Question 1

FIGURE 7-1
-Refer to Figure 7-1.Suppose each unit of labour represents one worker for one month.What is the maximum number of workers the firm could hire so that the final worker hired still raises the average product of the other workers?

Accepted Answer

A) 7 
B) 8 
C) 9 
D) 11 
E) 15

Question 2

A firm that has two or more owners who share decision-making power as well as the firm's profits is called

Accepted Answer

A) a single proprietorship. 
B) a partnership. 
C) a corporation. 
D) a non-profit organization. 
E) a joint-stock company.

Question 3

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

Question 4

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 5

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

Accepted Answer

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

Question 6

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 product of labour when the firm hires 3 units of labour is ________.The average product of labour when the firm hires 4 units of labour is ________.

Accepted Answer

A) 30; 33 
B) 90; 132 
C) 60; 42 
D) 90; 222 
E) 30; 90

Question 7

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 (ii)of the figure?

Accepted Answer

A) Curve 4 is the marginal cost curve. Curve 5 is the average fixed cost curve.
Curve 6 is the average variable cost curve.
Curve 7 is the average total cost curve. 
B) Curve 4 is the average total cost curve. Curve 5 is the marginal cost curve.
Curve 6 is the average variable cost curve.
Curve 7 is the average fixed cost curve. 
C) Curve 4 is the average fixed cost curve. Curve 5 is the average total cost curve.
Curve 6 is the marginal cost curve.
Curve 7 is the average variable cost curve. 
D) Curve 4 is the marginal cost curve. Curve 5 is the average total cost curve.
Curve 6 is the average variable cost curve.
Curve 7 is the average fixed cost curve. 
E) Curve 4 is the marginal cost curve. Curve 5 is the average variable cost curve.
Curve 6 is the average fixed cost curve.
Curve 7 is the average total cost curve.

Question 8

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 9

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 10

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 11

The point of diminishing marginal productivity is the point where

Accepted Answer

A) marginal product has reached its maximum. 
B) average product has reached its maximum. 
C) the marginal product begins to fall at an increasing rate. 
D) the total product begins to fall. 
E) the marginal product curve lies below the average product curve.

Question 12

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 13

In the short run time horizon for a firm,total fixed costs

Accepted Answer

A) decrease and then increase as output increases. 
B) decrease as output increases. 
C) do not vary with output. 
D) increase and then decrease as output increases. 
E) are equal to total variable costs.

Question 14

Consider a firm in the short run.If the AP curve is rising,then the MP curve

Accepted Answer

A) must lie above the average-product curve over this range and must also be rising. 
B) must lie above the average-product curve over this range. 
C) can be either above or below the average-product curve,although it must be rising over the entire range. 
D) must lie below the average-product curve over this range. 
E) must be falling.

Question 15

The period of time over which the firm can vary any of its inputs for a given production technology is called the

Accepted Answer

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

Question 16

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 there are no fixed costs.The firm reaches it's capacity level of output when its output is equal to ________ units.

Accepted Answer

A) 50 
B) 110 
C) 150 
D) 190 
E) 210

Question 17

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 firm's operations.

Question 18

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 firm's 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 19

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

Question 20

Suppose a firm is producing 10 000 units of output.At this level of output,average total cost is $200 and average fixed cost is $20.It can be concluded that total variable cost is

Accepted Answer

A) $180. 
B) $1800. 
C) $18 000. 
D) $180 000. 
E) $1 800 000.

Exam 7: Producers in the Short Run

FIGURE 7-1 -Refer to Figure 7-1.Suppose each unit of labour represents one worker for one month.What is the maximum number of workers the firm could hire so that the final worker hired still raises the average product of the other workers?