Survey of Econ 2nd Edition Sexton Test Bank

Survey of ECON 2nd Edition Sexton
Test Bank
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Chapter 6—Production and Costs
TRUE/FALSE
1. Economic profit always exceeds accounting profit.
ANS: F PTS: 1 DIF: E

TOP: 6.1 Total Revenues Minus Total Costs | A Zero Economic Profit Is a Normal Profit
2. Ray Tucker has run his company, Tucker's Towing and Wrecking, for two years and has made an
accounting profit of $34,000 each year. As long as Tucker's Towing continues to make accounting
profits, it is rational to remain in the towing business.
ANS: F PTS: 1 DIF: M

3. An economic profit of zero indicates a satisfactory situation for the firm.
ANS: T PTS: 1 DIF: E

4. One would expect to observe a diminishing marginal product of labor when crowded office space
reduces the productivity of new workers.
ANS: T PTS: 1 DIF: M

TOP: 6.2 Production in the Short Run | Diminishing Marginal Product
5. A Texas oil woman would like to increase the oil produced from her oil fields. Since it takes over a
year to drill new wells, she opts instead for increasing labor and other variable inputs to produce more
oil from existing wells. She is making a short-run production decision.

TOP: 6.2 Production in the Short Run | Production in the Short Run
6. The period of time that is too short for the firm to change the quantity of certain resources used in
production, known as fixed inputs, is called the short run.

TOP: 6.2 Production in the Short Run | The Short Run Versus the Long Run
7. Economists define the long run as any production time period lasting over one year.

8. In the short run, all costs are variable.

9. In the short run, some costs are fixed.

10. In the long run, all costs are variable.

11. In the long run, firms can vary all inputs in the production process.

12. In the long-run, the firm can only expand output by adding more variable inputs (workers and raw
materials).

13. The total fixed cost of operating a lumberyard equals $12,000 this year. The average fixed cost of the
lumberyard will not be affected by the quantity of lumber that is sold.

TOP: 6.3 Costs in the Short Run | Average Total Costs
14. Total cost equals total variable cost plus marginal cost.

TOP: 6.3 Costs in the Short Run | Fixed Costs, Variable Costs, and Total Costs
15. Short run cost curves apply to a period too short to vary one’s productive facilities (one’s plant).

16. Marginal cost is equal to the change in total cost for a one unit change in output and also to the change
in total variable cost for a one unit change in output.

TOP: 6.3 Costs in the Short Run | Marginal Costs
17. When marginal cost exceeds the average variable cost, average variable cost must be increasing.

TOP: 6.4 The Shape of the Short-Run Cost Curves | The Relationship Between Marginal Costs and
Average Variable and Average Total Costs
18. When marginal cost is increasing, average total cost must be increasing.

19. The law of diminishing marginal product provides an explanation for why average total cost
eventually increases as output is expanded in the short run.

TOP: 6.4 The Shape of the Short-Run Cost Curves | Why is the Average Total Cost Curve U-Shaped?
20. If the marginal cost is less than average total cost, average total cost will decrease.

21. An increase in the price of raw materials will shift both the MC and the ATC curves upward.

22. If a firm experiences economies of scale, the average total cost of production increases as output
expands.

TOP: 6.5 Cost Curves: Short-Run Versus Long-Run | What are Economies of Scale?
23. Diseconomies of scale are present when the long run average total cost of production declines as
output expands.

24. The long-run average total cost curve is less u-shaped than the short-run average total cost curve.

TOP: 6.5 Cost Curves: Short-Run Versus Long-Run | Why are Long-Run Cost Curves Different from
Short-Run Cost Curves?
25. In the long-run the firm gets to choose which short-run curve it wants to use.

26. Diseconomies of scale are most likely at very low levels of output.

TOP: 6.5 Cost Curves: Short-Run Versus Long-Run | Why Do Economies and Diseconomies of Scale
Occur?
MULTIPLE CHOICE
1. An explicit cost is:

a. an opportunity cost for which payment is not required.
b. an out-of-pocket expense.
c. always larger than an associated implicit cost.
d. both (a) and (b)
ANS: B PTS: 1 DIF: E
TOP: 6.1 Total Revenues Minus Total Costs | Explicit Costs
2. An implicit cost:
a. is an opportunity cost.
b. is an out-of-pocket expense.
c. does not require an outlay of money.
d. is characterized by both (a) and (c)
ANS: D PTS: 1 DIF: M
TOP: 6.1 Total Revenues Minus Total Costs | Implicit Costs
3. Economic profits will take into account:

a. explicit costs but not implicit costs.
b. implicit costs but not explicit costs.
c. both implicit and explicit costs.
d. neither explicit nor implicit costs.
ANS: C PTS: 1 DIF: E
TOP: 6.1 Total Revenues Minus Total Costs | Are Accounting Profits the Same as Economic Profits?
4. There are two types of costs associated with production: ____ costs that require monetary payments,
and ____ costs that do not.
a. implicit; accounting
b. accounting; explicit
c. implicit; explicit
d. explicit; implicit
ANS: D PTS: 1 DIF: E
5. Scarlett recently began running her husband's lumber mill. Last month she took in $5,000 in sales
revenue and paid $3,400 in out-of-pocket costs. Did the lumberyard make an economic profit last
month?
a. Definitely not.
b. Yes. After considering non-zero explicit and implicit costs, it is clear that her profit is
exactly equal to $1,600.
c. Without knowing the magnitude of implicit costs, it is not possible to state whether the
lumberyard earned an economic profit last month.
d. Yes, after factoring implicit costs, it is clear that her profit will exceed $1,600.
ANS: C PTS: 1 DIF: M
6. Which of the following is not an explicit cost for the owner of a local pizza parlor?
a. flour
b. cleaning products
c. other uses for the land that the parlor sits on
d. pizza ovens
7. If Rocco's Rib Joint took in $35,000 in revenue last week and had out-of-pocket expenses of $31,500:
a. it is clear that Rocco made an economic profit of $3,500.
b. Rocco really didn't make any economic profit since he needs to put the difference between
revenue and out-of-pocket expenses back into the firm.
c. it is not clear whether Rocco earned any economic profit last week because it depends on
the magnitude of the implicit costs.
d. Rocco clearly did not earn an economic profit.
8. Accounting profits are calculated based upon:

a. explicit cash receipts and implicit expenditures of cash.
b. actual cash receipts and actual expenditures of cash.
c. implicit cash receipts and actual expenditures of cash.
d. opportunity costs plus explicit costs.
9. An economist's measurement of profit differs from an accountant's in that:

a. accountants calculate total revenue differently than do economists.
b. economists do not always include all of the opportunity costs when calculating total
production costs.
c. accountants do not always include all of the opportunity costs when calculating total
production costs.
d. economic profit generally exceeds accounting profit.
10. When a firm makes zero economic profit, it means that:

a. the firm is covering implicit costs alone.
b. the firm is covering the total opportunity costs of its resources.
c. the firm is covering explicit costs alone.
d. the firm is running at a loss.
ANS: B PTS: 1 DIF: M
11. Economists normally assume that the goal of a firm is to:

a. sell as many units of output as possible.
b. maximize profits.
c. sell products at the highest prices possible.
d. maximize sales revenue.
TOP: 6.1 Total Revenues Minus Total Costs | Profits
12. An economic profit of zero implies:

a. normal profit.
b. the firm is covering both explicit and implicit costs.
c. the firm's revenues are sufficient to compensate the money and time that the owners put
into the business.
d. all of the above
13. An example of an explicit cost of production is:

a. the cost of foregone labor earnings for an entrepreneur.
b. the cost of flour for a baker.
c. the foregone rent that could have been earned if land owned by a firm was not used as its
parking lot.
d. provided by none of the above.
14. An example of an implicit cost of production is:

a. the cost of raw materials used to produce bread in a bakery.
b. the cost of labor in a factory that assembles DVD players.
c. the income an entrepreneur could have earned working for someone else.
d. all of the above.
15. An example of an implicit cost of production is:

a. the cost of leather used in manufacturing furniture.
b. the opportunity cost of space in your home that is used for a home office.
c. the wages paid to high school students that work in a fast-food restaurant.
d. none of the above.
16. An understanding of opportunity costs is important to understanding:

a. how to calculate the total revenue generated by a firm.
b. how to assess the economic profitability of a firm.
c. the tax liability of a firm.
d. how accountants calculate accounting profits.
17. If opportunity costs are ignored:

a. all firms will show accounting profits.
b. all firms will appear to incur economic losses.
c. firms will still make profit-maximizing production decisions.
d. firms experiencing economic losses may appear to be profitable.
18. Which of the following observations is true?

a. Sunk costs are irrelevant for any future action.
b. Sunk costs should not be ignored when making decisions.
c. Sunk costs are often hidden.
d. Sunk costs can be recovered using corrective measures.
ANS: A PTS: 1 DIF: E
TOP: 6.1 Total Revenues Minus Total Costs | Sunk Costs
19. An important and often ignored opportunity cost is the:

a. cost of accounting services.
b. cost of missed market opportunities when funds are invested in a firm.
c. cost of interest paid to bondholders by the firm.
d. cost of utilities used by the firm.
20. Interest paid on a bank loan by a local ice cream producer is:
a. an implicit cost for the ice cream producer.
b. considered by an accountant when calculating the cost of running the ice cream business.
c. an explicit cost for the ice cream producer.
d. both b. and c.
21. Cassie produces and sells 400 jars of homemade jelly each month for $3 each. Each month, she pays
$200 for jars, $150 for ingredients, and uses her own time, with an opportunity cost of $300. Her
economic profits each month are:
a. $550.
b. $700.
c. $850.
d. $900.
ANS: A PTS: 1 DIF: M
22. A firm which owns its own equipment and is earning positive economic profits
a. is likely earning positive accounting profits.
b. is likely earning zero accounting profits.
c. is likely earning negative accounting profits.
d. could be earning positive or negative accounting profits.
23. A firm has $300 million in revenues and explicit costs of $100 million. If its owners have invested
$150 million in the company at an opportunity cost of 10 percent a year, the firm's accounting profit is:
a. $50 million.
b. $150 million.
c. $185 million.
d. $200 million.
24. A firm has $350 million in revenues and explicit costs of $150 million. If its owners have invested
$150 million in the company at an opportunity cost of 10 percent a year, the firm's economic profit is:
a. $50 million.
b. $150 million.
c. $185 million.
d. $200 million.
25. Economic profits are:

a. less than accounting profits if implicit costs are greater than zero.
b. less than accounting profits even if implicit costs are zero.
c. greater than accounting profits if implicit costs are greater than zero.
d. greater than accounting profits even if implicit costs are zero.
26. Which of the following is an implicit cost to Mondo Manufacturing, Inc.?

a. Payments of wages to its office workers.
b. Property taxes.
c. Depreciation charges on company owned automobiles and trucks.
d. Rent paid for the use of equipment.
27. What do foregone interest on money invested in a firm, wages paid to production workers, interest
paid on bank loans, and the purchase of parts for assembly have in common?
a. All are explicit costs.
b. All are implicit costs.
c. All are opportunity costs.
d. None are opportunity costs.
28. When economic profits in an industry are zero and implicit costs are positive:
a. accounting profits will be greater than zero.
b. resources will be attracted to the industry.
c. resources will not tend to either enter or leave the industry, other things equal.
d. both (a) and (c) will be true.
ANS: D PTS: 1 DIF: D
29. Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of
$70,000. If he could have been paid $80,000 working for a computer company, his accounting profit
as a contractor was ____ and his economic profit was ____.
a. $50,000; -$30,000
b. $10,000; $50,000
c. $40,000; $50,000
d. $50,000; $40,000
30. Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of
$70,000. If he could have been paid $80,000 working for a computer company, his:
a. accounting profit equaled $10,000 and he would be rational to stop working as a
contractor.
b. accounting profit equaled $50,000 and he would be rational to continue working as a
contractor.
c. economic profit equaled $50,000 and he would be rational to continue working as a
contractor.
d. economic profit equaled -$30,000 and he would be rational to stop working as a
contractor.
31. The production function describes:

a. the relationship between the quantity of inputs utilized and the quantity of output
produced.
b. how inputs are most profitably used in production.
c. the most cost-effective method of combining various inputs in the production process.
d. the relationship between a firm's revenue and its level of production.
32. A production function:

a. shows the relationship between a firm's costs and revenues.
b. shows the relationship between production and profits.
c. shows the relationship between inputs and the maximum output that can be produced from
those inputs.
d. shows the relationship between variable inputs and fixed inputs.
33. The marginal product of capital:

a. is equal to the increase in capital necessary to generate a one-unit increase in output.
b. is equal to the increase in output obtained from a one-unit increase in capital, holding
other factors constant.
c. is equal to the incremental profit associated with selling one more unit of output.
d. is equal to the incremental cost of employing one more unit of physical or human capital.
34. The marginal product of labor can be defined as:

