Question 1

Suppose a firm is producing 250 units of output.At this level of output,average fixed costs are $20 per unit and average variable costs are $80 per unit.It can be concluded that total cost is

Accepted Answer

A) $100. 
B) $0.40 per unit. 
C) $40 per unit. 
D) $2500. 
E) $25 000.

Question 2

Consider a basket-producing firm with fixed capital.If the firm can produce 24 baskets per day with 3 workers and then increases production to 36 baskets per day with 4 workers,then which of the following statements is definitely true?

Accepted Answer

A) Marginal product for this firm is rising. 
B) The marginal product of the fourth worker is 9. 
C) Average product for this firm is rising. 
D) The firm has passed the point of diminishing marginal productivity. 
E) With 4 workers,the average product is greater than the marginal product.

Question 3

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

Question 4

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.To an accountant,this family-owned catering companyis earning ________. To an economist, the same firm is earning ________.

Accepted Answer

A) zero profit; economic losses 
B) zero profit; normal profits 
C) positive profits; economic losses 
D) economic profits; economic profits 
E) economic profits; economic losses

Question 5

The vertical distance between the total cost curve and the total variable cost curve is

Accepted Answer

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

Question 6

Consider the short-run costs of a firm.Suppose the firmʹs total fixed costs are $100 and average variable costs are constant regardless of output.Which of the following is then true?

Accepted Answer

A) Marginal cost will equal average total cost. 
B) Average total cost will decrease when output is increased. 
C) Marginal cost will be less than average variable cost. 
D) Average total costs will be constant. 
E) Marginal cost will be rising as output rises.

Question 7

Consider a firmʹs 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) shifts the total product curve downwards. 
D) leaves the MC curve unchanged. 
E) leaves the ATC curve unchanged.

Question 8

Consider a basket-producing firm with fixed capital.If the firm can produce 36 baskets per day with 3 workers and then increases production 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) With 4 workers,the marginal product is above the average product. 
C) The firm has not yet reached the point of diminishing marginal productivity. 
D) The firm has passed the point of diminishing marginal productivity. 
E) With 4 workers,the firmʹs average product of labour is 8.

Question 9

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.The average variable cost when this firm is producing 10 units of output is

Accepted Answer

A) $0.10. 
B) $0.50. 
C) $0.60. 
D) $1.00. 
E) $6.00.

Question 10

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,as the firm increases its output,which of the following statements is true?

Accepted Answer

A) Marginal product of the variable factor must be decreasing. 
B) Marginal product of the variable factor must be increasing. 
C) The point of diminishing average product of the variable factor has not yet been reached. 
D) Average product of the variable factor must be increasing. 
E) Marginal product of the variable factor is at its minimum point.

Question 11

The opportunity cost to a firm of using an asset is zero if

Accepted Answer

A) the asset is already owned by the firm. 
B) no money was spent to acquire the asset. 
C) the asset has no alternative uses. 
D) the asset has zero sunk costs associated with it. 
E) the asset was given to the firm for free.

Question 12

A firmʹs capacity is defined as the level of output where

Accepted Answer

A) the upper limit on what can be produced is reached. 
B) average total cost is at its maximum. 
C) marginal cost equals average variable cost. 
D) average fixed costs are at a minimum. 
E) short-run average total cost is at its minimum.

Question 13

A single proprietorship is a form of business organization which

Accepted Answer

A) has one owner-manager who is personally responsible for the firmʹs actions and debts. 
B) has a single owner but has directors who are responsible for the firmʹs debts. 
C) has limited liability. 
D) has unlimited access to money capital. 
E) allows easy transferability of ownership by the trading of shares.

Question 14

The table below provides information on output per month and short-run costs for a firm producing outdoor wooden lounge chairs.All costs are in dollars.  TABLE 7-5
-Refer to Table 7-5.What is the average total cost of producing 25 chairs?

Accepted Answer

A) $13 
B) $14 
C) $22 
D) $23 
E) $550

Question 15

Undistributed profits of a firm are

Accepted Answer

A) earnings that are used to pay dividends to shareholders. 
B) earnings that are used to cover the costs of production. 
C) earnings that are used to cover interest expenses of the firm. 
D) profits that are paid out to owners of the firm. 
E) profits that are available to be reinvested in the firmʹs operations.

