Question 1

Suppose Bob leaves his $50, 000-a-year job as a financial advisor to P.E.T.S.and starts his own business selling spot remover for Dalmatians.In the first year his accounting profit is $70, 000.Based on this level of success, Bob should

Accepted Answer

A)  return to his old job because his economic profit is negative
B)  return to his old job because his economic profit is smaller than his accounting profit
C)  return to his old job because his economic profit is less than his old salary
D)  stay with his new firm because his economic profit is positive
E)  stay with his new firm because accounting profit is positiveF) B) and D)
G) C) and D)

Question 2

When diminishing marginal returns set in, total product

Accepted Answer

A)  is negative
B)  decreases at an increasing rate
C)  decreases at a decreasing rate
D)  increases at an increasing rate
E)  increases at a decreasing rateF) A) and B)
G) D) and E)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

If total product for each of five units of labor is 10, 16, 20, 30, and 34, respectively, the marginal product of the third unit is

Accepted Answer

A)  20
B)  10
C)  4
D)  0
E)  6F) D) and E)
G) A) and D)

Question 5

Which of the following is a fixed cost of driving a car?

Accepted Answer

A)  gasoline
B)  maintenance
C)  tires
D)  license plates
E)  motor oilF) B) and E)
G) None of the above

Question 6

Cash payments for steel to be used in production would be an example of

Accepted Answer

A)  sunk costs
B)  fixed costs
C)  explicit costs
D)  implicit costs
E)  entrepreneurial costsF) B) and C)
G) A) and B)

Question 7

Exhibit 7-12  For the total product curve in Exhibit 7-12, the average product at point c is:

Accepted Answer

A)  6
B)  10
C)  25
D)  60
E)  unable to be determinedF) None of the above
G) A) and D)

Question 8

For a person who owns and operates an automobile, insurance premiums are a __________ and maintenance and repairs are a __________.

Accepted Answer

A)  revenue; cost
B)  fixed cost; fixed cost
C)  variable cost; variable cost
D)  variable cost; fixed cost
E)  fixed cost; variable costF) B) and D)
G) A) and D)

Question 9

Suppose Ben buys out Jerry's ownership in the firm but retains him as a salaried employee.If so,

Accepted Answer

A)  economic profit increases
B)  economic profit decreases
C)  there is no change in economic profit
D)  there is no change in accounting profit
E)  accounting profit increasesF) C) and E)
G) C) and D)

Question 10

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

Accepted Answer

A)  $500
B)  $400
C)  $50
D)  $40
E)  $10F) B) and E)
G) None of the above

Question 11

Which of the following is true of the MC curve?

Accepted Answer

A)  It intersects the ATC curve at its minimum, but it does not intersect the AVC curve at its minimum.
B)  It intersects the AVC curve at its minimum, but it does not intersect the ATC curve at its minimum.
C)  It intersects both the ATC and the AVC curves at their minimums.
D)  It intersects both the ATC and the AFC curves at their minimums.
E)  It intersects both the AVC and the AFC curves at their minimums.F) C) and E)
G) D) and E)

Question 12

The fact that since 1990 the number of movie screens in the United States has grown faster than the number of theaters illustrates the benefits of

Accepted Answer

A)  economies of scale
B)  constant long-run average cost
C)  diseconomies of scale
D)  increasing long-run average cost
E)  a U-shaped marginal cost curveF) A) and C)
G) B) and C)

Question 13

Exhibit 7-14 Total Cost Curve  In Exhibit 7-14, what is fixed cost of producing output?

Accepted Answer

A)  $0
B)  $3
C)  $10
D)  $46
E)  cannot be determined from the total cost curveF) A) and C)
G) A) and D)

Question 14

Which of the following is most likely to be a fixed cost for any firm?

Accepted Answer

A)  the monthly electric bill
B)  sales taxes
C)  shipping and postage costs
D)  rent on office space
E)  charitable donationsF) A) and E)
G) A) and B)

Question 15

All other things constant, higher implicit cost results in lower accounting profit.

Accepted Answer

A) True 
 B)False

Question 16

Economic profit is defined as

Accepted Answer

A)  total revenue minus implicit costs
B)  total revenue plus explicit costs
C)  total revenue plus implicit costs
D)  wages plus interest minus rent
E)  total revenue minus implicit and explicit costsF) A) and C)
G) B) and C)

Question 17

Which of the following is most likely to be a fixed resource for the City Slicker's Dude Ranch?

Accepted Answer

A)  the lodge where the guests stay
B)  food for the guests
C)  stable hands to take care of the horses
D)  hay for the horses
E)  water for the horsesF) A) and C)
G) A) and B)

Question 18

When marginal cost is decreasing, total cost is rising.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Exhibit 7-2  Given the information in Exhibit 7-2, at what point do diminishing marginal returns set in?

Accepted Answer

A)  before the first unit of labor
B)  between the first and second units of labor
C)  between the second and third units of labor
D)  between the third and fourth units of labor
E)  between the fourth and fifth units of laborF) B) and E)
G) A) and B)

Exam 7: Production and Cost in the Firm

Suppose Ben buys out Jerry's ownership in the firm but retains him as a salaried employee.If so,

Correct AnswerverifiedShow Answer

Cash payments for steel to be used in production would be an example of

Correct AnswerverifiedShow Answer

Suppose Bob leaves his $50, 000-a-year job as a financial advisor to P.E.T.S.and starts his own business selling spot remover for Dalmatians.In the first year his accounting profit is $70, 000.Based on this level of success, Bob should

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The fact that since 1990 the number of movie screens in the United States has grown faster than the number of theaters illustrates the benefits of

Correct AnswerverifiedShow Answer

Exhibit 7-14 Total Cost Curve In Exhibit 7-14, what is fixed cost of producing output?

Correct AnswerverifiedShow Answer

Exhibit 7-2 Given the information in Exhibit 7-2, at what point do diminishing marginal returns set in?

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Exhibit 7-12 For the total product curve in Exhibit 7-12, the average product at point c is:

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When marginal cost is decreasing, total cost is rising.

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Which of the following is true of the MC curve?

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Which of the following is most likely to be a fixed resource for the City Slicker's Dude Ranch?

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When diminishing marginal returns set in, total product

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All other things constant, higher implicit cost results in lower accounting profit.

Correct AnswerverifiedShow Answer

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

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For a person who owns and operates an automobile, insurance premiums are a __________ and maintenance and repairs are a __________.

Correct AnswerverifiedShow Answer

If total product for each of five units of labor is 10, 16, 20, 30, and 34, respectively, the marginal product of the third unit is

Correct AnswerverifiedShow Answer

Which of the following is a fixed cost of driving a car?

Correct AnswerverifiedShow Answer

Economic profit is defined as

Correct AnswerverifiedShow Answer

Which of the following is most likely to be a fixed cost for any firm?

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For a person who owns and operates an automobile, insurance premiums are a and maintenance and repairs are a .

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