Question 1

Imagine Tom's annual salary as an assistant store manager is $30,000. He also owns a building that he rents out, earning $10,000 annually, and he has financial assets that generate $1,000 per year in interest. One day, after deciding to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle repair shop in the building he owns. To run the business, he outlays $15,000 in cash to cover all the costs involved with running the business and earns revenues of $50,000. What decision should Tom make next?

Accepted Answer

A)  He should close the shop and return to his old job and use of assets, because he is earning $6,000 less now.
B)  He should keep the shop going, because he's earning $35,000 a year, which is a healthy amount for the business.
C)  He should keep the shop going, because he's earning $5,000 more than the salary he was earning in the past.
D)  He should close the shop, because the accounting profit is negative.E) A) and C)
F) B) and C)

Question 2

To determine whether a firm is experiencing economies of scale, diseconomies of scale, or constant returns to scale, one would examine the _____ relationship between _____.

Accepted Answer

A)  short run; the quantity of input and the average variable cost
B)  short run; the quantity of output and the average total cost
C)  long run; the quantity of input and the average variable cost
D)  long run; the quantity of output and average total costE) B) and C)
F) A) and B) D

Question 3

Mika withdraws $100,000 from her trust fund to open up her own manicure business. The trust fund earns 4 percent interest. In order to properly account for all costs of her business, Mika must not forget:

Accepted Answer

A)  the implicit cost of $104,000.
B)  the implicit cost of $4,000.
C)  the explicit cost of $104,000.
D)  the explicit cost of $4,000.E) B) and C)
F) A) and D)

Question 4

When a firm doubles its inputs, its output:

Accepted Answer

A)  will double.
B)  will less than double.
C)  will more than double.
D)  All of these are possible.E) B) and D)
F) A) and C)

Question 5

Diseconomies of scale occur when:

Accepted Answer

A)  an increase in the quantity of output decreases average total cost in the long run.
B)  an increase in the quantity of output increases average total cost in the long run.
C)  average total cost does not depend on the quantity of output in the long run.
D)  None of these are correct.E) None of the above
F) A) and D)

Question 6

Junpei needs $25,000 to start up his own business and get it off the ground. He can either withdraw the money from his savings account, where he currently earns 3 percent, or he can take out a loan for $25,000 and pay 5 percent interest. Junpei should compare _____ and choose to _____.

Accepted Answer

A)  the implicit cost of $750 to the explicit cost of $1,250; use his savings
B)  the implicit cost of $750 to the explicit cost of $1,250; borrow the money
C)  the explicit cost of $750 to the implicit cost of $1,250; use his savings
D)  the explicit cost of $25,750 to the explicit cost of $26,250; borrow the moneyE) B) and C)
F) A) and D)

Question 7

Mika withdraws $100,000 from her trust fund to start up her own manicure business. The trust fund earns 4 percent interest. Which of the following statements is true about her business costs?The $4,000 of interest foregone is an implicit cost.When calculating her accounting profit, she should consider the $4,000 in foregone interest as part of her costs.When calculating her economic profit, she should consider the $100,000 from her trust fund and the $4,000 in foregone interest as part of her implicit costs.

Accepted Answer

A)  I only
B)  I and III only
C)  II and III only
D)  I and II onlyE) B) and D)
F) None of the above

Question 8

Suppose Sam's Shoe Co. makes only one kind of shoe, which sells for $50 a pair. If Sam's sells 500,000 pairs of shoes, what would the company's total revenue be?

