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154. At what output does the firm depicted in Figure 8-6 begin to experience diminishing marginal returns
to its variable factors of production?
a.
q1
b.
q2
c.
q3
d.
an output beyond q3
155. At what output does the firm depicted in Figure 8-6 minimize its per-unit cost of production?
a.
q1
b.
q2
c.
q3
d.
an output beyond q3
Figure 8-7
156. Which of the following is true for Figure 8-7?
a.
Firms in this industry begin to experience diminishing returns to their variable factors at
output q1.
b.
Between q1 and q2, firms in this industry experience economies of scale.
c.
Firms producing output rates less than q1 or more than q2 will find it difficult to survive.
d.
The largest firms in this industry have the lowest per-unit cost.
Use the figure to answer the following question(s).
Figure 8-8
157. In Figure 8-8, which output level would be most closely associated with the point where diminishing
marginal returns have begun?
a.
4
b.
5
c.
6
d.
8
158. In Figure 8-8, which output minimizes per-unit cost?
a.
4
b.
6
c.
7
d.
8
Use the figure to answer the following question(s).
Figure 8-9
159. In Figure 8-9, which output would minimize the firm's average total cost of production?
a.
30
b.
40
c.
50
d.
60
160. Using Figure 8-9, calculate the firm's approximate total cost when average total cost is at a minimum.
a.
$100
b.
$160
c.
$480
d.
$600
161. Using Figure 8-9, calculate the firm's approximate average total cost when it produces 50 units.
a.
$10
b.
$13
c.
$15
d.
$17
Use the figure to answer the following question(s).
Figure 8-10
162. In Figure 8-10, which output would minimize the firm's average total cost of production?
a.
4
b.
6
c.
8
d.
10
163. Using Figure 8-10, calculate the firm's approximate total cost when average total cost is at a minimum.
a.
$60
b.
$80
c.
$100
d.
$120
164. Using Figure 8-10, calculate the firm's approximate average total cost when it produces 12 units.
a.
$5
b.
$10
c.
$15
d.
$20
Use the figure to answer the following question(s).
Figure 8-11
165. The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-11.
The firm's total cost of producing 20 units is
a.
$6.
b.
$84.
c.
$120.
d.
$150.
166. Which of the following is true for a firm with the costs illustrated in Figure 8-11?
a.
Marginal costs exceed average total cost when output is 15.
b.
Marginal costs exceed average total cost when output is 20.
c.
Marginal costs exceed average total cost when output is 25.
d.
The firm's total fixed cost exceeds 40.
Figure 8-12
167. In Figure 8-12, which of the following would most likely cause the average total cost curve of a firm
producing molded plastic chairs to shift from ATC1 to ATC2?
a.
an increase in demand for plastic chairs
b.
an increase in the market price of plastic chairs
c.
an increase in the price of the plastic used to produce the chairs
d.
a reduction in corporate income taxes
Figure 8-13
168. Movement from point b to point c in Figure 8-13 indicates that the firm is experiencing
a.
economies of scale.
b.
increasing average cost.
c.
economies of cost.
d.
a decrease in average plant size.
e.
diseconomies of scale.
169. In the short run, the marginal cost curve crosses the average total cost curve at
a.
a point just below the average fixed cost curve.
b.
the minimum point on the average total cost curve.
c.
the maximum point of the average variable cost curve.
d.
all of the above points.
170. What amount must be earned to induce investors to continue to supply the funds necessary to maintain
a firm's capital assets?
a.
stockholder equity
b.
the opportunity cost of capital
c.
economic profit
d.
accounting profit
171. Which of the following explains why business owners have a strong incentive to strive for operational
efficiency?
a.
they recognize that operational efficiency promotes the public interest.
b.
since the owners are residual income claimants, increased efficiency will mean a higher
income for the owners.
c.
if production is not conducted efficiently, the firm will ship jobs and capital out of the
domestic market in order to be able to compete effectively.
d.
Increased operational efficiency allows the firm to receive government tax breaks.
172. Which of the following is true?
a.
under the partnership form of business organization, the owners are not personally liable
for the debts of the business.
b.
when employees also own a business, their incentive to shirk is removed.
c.
the limited liability of stockholders under the corporate business structure makes it easier
to raise equity capital.
d.
under the corporate form of business organization, the owners of the firm are personally
liable for its debts.
173. If most firms in an industry are earning a 7 percent rate of return on their assets, but your business is
earning 9 percent, your rate of economic profit is
a.
minus 2 percent.
b.
