53)
If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm’s total
variable cost at that level of output is
53)
A)
$1,000.
B)
$700.
C)
$300.
D)
impossible to determine without additional information.
54)
If, when a firm doubles all its inputs, its average cost of production increases then production
displays
54)
A)
economies of scale.
B)
diminishing returns.
C)
diseconomies of scale.
D)
declining fixed costs.
C
55)
If marginal product is greater than average product, then
55)
A)
marginal product must be increasing.
B)
marginal product could either be increasing or decreasing.
C)
average product must be decreasing.
D)
marginal product must be decreasing.
B
56)
Vipsana’s Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is
$2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. What
is Vipsana’s average fixed cost per day when she produces 50 gyros using two workers?
56)
A)
$2.00
B)
$2.40
C)
$4.40
D)
$6.80
B
B
57)
The law of diminishing returns
57)
A)
sets in because not all workers are equally productive.
B)
holds even when there are no fixed factors.
C)
applies only in the short run.
D)
explains why increased production results in diseconomies of scale.
58)
In the short run, if marginal product is at its maximum, then
58)
A)
average variable cost is at its minimum.
B)
total cost is at its maximum.
C)
marginal cost is at its minimum.
D)
average cost is at its minimum.
59)
As a firm hires more labor in the short run, the
59)
A)
output per worker rises.
B)
costs of production are increasing at a fixed rate per unit of output.
C)
extra output of another worker may rise at first, but eventually must fall.
D)
level of total product stays constant.
60)
When a firm’s long–run average cost curve is horizontal for a range of output, then in that range
production displays
60)
A)
constant average fixed costs.
B)
decreasing returns to scale.
C)
constant returns to scale.
D)
increasing returns to scale.
61)
Manufacturers of flat–panel televisions expect continued rapid increases in the demand for their
products. In response to this forecast, manufacturers are building increasingly larger plants. At the
same time, they expect to sell flat–panel televisions at lower prices. Which of the following must be
true if manufacturers plan to lower prices and yet expect to cover the average cost of production in
their larger plants?
61)
A)
The cost of building a larger plant must be lower than the cost of building smaller plants.
B)
Larger plants are more efficient than smaller plants because the bulk of the cost of production
is fixed costs.
C)
They expect that economies of scale will make the cost of production in the larger plants
lower than the cost of production in the smaller plants.
D)
They expect that the demand for flat–panels televisions is relatively elastic and therefore
lowering prices will lead to an increase in total revenue which will comfortably cover the cost
of production.
62)
Which of the following is a factor of production that generally is fixed in the short run?
62)
A)
raw materials
B)
water
C)
a factory building
D)
labor
Table 7–1
Number of
workers
Mushrooms per
day (pounds)
112
230
345
450
554
656
Table 7–1 shows the technology of production at the Matsuko’s Mushroom Farm for the month of May 2007.
63)
Refer to Table 7–1. What is the average product of labor when the farm hires 5 workers?
63)
A)
38.2 pounds
B)
10.8 bushels
C)
54 pounds
D)
4 pounds
Figure 7–1
64)
Refer to Figure 7–1. In a diagram that shows the marginal product of labor on the vertical axis and
labor on the horizontal axis, the marginal product curve
64)
A)
intersects the horizontal axis at a point corresponding to the 6th worker.
B)
intersects the horizontal axis at a point corresponding to the 8th worker.
C)
never intersects the horizontal axis.
D)
intersects the horizontal axis at a point corresponding to the 5th worker.
65)
If a firm produces 20 units of output and incurs a total cost of $1,000 and the firm’s variable cost is
$700, calculate the firm’s average fixed cost of production if it expands output to 25 units.
65)
A)
$300
B)
$15
C)
$12
D)
It is impossible to determine without additional information.
66)
Which of the following is a fixed cost?
66)
A)
payments to an electric utility
B)
costs of raw materials
C)
lease payments for a factory warehouse
D)
wages paid to assembly line workers
67)
Vipsana’s Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is
$2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. What
is Vipsana’s total cost per day when she does not produce any gyros and does not hire any
workers?
67)
A)
$0
B)
$2
C)
$60
D)
$120
68)
A firm’s cost of production is determined by all of the following except
68)
A)
the productivity of its workers.
B)
the cost of raw material used in production.
C)
the technology used to produce its output.
D)
the amount of corporate taxes it must pay on its profit.
D
Table 7–1
Number of
workers
Mushrooms per
day (pounds)
112
230
345
450
554
656
Table 7–1 shows the technology of production at the Matsuko’s Mushroom Farm for the month of May 2007.