a. the change in profit divided by the change in labor, other factors of production held
constant.
b. the change in total output divided by a one unit change in labor, other factors of
production held constant.
c. the total output divided by the total labor utilized.
d. the change in labor utilized divided by the change in total output, other factors of
production held constant.
35. In the table below, diminishing marginal product is first evident with the addition of the ____ worker.
Labor T-Shirts
3 50
4 70
5 100
6 120
7 130
8 120
a. 5
b. 6
c. 7
d. 8
36. Diminishing marginal product of labor occurs when:

a. adding another unit of labor increases output, but not by as large a margin as the previous
unit of labor employed.
b. the average product of labor begins to rise.
c. adding another unit of labor increases output by a larger margin than the last unit of labor
employed.
d. all inputs are varied simultaneously in the same proportion.
37. The long-run production period:

a. is a time when all inputs are variable.
b. varies in length according to how capital goods are specialized.
c. is likely longer for a steel manufacturer than for a retailer who sells watches off a cart at
the local mall.
d. is characterized by all of the above.
38. The short run is that period in which firms:

a. are free to vary all inputs.
b. are able to vary some, but not all, inputs.
c. can vary inputs, but only by varying all inputs in equal proportion.
d. cannot increase production at all.
39. The short run is not the same length of time for all firms and industries because:
a. entrepreneurs have different tastes and preferences.
b. the average product of labor varies across industries.
c. the life span of capital and the extent of capital specialization will vary across firms and
industries.
d. The marginal product of capital begins to diminish at different levels of capital utilization
across firms.
Exhibit 6-1
# of Pickers Total # of Oranges Picked

1 1,000
2 2,000
3 3,000
4 3,900
5 4,700
6 5,400
7 6,000
8 6,200
9 6,000
40. Refer to Exhibit 6-1. The total product of labor diminishes with the addition of the ____ picker.
a. fifth
b. seventh
c. eighth
d. ninth
41. Refer to Exhibit 6-1. The marginal product of labor begins to diminish with the addition of the ____
picker.
a. fourth
b. fifth
c. seventh
d. eighth
42. Which of the following is a reason that marginal product will eventually begin to fall?
a. effective use of fixed inputs
b. decrease in demand
c. increased specialization
d. The limited amounts of fixed inputs available
43. Don Cena promotes boxing matches. He makes $6,500 per fight. Which cost is most relevant to a
decision as to whether to promote one more fight?
a. the total cost of promoting all boxing matches during the year
b. the marginal cost of promoting one additional boxing match
c. the average fixed cost of promoting a boxing match
d. the average total cost of promoting a boxing match
44. During the short-run period of the production process, a firm is:
a. unable to vary any of its factors of production.
b. able to vary only some of its factors of production.
c. able to vary all of its factors of production.
d. able to vary the size of its plant.
45. Which of the following factors of production is not variable in the long run?
a. the size of the firm's plant
b. land
c. highly skilled labor
d. All factors are variable in the long run.
46. The short run is a time period such that:

a. the existing firms in the industry do not have sufficient time to adjust the quantity of any
inputs which they employ.
b. the existing firms in the industry do not have sufficient time to adjust their current rate of
output.
c. new entrants have sufficient time to build factories and enter the industry.
d. the existing firms in the market do not have sufficient time to increase the size of their
existing plants or build new factories.
47. Which of the following most accurately describes the long-run period?
a. The long run is a period of time in which a firm is unable to vary some of its factors of
production.
b. In the long run, the firm is able to expand output by utilizing additional workers and raw
materials, but not physical capital.
c. The long run is of sufficient length to allow a firm to alter its plant capacity and all other
factors of production.
d. The long run is of sufficient length to allow a firm to transform economic losses into
economic profits.
Exhibit 6-2
A factory producing CD players finds that its output varies with the number of workers employed each
week in the following way:
Number of Workers Output

Employed Per Week (CD Players)
1 16
2 38
3 68
4 94
5 112
6 122
48. Refer to Exhibit 6-2. Marginal product begins to diminish with the ____ worker employed.
a. first
b. second
c. third
d. fourth
49. Refer to Exhibit 6-2. The marginal product of the fifth worker hired is:
a. 112 units of output.
b. 94 units of output.
c. 20 units of output.
d. 18 units of output.
Exhibit 6-3
50. Refer to Exhibit 6-3 What is the marginal product of the second worker hired each week?
a. 10 bicycles
b. 15 bicycles
c. 20 bicycles
d. 30 bicycles
51. Refer to Exhibit 6-3. Marginal product begins to diminish:

a. with the first worker hired.
b. with the second worker hired.
c. with the third worker hired.
d. with the fourth worker hired.
52. Refer to Exhibit 6-3. If the firm's goal is to maximize weekly output, how many workers should the
firm employ each week?
a. one worker
b. two workers
c. three workers
d. four workers
53. Refer to Exhibit 6-3. What is the marginal product of the fifth worker hired each week?
a. zero bicycles
b. 10 bicycles
c. 15 bicycles
d. -15 bicycles
54. The long run:

a. is a period long enough for every input except plant size to be varied.
b. is a period in which there are no fixed costs.
c. is typically a period of two years.
d. is all of the above.
55. Whenever the marginal product of a firm's only variable input was positive, but falling:
a. its total product is growing at a decreasing rate.
b. it will use more of the variable input until its marginal product is negative.
c. it would reduce its use of the variable input.
d. its total product is beyond its maximum.
56. Which of the following is false?

a. The total product schedule shows the total amount of output generated as the level of the
fixed input increases.
b. The marginal product of any single input is the change in total product resulting from a
small change in the amount of that input used.
c. As the amount of a variable input is increased, the amount of other fixed inputs being held
constant, a point ultimately will be reached beyond which marginal product will decline.
This is called diminishing marginal product.
d. A firm never knowingly allows itself to reach the point where the marginal product
becomes negative.
57. Which of the following would be considered a variable input in the long run?
a. The size of a firm's plant.
b. The acreage of an apple farmer's orchard.
c. The production capacity of a machine.
d. All of the above.
58. A firm can produce 840 gallons of paint per day with 6 workers, or 910 gallons per day with 7
workers. The marginal product of labor over this range of output, stated in gallons per worker per day,
is
a. 140.
b. 135.
c. 130.
d. 70.
59. Over the range of diminishing marginal product, if the variable input to a firm is increased:
a. output will increase more than in proportion to the increase in the input.
b. output will increase less than in proportion to the increase in the input.
c. output will increase exactly in proportion to the increase in the input.
d. output will increase more than in proportion to the increase in the inputs at first, but it will
eventually increase less than in proportion to the increase in the input.
60. Which of the following would be considered a variable input in the short run?
a. The size of a firm's plant.
b. The acreage of an apple farmer's orchard.
c. The production capacity of a machine.
d. None of the above.
61. According to diminishing marginal product, if all the inputs to a firm are increased in equal
proportions,
a. output will increase more than in proportion to the increase in the inputs.
b. output will increase less than in proportion to the increase in the inputs.
c. output will increase exactly in proportion to the increase in the inputs.
d. The law of diminishing returns says nothing about what will happen to output when all
inputs are increased in equal proportions.
62. Which of the following is a short run adjustment?

