Deck 7: Production and Cost in the Firm

Question 1

If marginal product is negative, total product must be negative.​

Answer 1

False

Question 2

Implicit costs involve direct cash payments for the use of a resource.​

Answer 2

False

Question 3

If a firm is producing at its minimum efficient scale, increasing its output slightly will always lead to diseconomies of scale.​

Answer 3

False

Question 4

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

Question 5

If a firm's accounting profit is positive, its economic profit must also be positive.​

Question 6

Long-run average costs are the same as long-run total costs.​

Question 7

When marginal product is negative, the slope of the total product curve must be negative.​

Question 8

All other things constant, higher implicit costs result in lower accounting profit.​

Question 9

In the short run, all costs are fixed.​

Question 10

If a firm is experiencing diminishing marginal returns, its marginal product is negative.​

Question 11

If a firm is experiencing diseconomies of scale, its long-run total cost curve is upward sloping.​

Question 12

The short-run average fixed cost curve is a horizontal line.​

Question 13

If a firm experiencing "economies of scale" decreases its output, its long-run average cost will decrease.​

Question 14

If a firm is experiencing diminishing marginal returns, its marginal product is declining.​

Question 15

If the marginal product of an input is negative, the total product must also be negative.​

Question 16

The marginal cost curve intersects the minimum point of the average variable cost curve.​

Question 17

If all the savings of an owner are invested in his consulting company, an increase in the interest rate increases his implicit costs.​

Question 18

The long-run average cost curve is tangent to the minimum point of every short-run average total cost curve.​

Question 19

When marginal cost is decreasing, total cost is rising.​

Question 20

Marginal cost indicates how much total cost increases if one more unit is produced or how much total cost drops if production declines by one unit.​

Question 21

Explicit costs are:​

A)not part of opportunity costs.
B)the only costs considered in opportunity costs.
C)exactly the same as implicit costs.
D)actual monetary payments for resources purchased.
E)the opportunity costs of using resources owned by the firm.

Question 22

Accounting profit equals:​

A)explicit costs minus implicit costs.
B)economic profit minus implicit costs.
C)economic profit minus explicit costs.
D)economic profit minus explicit costs and implicit costs.
E)economic profit plus implicit costs.

Question 23

John moved his office from a building he was renting downtown to the carriage house he owns behind his house. Which of the following statements shows how his costs change?​

A)Both his explicit and implicit costs will rise.
B)His explicit costs will rise, while his implicit costs will fall.
C)Both his explicit and implicit costs will fall.
D)His explicit costs fall, while his implicit costs will rise.
E)His explicit costs will rise, while his implicit costs will remain the same.

Question 24

A firm's opportunity costs of using resources provided by the firm's owners are called _____.​

A)sunk costs
B)fixed costs​
C)explicit costs​
D)implicit costs​
E)entrepreneurial costs​

Question 25

Maryann and Don want to open their own deli. To do so, Maryann must give up her job, where she earns $20,000 per year, and Don must give up his part-time job, where he earns $10,000 per year. They must liquidate their money market fund, which earns $1,000 interest annually. The rent on the building is $10,000 per year, and the expenses of such necessities as utilities, corned beef, and pickles are $35,000 annually. _____ is the explicit cost per year of operating the deli.​

A)$10,000
B)$35,000​
C)$45,000​
D)$31,000​
E)$76,000​

Question 26

Amanda, age 6, opens a lemonade stand. She makes all the lemonade from a mix she found in her parents' pantry. Her stand is an old box she found in the garage. The pitcher and paper cups were taken from the kitchen. Which of the following is true?​

A)The opportunity cost of the lemonade is zero.
B)The only opportunity cost of the lemonade is Amanda's time.
C)Amanda's explicit costs are zero.
D)The implicit costs of Amanda's lemonade are zero.
E)Whatever revenue Amanda gets will be pure economic profit.

Question 27

Opportunity cost usually:​

A)cannot be measured.
B)applies to labor but not to capital.
C)is involved in calculating economic profit.
D)is greater than the cash payment made to a resource.
E)is less than the cash payment made to a resource.

Question 28

Cash payments for steel to be used in the production process would be an example of _____.​

A)sunk costs
B)fixed costs​
C)explicit costs​
D)implicit costs​
E)entrepreneurial costs​

Question 29

The opportunity cost of a resource:​

A)includes both explicit and implicit cost.
B)includes explicit cost only.
C)includes implicit cost only.
D)is equal to the market price of the resource.
E)is not related to the market price of the resource.

Question 30

Unlike implicit costs, explicit costs:​

A)reflect opportunity costs.
B)include the value of the owner's time.
C)are not included in a firm's accounting statements.
D)are actual cash payments.
E)do not change as a firm's output changes.

