Deck 13: Costs

Question 1

After the point of diminishing marginal returns

A)marginal product rises.
B)production should stop.
C)marginal product falls.
D)marginal product shifts from negative to positive.

Answer 1

marginal product falls.

Question 2

Average total costs are defined as

A)total costs divided by the change in output.
B)total costs divided by output.
C)the change in total costs when output changes.
D)average variable costs plus marginal costs.

Answer 2

total costs divided by output.

Question 3

When variable inputs are added to a fixed input

A)output increases.
B)output can increase at an increasing rate.
C)output can increase at a decreasing rate.
D)all of these choices are possible.

Answer 3

all of these choices are possible.

Question 4

Average fixed costs

A)are always rising with increases in production
B)are dependent on marginal costs.
C)are dependent on average variable costs.
D)are always falling with increases in production.

Question 5

Which of the following pair of terms is similar?

A)Overhead and direct cost.
B)Direct cost and fixed cost.
C)Overhead and fixed cost.
D)Overhead and variable cost.

Question 6

The law of marginal diminishing returns

A)is found everywhere.
B)is found only in manufacturing.
C)is found only in developed economies.
D)is the same as the law of diminishing marginal utility.

Question 7

According to the book, which air bag adds the most safety to passengers?

A)The second.
B)The fourth.
C)The third.
D)The first.

Question 8

Costs are related to output because

A)output is variable over the long run.
B)inputs are related to output.
C)some inputs are fixed.
D)inputs must be paid their opportunity costs.

Question 9

The law of diminishing marginal returns is seen in the

A)calendar year.
B)short run.
C)long run.
D)market horizon.

Question 10

In large companies it is often the case that

A)bureaucracy compliments performance.
B)profits increase with market share.
C)bureaucracy overwhelms performance.
D)revenues increase faster than costs.

Question 11

If marginal costs are rising

A)total fixed costs are falling
B)average fixed costs are constant.
C)average fixed costs are rising
D)none of these choices.

Question 12

If marginal cost is rising

A)marginal product in rising.
B)marginal product is falling.
C)average variable costs is equal to marginal cost.
D)average variable cost is above average total cost.

Question 13

The shape of the costs curves may be traced back to

A)the law of diminishing marginal utility.
B)the difference between the short run and the long run.
C)the law of diminishing marginal returns.
D)the fact that all production occurs in the long run.

Question 14

The period of time over which all inputs are variable is the

A)market horizon.
B)short run.
C)calendar year.
D)long run.

Question 15

If average total cost is rising

A)marginal cost is above average total cost.
B)marginal cost is rising.
C)marginal product is rising.
D)marginal cost is above average total cost and is falling.

Question 16

The period of time over which there is at least one fixed input is the

A)calendar year.
B)long run.
C)short run.
D)market horizon.

Question 17

The change in total costs when output changes is called

A)average variable costs.
B)marginal product.
C)average total cost.
D)marginal cost.

Question 18

Marginal cost

A)cuts average variable cost and average fixed cost at their lowest point.
B)cuts average variable cost and average total cost at their lowest point.
C)rises and then falls.
D)is the mirror image of marginal product.

Question 19

The CEO of British Petroleum decided that the company needed to add a goal to its worldwide operations.That goal was

A)to be a good corporate citizen.
B)to focus on drilling and not exploration.
C)to focus on exploration and not drilling.
D)to enter the Chinese market.

Question 20

Average variable costs

A)are parallel with average total costs
B)rise if marginal costs rise.
C)are not parallel with average total costs.
D)fall with increases in production.

Question 21

When a firm divests itself of an unrelated business to focus on it core competency, the firm is

A)using economies of scope to cut costs.
B)downsizing.
C)outsourcing.
D)market sharing.

Question 22

According to the book, Akio Morita (the founder of Sony)drew a long-run average cost curve that was

A)U-shaped.
B)V-shaped.
C)W-shaped.
D)horizontal

Question 23

When the capital (a fixed input)changes

A)short-run marginal costs rise.
B)short-run average total costs fall but do not shift.
C)labor inputs decline.
D)the short-run average total cost curve shifts.

Question 24

If unit costs remain constant as the quantity of production increases and all inputs are variable, then a firm is experiencing

A)constant returns to scale.
B)economies of scale.
C)diseconomies of scale.
D)falling economies of scope.

Question 25

The shape of an experience curve suggests that

A)specialization does not matter.
B)learning does not pay.
C)experience can lower costs.
D)none of these choices.