a. A bakery hiring two additional bakers.
b. Two new firms enter the textile industry.
c. Three firms leave the bicycle industry.
d. A computer hardware company builds a new factory.
63. Characteristics of the short run include:

a. at least one fixed input.
b. insufficient time for firms to enter or leave the industry in question.
c. the applicability of the law of diminishing returns.
d. all of the above.
64. In the short run, if a firm's total product is increasing:

a. its marginal product must be increasing.
b. its marginal product must be positive.
c. its marginal product could be increasing or decreasing.
d. both b. and c. are true.
65. Which of the following is consistent with diminishing marginal product?

a. The more you study each day, the more you learn from each added hour of study.
b. The more you study each day, the less you know.
c. Beyond some point, each added hour studying each day adds less to what you know than
the previous hour's study.
d. None of the above.
66. If Oscar's company has a lease that runs until six months from now, which of the following would be
true?
a. His rent payments would be considered fixed costs and anything longer than six months
would be considered the short run.
b. His rent payments would be considered fixed costs and anything less than six months
c. His rent payments would be considered variable costs and anything longer than six months
d. His rent payments would be considered variable costs and anything less than six months
67. Fixed costs are best defined as:

a. costs that do not vary with output.
b. costs that vary with output.
c. the sum of all marginal costs.
d. the change in total cost when one more unit of output is produced.
68. The marginal cost of a good is:

a. the difference between average total cost and average variable cost.
b. the addition to total cost from producing one more unit of output.
c. decreasing whenever average total cost is decreasing.
d. always equal to average variable cost when the firm is maximizing profit.
69. The change in total cost resulting from a one-unit increase in production is called:
a. average fixed cost.
b. average variable cost.
c. marginal cost.
d. marginal revenue.
70. Which of the following is most likely to be a fixed cost for a business?
a. payment for raw materials used in manufacturing goods
b. interest payments on a loan used to finance the construction of a building
c. shipping charges for the delivery of products
d. wages paid to temporary workers
71. The sum of AVC and AFC equals:

a. total variable cost.
b. economic profit.
c. accounting profit.
d. average total cost.
TOP: 6.3 Costs in the Short Run | How Are These Costs Related?
72. If AVC is subtracted from the ATC, the result is:

a. economic profit.
b. accounting profit.
c. average fixed cost.
d. marginal cost.
73. Total variable costs:

a. are costs of paying for short-run fixed capital equipment.
b. are so named because they vary from firm to firm within an industry.
c. increase as production increases.
d. decrease as production increases.
74. Which of the following are variable costs of production?

a. the wages paid to non-salaried employees
b. the cost of wood used to produce furniture
c. the cost of electricity that powers the lighting and computer systems in an office building
d. All of the above are variable costs of production.
Exhibit 6-4
Units of Output Variable Cost Total Cost Marginal Cost

(dollars) (dollars) (dollars)
0 0 40
1 30 70 30
2 50 90 20
3 60 100 10
4 80 120 20
5 105 145 25
6 150 190 45
75. Refer to Exhibit 6-4. How much are total fixed costs (in dollars)?
a. 20
b. 30
c. 40
d. 50
76. Refer to Exhibit 6-4. How much are average fixed costs (in dollars) at 4 units of output?
a. 10
b. 20
c. 30
d. 40
77. Average variable cost:

a. first decreases then increases as output expands.
b. remains unchanged as output expands.
c. always increases as output increases.
d. always decreases as output expands.
78. Average fixed cost:

a. remains unchanged as output expands.
b. is defined as the change in total cost divided by the change in output.
c. always increases as output increases.
d. always decreases as output expands.
79. Average fixed cost is:

a. total cost divided by the number of units produced over a given period.
b. total fixed cost divided by the number of units produced over a given period.
c. the price of a fixed factor of production.
d. fixed cost divided by the number of units of a fixed input employed over a given period.
80. The marginal cost curve:

a. is a vertical line.
b. generally rises at first and then declines as output expands.
c. generally falls at first and then rises as output expands.
d. intersects the average variable cost curve from below at its maximum point.
Exhibit 6-5
81. Refer to Exhibit 6-5. At a quantity of five units of output, ____ represents total cost, ____ represents
total fixed cost, and ____ represents total variable cost.
a. X; Y; Z
b. Y; Z; X
c. X; Z; Y
d. Z; Y; X
82. Refer to Exhibit 6-5. The distance Y between the two curves in the diagram is:
a. the total cost of producing five units of output.
b. the total variable cost of producing five units of output.
c. the total fixed cost of producing five units of output.
d. the average variable cost of producing five units of output.
Exhibit 6-6
83. Refer to Exhibit 6-6. The average fixed cost curve is the curve labeled:
a. A.
b. B.
c. C.
d. D.
84. Refer to Exhibit 6-6. The marginal cost curve is the curve labeled:
a. A.
b. B.
c. C.
d. D.
85. Refer to Exhibit 6-6. The short-run average total cost curve is the curve labeled:
a. A.
b. B.
c. C.
d. D.
86. Refer to Exhibit 6-6. The average variable cost curve is the curve labeled:
a. A.
b. B.
c. C.
d. D.
87. A firm's average fixed cost curve is:

a. U-shaped.
b. a curve that increases as output expands.
c. a vertical line.
d. a curve that declines as output expands and approaches the X-axis when output is large.
88. If average fixed cost and average variable cost are summed together, the result is:
a. total revenue.
b. total profit.
c. total cost.
d. average total cost.