Accepted Answer

A)  $25,000,000
B)  $10,000
C)  $2,500,000
D)  Not enough information is given to calculate total revenue.E) A) and B)
F) B) and D)

Question 9

Economists assume the central goal of any business is to:

Accepted Answer

A)  maximize revenues.
B)  minimize costs.
C)  maximize profit.
D)  maximize market share.E) A) and D)
F) B) and C)

Question 10

Costs that are "fixed":

Accepted Answer

A)  do not vary in the short run, but can change in the long run.
B)  will never change.
C)  vary with output, but not with resource prices.
D)  None of these are correct.E) None of the above
F) All of the above

Question 11

Economies of scale occur when:

Accepted Answer

A)  an increase in the quantity of output decreases average total cost in the long run.
B)  an increase in the quantity of output increases average total cost in the long run.
C)  average total cost does not depend on the quantity of output in the long run.
D)  None of these are correct.E) B) and C)
F) C) and D)

Question 12

The slope of the total production curve becomes _____ when marginal product _____, typically at _____ levels of input.

Accepted Answer

A)  steeper; increases; low
B)  flatter; increases; high
C)  steeper; decreases; high
D)  flatter; decreases; lowE) All of the above
F) B) and D)

Question 13

In the long run, when an increase in the quantity of output increases average total cost, a firm experiences:

Accepted Answer

A)  economies of scale.
B)  diseconomies of scale.
C)  constant economies to scale.
D)  minimum average total cost.E) All of the above
F) C) and D) B

Question 14

Total cost includes:

Accepted Answer

A)  one-time expenses and ongoing expenses.
B)  forgone opportunity costs.
C)  the amount the firm spends on all inputs that go into the production of a good or service.
D)  All of these are included in total cost.E) All of the above
F) None of the above

Question 15

Suppose a sandwich shop currently employs four workers and the shop produces 12 sandwiches an hour. A fifth worker is hired, and the shop now produces 15 sandwiches per hour. Which of the following is true?

Accepted Answer

A)  The marginal product of the fifth worker is three sandwiches.
B)  The total product of the sandwich shop is now 27 sandwiches.
C)  Diminishing marginal product has set in.
D)  All of these are correct.E) A) and D)
F) A) and C)

Question 16

Suppose Winston's annual salary as an accountant is $60,000 and his financial assets generate $4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his financial assets to establish a consulting business, which he runs out of his home. He outlays $8,000 in cash to cover all the costs involved with running the business and earns revenues of $150,000. What is Winston's explicit cost?

Accepted Answer

A)  $64,000
B)  $72,000
C)  $8,000
D)  $12,000E) B) and D)
F) A) and C)

Question 17

A production function represents:

Accepted Answer

A)  the relationship between the quantity of inputs and the quantity of outputs.
B)  the relative values of the inputs and modes of production.
C)  the relative costs of the inputs across various modes of production.
D)  the relationship between the cost of the inputs and the revenue generated by the outputs.E) A) and D)
F) B) and C) A

Question 18

Total cost includes:

Accepted Answer

A)  one-time expenses and ongoing expenses.
B)  one-time expenses, but not ongoing expenses.
C)  ongoing expenses, but not one-time expenses.
D)  only expenses that are variable.E) B) and C)
F) All of the above

Question 19

The additional cost a firm will incur by producing one additional unit of output is:

Accepted Answer

A)  variable cost.
B)  fixed cost.
C)  marginal cost.
D)  total cost.E) B) and C)
F) All of the above

Question 20

Suppose Chip's Chips produces bags of potato chips. An example of a fixed cost for this company would be:

Accepted Answer

A)  a potato peeling machine.
B)  the factory building.
C)  the deep fryer.
D)  All of these are examples of fixed costs.E) A) and B)
F) A) and C)

Exam 12: The Costs of Production

Correct Answer
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To determine whether a firm is experiencing economies of scale, diseconomies of scale, or constant returns to scale, one would examine the _ relationship between _.

Correct Answer
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D

Mika withdraws $100,000 from her trust fund to open up her own manicure business. The trust fund earns 4 percent interest. In order to properly account for all costs of her business, Mika must not forget:

Correct Answer
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When a firm doubles its inputs, its output:

Correct Answer
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Diseconomies of scale occur when:

Correct Answer
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Junpei needs $25,000 to start up his own business and get it off the ground. He can either withdraw the money from his savings account, where he currently earns 3 percent, or he can take out a loan for $25,000 and pay 5 percent interest. Junpei should compare _ and choose to _.