Question 31

Which of the following would not appear on a firm's accounting statement?​

A)Sunk costs
B)Fixed costs​
C)Explicit costs​
D)Implicit costs​
E)Insurance costs​

Question 32

Which of the following is not an explicit cost?​

A)Salaries
B)Sales taxes​
C)The cost of utilities, such as gas and electricity​
D)Insurance premiums​
E)The value of a firm owner's time​

Question 33

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

A)Insurance costs
B)Electricity costs​
C)The opportunity costs of the capital owned and used by the firm​
D)The cost of the labor hired by the firm​
E)The cost of raw materials​

Question 34

​Suppose Ripco owns the building from which it operates. If:

A)the firm pays no rent, there is no opportunity cost.
B)the firm does not rent the building to anyone else, there is no opportunity cost.
C)the firm pays rent, there is an opportunity cost.
D)its usage of the building precludes it from renting to anyone else, there is an opportunity cost.
E)the firm can use the building for other things, there is no opportunity cost.

Question 35

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. The chef's explicit costs are equal to_____.​

A)$26,000
B)$66,000
C)$78,000
D)$52,000
E)$72,000

Question 36

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a storage building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. The chef's implicit costs are equal to _____.​

A)$26,000
B)$66,000​
C)$78,000​
D)$52,000​
E)$72,000​

Question 37

The reason economists assume that firms try to maximize economic profit is that:​

A)firms that don't earn profits will, over time, have difficulty securing financing to survive.
B)firms in the real world always maximize profit.
C)profit is easier to calculate than revenue.
D)if a firm fails to earn a profit in its first year, it will go out of business.
E)profit maximization is easier for firms than revenue maximization.

Question 38

The difference between a firm's total revenue and what must be paid to attract resources from their best alternative use is called _____.​

A)total revenue
B)utility​
C)economic profit​
D)cost​
E)production efficiency​

Question 39

Two friends, Diane and Sam, own and run a bar. Diane tends bar on Monday, Wednesday, and Friday and receives a wage in addition to tips. Sam tends bar on Tuesday, Thursday, and Saturday and receives only tips. Which of the following represents an implicit cost of operating the bar?​

A)Diane's wages
B)Sam's time
C)Diane's tips
D)Sam's tips
E)Both Diane's and Sam's tips

Question 40

An implicit cost is:​

A)any cost a firm cannot avoid in the short run.
B)any expenditure a firm makes.
C)an opportunity cost.
D)accurately measured in accounting statements.
E)ignored by economists.

Question 41

Economic profit is defined as _____.​

A)total revenue minus implicit costs
B)total revenue plus explicit costs​
C)total revenue plus implicit costs​
D)wages plus interest minus rent​
E)total revenue minus implicit and explicit costs​

Question 42

If a shoe store earns more than a normal profit, its:​

A)economic profit must be greater than its accounting profit.
B)economic profit is positive.
C)economic profit is, therefore, equal to its accounting profit.
D)accounting profit is zero.
E)accounting profit is less than its economic profit.

Question 43

A firm's economic profit is equal to _____.​

A)total revenue minus accounting profit
B)total revenue minus explicit costs​
C)total revenue plus accounting profit​
D)total revenue plus opportunity costs​
E)accounting profit minus implicit costs​

Question 44

John moved his office from a building he was renting downtown to the carriage house he owns behind his house. How will his profit change?​

A)Implicit costs will fall.
B)Explicit costs will remain unchanged, while implicit costs will rise.
C)Economic profit will fall.
D)Explicit costs will rise.
E)Accounting profit will rise.

Question 45

Suppose Ernie gives up his job as financial advisor for P.E.T.S., where he earned $30,000 per year, to open up a store selling pet-care products. He invested $10,000 in the store, which were originally savings that earned 5 percent interest. This year, the revenue from the new business was $50,000 and the explicit costs were $10,000. The accounting profit earned by Ernie was _____.​

A)$10,000
B)$50,000​
C)$20,000​
D)$40,000​
E)$9,500​

Question 46

Economic profit is defined as:​

A)total revenue minus price.
B)price minus quantity.
C)total revenue minus what must be paid to resources to attract them from their best alternative use.
D)total revenue divided by what must be paid to resources to attract them from their best alternative use.
E)total revenue plus what must be paid to resources to attract them from their best alternative use.

