Chapter 13 The Costs of Production

Test B
1

Susans firm produces 2,000 beach towels and sells them for $10 each. Her total cost of producing these towels is $10,000. Her total profits a. are $30,000. b. are $20,000. c. are $10,000. d. cannot be computed from the information provided. !S"#$% c. are $10,000. &'(#% ) *#'1% + S#,&-.!% 1 ./0#,&-1#% 1 $ !+.)% '
2

lan produces modems. -ncluded in his cost are 2i3 what it costs him to purchase parts and 2ii3 the salar4 he could have earned if he had wor5ed for )icrosoft instead. a. both 2i3 and 2ii3 are e6plicit costs b. both 2i3 and 2ii3 are implicit costs c. 2i3 is an e6plicit cost, 2ii3 is an implicit cost d. 2i3 is an implicit cost, 2ii3 is an e6plicit cost !S"#$% c. 2i3 is an e6plicit cost, 2ii3 is an implicit cost &'(#% ) *#'1% + S#,&-.!% 1 ./0#,&-1#% 1 $ !+.)% '
3

lberto produces futons in a warehouse he paid for with $700,000 of winnings from a game show. He could instead have saved the mone4 and earned interest on it. #conomists would a. consider this interest a cost and accountants would report it as a cost. b. consider this interest a cost, but accountants would not report it as a cost. c. not consider this interest a cost, but accountants would report it as a cost. d. not consider this interest a cost and accountants would not report it as a cost. !S"#$% b. consider this interest a cost, but accountants would not report it as a cost. &'(#% ) *#'1% + S#,&-.!% 1 ./0#,&-1#% 1 $ !+.)% '
8

ccounting profits e9ual total revenues minus a. e6plicit costs. #conomic profits e9ual total revenues minus implicit costs. b. implicit costs. #conomic profits e9ual total revenues minus e6plicit costs. c. e6plicit and implicit costs. #conomic profits e9ual total revenues minus implicit costs. d. !one of the above is correct. !S"#$% d. !one of the above is correct. &'(#% ) *#'1% + S#,&-.!% 1 ./0#,&-1#% 1 $ !+.)% ' NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
7

firms economic profit is e9ual to revenue less a. e6plicit costs. b. implicit costs. c. mone4 costs. d. total opportunit4 costs. !S"#$% d. total opportunit4 costs. &'(#% ) *#'1% + S#,&-.!% 1 ./0#,&-1#% 1 $ !+.)% '

,op4right : Harcourt, -nc.

187

18; ,hapter 13<&he ,osts of (roduction

;

"hich of the following is most directl4 a statement about the production function= a. lberto sells 1,000 futons for $>00 each. b. &he opportunit4 costs for Susan to produce 10,000 beach towels is $17,000. c. -f he wor5s for fort4 hours, lan can ma5e about 100 modems. d. /artholomew finds he ma6imi?es profits b4 producing 10,000 hats. !S"#$% c. -f he wor5s for fort4 hours, lan can ma5e about 100 modems. &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '
>

)arginal product will be positive and diminishing if the production function slopes a. downward and becomes flatter as more wor5ers are hired. b. downward and becomes steeper as more wor5ers are hired. c. upward and becomes flatter as more wor5ers are hired. d. upward and becomes steeper as more wor5ers are hired. !S"#$% c. upward and becomes flatter as more wor5ers are hired. &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '
@

+iminishing marginal product occurs a. as additional wor5ers have to share e6isting e9uipment and space. b. as additional wor5ers e6pect greater hourl4 wages than previous wor5ers. c. both a and b are correct d. neither a nor b is correct !S"#$% a. as additional wor5ers have to share e6isting e9uipment and space. &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '
A

-f a firm faces diminishing marginal product, then to produce an additional unit of output re9uires adding a. more wor5ers than were added to produce the previous unit, so total cost rises more than it rose to produce the previous unit. b. more wor5ers than were added to produce the previous unit, so total cost rises less than it rose to produce the previous unit. c. fewer wor5ers than were added to produce the previous unit, so total cost rises more than it rose to produce the previous unit. d. fewer wor5ers than were added to produce the previous unit, so total cost rises less than it rose to produce the previous unit. !S"#$% a. more wor5ers than were added to produce the previous unit, so total cost rises more than it rose to produce the previous unit. &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '
10

"hich of the following is correct if there is diminishing marginal product of labor= 2i3. s the number of wor5ers hired increases, the production function gets steeper. 2ii3. s the 9uantit4 of output produced increases, the total cost curve gets flatter. a. both 2i3 and 2ii3 are correct b. neither 2i3 nor 2ii3 is correct c. 2i3 is correct, but 2ii3 is incorrect d. 2ii3 is correct, but 2i3 is incorrect !S"#$% b. neither 2i3 nor 2ii3 is correct &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '
11

s the 9uantit4 of output increases, the total cost curve becomes a. steeper because of diminishing marginal product. b. steeper because of diminishing total product. c. flatter because of diminishing marginal product. d. flatter because of diminishing total product. !S"#$% a. steeper because of diminishing marginal product. &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '

,op4right : Harcourt, -nc.