a. declines continuously as output increases.
b. is always greater than average variable cost.
c. equals the difference between average total cost and average variable cost.
d. is characterized by both (a) and (c).
90. If Randy's fixed cost totals $800 with variable cost per unit of $10 at a quantity of 100 units, what
would his average total cost equal?
a. $8.10
b. $18.00
c. $90.00
d. $91.00
ANS: B PTS: 1 DIF: D
91. A firm is producing 1,000 units of output for which the average variable cost of production equals 50
cents. The firm's total fixed costs equal $700. The total cost of producing 1,000 units of output equals:
a. $700.
b. $500.
c. $1,000.
d. $1,200.
92. The vertical distance between the average total cost curve and the average variable cost curve equals:
a. marginal cost.
b. average fixed cost.
c. total fixed cost.
d. total variable cost.
93. A firm is producing 200 units of output at a total cost of $1,000. The firm's average variable cost
equals $4 per unit. Total fixed cost:
a. equals $1,000.
b. equals $800.
c. equals $200.
d. equals $2.
ANS: C PTS: 1 DIF: D
Exhibit 6-7
94. Refer to Exhibit 6-7. At output level 0Q, total fixed cost equals:
a. area ADQ0.
b. area ADEB.
c. area ADFC.
d. area BEQ0.
95. Refer to Exhibit 6-7. At output level 0Q, total variable cost equals:
a. area ADQ0.
b. area ADEB.
c. area CFQ0.
d. area BEQ0.
96. Refer to Exhibit 6-7. At output level 0Q, total cost equals:
a. area ADQ0.
b. area ADEB.
c. area ADFC.
d. area BEQ0.
97. Refer to Exhibit 6-7. At output level 0Q, average fixed cost equals:
a. QF.
b. ED.
c. QD.
d. both (a) and (b)
98. Refer to Exhibit 6-7. At output level 0Q, average variable cost equals:
a. QF.
b. FE.
c. QD.
d. QE.
99. Refer to Exhibit 6-7. At output level 0Q, average total cost equals ____ and marginal cost equals
____.
a. QD; QF
b. QF; QD
c. QE; DE
d. QD; QD

a. can be calculated by dividing total fixed cost by the level of output produced.
b. can be graphed as a horizontal line, with dollars on the vertical axis and quantity on the
horizontal axis.
c. decreases as output increases.
d. is characterized by both a. and c.
101. A firm's average fixed cost when producing 2,000 units of output equals $10. When only 1,000 units
of output are produced:
a. AFC must still equal $10.
b. AFC must equal $20.
c. AFC must equal $5.
d. marginal cost must equal $20.
102. A firm's total fixed cost equals $2,500. The firm's average fixed cost at 1, 5, and 10 units of output,
respectively, will be:
a. $2,500, $2,500, and $2,500.
b. $2,500, $500, and $250.
c. $2,500, $12,500, and $25,000.
d. $2,500, $1,250, and $250.
Exhibit 6-8
The table below shows how total cost varies with output in a factory producing watches:
Output Total Cost
(Per Week) (Dollars)
0 $ 50
1 $ 60
2 $ 65
3 $ 69
4 $ 72
5 $ 95
6 $120
103. Refer to Exhibit 6-8. The marginal cost of producing a third watch equals:
a. $50.
b. $69.
c. $5.
d. $4.
104. Refer to Exhibit 6-8. If the output equals four watches per week, then the average total cost of
producing a watch equals:
a. $72.
b. $3.
c. $18.
d. $5.50.
105. Refer to Exhibit 6-8. If the output equals five watches per week, the average fixed cost and average
variable cost of production equal ____ and ____, respectively.
a. $9; $10
b. $10; $9
c. $45; $50
d. $50; $45
ANS: B PTS: 1 DIF: D
Exhibit 6-9
Quantity of Bicycles 0 1 2 3 4 5 6
(in thousands)
Total Cost of Production $5 $8 $12 $16.5 $20 $27.5 $36
(in thousands)
106. Refer to Exhibit 6-9. At what level of output (in thousands) is average total cost minimized?
a. 1
b. 2
c. 3
d. 4
107. Refer to Exhibit 6-9. What is the level of the firm's total fixed cost (in thousands)?
a. $0
b. $5
c. $8
d. $25
108. You operate a factory that produces beach towels. Your current level of output equals 2,000 towels per
week. Your weekly variable cost equals $8,000. If your total cost each week equals $9,000, it follows
that:
a. the average variable cost of production equals $2 per towel.
b. the average total cost of production equals $4 per towel.
c. the average total cost of production equals $4.50 per towel.
d. the average total cost of production equals $8 per towel.
109. You operate a factory that produces beach towels. Your current level of output equals 2,000 towels per
week. Your weekly variable cost equals $8,000. If your total cost each week equals $9,000, it follows
that:
a. the average variable cost of production equals $2 per towel.
b. the average variable cost of production equals $4 per towel.
c. the average total cost of production equals $8 per towel.
d. none of the above
110. Given the following information about the cost function for Bob's Beautiful Bowling Balls:
Total Total Average Average Average

Fixed Variable Total Fixed Variable Total Marginal
Output Costs Costs Costs Cost Cost Cost Cost
1 10 60
2 100
3 120
4 128
5 180
6 252
7 316
8 436
Which of the following is true?

a. The average fixed cost of producing 3 units is $200.
b. The total cost of producing 5 units is $230.
c. The marginal cost of the 4th unit is lower than for any other unit.
d. AVC falls through the first five units of output.
111. A firm replaces a machine by hiring 3 hourly production workers instead.
a. Both its fixed and variable costs will fall.
b. Both its fixed and variable costs will rise.
c. Its fixed costs will rise and its variable costs will fall.
d. Its fixed costs will fall and its variable costs will rise.
112. Which of the following is most likely a fixed cost?

a. Raw materials costs.
b. Shipping charges.
c. Property insurance premiums.
d. Fuel costs for running the factory.
113. If average total costs are $40 and average variable cost are $20 at 10 units of output and the marginal
cost of the 11th unit is $30, what is the average total cost of 11 units?
a. $23.00
b. $20.09
c. $30.00
d. $39.09
114. Assume that you know the following cost information about Fred's widget company: Its fixed cost is
$9, and its total variable cost is $6 for 1 unit; $11 for 2; $ 15 for 3; 20 for 4; and 26 for 5. Given the
above information,
a. the marginal cost of providing the second unit is $5.
b. the total cost of producing 4 units is $29.
c. the average total cost of producing five units is $7.
d. all of the above are true.
115. Which of the following is true in the short run?