Question 26

If a firm is experiencing constant returns to scale, then the long-run average cost curve is

A)falling.
B)rising.
C)horizontal.
D)shifting

Question 27

If unit costs increase as the quantity of production increases and all inputs are variable, then a firm is experiencing

A)constant returns to scale.
B)economies of scale.
C)diseconomies of scale.
D)falling economies of scope.

Question 28

In a sense, the long-run average cost curve is holding

A)short-run average variable cost curves.
B)short-run marginal cost curves.
C)short-run average total cost curves.
D)short-run total cost curves.

Question 29

If services are purchased from others that were once performed internally, then a firm has

A)downsized.
B)outsourced.
C)reduced the economies of scope.
D)experienced diseconomies of scale.

Question 30

If a firm is experiencing economies of scale, then the long-run average cost curve is

A)falling.
B)rising.
C)horizontal.
D)shifting.

Question 31

If unit costs decrease as the quantity of production increases and all inputs are variable, then a firm is experiencing

A)constant returns to scale.
B)economies of scale.
C)diseconomies of scale.
D)falling economies of scope.

Question 32

If a firm is experiencing diseconomies of scale, then the long-run average cost curve is

A)falling.
B)rising.
C)horizontal.
D)shifting.

Question 33

How large a firm becomes is determined by

A)the demand for its product.
B)the availability of economies of scale.
C)the availability of economies of scope.
D)the availability of specialized managers.

Question 34

A U-shaped long-run average cost curve indicates that

A)economies of scale follow diseconomies of scale.
B)diseconomies of scale follow economies of scale
C)economies of scale and economies of scope are the same.
D)economies of scale dominate diseconomies of scale over all levels of production.

Question 35

In the case where a firm gains an advantage from producing more than one product, it is experiencing

A)economies of scale.
B)market economies.
C)economies of scope.
D)increasing returns to scale.

Question 36

Economies of scale are often confused with

A)market demand curves.
B)long-run average fixed cost curves.
C)short-run average total cost curves.
D)learning curves.

Question 37

In the long run, a firm can choose

A)to operate at any point on only one short-run average total cost curve.
B)to operate along any short-run average total cost curves.
C)to operate along any short-run average variable cost curves.
D)to operate along any point of its short-run marginal cost curves.

Question 38

Economies of scale can result from

A)larger machines.
B)specialization.
C)large purchases.
D)all of these choices.

Question 39

Economies of scope often occur because

A)a production facility can be used to produce more than one product.
B)it forces firms to search for economies of scale.
C)it enhances the ability to find market niches.
D)managers are able to multi-task in product markets

Question 40

The long run is often referred to as the

A)planning horizon.
B)market horizon
C)period of time where there is at least one fixed input.
D)none of these choices.

Question 41

The long-run and the planning horizon are synonymous.

Question 42

If average variable costs fall, marginal costs must be less than average variable costs.

Question 43

If long-run average costs are falling, then the firm is experiencing diseconomies of scale.

Question 44

Economies of scope is when a firm obtains a production advantage from producing more than one product.

Question 45

The shape of marginal cost is determined by

A)the shape of average cost.
B)the shape of marginal product.
C)the shape of total variable cost.
D)all of these choices.

Question 46

Fixed costs and overhead are identical.

Question 47

To understand the process of adding value, managers must understand only the costs of production.

Question 48

Marginal product of capital

A)is the derivative of the production function with respect to a one unit change in labor.
B)is the derivative of the production function with respect to a one unit change in capital.
C)is the derivative of the marginal cost curve.
D)none of these choices.

Question 49

The supply chain refers to

A)the supply curve.
B)the process of outsourcing.
C)the process of downsizing.
D)the process of creating and selling a product.

Question 50

Larger is always better.

Question 51

Value can be added by outsourcing.

Question 52

The change in fixed costs over the short run is seen in the behavior of marginal costs.

Question 53

Economies of scale are followed by diseconomies of scale.

Question 54

Marginal product of labor

A)is the derivative of the production function with respect to a one unit change in labor.
B)is the derivative of the production function with respect to a one unit change in capital.
C)is the derivative of the marginal cost curve.
D)none of these choices.

Question 55

The law of diminishing marginal returns describes changes in output when inputs change.

Question 56

If marginal product rises, then marginal costs rise.

Question 57

Retail is

A)downstream.
B)upstream.
C)is reversed extraction.
D)impossible to outsource.

Question 58

At first marginal product rises and then it falls.

Question 59

Downsizing may result in an increase in accounting costs.

Question 60

At the low point of the average total cost curve, marginal costs and average total costs are equal.