Question 1

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $$\begin{array} { | c | c | } 
\hline \text { Labour per unit of time } & \text { Total output } \
\hline 0 & 0 \
\hline 1 & 25 \
\hline 2 & 75 \
\hline 3 & 175 \
\hline 4 & 250 \
\hline 5 & 305 \
\hline
\end{array}$$ TABLE 7- 4
-Refer to Table 7- 4.The average total cost of producing 75 units of output is

Accepted Answer

A) $0.80. 
B) $1. 
C) $2. 
D) $1.33. 
E) $0.67.

Question 2

A firm's short- run cost curves,as conventionally drawn,show that

Accepted Answer

A) AFC increases as output increases. 
B) ATC decreases and then increases as output increases. 
C) AVC decreases as long as MC > AVC. 
D) the MC curve intersects the AVC and ATC curves at their maximum points. 
E) ATC = TFC + TVC.

Question 3

Which of the following statements about the organization of firms is true?

Accepted Answer

A) Owners of a corporation have unlimited liability. 
B) Corporations have limited access to money markets. 
C) Crown corporations are never interested in increasing profits because they have other goals. 
D) Partnerships are the most common form of business organization in Canada. 
E) Owners of a corporation are not personally liable for the firm's actions,though its directors may be.

Question 4

Which of the following statements is NOT true of a corporation?

Accepted Answer

A) It can incur debt that is an obligation of the corporation but not of its individual owners. 
B) It is an entity separate from the individuals who own it. 
C) It is legally obliged to distribute all profits to shareholders. 
D) It can enter into contracts. 
E) It has the right to sue and be sued.

Question 5

The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.Assume that the wage per unit of labour is $10 and the cost of the capital is $50. $$\begin{array} { | c | c | } 
\hline \text { Labour per period } & \text { Total output per period } \
\hline 0 & 0 \
\hline 1 & 10 \
\hline 2 & 30 \
\hline 3 & 90 \
\hline 4 & 132 \
\hline 5 & 150 \
\hline
\end{array}$$ TABLE 7- 3
-Refer to Table 7- 3.The average total cost when producing 150 units of output is approximately

Accepted Answer

A) 33 cents. 
B) 40 cents. 
C) $1.50. 
D) 80 cents. 
E) 67 cents.

Question 6

Suppose a firm with the usual U- shaped cost curves is producing a level of output such that its short run costs are as follows: ATC = $0.37 per unit AVC = $0.32 per unit AFC = $0.05 per unit MC = $0.43 per unit
Given these short run costs,which of the following statements is true?

Accepted Answer

A) The firm is producing a level of output where capacity is increasing. 
B) The firm is operating with excess capacity. 
C) The firm is operating at capacity. 
D) The firm is operating above capacity. 
E) The firm has no capacity constraints.

Question 7

The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.Assume that the wage per unit of labour is $10 and the cost of the capital is $50. $$\begin{array} { | c | l | } 
\hline \text { Lab our per period } & \text { Total output per period } \
\hline 0 & 0 \
\hline 1 & 10 \
\hline 2 & 30 \
\hline 3 & 90 \
\hline 4 & 132 \
\hline 5 & 150 \
\hline
\end{array}$$ TABLE 7- 3
-Refer to Table 7- 3.If this firm is producing 111 units of output per period,its marginal cost is

Accepted Answer

A) 76 cents. 
B) 38 cents. 
C) 24 cents. 
D) $1.00. 
E) 16.7 cents.

Question 8

"An objective of firms is to maximize profits." This statement

Accepted Answer

A) is a normative statement and thus cannot be tested. 
B) applies only to corporations. 
C) is an assumption used by economists to predict the behaviour of firms. 
D) is an unrealistic assumption,and therefore of little use to economists. 
E) has been proven by empirical testing to be always true.

Question 9

The opportunity cost of money that a firm's owner has invested in the firm is an example of

Accepted Answer

A) direct production costs. 
B) explicit costs. 
C) accounting costs. 
D) sunk costs. 
E) implicit costs.

Question 10

It is assumed in standard economic theory that a firm makes decisions in an effort to

Accepted Answer

A) be favoured politically. 
B) maximize its revenue. 
C) maximize its profits. 
D) have a highly diversified product. 
E) become as large as possible.