a. MC = ATC at the lowest point of ATC.
b. MC = AVC at the lowest point of AVC.
c. When AVC is at its minimum point, ATC is falling.
d. All of the above are true.
116. In the short run, ATC is not always higher than

a. AVC
b. AFC
c. MC
d. Zero
117. In the short run, AFC is always greater than
a. ATC
b. AVC
c. MC
d. Zero
118. Assume the following cost information about Fred's widget company: Its fixed cost is $27, and its total
variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5. Given this information:
a. the marginal cost of providing the second unit is $15.
b. the total cost of producing 4 units is $87.
c. the average total cost of producing five units is $21.
d. all of the above are true.
119. Assume the following cost information about Fred's widget company: Its fixed cost is $27, and its total
variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5. Given this information:
a. average fixed cost rises from an output of four to an output of five.
b. average fixed cost is greater than marginal cost for the second unit produced.
c. the output level which minimizes average total cost is four units.
d. average variable cost rises, but average total cost falls, as output increases from four to
five.
120. Assuming fixed costs are positive, over a range of output in which average total costs were constant,
a. average variable costs would be constant as output increases.
b. average variable costs would be falling as output increases.
c. average variable costs would be rising as output increases.
d. marginal cost would be less than average variable cost.
121. If the cost of variable inputs used in a firm's production process rose, which of the following would not
occur?
a. Its AVC curve would shift up.
b. Its ATC curve would shift up.
c. Its MC curve would shift up.
d. Its AFC curve would shift up.
122. If a technological change reduced the amount of the variable input needed by a firm to produce a unit
of output:
a. its AVC curve would shift down.
b. its ATC curve would shift down.
c. its MC curve would shift down.
d. All of the above would occur.
123. Which of the following cost curves is not generally U-shaped?

a. AFC.
b. AVC.
c. ATC.
d. MC.
124. In the short run, it is impossible for an expansion of output to cause an increase in:
a. ATC.
b. AVC.
c. AFC.
d. MC.
125. In the short run, an expansion of output always causes in an increase in:
a. TC.
b. AFC.
c. AVC.
d. MC.
126. Kelly, who grows geraniums to sell, is currently producing a level of output at which her marginal cost
equals her average variable cost. What must be true about Kelly's average variable cost at this level of
output?
a. It is at a minimum.
b. It is at a maximum.
c. It is neither at its maximum nor its minimum.
d. It is greater than the average total cost.
127. When marginal product is rising, marginal costs will:

a. rise.
b. remain unchanged.
c. fall.
d. rise by an equal value.
Marginal Product
128. As quantity increases, which of the following must be true if average total costs are rising?
a. Marginal cost must be greater than average total cost.
b. Marginal cost must be less than average total cost.
c. Average fixed cost must be increasing.
d. Average fixed cost must be less than average variable cost.
129. If average variable cost exceeds marginal cost, then:

a. average variable cost is increasing and the average total cost is decreasing.
b. the average variable cost is decreasing and the average total cost is increasing.
c. both the average variable and average total cost are decreasing.
d. the average variable cost is decreasing and the average total cost may be increasing or
decreasing.
130. Which of the following must be true if the short-run average total cost curve is declining?
a. Marginal cost is less than average total cost.
b. Marginal cost is less than average variable cost.
c. Marginal cost is greater than average total cost.
d. Marginal cost equals average total cost.
131. If average total cost equals $15 at 20 units of output and average total cost equals $15 at 21 units of
output, then the marginal cost of the 21st unit is ____.
a. zero
b. $15
c. $20
d. $21
132. If marginal cost is increasing then:

a. marginal product must be increasing.
b. average variable cost must be increasing.
c. average total cost must be increasing.
d. none of the above must necessarily be true.
133. If total cost increases as output increases, then:

a. marginal cost must be equal to zero.
b. marginal cost must be positive.
c. marginal cost must be negative.
d. marginal cost must be increasing.
134. Which of the following is true?

a. If average total cost is less than marginal cost, then average total cost is decreasing.
b. If average total cost exceeds marginal cost, then average total cost is decreasing.
c. If average total cost exceeds marginal cost, then average total cost is increasing.
d. If average total cost is less than marginal cost, then average total cost is constant.
135. If the total cost of producing 10 units equals $90, and the average total cost of producing 11 units
equals $8.75, then the marginal cost of the eleventh unit produced:
a. is definitely greater than the marginal cost of producing the tenth unit.
b. is definitely less than the marginal cost of producing the tenth unit.
c. is less than the average total cost of producing ten units.
d. is greater than the average total cost of producing ten units.
136. Luke realizes that his space taxi service is operating in the region of diminishing marginal product. As
he provides more taxi service in the short run, what will happen to the marginal cost of providing the
additional service?
a. It is impossible to say anything about marginal cost with the information provided.
b. Marginal cost will decrease.
c. Marginal cost will increase.
d. Marginal cost will stay the same.
Marginal Product
137. When average total cost is decreasing as output expands:

a. average fixed cost must be increasing.
b. average variable cost must be falling.
c. marginal cost must be greater than average total cost.
d. marginal cost must be less than average total cost.
138. The short-run average total cost curve eventually turns upward to form a U shape because:
a. of diminishing marginal cost.
b. of increasing average fixed cost.
c. all factors can be varied in the long run.
d. of diminishing marginal productivity.
TOP: 6.4 The Shape of the Short-Run Cost Curves | Why Is the Average Total Cost Curve
U-Shaped?
139. Diminishing marginal product first sets in at the minimum point of the
a. ATC curve.
b. AVC curve.
c. AFC curve.
d. MC curve.
TOP: 6.4 The Shape of the Short-Run Cost Curves | Why is the Average Total Cost Curve U-Shaped?
140. Which of the following is true at the output level where diminishing marginal product first set in?
a. Both marginal product and marginal cost are at a minimum.
b. Both marginal product and marginal cost are at a maximum.
c. Marginal product is at a maximum and marginal cost is at a minimum.
d. Marginal product is at a minimum and marginal cost is at a maximum.
Marginal Product
141. The range in which there is diminishing marginal productivity starts at the point where:
a. marginal product reaches its maximum.
b. average product reaches its maximum.
c. total product reaches its maximum.
d. marginal product begins to decrease at an increasing rate.
Marginal Product
142. If both the marginal cost and the average variable cost curves are U-shaped, at the minimum point of
the average total cost curve, the marginal cost curve must be:
a. greater than average variable cost.
b. less than average variable cost.
c. equal to average variable cost.
d. at its minimum.
TOP: 6.4 The Shape of the Short-Run Cost Curves | The Relationship Between Marginal and
Average Amounts
143. If both the marginal cost and the average variable cost curves are U-shaped, which of the following is
true over the range of output for which the average variable cost curve has a negative slope?
a. The marginal cost curve must have a negative slope.
b. The average total cost curve must have a negative slope.
c. The marginal cost curve is below the average variable cost curve.
d. both (b) and (c) are correct.
Average Amounts
144. Assume that you know the following cost information about Fred's widget company: Its fixed cost is
$9, and its total variable cost is $6 for 1 unit; $11 for 2; $ 15 for 3; 20 for 4; and 26 for 5. Given the
above information,
a. the marginal cost of the third unit is greater than the marginal cost of the first unit.
b. the marginal cost of the fourth unit is the same as the marginal cost of the second unit.
c. the average variable cost of four units is the same as for three units.
d. both (b) and (c) are correct.
145. When there are economies of scale in production:

a. long-run average total cost declines as output expands.
b. long-run average total cost increases as output expands.
c. marginal cost increases as output expands.
d. the marginal product of an input diminishes with increased utilization.
146. When there are diseconomies of scale in production:

a. long-run average total cost declines as output expands.
b. long-run average total cost increases as output expands.
c. marginal cost decreases as output expands.
d. none of the above
147. Constant returns to scale indicate that a firm is experiencing:

a. per unit costs of production that are decreasing as the scale of output expands.
b. per unit costs of production that remain stable as the scale of output expands.
c. per unit costs of production that are increasing as the scale of output expands.
d. an increasing marginal product.
148. When economies of scale exist, an increase in the level of output will lead to:
a. a decrease in cost per unit.
b. an increase in cost per unit.
c. a decrease in total cost.
d. both a. and c. above
149. When economies of scale exist, a decrease in the level of output will lead to:
a. a decrease in cost per unit.
b. an increase in cost per unit.
c. no change in cost per unit.
d. an increase in total cost.
150. When economies of scale exist:
a. per unit production costs increase as output expands.
b. per unit production costs decline as output expands.
c. marginal cost must decrease as output expands.
d. per unit production costs remain constant as output expands.
151. Economies of scale:

a. are the result of a diminishing marginal product.
b. pertain to the long run only.
c. refer to the increase in output that results from the increased utilization of a single input.
d. imply that the average total cost curve will fall continuously as output increases in the
short run.
TOP: 6.5 Cost Curves: Short-Run Versus Long-Run | Why Do Economies and Diseconomies of Scale
Occur?
152. If a firm experiences increasing returns to scale at all levels of output:

a. the slope of its long-run total cost curve is everywhere negative.
b. the slope of its short-run average cost curve is everywhere negative.
c. the slope of its long-run average total cost curve is everywhere negative.
d. the slope of its production function is everywhere negative.
153. The region of economies of scale is that in which:

a. short-run marginal cost is falling as output expands.
b. short-run average total cost is falling as output expands.
c. long-run marginal cost is falling as output expands.
d. long-run average total cost is falling as output expands.
154. Diseconomies of scale are associated with:

a. a downward sloping long-run average total cost curve.
b. an upward sloping long-run average total cost curve.
c. a horizontal long-run average total cost curve.
d. a vertical long-run average total cost curve.
155. What denotes the output level where economies of scale are exhausted and constant returns to scale
begin?
a. minimum efficient scale
b. break-even point
c. efficient equilibrium
d. zero economic profit
Exhibit 6-10
156. Refer to Exhibit 6-10. In the short run the firm can move from
a. A to B
b. A to C
c. C to A
d. all of the above
157. Refer to Exhibit 6-10. In the long run the firm can move from
a. A to B
b. A to C
c. B to A
d. all of the above
158. Refer to Exhibit 6-10. Which of the following curves represent the SRATC for the medium plant?
a. 1
b. 2
c. 3
d. 4
159. Refer to Exhibit 6-10. Which of the following curves represent the LRATC?
a. 1
b. 2
c. 3
d. 4
Exhibit 6-11
160. Refer to Exhibit 6-11. Point A refers to:

a. break-even point.
b. efficient equilibrium.
c. minimum efficient scale.
d. zero economic profit.
161. Refer to Exhibit 6-11. The region 'x' refers to:

a. diseconomies of scale.
b. constant returns to scale.
d. economies of scale.
162. Refer to Exhibit 6-11. The region 'z,' where the long-run ATC rises at the higher levels of output,
refers to:
163. Refer to Exhibit 6-11. The region 'y' refers to:

SHORT ANSWER
1. From the firm's perspective, is an accounting profit of zero a good result, a bad result, or merely a
satisfactory result? Why? Is an economic profit of zero a good result, a bad result, or merely a
satisfactory result? Why?
ANS:
An accounting profit of zero is most likely a bad result because the firm generated only enough
revenues to cover explicit cost meaning that there was no compensation for the time, investment or
other opportunity costs associated with the operations. In contrast, an economic profit of zero indicates
a satisfactory result because total revenues were sufficient not only to cover all explicit costs but also
to provide a fair rate of return on the time, money, and other opportunity costs associated with
operating this firm.
PTS: 1 DIF: M
2. The R&J Ice Cream Company makes gallons of ice cream using the technology described below. Fill
in the Marginal Product columns of these tables. When six ice cream makers are utilized each hour, at
what point does diminishing marginal product set in? When eight ice cream makers are utilized? Why
is the point of diminishing marginal product different in each case?
With 6 Ice Cream Makers With 8 Ice Cream Makers

Total Marginal Total Marginal
Product Product Product Product
Labor (gallons) (gallons) Labor (gallons) (gallons)
1 worker 16 1 worker 18
2 workers 36 2 workers 40
ANS:
Diminishing marginal product sets in with six machines once the fifth worker is hired each hour, and
with eight machines not until the sixth worker is hired. When eight machines are used instead of six,
more units of labor can be hired before crowding occurs.
With 6 Ice Cream Makers With 8 Ice Cream Makers

