True / False
1. The economic field of industrial organization examines how firms’ decisions about prices and quantities depend on the
market conditions they face.
a.
True
b.
False
2. The field of industrial organization addresses how the number of firms affects prices in a market and the efficiency of
the market outcome.
a.
True
b.
False
3. A firm’s total profit equals its marginal revenue minus its marginal cost.
a.
True
b.
False
4. Profit equals total revenue minus total cost.
a.
True
b.
False
5. The difference between economic profit and accounting profit is that economic profit is calculated based on both
implicit and explicit costs whereas accounting profit is calculated based on explicit costs only.
a.
True
b.
False
6. Accounting profit is greater than or equal to economic profit.
a.
True
b.
False
7. Economic profit is greater than or equal to accounting profit.
a.
True
b.
False
8. Although economists and accountants treat many costs differently, they both treat the cost of capital the same.
a.
True
b.
False
9. Accountants keep track of the money that flows into and out of firms.
a.
True
b.
False
10. When economists speak of a firm’s costs, they are usually excluding the opportunity costs.
a.
True
b.
False
11. Economists and accountants both include forgone income as a cost to a small business owner.
a.
True
b.
False
12. Anna borrows $5,000 from a bank and withdraws $1,000 from her personal savings to start a coffee shop. The interest
rate is 5 percent for both the bank loan and her personal savings. Her opportunity cost of capital is $250.
a.
True
b.
False
13. Economists and accountants usually disagree on the inclusion of implicit costs into the cost analysis of a firm.
a.
True
b.
False
14. Implicit costs are costs that do not require an outlay of money by the firm.
a.
True
b.
False
15. Accountants often ignore implicit costs.
a.
True
b.
False
16. The opportunity cost of capital is an implicit cost almost every business incurs.
a.
True
b.
False
17. An example of an explicit cost would be the wages that a business owner pays her employees.
a.
True
b.
False
18. An example of an explicit cost for the owner of a tattoo parlor would be the wages that she could earn if she worked as
a graphic artist for an advertising agency.
a.
True
b.
False
19. Diminishing marginal productivity implies decreasing total product.
a.
True
b.
False
20. Diminishing marginal product exists when the total cost curve becomes horizontal as outputs increases.
a.
True
b.
False
21. Diminishing marginal product exists when the production function becomes flatter as inputs increase.
a.
True
b.
False
22. A second or third worker may have a higher marginal product than the first worker in certain circumstances.
a.
True
b.
False
23. The typical total-cost curve is U-shaped.
a.
True
b.
False
24. The average-fixed-cost curve is constant.
a.
True
b.
False
25. In the short run, if a firm produces nothing, total costs are zero.
a.
True
b.
False
26. If a firm produces nothing, it still incurs its fixed costs.
a.
True
b.
False
27. For a typical firm, fixed costs increase in direct proportion to the increases in output.
a.
True
b.
False
28. The shape of the total-cost curve is unrelated to the shape of the production function.
a.
True
b.
False
29. The shape of the total-cost curve is inversely related to the shape of the production function.
a.
True
b.
False
30. The graph of the production function plots total cost versus quantity of output.
a.
True
b.
False
31. Suppose that a worker can produce 100 units of output in 7 hours. In the 8th hour, he can produce 12 units of output.
The worker can produce 112 units of output in 8 hours.
a.
True
b.
False
32. Marginal costs are costs that do not vary with the quantity of output produced.
a.
True
b.
False
33. Several related measures of cost can be derived from a firm’s total cost.
a.
True
b.
False
34. Variable costs usually change as the firm alters the quantity of output produced.
a.
True
b.
False
35. Variable costs equal fixed costs when nothing is produced.
a.
True
b.
False
36. The cost of producing an additional unit of a good is not the same as the average cost of the good.
a.
True
b.
False
37. Average variable cost is equal to total variable cost divided by quantity of output.
a.
True
b.
False
38. The average-total-cost curve is unaffected by diminishing marginal product.
a.
True
b.
False
39. The average-total-cost curve reflects the shape of both the average-fixed-cost and average-variable-cost curves.
a.
True
b.
False
40. If the marginal-cost curve is rising, then so is the average-total-cost curve.
a.
True
b.
False
41. The marginal-cost curve intersects the average-total-cost curve at the minimum point of the average-total-cost curve.
a.
True
b.
False
42. The marginal-cost curve intersects the average-total-cost curve at the minimum point of the marginal-cost curve.
a.
True
b.
False
43. The marginal-cost curve intersects the average-total-cost curve at the output level where average fixed costs are zero.
a.
True
b.
False
44. Assume Jack received all As in his classes last semester. If Jack gets all Bs in his classes this semester, his GPA may
or may not fall.
a.
True
b.
False