Correct Answer
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Correct Answer
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Suppose Sam's Shoe Co. makes only one kind of shoe, which sells for $50 a pair. If Sam's sells 500,000 pairs of shoes, what would the company's total revenue be?

Correct Answer
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Economists assume the central goal of any business is to:

Correct Answer
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Costs that are "fixed":

Correct Answer
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Economies of scale occur when:

Correct Answer
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The slope of the total production curve becomes ___ when marginal product _, typically at ___ levels of input.

Correct Answer
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In the long run, when an increase in the quantity of output increases average total cost, a firm experiences:

Correct Answer
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B

Total cost includes:

Correct Answer
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Suppose a sandwich shop currently employs four workers and the shop produces 12 sandwiches an hour. A fifth worker is hired, and the shop now produces 15 sandwiches per hour. Which of the following is true?

Correct Answer
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Correct Answer
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A production function represents:

Correct Answer
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A

Total cost includes:

Correct Answer
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The additional cost a firm will incur by producing one additional unit of output is:

Correct Answer
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Suppose Chip's Chips produces bags of potato chips. An example of a fixed cost for this company would be:

Correct Answer
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Exam 12: The Costs of Production

Correct AnswerverifiedShow Answer

To determine whether a firm is experiencing economies of scale, diseconomies of scale, or constant returns to scale, one would examine the _____ relationship between _____.

Correct AnswerverifiedD

Mika withdraws $100,000 from her trust fund to open up her own manicure business. The trust fund earns 4 percent interest. In order to properly account for all costs of her business, Mika must not forget:

Correct AnswerverifiedShow Answer

When a firm doubles its inputs, its output:

Correct AnswerverifiedShow Answer

Diseconomies of scale occur when:

Correct AnswerverifiedShow Answer

Junpei needs $25,000 to start up his own business and get it off the ground. He can either withdraw the money from his savings account, where he currently earns 3 percent, or he can take out a loan for $25,000 and pay 5 percent interest. Junpei should compare _____ and choose to _____.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose Sam's Shoe Co. makes only one kind of shoe, which sells for $50 a pair. If Sam's sells 500,000 pairs of shoes, what would the company's total revenue be?

Correct AnswerverifiedShow Answer

Economists assume the central goal of any business is to:

Correct AnswerverifiedShow Answer

Costs that are "fixed":

Correct AnswerverifiedShow Answer

Economies of scale occur when:

Correct AnswerverifiedShow Answer

The slope of the total production curve becomes _____ when marginal product _____, typically at _____ levels of input.

Correct AnswerverifiedShow Answer

In the long run, when an increase in the quantity of output increases average total cost, a firm experiences:

Correct AnswerverifiedB

Total cost includes:

Correct AnswerverifiedShow Answer

Suppose a sandwich shop currently employs four workers and the shop produces 12 sandwiches an hour. A fifth worker is hired, and the shop now produces 15 sandwiches per hour. Which of the following is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A production function represents:

Correct AnswerverifiedA

Total cost includes:

Correct AnswerverifiedShow Answer

The additional cost a firm will incur by producing one additional unit of output is:

Correct AnswerverifiedShow Answer

Suppose Chip's Chips produces bags of potato chips. An example of a fixed cost for this company would be:

Correct AnswerverifiedShow Answer

Correct Answer
verified

To determine whether a firm is experiencing economies of scale, diseconomies of scale, or constant returns to scale, one would examine the _ relationship between _.

Correct Answer
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D

Correct Answer
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Correct Answer
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Correct Answer
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Junpei needs $25,000 to start up his own business and get it off the ground. He can either withdraw the money from his savings account, where he currently earns 3 percent, or he can take out a loan for $25,000 and pay 5 percent interest. Junpei should compare _ and choose to _.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The slope of the total production curve becomes ___ when marginal product _, typically at ___ levels of input.

Correct Answer
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Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A

Correct Answer
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Correct Answer
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Correct Answer
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