Question 11

Consider a firm's short- run cost curves.Which one of the following types of cost declines over the whole range of output?

Accepted Answer

A) total fixed cost 
B) average variable cost 
C) total variable cost 
D) marginal cost 
E) average fixed cost

Question 12

Suppose that a firm's capital is fixed and one more unit of labour is hired,thereby increasing the firm's total output.Which of the following statements can be correct? 1.Marginal cost would remain constant.
2.Marginal cost would increase.
3.Marginal cost would decrease.

Accepted Answer

A) 1 only 
B) 2 only 
C) 3 only 
D) Any of 1,2,and 3 is possible. 
E) None are possible.

Question 13

Consider a house- construction firm with fixed capital.The firm can build 8 houses per year with 16 workers and 8.8 houses per year with 17 workers.If it is currently building 8.8 houses per year,which of the following is true?

Accepted Answer

A) The firm has not yet reached the point of diminishing average productivity. 
B) The firm has already passed the point of diminishing marginal productivity. 
C) The marginal product is below the average product. 
D) Average product is at a maximum with 17 workers. 
E) Average product is at a maximum with 16 workers.

Question 14

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $$\begin{array} { | l | c | } 
\hline \text { Labour per unit of time } & \text { Total output } \
\hline 0 & 0 \
\hline 1 & 25 \
\hline 2 & 75 \
\hline 3 & 175 \
\hline 4 & 250 \
\hline 5 & 305 \
\hline
\end{array}$$ TABLE 7- 4
-Refer to Table 7- 4.The marginal product of labour curve intersects the average product of labour curve from above when the firm changes the amount of labour per unit of time from

Accepted Answer

A) 0 to 1 units. 
B) 1 to 2 units. 
C) 2 to 3 units. 
D) 3 to 4 units. 
E) 4 to 5 units.

Question 15

The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.Assume that the wage per unit of labour is $10 and the cost of the capital is $50. $$\begin{array} { | c | l | } 
\hline \text { Lab our per period } & \text { Total output per period } \
\hline 0 & 0 \
\hline 1 & 10 \
\hline 2 & 30 \
\hline 3 & 90 \
\hline 4 & 132 \
\hline 5 & 150 \
\hline
\end{array}$$ TABLE 7- 3
-Refer to Table 7- 3.If this firm is producing 20 units of output per period its marginal cost is

Accepted Answer

A) 16.7 cents. 
B) $10.00. 
C) 50 cents. 
D) $1.67. 
E) $1.00.

Question 16

Which of the following factors of production is most likely to be variable in the short run?

Accepted Answer

A) technology 
B) capital equipment 
C) labour 
D) entrepreneurship 
E) land

Question 17

Consider a basket- producing firm with fixed capital.If the firm can produce 36 baskets per day with 3 workers and then increases productivity to 44 baskets per day with 4 workers,then which of the following statements is true?

Accepted Answer

A) The marginal product of the fourth worker is 11. 
B) The firm has passed the point of diminishing average productivity. 
C) With 4 workers,the firm's average product of labour is 13. 
D) The firm has not yet reached the point of diminishing marginal productivity. 
E) The marginal product is above the average product.

Question 18

Consider a firm's short- run cost curves.When capital is a fixed factor,a rise in the cost of labour

Accepted Answer

A) shifts the marginal cost curve upwards. 
B) shifts the AVC curve down. 
C) leaves the MC curve unchanged. 
D) shifts the total product curve downwards. 
E) leaves the ATC curve unchanged.

Question 19

Suppose a production function for a firm takes the following algebraic form: Q = 2KL - (0.2)L2,where Q is the output of sweaters per day.Now suppose the firm is operating with 8 units of capital (K=8)and 10 units of labour (L=10).What is the output of sweaters?

Accepted Answer

A) 155 sweaters per day 
B) 140 sweaters per day 
C) 60 sweaters per day 
D) 30 sweaters per day 
E) 80 sweaters per day

Question 20

If a firm uses factor inputs that are personally owned by the firm's owner,then economists refer to the opportunity cost of these inputs as

Accepted Answer

A) implicit costs. 
B) inverted costs. 
C) accounting costs. 
D) direct production costs. 
E) sunk costs.

Exam 7: Producers in the Short Run