Deck 7: The Costs of Production

Question 1

Greater labor productivity means

A)Lower output per labor-hour.
B)Higher labor cost per unit of output.
C)Lower output per worker.
D)Higher output per worker.

Answer 1

D

Question 2

In Figure 21.1, diminishing marginal returns first occur with the

A)Fifth worker.
B)Fourth worker.
C)Third worker.
D)Second worker.

Answer 2

C

Question 3

Labor productivity will increase in response to

A)Lower wages.
B)An increase in the amount of physical capital per worker.
C)Higher resource costs.
D)An increase in diminishing returns.

Answer 3

B

Question 4

The period in which at least one input is fixed in quantity is the

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

Question 5

The marginal physical product of the third unit of labor in Figure 21.1 is

A)40.0 units per day.
B)12.0 units per day.
C)13.3 units per day.
D)4.0 units per day.

Question 6

A production function shows the

A)Minimum amount of output that can be obtained from alternative combinations of inputs.
B)Maximum quantity of inputs required to produce a given quantity of output.
C)Maximum output that can be produced with varying combinations of factor inputs.
D)Output capacity of the entire economy.

Question 7

The marginal physical product of labor in Figure 21.1 is negative for the

A)Third worker.
B)Fourth worker.
C)Fifth worker.
D)Sixth worker.

Question 8

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

A)Returns on stocks and bonds diminish with higher security prices.
B)Addition to total utility diminishes as more units of a good are consumed.
C)Marginal physical product of a factor of production diminishes as more of that factor is used.
D)Output of any good increases as more of a variable input is used.

Question 9

The short-run production function shows how output changes when

A)The quantity of labor changes.
B)The quantity of land changes.
C)Technology changes.
D)The fixed inputs change.

Question 10

Which of the following is the slope of the production function with respect to an input?

A)The marginal physical product of the input.
B)The average product of the input.
C)The unit cost of the input.
D)The input price.

Question 11

If a firm could hire all the workers it wanted at a zero wage (i.e., the workers are volunteers), the firm should hire

A)Enough workers to produce the output where diminishing returns begin.
B)Enough workers to produce the output where worker productivity is the highest.
C)Enough workers to produce where the MPP equals zero.
D)All the workers that can fit into the factory.

Question 12

The change in total output associated with one additional unit of input is the

A)Opportunity cost of the output.
B)Average productivity.
C)Marginal physical product.
D)Marginal cost.

Question 13

When a firm produces at a technically efficient output level, it is

A)Producing the output at the minimum MC curve.
B)Using the fewest resources to produce a good or service.
C)Producing the output where the AVC curve is at a minimum.
D)Producing the best combination of goods and services.

Question 14

Technical efficiency is achieved when a firm produces

A)At an amount indicated by a point on the production function.
B)Below the opportunity cost for the resources it uses.
C)Enough output to cover the opportunity cost of resources.
D)An amount less than or equal to the production function.

Question 15

Which of the following statements is not true regarding the production function and the production possibilities curve?

A)Both the production function and the production possibilities curve maximize the amount of output attainable.
B)The production function describes the capacity of a single firm, whereas the production function summarizes the output capacity of the entire economy.
C)A production function tells us the maximum amount of output attainable from the use of all resources.
D)The production possibilities curve expresses the ability to produce various combinations of goods given the use of all resources.

Question 16

Which of the following are factors of production?

A)Output in a production function.
B)Productivity.
C)Land, labor, capital, and entrepreneurship.
D)Implicit and explicit costs.

Question 17

The marginal physical product is the

A)Change in total input required to produce one additional unit of output.
B)Change in total output associated with one additional unit of the variable input.
C)Number of units of output obtained from all units of input employed.
D)Additional cost of an additional unit of output.

Question 18

Which of the following is a factor of production for the Little Biscuit Bread Company?

A)Flour.
B)Bread.
C)Productivity.
D)Money.

Question 19

A production function shows

A)How a firm's production changes as quantity of labor and other inputs changes.
B)How a firm's costs of production increase as it produces more goods.
C)How production changes as its unit costs go up.
D)How total costs increase as labor is added.

Question 20

The most desired goods and services that are given up in order to get more of another good are the

A)Average total cost.
B)Variable cost.
C)Marginal cost.
D)Opportunity cost.