Question 16

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 is at its maximum when the firm changes the amount of labour hired from

Accepted Answer

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

Question 17

The table below shows output,marginal cost,and average variable cost for the production of pairs of shoes.All costs are in dollars.  TABLE 7-6
-Refer to Table 7-6.Suppose this firm is producing 210 pairs of shoes per time period and that the variable factor of production is labour.Which of the following statements best describes this firmʹs production?

Accepted Answer

A) Additional units of labour employed will increase the average variable cost of producing shoes. 
B) Marginal cost is higher than average variable cost,so average product must be rising. 
C) Marginal cost is higher than average variable cost,so marginal product must be rising. 
D) Each additional unit of labour employed reduces the average variable cost of the pairs of shoes. 
E) The firm is producing below its capacity.

Question 18

A limited partnership differs from an ordinary partnership by

Accepted Answer

A) having a limited number of partners. 
B) having a limited number of partners,each with limited liability. 
C) including some partners whose liability is restricted to the amount that they invested in the firm. 
D) having limited liability of all partners. 
E) having unlimited liability for all partners.

Question 19

Suppose a production function for a firm takes the following algebraic form: Q = (0.25)K × (1.5)L2,where Q is the output of garage doors produced per month.Now suppose the firm is operating with 10 units of capital (K = 10)and 8 units of labour (L = 8).What is the output of garage doors per month?

Accepted Answer

A) 24 
B) 240 
C) 300 
D) 2400 
E) 3000

Question 20

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 fixed cost of producing 305 units of output is

Accepted Answer

A) $100. 
B) $125. 
C) $112.50. 
D) $225 
E) $305.

Exam 7: Producers in the Short Run

Suppose a firm is producing 250 units of output.At this level of output,average fixed costs are $20 per unit and average variable costs are $80 per unit.It can be concluded that total cost is

Consider a basket-producing firm with fixed capital.If the firm can produce 24 baskets per day with 3 workers and then increases production to 36 baskets per day with 4 workers,then which of the following statements is definitely true?

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?

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.To an accountant,this family-owned catering companyis earning . To an economist, the same firm is earning .

The vertical distance between the total cost curve and the total variable cost curve is

Consider the short-run costs of a firm.Suppose the firmʹs total fixed costs are $100 and average variable costs are constant regardless of output.Which of the following is then true?

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

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

The opportunity cost to a firm of using an asset is zero if

A firmʹs capacity is defined as the level of output where

A single proprietorship is a form of business organization which

The table below provides information on output per month and short-run costs for a firm producing outdoor wooden lounge chairs.All costs are in dollars. TABLE 7-5 -Refer to Table 7-5.What is the average total cost of producing 25 chairs?

Undistributed profits of a firm are

A limited partnership differs from an ordinary partnership by

Exam 7: Producers in the Short Run

Suppose a firm is producing 250 units of output.At this level of output,average fixed costs are $20 per unit and average variable costs are $80 per unit.It can be concluded that total cost is

Consider a basket-producing firm with fixed capital.If the firm can produce 24 baskets per day with 3 workers and then increases production to 36 baskets per day with 4 workers,then which of the following statements is definitely true?

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?

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.To an accountant,this family-owned catering companyis earning ________. To an economist, the same firm is earning ________.

The vertical distance between the total cost curve and the total variable cost curve is

Consider the short-run costs of a firm.Suppose the firmʹs total fixed costs are $100 and average variable costs are constant regardless of output.Which of the following is then true?

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

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

The opportunity cost to a firm of using an asset is zero if

A firmʹs capacity is defined as the level of output where

A single proprietorship is a form of business organization which

The table below provides information on output per month and short-run costs for a firm producing outdoor wooden lounge chairs.All costs are in dollars. TABLE 7-5 -Refer to Table 7-5.What is the average total cost of producing 25 chairs?

Undistributed profits of a firm are

A limited partnership differs from an ordinary partnership by

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.To an accountant,this family-owned catering companyis earning . To an economist, the same firm is earning .