,hapter 13<&he ,osts of (roduction 18>

12

"hich of the following is a fi6ed cost for the (eapod 1egetarian $estaurant= a. the cost of fresh produce b. the wages of servers c. the rent paid on the lease d. the cost of nap5ins !S"#$% c. the rent paid on the lease &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% ' NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
13

&he marginal cost of producing the third beach umbrella is% &otal ,ost $10,000 $10,070 $10,0>7 $10,100 $10,170 $10,270 $10,800

.utput 0 1 2 3 8 7 ;

a. $3,3;;.;;. b. $33.33. c. $70. d. $27. !S"#$% d. $27. &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '
18

-t costs a firm $8,800 to produce 23 units and $8,@00 to produce 28 units -f the4 are currentl4 producing 28 units, their average total cost a. and marginal cost are $200. b. is $200 and their marginal cost is $800. c. is $800 and their marginal cost is $200. d. and their marginal cost is $800. !S"#$% b. is $200 and their marginal cost is $800. &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '
17

Sand4 produces umbrellas. Her current production is 300 a month. Her average fi6ed cost is $2. Her average variable cost is $7. -t follows that her total cost is a. $;00. b. $A00. c. $1,700. d. $2,100. !S"#$% d. $2,100. &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '

,op4right : Harcourt, -nc.

18@ ,hapter 13<&he ,osts of (roduction

1;

Biven the production function in the graph, marginal product is a. alwa4s increasing. b. increasing before n and decreasing after. c. decreasing before n and increasing after. d. alwa4s decreasing. !S"#$% d. alwa4s decreasing. &'(#% ) *#'1% B S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '
1>

Cor levels of output above the efficient scale, as output increases average total cost a. and average fi6ed cost both increase. b. and average fi6ed cost both decrease. c. increases and average fi6ed cost decreases. d. decrease and average fi6ed cost increases. !S"#$% c. increases and average fi6ed cost decreases. &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '
1@

logging compan4 produces timber at a point where marginal cost is $30 and average total cost is $87. -t follows that a. average cost is falling. b. average cost is rising. c. marginal cost is falling. d. marginal cost is rising. !S"#$% a. average cost is falling. &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '
1A

"hich of the following cost curves would not t4picall4 fall and then rise as output increases= a. C, b. &, c. 1, d. ), !S"#$% a. C, &'(#% ) *#'1% + S#,&-.!% 8 ./0#,&-1#% 8 $ !+.)% '
20

"hich of the following curves will alwa4s be below the &, curve= a. the C, and ), curves b. the C, and 1, curves c. the 1, and ), curves d. the C,, 1,, and ), curves !S"#$% b. the C, and 1, curves &'(#% ) *#'1% + S#,&-.!% 8 ./0#,&-1#% 8 $ !+.)% '

,op4right : Harcourt, -nc.

,hapter 13<&he ,osts of (roduction 18A

21

"hich of the total cost curves is consistent with marginal cost curves and average total cost curves that are both DEshaped= a. both 2i.3 and 2ii.3 b. onl4 2i.3 c. onl4 2ii.3 d. neither 2i.3 nor 2ii.3 !S"#$% b. onl4 2i.3 &'(#% ) *#'1% + S#,&-.!% 8 ./0#,&-1#% 8 $ !+.)% '
22

"hich of the following is true concerning the longErun averageEtotalEcost curve= a. it is li5el4 to be DEshaped. b. it is flatter than the shortErun averageEtotalEcost curves. c. all the shortErun averageEtotalEcost curves lie on the longErun averageEtotalEcost curve. d. ll of the above are true. !S"#$% d. ll of the above are true. &'(#% ) *#'1% + S#,&-.!% 7 ./0#,&-1#% 7 $ !+.)% ' NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
23

"hen a firms longErun average cost curve e6hibits economies of scale the longErun average cost a. curve is hori?ontal. b. curve is downward sloping. c. curve is upward sloping. d. e9uals the shortErun average cost for all levels of output. !S"#$% b. curve is downward sloping. &'(#% ) *#'1% + S#,&-.!% 7 ./0#,&-1#% 7 $ !+.)% '
28