Question 21

Which of the following is most likely a fixed cost?

A)Raw materials cost.
B)Labor cost.
C)Energy cost.
D)Property taxes.

Question 22

At any given rate of output, the difference between total cost and fixed cost is

A)Marginal cost.
B)Average variable cost.
C)Zero in the short run.
D)Variable cost.

Question 23

In the short run, when a firm produces zero output, total cost equals

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

Question 24

Marginal cost

A)Is the change in total output from hiring one more factor of production.
B)Is the change in total cost from producing one additional unit of output.
C)Falls when there are diminishing returns.
D)Is the change in the total cost when hiring one more factor of production.

Question 25

In the short run, the law of diminishing returns

A)Occurs for only a few economies.
B)Can be observed in every production process.
C)Does not occur in command economies.
D)Can be overcome by using more variable inputs.

Question 26

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

A)Total variable cost.
B)Total cost.
C)Average total cost.
D)Average marginal cost.

Question 27

An increase in production in the short run definitely results in an increase in

A)Average total costs.
B)Marginal costs.
C)Total costs.
D)Average fixed costs.

Question 28

The shape of the marginal cost curve reflects the

A)Law of diminishing returns.
B)Competitiveness of the firm.
C)Law of diminishing marginal utility.
D)Law of demand.

Question 29

As an In and Out Burger restaurant increases the number of employees for a specific restaurant,

A)Total production of hamburgers will fall.
B)Costs of production will fall.
C)Efficiency will suffer as the restaurant becomes too crowded with employees.
D)The production function will increase.

Question 30

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

A)In the long run, firms can increase the availability of space and equipment to keep up with the increase in variable inputs.
B)The MPP does not change in the long run.
C)In the long run, firms have enough time to find the most qualified workers.
D)All factors of production are fixed in the long run.

Question 31

Average total cost is equal to

A)Total cost divided by fixed cost.
B)Total cost multiplied by quantity.
C)The sum of average variable cost and marginal cost.
D)Total cost divided by quantity produced.

Question 32

Marginal cost

A)Rises as a direct result of diminishing returns.
B)Falls whenever marginal physical product decreases.
C)Falls in the short run because some resources are fixed.
D)Rises whenever marginal revenue product rises.

Question 33

Diminishing returns occur because

A)Of inefficiency in the production process.
B)Of the use of inferior factors of production.
C)A firm increases the amount of a variable input without changing a fixed input.
D)Of lower opportunity costs of the factors of production.

Question 34

Changes in short-run total costs result from changes in

A)Variable costs.
B)Fixed costs.
C)Profit.
D)The price elasticity of demand.

Question 35

The most desirable rate of output for a firm is the output that

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

Question 36

If the marginal physical product (MPP) is falling, then the

A)Marginal cost of each unit of output is falling.
B)Marginal cost of each unit of output is rising.
C)Total cost of each unit of output is falling.
D)Total cost of each unit of output is rising.

Question 37

If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is

A)$0.75.
B)$1.33.
C)$30.00.
D)$300.00.

Question 38

Which of the following costs do not change when output changes in the short run?

A)Average variable costs.
B)Variable costs.
C)Average fixed costs.
D)Fixed costs.

Question 39

Which of the following is most likely a fixed cost?

A)The material used to make jackets.
B)The labor on an automotive assembly line.
C)The rent for a factory.
D)The electricity used to run packaging equipment.

Question 40

Profit is

A)The difference between total cost and variable cost.
B)The difference between total revenue and total cost.
C)Earned at all points along the production function.
D)Possible only with technical efficiency.

Question 41

In the short run, when a firm produces zero output, variable cost equals

A)Zero.
B)Total cost.
C)Fixed cost.
D)Marginal cost.

Question 42

Marginal cost is equal to

A)The change in total costs divided by the change in quantity produced.
B)The change in fixed costs as more units are produced.
C)Total cost divided by quantity produced.
D)Average total cost multiplied by quantity produced.

Question 43

The average total cost (ATC) curve will be negatively sloped so long as

A)Average variable cost is less than average total cost.
B)Marginal cost is greater than average total cost.
C)Average fixed cost is less than average total cost.
D)Marginal cost is less than average total cost.

Question 44

At what output level do diminishing marginal returns begin in Figure 21.2?

A)40 units.
B)100 units.
C)120 units.
D)Only the production function will indicate when diminishing marginal returns begin.

Question 45

Sam's surf shop has total costs of $2,000 when it is not producing any surfboards.This means that

A)Variable costs are $2000.
B)Fixed costs are $2,000.
C)The shop is very inefficient in its production.
D)Fixed costs are zero.

Question 46

Average total cost is important to a business because

A)It tells the firm what the profit per unit produced is.
B)It always declines as more output is produced.
C)It tells the firm what its fixed costs are.
D)It is an indicator of the production function.

Question 47

What is the total cost of 120 units in Figure 21.2?

A)$34,560.
B)$9,600.
C)$24,960.
D)$10,560.

Question 48

The average variable cost curve slopes upward with a higher rate of output in the short run because of

A)The effect of diminishing returns.
B)The shape of the average fixed cost curve.
C)Diseconomies of scale.
D)Implicit but not explicit costs.

Question 49

In the short run, which of the following is most likely a variable cost?

A)Contractual lease payments.
B)Labor and raw materials costs.
C)Property taxes.
D)Interest payments on borrowed funds.

Question 50

If the marginal cost curve is rising, which of the following must be true?

A)The average total cost curve must be rising.
B)The average total cost curve must be below the marginal cost curve.
C)The average total cost curve must be above the marginal cost curve.
D)Total costs must be rising.

Question 51

In the long run, which of the following is likely to be a variable cost?

A)Factory rental but not wage costs.
B)Wage costs but not costs for equipment.
C)Interest payments on borrowed funds but not utilities.
D)Rent, wages, and all other costs are variable in the long run.

Question 52

When the average total cost curve is rising, the marginal cost curve will be

A)Below the average fixed cost curve.
B)Falling with greater output.
C)Above the average total cost curve.
D)Below the average total cost curve.

Question 53

What is the total variable cost when output is 100 units in Figure 21.2?

A)$9,600.
B)$296.
C)$200.
D)$20,000.

Question 54

What is the total fixed cost in Figure 21.2?

A)$80.
B)$10,000.
C)$9,600.
D)$29,600.

Question 55

The average fixed cost (AFC) curve

A)Is U-shaped as a result of diminishing returns.
B)Declines as long as output increases.
C)Is intersected at its minimum point by marginal cost.
D)Intersects the marginal cost curve at its minimum point.

Question 56

What is the marginal cost of the 120^th unit of output in Figure 21.2?

A)$1.20.
B)$200.00.
C)$208.00.
D)$288.00.

Question 57

The marginal cost curve intersects the minimum of the curve representing

A)TC.
B)ATC.
C)AFC.
D)MPP.

Question 58

A U-shaped average total cost curve implies

A)First diminishing returns, and then increasing returns.
B)First marginal cost below average total cost, and then marginal cost above average total cost.
C)That total costs are at a minimum at the minimum of the average cost curve.
D)A linear total cost curve.

Question 59

Which of the following is always downward-sloping?

A)The marginal cost curve when it is below the average total cost curve.
B)The marginal cost curve when it is above the average total cost curve.
C)The average total cost curve when it is below the marginal cost curve.
D)The average total cost curve when it is above the marginal cost curve.

Question 60

What is the average fixed cost when output is 120 units in Figure 21.2?

A)$0.67.
B)$80.00.
C)$96.00.
D)$208.00.

Question 61

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 made.An explicit cost is a payment made for the use of a resource.

Question 62

Diseconomies of scale are reflected in

A)The downward-sloping segment of the long-run average total cost curve.
B)The downward-sloping segment of the long-run marginal cost curve.
C)A downward shift of the long-run average total cost curve.
D)The upward-sloping segment of the long-run average total cost curve.

Question 63

Refer to Figure 21.3.The vertical difference between the total cost curve and the total fixed cost curve represents

A)Total variable costs.
B)Total marginal costs.
C)Average fixed costs.
D)Average variable costs.

Question 64

Which of the following statements about the relationship between economic costs and accounting costs is true?