Question 47

Suppose a soccer coach has been making $25,000 per year but gives up his coaching job in order to make soccer shoes. If his revenue from the sale of these shoes is $50,000 and his materials cost $20,000, then his economic profit is equal to _____.​

A)$5,000
B)$25,000​
C)$30,000​
D)$50,000​
E)$80,000​

Question 48

A firm's accounting profit is equal to _____.​

A)total revenue minus opportunity costs
B)total revenue plus opportunity costs​
C)total revenue minus imputed costs​
D)total revenue minus explicit costs​
E)total revenue minus explicit and implicit costs

Question 49

Suppose Ernie gives up his job as financial advisor for P.E.T.S., where he earned $30,000 per year, to open up a store selling pet-care products. He invested $10,000 in the store, which were originally savings that earned 5 percent interest. This year, the revenue from the new business was $50,000 and the explicit costs were $10,000. The economic profit earned by Ernie was _____.​

A)$10,000
B)$50,000​
C)$20,000​
D)$40,000​
E)$9,500​

Question 50

Which of the following would be shown on a firm's accounting statement?​

A)Revenue, implicit costs, explicit costs, and economic profit
B)Revenue, implicit costs, explicit costs, and accounting profit​
C)Revenue, explicit costs, and economic profit​
D)Revenue, explicit costs, and accounting profit​
E)Revenue, implicit costs, and accounting profit​

Question 51

Suppose Ben buys out Jerry's ownership in a firm but retains him as a salaried employee. Jerry gets a salary equal to the value of the share that he held in the firm. In this case, which of the following statements is true?​

A)The firm's economic profit increases.
B)The firm's economic profit decreases.
C)There is no change in the economic profit of the firm.
D)There is no change in the accounting profit of the firm.
E)The firm's accounting profit increases.

Question 52

Suppose a lawyer leaves his $50,000-a-year job and starts his own firm breeding pit bulls. In the first year, his accounting profit is $70,000. The lawyer finances his new business with $100,000 from his savings account, which had earned 10 percent interest. From his new business, the lawyer earns an economic profit of _____.​

A)$10,000
B)$60,000​
C)$70,000​
D)−$80,000​
E)−$90,000​

Question 53

Accounting profit is:​

A)always less than economic profit.
B)never less than economic profit.
C)equal to economic profit if a normal profit is earned.
D)less than economic profit only when implicit costs are greater than explicit costs.
E)greater than economic profit only when implicit costs are greater than explicit costs.

Question 54

If a pizza joint earns only a normal profit this year, its:​

A)economic profit is equal to its accounting profit.
B)economic profit is zero.
C)economic profit is equal to the average accounting profit in other industries.
D)accounting profit is zero.
E)accounting profit is less than its economic profit.

Question 55

Maryann and Don want to open their own deli. To do so, Maryann must give up her job, where she earns $20,000 per year, and Don must give up his part-time job, where he earns $10,000 per year. They must liquidate their money market fund, which earns $1,000 interest annually. The rent on the building is $10,000 per year, and the expenses of such necessities as utilities, corned beef, and pickles are $35,000 annually. The minimum amount of revenue per year that would make it worthwhile, financially, for Maryann and Don to run the deli is _____.​

A)$10,000
B)$35,000​
C)$45,000​
D)$31,000​
E)$76,000​

Question 56

Normal profit is defined as:​

A)accounting profit.
B)economic profit.
C)the profit necessary to ensure that opportunity costs are covered.
D)accounting profit minus economic profit.
E)economic profit minus accounting profit.

Question 57

Suppose Joan uses her savings to purchase computer equipment for her new consulting business. Soon after this, the market interest rate rises. As a result, her:​

A)explicit costs rise immediately.
B)accounting profit falls immediately.
C)accounting profit rises immediately.
D)economic profit rises immediately.
E)economic profit falls immediately.

Question 58

Suppose Bob leaves his $50,000-a-year job as a financial advisor to P.E.T.S. and starts his own business selling pet-care products. In the first year, his accounting profit is $70,000. Based on this level of success, Bob should:​

A)return to his old job because his economic profit is negative.
B)return to his old job because his economic profit is smaller than his accounting profit.
C)return to his old job because his economic profit is less than his old salary.
D)stay with his new firm because his economic profit is positive.
E)stay with his new firm because accounting profit is positive.

Question 59

Economic profit is defined as _____.​

A)total fixed cost plus total variable cost
B)total revenue minus marginal costs​
C)average revenue minus average variable cost​
D)total revenue minus total costs​
E)marginal revenue minus opportunity costs​

Question 60

Suppose a professor gives up her teaching job to devote her time to writing textbooks. Soon after, salaries for professors rise. As a result, _____.​

A)her accounting profit will rise
B)her accounting profit will fall​
C)her explicit costs will rise​
D)her economic profit from textbooks will fall​
E)her economic profit from textbooks will rise​

Question 61

​The additional output obtained by adding another unit of labor to the production process is called _____.

