Question 1

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) The marginal product is above the average product. 
D) The firm has not yet reached the point of diminishing marginal productivity. 
E) With 4 workers,the firmʹs average product of labour is 13.

Question 2

The diagram below shows some short-run cost curves for a firm.
  FIGURE 7-2
-Refer to Figure 7-2.Which of the following choices correctly identifies the cost curves in part (i)of the figure?

Accepted Answer

A) Curve 1 is the total cost curve. Curve 2 is the total variable cost curve.Curve 3 is the total fixed cost curve. 
B) Curve 1 is the total fixed cost curve.Curve 2 is the total variable cost curve.Curve 3 is the total cost curve. 
C) Curve 1 is the total variable cost curve.Curve 2 is the total cost curve. Curve 3 is the total fixed cost curve. 
D) Curve 1 is the total marginal cost curve.Curve 2 is the total average cost curve.Curve 3 is the total average fixed cost curve. 
E) Curve 1 is the total cost curve. Curve 2 is the total variable cost curve.Curve 3 is the average fixed cost curve.

Question 3

Consider a firm in the short run.Average product is at its maximum when

Accepted Answer

A) total product is maximized. 
B) marginal product is maximized. 
C) the maximum quantity of the variable input is employed. 
D) diminishing returns cease to operate. 
E) average product equals marginal product and marginal product is falling.

Question 4

Real capital includes

Accepted Answer

A) a firmʹs physical assets. 
B) corporate bonds. 
C) corporate stock. 
D) a firmʹs balance in its bank account. 
E) ownerʹs equity.

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.  TABLE 7-3
-Refer to Table 7-3.What is the marginal product of the 4th unit of labour hired by the firm?

Accepted Answer

A) 42 
B) 60 
C) 132 
D) 900 
E) 1320

Question 6

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.  TABLE 7-4
-Refer to Table 7-4.The average total cost of producing 75 units of output is

Accepted Answer

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

Question 7

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.  TABLE 7-4
-Refer to Table 7-4.The total variable cost of producing 305 units of output is

Accepted Answer

A) $100. 
B) $125. 
C) $225. 
D) $305. 
E) $325.

Question 8

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.  TABLE 7-3
-Refer to Table 7-3.At what level of output does average variable cost reach a minimum?

Accepted Answer

A) 30 
B) 90 
C) 132 
D) 150 
E) AVC declines continuously over the range of output shown.

Question 9

What information is provided by average,marginal,and total product curves?

Accepted Answer

A) They demonstrate that each of these measures of output increase as more inputs are applied. 
B) They demonstrate that,in the short run,all inputs are variable. 
C) They relate the prices of inputs (factors of production)to the prices of products. 
D) They relate the price of output to the quantity supplied. 
E) They express relationships between physical inputs and physical outputs.

Question 10

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.  TABLE 7-4
-Refer to Table 7-4.Average fixed costs for 305 units of output is approximately

Accepted Answer

A) 33 cents. 
B) 41 cents. 
C) 45 cents. 
D) 74 cents. 
E) $3.05.

Question 11

Consider the production costs for a firm,one of which is the cost of depreciation.Depreciation costs are

Accepted Answer

A) payments to outside suppliers. 
B) the cost of money borrowed to buy a durable asset. 
C) an estimate of the loss of value of the firmʹs physical capital. 
D) a measure of the depreciation of financial assets of the firm. 
E) irrelevant to an accounting of the firmʹs total costs.

Question 12

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.  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 13

The table below provides the annual revenues and costs for a family-owned firm producing catered meals.  TABLE 7-1
-Refer to Table 7-1.The economic profits for this family-owned firm are

Accepted Answer

A) $115 000. 
B) $10 000. 
C) $0. 
D) -$10 000. 
E) -$105 000.

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.  TABLE 7-4
-Refer to Table 7-4.Average variable costs for 175 units of output is approximately

Accepted Answer

A) 25 cents. 
B) 32 cents. 
C) 43 cents. 
D) 57 cents. 
E) $1.00.

Question 15

The period of time over which the firm can vary its technology of production is the

Accepted Answer

A) very-short run. 
B) short run. 
C) long run. 
D) very-long run. 
E) none of the above; technology cannot be varied.

Question 16

Suppose a firm is producing 100 units of output,incurring a total cost of $10 000 and total variable cost of $6000.It can be concluded that average fixed cost is

Accepted Answer

A) $40. 
B) $60. 
C) $100. 
D) $160. 
E) $4000.

Question 17

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

Accepted Answer

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

Question 18

The table below provides the total revenues and costs for a small landscaping company in a recent year.  TABLE 7-2
-Refer to Table 7-2.The implicit costs for this firm are

Accepted Answer

A) $31 200. 
B) $30 800. 
C) $30 400. 
D) $400. 
E) $800.

Question 19

With regard to economic decision making for firms,the long run is a period in which

Accepted Answer

A) all factors of production are variable but technology is fixed. 
B) technology is variable. 
C) only some of the factors of production are variable. 
D) technology may be variable,but some factors of production are fixed. 
E) only capital is variable.

Question 20

A firm that is maximizing its profits by producing a certain level of output must also be

Accepted Answer

A) minimizing its cost of producing that output. 
B) maximizing its sales. 
C) minimizing its variable costs. 
D) maximizing its output. 
E) maximizing its revenue.

Exam 7: Producers in the Short Run