A)Accounting costs are always less than or equal to economic costs.
B)Accounting costs must always equal economic costs.
C)Accounting costs are always greater than economic costs.
D)Accounting costs are equal to or greater than economic costs.

Question 65

Economic cost

A)Includes both implicit and explicit costs.
B)Is the sum of actual monetary payments made for resources used to produce a good.
C)Includes only implicit costs.
D)Decreases as the level of production increases.

Question 66

Implicit 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 value of all resources used to produce a good.
D)Are the value of resources used to produce a good but for which no monetary payment is made.Implicit costs are the value of resources used, even when no direct payment is made.

Question 67

In economics, the long run is considered to be

A)The time period when all costs are variable.
B)The time period when all costs are explicit.
C)One year.
D)More than two years.

Question 68

Economies of scale are reductions in average

A)Total cost that result from declining average fixed costs.
B)Fixed cost that result from reducing the firm's scale of operations.
C)Total cost that result from using operations of larger size.
D)Fixed cost resulting from improved technology and production efficiency.

Question 69

Assume a given amount of output can be produced by several small plants or one large plant with identical minimum per-unit costs.This long-run situation reflects the existence of

A)Economies of scale.
B)Diseconomies of scale.
C)Constant returns to scale.
D)Diminishing returns.

Question 70

$\begin{array}{l}\begin{array} { | c | c | } \hline \text { Units of Labor } & \text { Units of Output } \\\hline 0 & 0 \\\hline 1 & 15 \\\hline 2 & 35 \\\hline 3 & 45 \\\hline 4 & 52 \\\hline\end{array}\\\text { Table 21.1 }\end{array}$ What is the marginal physical product of the second unit of labor in Table 21.1?

A)20.
B)17.
C)35.
D)5.

Question 71

The long-run average total cost curve is constructed from the

A)Minimum points of the short-run marginal cost curves.
B)Minimum points of the short-run average variable cost curves.
C)Lowest average total cost for producing each level of output.
D)Minimum points of the long-run marginal cost curves.

Question 72

Accounting costs and economic costs differ because

A)Economic costs include implicit costs and accounting costs do not.
B)Accounting costs include implicit costs and economic costs do not.
C)Economic costs include explicit costs and accounting costs do not.
D)Accounting costs include explicit costs and economic costs do not.

Question 73

In Figure 21.2, at what output does this firm maximize technical efficiency?

A)0 units.
B)40 units.
C)100 units.
D)120 units.

Question 74

The period in which there are no fixed costs is the

A)Production run.
B)Long run.
C)Short run.
D)Implicit run.

Question 75

Intel's chief executive says the company might expand the technology it is using in its planned $2.5 billion chip-manufacturing factory in China if the U.S.government allows it, underscoring the technology giant's ambitions in the world's fourth-biggest economy.The Intel executive is making a

A)Long-run decision, and therefore an investment decision.
B)Long-run decision, and therefore a production decision.
C)Decision that would definitely increase costs.
D)Decision that would cause ATC to increase.

Question 76

When the size of a factory (and all its associated inputs) doubles and, as a result, output more than doubles,

A)The law of diminishing returns must not apply in the smaller factory.
B)Economies of scale must exist.
C)The short-run ATC curve must be declining.
D)Marginal costs must be declining.

Question 77

Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli.To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest).Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000.She asked her dad the accountant and her mom the economist to calculate her costs for her.

A)Dad says her cost is $9,000 and Mom says her cost is $2,400.
B)Dad says her cost is $31,000 and Mom says her cost is $35,000.
C)Dad says her cost is $25,000 and Mom says her cost is $16,600.
D)Dad says her cost is $31,000 and Mom says her cost is $47,600.

Question 78

Refer to Figure 21.3.The best estimate of where diminishing marginal returns begin is at an output level of

A)10.
B)20.
C)30.
D)40.

Question 79

Economies of scale

A)Exist in both the short run and the long run.
B)Explain why average variable and average total costs decline in the short run.
C)Explain why average total costs decline as output increases in the long run.
D)Explain why average total costs increase as output increases in the long run.

Question 80

Which of the following is a long-run concept?

A)Diminishing marginal productivity.
B)Diminishing returns.
C)Diseconomies of scale.
D)Fixed costs.