantity of workers employed and the number of cardboard boxes produced per day by Manny's House of Boxes.The capital used to produce the boxes is fixed.Diminishing returns to labor are first observed in this example after Manny hires the ________ worker.

A)second
B)third
C)fourth
D)fifth

Question 64

Marginal cost is calculated for a particular increase in output by

A)multiplying the total cost by the change in output.
B)multiplying the change in total cost by the change in output.
C)dividing the total cost by the change in output.
D)dividing the change in total cost by the change in output.

Question 65

Jill Johnson owns a pizzeria.She currently produces 10,000 pizzas per month at a total cost of $500.If she produced one more pizza her total cost rises to $500.11.What does this tell us about Jill's marginal cost of producing pizzas?

A)The marginal cost of producing pizzas is constant.
B)The marginal cost of producing pizzas is falling.
C)The marginal cost of producing pizzas cannot be determined without more information.
D)The marginal cost of producing pizzas is rising.

Question 66

Which of the following explains why the marginal cost curve has a U shape?

A)Initially,the marginal product of labor falls,then rises.
B)Initially,the average product of labor rises,then falls.
C)Initially,the marginal product of labor rises,then falls.
D)Initially,the average cost of production rises,then falls.

Question 67

The change in a firm's total cost from producing one more unit of a good or service is

A)the result of economies of scale.
B)the definition of marginal product
C)the definition of marginal cost.
D)impossible to observe in large firms with many manufacturing plants.

Question 68

The marginal cost curve is U-shaped because of the law of increasing opportunity costs.

Question 69

Table 11-3

Refer to Table 11-3.The table above shows the following relationship between hours spent fishing and the quantity of fish caught for Juan,a commercial fisherman.
a.Complete the Marginal Product column in Table 11-3.
b.Characterize the production function,i.e.does the production function display increasing marginal returns,diminishing marginal returns,etc.
c.Using the data above,graph Juan's marginal product curve.Be sure to label the horizontal and vertical axes.Is your graph consistent with your answer to part (b)? Explain.
d.Juan uses the following inputs for fishing - a small wooden boat (B),a fishing pole (P)and of course,his labor (L).Treating the boat and the fishing pole as fixed inputs and using the data above,graph Juan's Total Product of Labor curve.Be sure to label the horizontal and vertical axes.
e.(Extra Credit)The opportunity cost of Juan's time is $8 per hour.If Juan receives $2 per pound for his fish,what is the optimal number of hours he should spend fishing? Explain how you arrived at your answer.Hint: Recall marginal benefit and marginal cost analysis.

Question 70

If a firm experiences diminishing returns its marginal product must be negative.

Question 71

Refer to Table 11-2.The table above refers to the relationship between the quantity of workers employed and the number of cardboard boxes produced per day by Manny's House of Boxes.The capital used to produce the boxes is fixed.The average product of labor will equal 60 boxes when Manny hires

A)the second worker.
B)the third worker.
C)the fourth worker.
D)the fifth worker.

Question 72

Table 11-2

Refer to Table 11-2.The table above refers to the relationship between the quantity of workers employed and the number of cardboard boxes produced per day by Manny's House of Boxes.The capital used to produce the boxes is fixed.The highest value of the average product is labor is ________ when Manny hires ________ workers.

A)80; 3
B)100; 3
C)100; 2
D)80; 4

Question 73

The change in a firm's total cost from producing one more unit of a good or service is the firm's

A)explicit cost of production.
B)marginal cost of production.
C)average cost of production.
D)implicit cost of production.

Question 74

When the marginal product of labor rises

A)the marginal cost of production will exceed the average total cost.
B)the marginal cost of production also rises.
C)the marginal cost of production falls.
D)the average total cost of production also rises.

Question 75

Which of the following statements is false?

A)Marginal cost will equal average total cost when marginal cost is at its lowest point.
B)When marginal cost is less than average total cost,average total cost will fall.
C)When marginal cost is greater than average total cost,average total cost will rise.
D)Marginal cost will equal average total cost when average total cost is at its lowest point.

Question 76

The shape of the average total cost curve is determined by the shape of

A)the marginal cost curve.
B)the average fixed cost curve.
C)the average product curve.
D)the firm's production function.

Question 77

The additional output a firm produces by hiring one more worker is called the marginal product of labor.

Question 78

Akio Morita,chairman of Sony,used a curve to determine the price of radios his company sold.This curve was

A)a demand curve.
B)an average total cost curve.
C)a marginal cost curve.
D)a production function.

Question 79

If marginal product is greater than average product,then

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

Question 80

What is the marginal product of labor and what is the average product of labor.