Total Marginal Total Marginal
Product Product Product Product
Labor (gallons) (gallons) Labor (gallons) (gallons)
1 worker 16 16 1 worker 18 18
2 workers 36 20 2 workers 40 22
PTS: 1 DIF: D
3. What is the law of diminishing marginal product? What causes it?
ANS:
The law of diminishing marginal product states that as the amount of a variable input is increased,
while the quantity of other fixed. inputs are held constant, a point will ultimately be reached beyond
which marginal product will decline. We expect an initial rise in marginal product because of gains
from specialization. However, these benefits will eventually be exhausted at some larger output level.
In addition, the size of the operation expands with more and more units of one resource being used, we
will see a bottleneck effect where workers (or other resources) essentially get in each others' way.
PTS: 1 DIF: M
4. A firm's total product of labor curve is represented by the following data: 1 worker can produce 4 units
of output; 2 workers, 10 units; 3 workers, 17 units; 4 workers, 25 units; 5 workers, 30 units; 6 workers,
35 units; 7 workers, 38 units; 8 workers, 39 units; and 9 workers, 38 units. What is the marginal
product of the seventh worker? When does the law of diminishing marginal product set in? Under
these circumstances would you ever choose to employ nine workers?
ANS:
The marginal product of the seventh worker equals three units of output. The marginal product begins
to diminish when the fifth worker is hired. One would never choose to employ nine workers since the
marginal product of the ninth worker is negative.
PTS: 1 DIF: M
5. Explain why some costs are considered to be variable and some fixed. How does time enter into the
definition?
ANS:
Some factors cannot be adjusted quickly in the short run. Costs associated with these factors are called
fixed costs. Variable costs are costs incurred through the utilization of factors that can be readily
varied in the short term (such as raw materials or labor). Variable costs are costs that increase as output
increases, and decrease as output decreases. All costs are variable in the long run when firms have
sufficient time to vary all factors of production.
PTS: 1 DIF: M
6. How short is the short-run production period?
ANS:
In the short run, some factors cannot be adjusted. In the long run, all inputs are variable. The short-run
period will vary in duration across firms. For example, for a large utility company, the short-run period
might last ten years because of the time needed to build a new generating plant. For a roadside fruit
seller, the short-run period might be much shorter.
PTS: 1 DIF: M
7. Complete the following table describing the short-run daily costs of the Kangaroo Backpack
Company.
Total Total Total Average Average Average

Product Fixed Variable Total Fixed Variable Total Marginal
(Backpacks) Cost Cost Cost Cost Cost Cost Cost
0 0 -- -- --
1 30
2 50
3 60
4 64 159
5 90
6 150
7 196
8 240
ANS:
Total Total Total Average Average Average

Product Fixed Variable Total Fixed Variable Total Marginal
(Backpacks) Cost Cost Cost Cost Cost Cost Cost
0 95 0 95 -- -- -- 95
1 95 30 125 95 30 125 30
2 95 50 145 47.50 25 72.50 20
3 95 60 155 31.67 20 51.67 10
4 95 64 159 23.75 16 39.75 4
5 95 90 185 19 18 37 26
6 95 150 245 15.83 25 40.83 60
7 95 196 291 13.57 28 41.57 46
8 95 240 335 11.88 30 41.88 44
PTS: 1 DIF: D
8. Where does the marginal cost curve intersect the short run average variable cost curve? The short run
average total cost curve? Why does the marginal cost curve intersect the short run average variable
cost curve where the short run average total cost curve is still declining?
ANS:
The MC curve intersects both the short run average variable cost curve and the short run average total
cost curves at their minimum points. However, at the minimum point of the short run average
variable cost curve (where the marginal cost curve intersects that curve), average fixed costs and
therefore average total costs are declining.
PTS: 1 DIF: M
Average Amounts
9. Why is the long-run average total cost (LRATC) curve called the planning curve?
ANS:
The LRATC curve is often called a planning curve, because it represents the cost data relevant to the
firm when it is planning policy relating to scale of operations, output, and price over a long period of
time. At a particular time, a firm already in operation has a certain plant and must base its current price
and output decisions on the costs with the existing plant. However, when the firm considers the
possibility of adjusting its scale of operations, long-run cost estimates are necessary.
PTS: 1 DIF: M
10. Explain the cost advantage of a firm operating at constant returns to scale relative to one over the range
of economies of scale.
ANS:
If we compare a firm operating in the constant returns to scale range to a firm that is operating in the
economies of scale range, there are significant differences. The firm in the economies of scale range
has not yet reached the lowest possible cost per unit because it is producing too small of a quantity. In
contrast, the firm in the constant cost range is producing with the lowest possible cost per unit and
therefore enjoys an advantage over smaller firms with higher costs.
PTS: 1 DIF: M

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Survey of ECON 2nd Edition Sexton

1. Economic profit always exceeds accounting profit.

ANS: F PTS: 1 DIF: E

ANS: F PTS: 1 DIF: M

3. An economic profit of zero indicates a satisfactory situation for the firm.

ANS: T PTS: 1 DIF: E

ANS: T PTS: 1 DIF: M

ANS: T PTS: 1 DIF: E

ANS: T PTS: 1 DIF: E

ANS: F PTS: 1 DIF: E

8. In the short run, all costs are variable.

ANS: F PTS: 1 DIF: E

9. In the short run, some costs are fixed.

10. In the long run, all costs are variable.

ANS: T PTS: 1 DIF: E

ANS: T PTS: 1 DIF: E

ANS: F PTS: 1 DIF: E

ANS: F PTS: 1 DIF: M

ANS: F PTS: 1 DIF: M

ANS: T PTS: 1 DIF: E

ANS: T PTS: 1 DIF: M

ANS: T PTS: 1 DIF: M

ANS: F PTS: 1 DIF: M

ANS: T PTS: 1 DIF: E

ANS: T PTS: 1 DIF: M

ANS: T PTS: 1 DIF: M

ANS: F PTS: 1 DIF: M

ANS: F PTS: 1 DIF: M

ANS: T PTS: 1 DIF: M

ANS: T PTS: 1 DIF: M

ANS: F PTS: 1 DIF: M

1. An explicit cost is:

3. Economic profits will take into account:

8. Accounting profits are calculated based upon:

9. An economist's measurement of profit differs from an accountant's in that:

10. When a firm makes zero economic profit, it means that:

11. Economists normally assume that the goal of a firm is to:

12. An economic profit of zero implies:

13. An example of an explicit cost of production is:

14. An example of an implicit cost of production is:

15. An example of an implicit cost of production is:

16. An understanding of opportunity costs is important to understanding:

17. If opportunity costs are ignored:

18. Which of the following observations is true?

19. An important and often ignored opportunity cost is the:

25. Economic profits are:

26. Which of the following is an implicit cost to Mondo Manufacturing, Inc.?

31. The production function describes:

32. A production function:

33. The marginal product of capital:

34. The marginal product of labor can be defined as:

36. Diminishing marginal product of labor occurs when:

37. The long-run production period:

38. The short run is that period in which firms:

# of Pickers Total # of Oranges Picked

46. The short run is a time period such that:

Number of Workers Output

51. Refer to Exhibit 6-3. Marginal product begins to diminish:

54. The long run:

56. Which of the following is false?

62. Which of the following is a short run adjustment?

63. Characteristics of the short run include:

64. In the short run, if a firm's total product is increasing: