Question 1

As output rises,marginal product eventually diminishes and _____

Accepted Answer

A) marginal cost increases. 
B) average cost falls. 
C) total cost falls. 
D) fixed cost is increasing. 
E) average product is negative.

Question 2

Which of the following are implicit costs for a typical firm?

Accepted Answer

A) insurance costs 
B) electricity costs 
C) the opportunity costs of the capital owned and used by the firm 
D) the cost of the labor hired by the firm 
E) the cost of raw materials

Question 3

If a firm has explicit costs of $100,000 and implicit costs of $30,000,and generates $150,000 in revenue,then its accounting profit is _____

Accepted Answer

A) $20,000. 
B) $30,000. 
C) $50,000. 
D) $100,000. 
E) $130,000.

Question 4

Maryann and Don want to open their own deli.To do so,Maryann must give up her job,where she earns $20,000 per year,and Don must give up his part-time job,where he earns $10,000 per year.They must liquidate their money market fund,which earns $1,000 in interest annually.The rent on the building is $10,000 per year,and the expenses of necessities such as utilities,corned beef,and pickles are $35,000 annually._____ is the explicit cost per year of operating the deli.

Accepted Answer

A) $10,000 
B) $35,000 
C) $45,000 
D) $31,000 
E) $76,000

Question 5

Exhibit 7.3
 
-Refer to Exhibit 7.3,which shows the U-shaped cost curves for a producer.Curve C represents _____

Accepted Answer

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

Question 6

Two friends,Diane and Sam,own and run a bar.Diane tends the bar on Mondays,Wednesdays,and Fridays and receives a wage in addition to tips.Sam tends the bar on Tuesdays,Thursdays,and Saturdays and receives only tips.Which of the following represents an implicit cost of operating the bar?

Accepted Answer

A) Diane's wages 
B) Sam's time 
C) Diane's tips 
D) Sam's tips 
E) Both Diane's and Sam's tips

Question 7

Suppose Ben buys out Jerry's ownership in a firm but retains him as a salaried employee.Jerry gets a salary equal to the value of the share that he held in the firm.In this case,which of the following statements is true?

Accepted Answer

A) The firm's economic profit increases. 
B) The firm's economic profit decreases. 
C) There is no change in the economic profit of the firm. 
D) There is no change in the accounting profit of the firm. 
E) The firm's accounting profit increases.

Question 8

If total cost at quantity = 0 is $100 and total cost at quantity = 10 is $500,then average variable cost at quantity = 10 is _____

Accepted Answer

A) $500. 
B) $400. 
C) $50. 
D) $40. 
E) $10.

Question 9

Exhibit 7.4
 
-Refer to Exhibit 7.4,which shows short-run average cost curves.Which curve shows the average cost curve for a large plant?

Accepted Answer

A) A to A' 
B) B to A' 
C) B to B' 
D) C to B' 
E) C to C'

Question 10

Total fixed cost divided by the level of output yields the _____

Accepted Answer

A) average variable cost per unit. 
B) average fixed cost per unit. 
C) marginal cost per unit. 
D) average total cost per unit. 
E) marginal productivity per unit of fixed resource.

Question 11

If marginal product is negative,total product must be negative.

Accepted Answer

A) True 
 B)False

Question 12

To hire a resource,a firm must pay at least the resource's _____

Accepted Answer

A) opportunity cost. 
B) explicit cost. 
C) implicit cost. 
D) fixed costs. 
E) marginal cost.

Question 13

Table 7.5
​
 $$\begin{array} { | c | c | c | } 
\hline \text { Labor } & \text { Total Froduct } & \text { Marginal Product } \
\hline 1 & 2 & 2 \
\hline 2 & 6 & \mathrm {~A} \
\hline 3 & \mathrm {~B} & 6 \
\hline 4 & 16 & 4 \
\hline 5 & 18 & \mathrm { C } \
\hline 6 & \mathrm { D } & 0 \
\hline
\end{array}$$
-Refer to Table 7.5,which shows labor,total product,and marginal product produced by a firm.What is the marginal product at Point C?

Accepted Answer

A) 4 
B) 2 
C) 12 
D) 18 
E) 24

Question 14

Minimum efficient scale is the level of output at which _____

Accepted Answer

A) short-run average total cost is minimum. 
B) short-run average total cost stops increasing. 
C) long-run average cost stops decreasing. 
D) long-run average cost is maximum. 
E) profit stops increasing.

Question 15

Marginal cost eventually increases as output increases due to the effect of _____

Accepted Answer

A) economies of scale. 
B) increasing average cost. 
C) increasing total cost. 
D) diminishing marginal product of inputs. 
E) constant fixed cost.

Question 16

Which of the following would most likely reach the long run the soonest?

Accepted Answer

A) a nuclear power plant 
B) a college 
C) a lumber mill 
D) a shopping mall 
E) a hot dog stand

Question 17

Marginal cost indicates by how much total cost increases if one more unit is produced or by how much total cost drops if production declines by one unit.

Accepted Answer

A) True 
 B)False

Question 18

If labor is a firm's only variable input,marginal cost ultimately depends on _____

Accepted Answer

A) the fixed cost of labor. 
B) how much profit is made. 
C) the price of the good produced. 
D) how much output each worker produces. 
E) the fixed cost per unit.

Question 19

The marginal product of labor is the _____

Accepted Answer

A) cost of one worker. 
B) average output per worker. 
C) change in revenue from selling one more unit of output. 
D) change in revenue from using one more unit of labor. 
E) change in output from using one more unit of labor.

Question 20

Which of the following would be shown on a firm's accounting statement?

Accepted Answer

A) revenue, implicit costs, explicit costs, and economic profit 
B) revenue, implicit costs, explicit costs, and accounting profit 
C) revenue, explicit costs, and economic profit 
D) revenue, explicit costs, and accounting profit 
E) revenue, implicit costs, and accounting profit

Exam 7: Production and Cost in the Firm