69)
Refer to Table 7–1. What is the marginal product of the 4th worker?
69)
A)
137 pounds
B)
50 pounds
C)
12.5 pounds
D)
5 pounds
D
D
70)
Suppose a chain of convenience stores reorganized its system of supplying its stores with food. This
led to a sharp reduction in the number of trucks that the company had to use and increased the
amount of fresh food on store shelves. Which of the following statements best describes the chain
stores’ actions?
70)
A)
Technological change refers only to the introduction of new products or improvements to
existing product. As such, the scenario described in the question is not technological change.
B)
The scenario described is an example of management efficiency and not technological change.
Essentially, the chain changes its way of operating its business.
C)
The firm is able to produce more output (increase its sales) using fewer inputs (fewer trucks).
Therefore, the chain of convenience stores has implemented a positive technological change.
D)
The change implemented is not an example of technological change because it did not require
the use of new machinery or equipment.
71)
Which of the following is an example of technology as used by economists?
71)
A)
Heidi makes a pizza for her family’s dinner.
B)
Katrina works as a cashier at the local produce stand.
C)
Garvey takes out a low–cost government loan to start his pet–sitting business.
D)
The theatre and film studies department in Fine Art’s College stages a play at the local
theatre.
72)
A characteristic of the long run is
72)
A)
there are both fixed and variable inputs
B)
all inputs can be varied.
C)
there are fixed inputs.
D)
plant capacity cannot be increased or decreased.
73)
Who was the economist who first analyzed the advantages of specialization and the division of
labor?
73)
A)
David Ricardo
B)
Arthur C. Pigou
C)
Adam Smith
D)
Milton Friedman
Figure 7–3
74)
Refer to Figure 7–3. Identify the curves in the diagram.
74)
A)
E = marginal cost curve; F = total cost curve; G = variable cost curve, H = average fixed cost
curve
B)
E = average fixed cost curve; F = variable cost curve; G = total cost curve,
H = marginal cost curve
C)
E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H =
average fixed cost curve
D)
E = average fixed cost curve; F = average total cost curve; G = average variable cost curve, H =
marginal cost curve
75)
Which of the following costs will not change as output changes?
75)
A)
average variable cost.
B)
total variable cost.
C)
average fixed cost
D)
total fixed cost
E)
marginal cost.
76)
A firm has successfully adopted a positive technological change when
76)
A)
it produces less pollution in its production process.
B)
it can produce more output using the same inputs.
C)
it increases its accounting profit and its economic profit.
D)
can pay its workers less yet increase its profit.
77)
Minimum efficient scale is
77)
A)
the level of output at which all economies of scale are exhausted.
B)
the level of output where diminishing returns have not set in yet.
C)
the smallest output level where the firm finally reaches productive efficiency.
D)
the plant size that yields the most profit.
A
78)
Average fixed cost of production
78)
A)
falls as output is increased.
B)
remains constant.
C)
graphs as a U–shaped curve.
D)
will rise at a fixed rate as more is produced.
A
79)
The marginal product of labor is defined as
79)
A)
the cost of hiring one more worker.
B)
the additional number of workers required to produce one more unit of output.
C)
the additional sales revenue that results when one more worker is hired.
D)
the additional output that results when one more worker is hired.
D
B
80)
Which of the following is an example of a long–run adjustment?
80)
A)
Wal–Mart builds another Supercenter.
B)
Your university offers Saturday morning classes next fall.
C)
A soybean farmer turns on the irrigation system after a month–long dry spell.
D)
Ford Motor Company lays off 2,000 assembly line workers.
81)
If the average variable cost curve is above the marginal cost curve, then
81)
A)
marginal cost must be decreasing.
B)
marginal cost must be increasing.
C)
average variable cost must be increasing.
D)
marginal cost can be either increasing or decreasing.
82)
Which of the following is an implicit cost of production?
82)
A)
wages paid to labor plus the cost of benefits for workers
B)
interest paid on a loan to a bank
C)
the utility bill paid to water, electricity and natural gas companies
D)
rent that could have been earned on a building owned and used by a firm
83)
Vipsana’s Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is
$2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. What
is Vipsana’s total cost per day when she produces 50 gyros using two workers?
83)
A)
$100
B)
$124.40
C)
$220
D)
$340
84)
If production displays economies of scale, the long run average cost curve is
84)
A)
below the long run marginal cost curve.
B)
above the short run average total cost curve.
C)
upward sloping.
D)
downward–sloping.