A)the marginal cost of labor
B)the average output of labor
C)a variable cost
D)the marginal product of labor
E)the marginal utility of labor

Question 62

Table 7.1 shows revenue and cost information for Sally's small business. Sally owns a small business that she operates in a building she owns. Given the information in the table below, Sally's economic profit is equal to _____.​ ​
Table 7.1
​

A)$80,000
B)$50,000​
C)$65,000​
D)$35,000​
E)$24,000​

Question 63

If a firm is experiencing diminishing marginal returns to labor, then which of the following statements is true?​

A)The first workers the firm hired were better than the workers hired later on.
B)The firm is experiencing decreasing returns to scale.
C)The positive effect of specialization in production is being offset by the negative effect of crowding of inputs.
D)Output is decreasing with increasing inputs.
E)The firm should buy more non-labor inputs.

Question 64

The short run is a period of time:​

A)equal to or less than six months.
B)during which all resources may be varied.
C)during which all resources are fixed.
D)during which at least one resource is fixed.
E)during which at least one resource may be varied.

Question 65

Inputs that can be increased or decreased in the short run are called _____.​

A)fixed inputs
B)variable inputs​
C)economic inputs​
D)accounting inputs​
E)normal inputs​

Question 66

​Table 7.1 shows revenue and cost information for Sally's small business. Sally owns a small business that she operates in a building she owns. Given the information in the table below, Sally's accounting profit is equal to _____. ​
Table 7.1
​

A)$80,000
B)$50,000
C)$65,000​
D)$35,000​
E)$24,000​

Question 67

Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the average product of the fourth unit of labor?​ ​
Table 7.2
​

A)5 pairs of shoes
B)10 pairs of shoes​
C)20 pairs of shoes​
D)50 pairs of shoes​
E) 80 pairs of shoes

Question 68

Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the marginal product of the fourth unit of labor.​ ​
Table 7.2
​

A)5 pairs of shoes​
B)10 pairs of shoes​
C)20 pairs of shoes​
D)50 pairs of shoes​
E)80 pairs of shoes​

Question 69

Which of the following would most likely reach the long run most rapidly?​

A)A nuclear power plant
B)A college​
C)A lumber mill​
D)A shopping mall​
E)A hot dog stand​

Question 70

Marginal product is defined as:​

A)the increase in revenue that occurs when an additional unit of a resource is added.
B)the increase in output that occurs when all resources are increased by the same proportion.
C)the increase in output that occurs when an additional unit of a resource is added, holding all other resources constant.
D)the amount of additional resources needed to increase output by one unit when all resources are increased by the same amount.
E)the amount of additional money needed to increase output by one unit when all resources are held constant.

Question 71

Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, at which of the following points do negative marginal returns set in?​ ​
Table 7.2
​

A)Before the first unit of labor
B)Between the first and second units of labor​
C)Between the second and third units of labor​
D)Between the third and fourth units of labor​
E)Between the fourth and fifth units of labor​

Question 72

The length of time that represents the long run:​

A)is greater than one year.
B)is greater than six months.
C)is longer in service industries than in manufacturing.
D)is the same for all industries.
E)varies from industry to industry.

Question 73

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a storage building he owns and currently rents for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. _____ is the minimum revenue he must earn per year in order for it to be worth his while to open his sushi bar.​

A)$26,000
B)$66,000​
C)$78,000​
D)$52,000​
E)$72,000​

Question 74

Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the marginal product of the third unit of labor.​ ​
Table 7.2
​

A)45 pairs of shoes
B)25 pairs of shoes
C)15 pairs of shoes
D)75 pairs of shoes
E)50 pairs of shoes

Question 75

Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the average product of the third unit of labor.​ ​
Table 7.2
​

A)45 pairs of shoes
B)25 pairs of shoes
C)15 pairs of shoes
D)10 pairs of shoes​
E)75 pairs of shoes​

Question 76

The short run is a period of time:​

A)less than one year.
B)greater than one year.
C)during which all resources are variable.
D)during which at least one resource is fixed.
E)during which at least one resource is variable.

Question 77

​Increasing marginal returns are generally the result of _____.

A)diseconomies of scale
B)increasing costs​
C)the specialization and division of labor​
D)labor unions​
E)change in technology​

Question 78

Which of the following probably has the shortest long run?​

A)A law firm
B)A steel mill​
C)An automobile plant​
D)A tire factory​
E)An aircraft engine factory​

Question 79

Which of the following is most likely to be a fixed resource for a word processing firm?​

A)A laptop
B)A worker​
C)The building​
D)A month's electricity bill​
E)A bundle of paper​

Question 80

Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, at which point do diminishing marginal returns set in?​ ​
Table 7.2
​

A)Before the first unit of labor
B)Between the first and second units of labor​
C)Between the second and third units of labor​
D)Between the third and fourth units of labor​
E)Between the fourth and fifth units of labor​