Statistical studies show that as the output of ban5ing firms e6pand, average total costs fall until ban5s reach a certain si?e at which point average total costs remain the same. ccording to this evidence, for lower levels of output ban5s have a. constant returns to scale, while at larger levels of output the4 have economies of scale. b. constant returns to scale, while at larger levels of output the4 have diseconomies of scale. c. economies of scale, while at larger levels of output the4 have constant returns to scale. d. diseconomies of scale, while at larger levels the4 have economies of scale. !S"#$% c. economies of scale, while at larger levels of output the4 have constant returns to scale. &'(#% ) *#'1% + S#,&-.!% 7 ./0#,&-1#% 7 $ !+.)% '

,op4right : Harcourt, -nc.

170 ,hapter 13<&he ,osts of (roduction

27

#conomies of scale a. and diseconomies of scale arise because of coordination problems. b. and diseconomies of scale arise because of speciali?ation. c. arise because of coordination problems, diseconomies of scale arise from speciali?ation. d. arise because of speciali?ation, diseconomies of scale arise from speciali?ation. !S"#$% d. arise because of speciali?ation, diseconomies of scale arise from speciali?ation. &'(#% ) *#'1% + S#,&-.!% 7 ./0#,&-1#% 7 $ !+.)% '

,op4right : Harcourt, -nc.

!S"#$% c. are $10,000. &'(#% ) *#'1% + S#,&-.!% 1 ./0#,&-1#% 1 $ !+.)% '

2

!S"#$% c. 2i3 is an e6plicit cost, 2ii3 is an implicit cost &'(#% ) *#'1% + S#,&-.!% 1 ./0#,&-1#% 1 $ !+.)% '
3

!S"#$% b. consider this interest a cost, but accountants would not report it as a cost. &'(#% ) *#'1% + S#,&-.!% 1 ./0#,&-1#% 1 $ !+.)% '
8

!S"#$% d. !one of the above is correct. &'(#% ) *#'1% + S#,&-.!% 1 ./0#,&-1#% 1 $ !+.)% '
7

!S"#$% d. total opportunit4 costs. &'(#% ) *#'1% + S#,&-.!% 1 ./0#,&-1#% 1 $ !+.)% '
;

!S"#$% c. -f he wor5s for fort4 hours, lan can ma5e about 100 modems. &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '
>

!S"#$% c. upward and becomes flatter as more wor5ers are hired. &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '
@

!S"#$% a. as additional wor5ers have to share e6isting e9uipment and space. &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '
A

!S"#$% a. more wor5ers than were added to produce the previous unit, so total cost rises more than it rose to produce the previous unit. &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '
10

!S"#$% b. neither 2i3 nor 2ii3 is correct &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '
11

!S"#$% a. steeper because of diminishing marginal product. &'(#% ) *#'1% + S#,&-.!% 2 ./0#,&-1#% 2 $ !+.)% '
12

!S"#$% c. the rent paid on the lease &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '
13

!S"#$% d. $27. &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '

18

!S"#$% b. is $200 and their marginal cost is $800. &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '

17

!S"#$% d. $2,100. &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '

1;

!S"#$% d. alwa4s decreasing. &'(#% ) *#'1% B S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '

1>

!S"#$% c. increases and average fi6ed cost decreases. &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '
1@

!S"#$% a.average cost is falling. &'(#% ) *#'1% + S#,&-.!% 3 ./0#,&-1#% 3 $ !+.)% '
1A

!S"#$% a. C, &'(#% ) *#'1% + S#,&-.!% 8 ./0#,&-1#% 8 $ !+.)% '

20

!S"#$% b. the C, and 1, curves &'(#% ) *#'1% + S#,&-.!% 8 ./0#,&-1#% 8 $ !+.)% '
21

!S"#$% b. onl4 2i.3. &'(#% ) *#'1% + S#,&-.!% 8 ./0#,&-1#% 8 $ !+.)% '

22

!S"#$% d. ll of the above are true. &'(#% ) *#'1% + S#,&-.!% 7 ./0#,&-1#% 7 $ !+.)% '
23

!S"#$% b. curve is downward sloping. &'(#% ) *#'1% + S#,&-.!% 7 ./0#,&-1#% 7 $ !+.)% '
28

!S"#$% c. economies of scale, while at larger levels of output the4 have constant returns to scale. &'(#% ) *#'1% + S#,&-.!% 7 ./0#,&-1#% 7 $ !+.)% '
27

!S"#$% d. arise because of speciali?ation, diseconomies of scale arise from speciali?ation. &'(#% ) *#'1% + S#,&-.!% 7 ./0#,&-1#% 7 $ !+.)% '