Figure 7–4
85)
Refer to Figure 7–4. Identify the minimum efficient scale of production.
85)
A)
Qa
B)
Qb
C)
Qc
D)
Qd
86)
When the average total cost is $16 and the level of total cost is $800, then the number of units the
firm is producing is
86)
A)
impossible to determined with the information given.
B)
12,800.
C)
784.
D)
50.
87)
Marginal cost is equal to the
87)
A)
change in average product divided by the change in output.
B)
change in total product divided by the change in output.
C)
change in average total costs divided by the change in output.
D)
change in total cost divided by the change in output.
88)
Vipsana’s Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is
$2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. What
is Vipsana’s variable cost per day when she produces 50 gyros using two workers?
88)
A)
$100
B)
$124.40
C)
$220
D)
$240
C
89)
Refer to Figure 7–3. Curve Gapproaches curve F because
89)
A)
fixed cost falls as capacity rises.
B)
marginal cost is above average variable cost.
C)
average fixed cost falls as output rises.
D)
total cost falls as more and more is produced.
C
D
Figure 7–1
90)
Refer to Figure 7–1. Diminishing returns set in after
90)
A)
the 5th worker is hired.
B)
the 4th worker is hired.
C)
the 2nd worker is hired.
D)
the 3rd worker is hired.
91)
Average fixed cost is equal to
91)
A)
ATC + AVC
B)
TC + VC
C)
FC/Q.
D)
TC – VC.
92)
Which of the following is not a source of technological advancement for a producer?
92)
A)
more efficient physical capital
B)
higher skill level of managers
C)
outsourcing some aspect of production
D)
better trained workers
93)
If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal
product of the fifth worker is
93)
A)
38 chairs.
B)
4 chairs.
C)
3 chairs.
D)
2 chairs.
94)
An explicit cost of production is also called
94)
A)
an accounting cost.
B)
a direct cost.
C)
an overhead cost.
D)
a variable cost.
Table 7–2
Quantity of
lanterns
Fixed Cost
(Dollars)
Variable Cost
(Dollars)
Total Cost
(Dollars)
Average Total Cost
(Dollars)
75 200 170 370 4.93
80 200 230 430 5.36
90 200 7.67
100 200 810
115 200 11.8
117 200 1264 1464 12.5
120 200 1480
Table 7–2 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
95)
Refer to Table 7–2. What is the variable cost of production when the firm produces 115 lanterns?
95)
A)
$1,556
B)
$1,157
C)
$956
D)
$10.05
96)
At the minimum efficient scale,
96)
A)
all possible economies of scale have not been exhausted.
B)
the firm has achieved the lowest possible average cost of production.
C)
fixed cost is at its minimum.
D)
any increases in the scale of operation will encounter further economies of scale.
97)
If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of
output is $30.23, what will happen to the average cost of production if the 15th unit is produced?
97)
A)
Average cost could increase or decrease depending on what happens to variable cost.
B)
Average cost could increase or decrease depending on what happens to fixed cost.
C)
Average cost will fall.
D)
Average cost increases as more is produced.
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
98)
Describe the relationship between marginal cost and average cost.
98)
99)
State the law of diminishing returns.
99)
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
100)
If production displays constant returns to scale, then all economies of scale have been exhausted.
100)
101)
Consider a manufacturing operation that uses specialized machinery and labor to produce its
output. In this case, the input that is not fixed in the short run is labor.
101)
102)
If the marginal product of labor is decreasing, then marginal cost of production must be rising.
102)
103)
If, after hiring the 6th worker, a firm’s output falls then the marginal product of the 6th worker is
negative.
103)
104)
The marginal cost curve is U–shaped because of the law of increasing opportunity costs.
104)
C
105)
If marginal product is equal to average product, then total product is at a maximum.
105)
106)
The short run is the time period during which a firm has at least one fixed input.
106)
107)
Costs that change as output changes are called accounting costs.
107)
108)
A downward sloping marginal product of labor curve demonstrates the law of diminishing
returns.
108)
109)
An important reason why diseconomies of scale arise is because firms may have to hire lower
skilled workers as firms expand.
109)
110)
Accounting costs exclude implicit costs.
110)
111)
A characteristic of the long run that is not a characteristic of the short run is that a firm is free to
vary its output.
111)
112)
If average product is decreasing, then marginal product must be negative.
112)
113)
If the long–run average total cost curve is downward–sloping, then the firm is experiencing
diseconomies of scale.
113)
114)
If the firm is producing no output in the short run, then its total costs are zero.
114)