2 percent.
c.
9 percent.
d.
16 percent.
174. Which of the following is the best example of a fixed cost for a business?
a.
the insurance payment for the protection of a building owned by the firm
b.
shipping charges for the delivery of products
c.
managerial salaries paid
d.
the total of medical insurance premiums on the firm's employees
175. As a firm expands output, in the short run marginal costs will
a.
always decline as output expands.
b.
increase at first but eventually level off and decline.
c.
eventually increase as the firm experiences diminishing returns to the fixed factors of
production.
d.
initially increase at a decreasing rate but eventually increase at an increasing rate.
176. The optimal plant size depends on
a.
whether the firm confronts diminishing returns on its fixed factors of production.
b.
the output the firm expects to produce.
c.
whether the plant uses capital-intensive or labor-intensive production techniques.
d.
the preferences of the individual firm owners.
177. A 10-cent-per-box tax on producers of cigars will
a.
shift the firm's ATC and MC curves upward by the full amount of the tax.
b.
induce the firm to produce less but will not shift the firm's MC curve.
c.
shift the firm's ATC and MC curves downward by the full amount of the tax.
d.
shift the MC curve upward but will not cause any shift in the ATC curve.
178. Sunk costs
a.
are expenditures made in the past that cannot be regained no matter what is done now or in
the future.
b.
are a component of variable costs, but not fixed costs.
c.
represent foregone opportunities, and therefore the firm's managers should consider these
costs when they are making current decisions.
d.
can be avoided if the firm goes out of business.
179. The upward-sloping portion of a long-run average total cost curve is the result of
a.
economies of scale.
b.
diseconomies of scale.
c.
diminishing returns.
d.
the existence of fixed resources.
180. The three basic legal forms of business enterprise are
a.
monopolists, competitors, and enterprises.
b.
vertical, horizontal, and conglomerate corporations.
c.
conglomerates, multinationals, and partnerships.
d.
proprietorships, partnerships, and corporations.
181. Sophia has a business using no owned capital and makes an accounting profit of $52,000 a year.
Sophia could have worked for Verizon Wireless with a pay of $35,000 a year, but she would not have
had time to run her business. The economic profit from Sophia's business per year is
a.
$87,000.
b.
$35,000.
c.
$17,000.
d.
−$17,000.
182. If a firm's average total costs fall as it produces a larger output,
a.
average variable cost must also decline as output expands.
b.
marginal cost must also decline as output expands.
c.
average fixed cost must be less than average variable costs.
d.
marginal cost must be less than average total cost.
183. What is the difference between accounting profit and economic profit?
a.
They are the same thing.
b.
They are only different if the accountant makes a mistake.
c.
Accounting profit is usually smaller than economic profits.
d.
Accounting profit makes no allowance for several implicit costs, including equity capital,
while economic profit takes these costs into account.
ESSAY
184. Kim used to work at "The Big One" accounting firm, and she earned $50,000 a year. She saved her
money and has now invested $100,000 in her own firm. Profit is $20,000 a year, which Kim receives
as her only compensation. She concludes that this is great because a 20 percent return is much better
than the 8 percent she could get in another investment (the opportunity cost of the funds). What is
wrong with this line of thinking?
185. Suppose you are planning to open a lemonade stand. List separately all the explicit and implicit costs
that might be involved.
186. The boss observes that her 10 workers produce 1,000 widgets a day. She concludes that she can
employ 20 workers and make 2,000 widgets, 30 to make 3,000, or 40 to make 4,000. Explain why this
observation is either correct or incorrect.
187. James opened a baseball manufacturing operation, and initially the more balls he made, the lower the
per-unit cost. Now, as output expands, his per-unit costs are rising. He concludes that diseconomies of
scale have set in. Is he correct? Why?
188. Andy wants to maximize his grade-point average. Having spent six hours studying for his final exam
in economics, Andy calculates his grade and discovers that even with a perfect score on the final, he
will not pass the course. He decides to study two more hours so he will not have wasted the first six
hours. Is this a good decision? Why or why not?
189. The AB Manufacturing Company has hired an economist to evaluate its financial situation. She
explains to the board of directors that the company is making zero economic profit. Should the
company go out of business?
190. Mr. Jones pays his employees by the hour. He believes they purposely work slowly to maximize their
personal satisfaction. What can he do to provide them with a stronger incentive to work efficiently?
191. If the ABC Company decides to take over the XYZ Corporation by purchasing all of the stock of
XYZ, what does this tell us about the view ABC holds of XYZ?
