Question 1

When a firmʹs marginal cost is rising, we know that

Accepted Answer

A)  average fixed cost must be rising. 
B)  average variable cost must be rising. 
C)  average total cost must be rising. 
D)  marginal product must be zero. 
E)  marginal product must be falling.

Question 2

Suppose Jodiʹs widget business is using two inputs, labour and capital. If the price of labour increases, which of the following will happen?

Accepted Answer

A)  Jodi will shut down her business. 
B)  The firmʹs average total cost curve will shift upward. 
C)  The firmʹs marginal cost curve will remain unchanged. 
D)  Jodi will hire more labour. 
E)  The firmʹs average fixed cost curve will shift upward.

Question 3

FIGURE 7-1
-Refer to Figure 7-1. Total product is increasing at a decreasing rate

Accepted Answer

A)  from 0 to 20 units of output. 
B)  from 0 to 32 units of output. 
C)  between 140 to 200 units of output. 
D)  between 140 to 250 units of output. 
E)  over the whole production range.

Question 4

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. Given the information in the table about short-run costs, this firm would minimize the average variable cost of production when producing

Accepted Answer

A)  10 chairs. 
B)  15 chairs. 
C)  20 chairs. 
D)  25 chairs. 
E)  30 chairs.

Question 5

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 6

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 7

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 8

Suppose a firm producing digital cameras is operating such that marginal costs are higher than average costs. If the firm produces one more camera, average costs will

Accepted Answer

A)  rise. 
B)  fall. 
C)  reach a point of diminishing returns. 
D)  remain constant. 
E)  reach their maximum.

Question 9

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. If the firm produces 130 pairs of shoes, and the fixed cost is $550, then the firmʹs total cost is

Accepted Answer

A)  $7000. 
B)  $8000. 
C)  $9000. 
D)  $10 000. 
E)  $12 000.

Question 10

The table below provides the total revenues and costs for a small landscaping company in a recent year.  TABLE 7-2
-The period of time over which all factors of production and technology are variable is known as the

Accepted Answer

A)  very-short run. 
B)  short run. 
C)  long run. 
D)  very-long run.

Question 11

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. Marginal product of labour begins decreasing with the unit of labour hired. Average product of labour begins decreasing with the unit of labour hired.

Accepted Answer

A)  4th; 3rd 
B)  3rd; 2nd 
C)  2nd; 3rd 
D)  3rd; 4th 
E)  4th; 5th

Question 12

Jodi recently went into business producing widgets. Which of the following would be a fixed cost for her firm?
1) labour costs of $1000 per month
2) raw material costs of $5000 per month
3) a one-year lease on a building of $12 000

Accepted Answer

A)  1 only 
B)  2 only 
C)  3 only 
D)  1 and 2 
E)  2 and 3

Question 13

Churches, the YMCA, the Salvation Army, and the Nature Conservancy are examples of

Accepted Answer

A)  single proprietorship. 
B)  partnership. 
C)  non-profit organizations. 
D)  limited partnership. 
E)  corporations.

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

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

Question 16

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 90 units of output is

Accepted Answer

A)  17 cents. 
B)  33 cents. 
C)  68 cents. 
D)  89 cents. 
E)  98 cents.

Question 17

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. At what level of output is this firm at its capacity?

Accepted Answer

A)  10 chairs 
B)  15 chairs 
C)  20 chairs 
D)  25 chairs 
E)  30 chairs

Question 18

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 cost of producing 175 units of output is

Accepted Answer

A)  $75. 
B)  $100. 
C)  $150. 
D)  $175. 
E)  $350.

Question 19

An example of debt financing for any form of business organization is

Accepted Answer

A)  issuing new stock. 
B)  buying back bonds. 
C)  borrowing from a bank. 
D)  using undistributed profits. 
E)  buying back previously issued stock.

Question 20

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 explicit costs for this family-owned firm are

Accepted Answer

A)  $115 000. 
B)  $490 000. 
C)  $500 000. 
D)  $505 000. 
E)  $605 000.

Exam 7: Producers in the Short Run

When a firmʹs marginal cost is rising, we know that

Suppose Jodiʹs widget business is using two inputs, labour and capital. If the price of labour increases, which of the following will happen?

FIGURE 7-1 -Refer to Figure 7-1. Total product is increasing at a decreasing rate

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 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?

Suppose a firm producing digital cameras is operating such that marginal costs are higher than average costs. If the firm produces one more camera, average costs will

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. If the firm produces 130 pairs of shoes, and the fixed cost is $550, then the firmʹs total cost is

The table below provides the total revenues and costs for a small landscaping company in a recent year. TABLE 7-2 -The period of time over which all factors of production and technology are variable is known as the

Jodi recently went into business producing widgets. Which of the following would be a fixed cost for her firm? 1) labour costs of $1000 per month 2) raw material costs of $5000 per month 3) a one-year lease on a building of $12 000

Churches, the YMCA, the Salvation Army, and the Nature Conservancy are examples of

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

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

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. At what level of output is this firm at its capacity?

An example of debt financing for any form of business organization is

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 explicit costs for this family-owned firm are