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Chapter 7—Production Costs
MULTIPLE CHOICE
1. Which of the following is an explicit cost?

a. The opportunity cost of an owner/entrepreneur’s time invested in the firm.
b. The opportunity cost of the money the business owner/entrepreneur has invested in the
firm.
c. The wages paid to workers.
d. None of the above.
ANS: C PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
STA: DISC: Costs of production TOP: Costs and Profit
KEY: Bloom's: Comprehension
2. Explicit costs would include:

a. rent.
b. the interest loss of the business owner on money withdrawn from his/her saving account
and invested in the business.
c. the loss of rent on a building the business owner owns and uses in his/her business.
d. the opportunity costs of the business owner's time.
e. the use of tools owned by the business owner and dedicated to the business.
ANS: A PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
3. Unlike implicit costs, explicit costs:

a. reflect opportunity costs.
b. include the value of the owner's time.
c. are not included in the accounting statement of the firm.
d. are actual cash payments.
e. do not change with the output rate of the firm.
ANS: D PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
4. A young chef is considering opening his own sushi bar. To do so, he would have to quit his current
job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his
brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas
and electricity. What are his explicit costs?
a. $26,000.
b. $66,000.
c. $78,000.
d. $52,000.
e. $72,000.
ANS: D PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
5. Which of the following is not an explicit cost?

a. Salaries.
b. Sales taxes.
c. Utilities, such as gas and electricity.
d. Insurance.
e. The firm owner's time.
ANS: E PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
KEY: Bloom's: Knowledge
6. Cash payments to a steel mill for steel used in production would be an example of:
a. sunk costs.
b. fixed costs.
c. explicit costs.
d. implicit costs.
e. entrepreneurial costs.
7. Sam quits his job as an airline pilot and opens his own pilot training school. He was earning $40,000
as a pilot. He withdraws $10,000 from his savings where he was earning 6 percent interest and uses the
money in his new business. He uses a building he owns as a hanger and could rent it out for $5,000 per
year. He rents a computer for $1,200, buys office supplies for $500, rents an airplane for $6,000, pays
$1,300 for fuel and maintenance, and hires one worker for $30,000. Sam's total revenue from pilot
training classes this year equaled $90,400. Sam's explicit costs this year equals:
a. $84,400.
b. $39,000.
c. $55,000.
d. $45,600.
e. $40,000.
ANS: B PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
KEY: Bloom's: Application
8. Paul's Plumbing is a small business that employs 12 people. Which of the following is the best
example of an implicit cost incurred by this firm?
a. The tax payments on property owned by the firm.
b. The wages paid to the 12 employees.
c. The half of the payroll taxes on the wages of the 12 employees paid by the employers, but
not the half paid by the employees.
d. The accounting services provided free of charge to the firm by Paul's wife, who is an
accountant.
9. Which of the following would be considered an implicit cost?

a. Health insurance of employees paid for by the firm
b. The water bill of the firm
c. The salaries paid to the managers of the firm
d. Foregone rent on assets owned by the firm
10. The opportunity costs associated with the use of resources owned by a firm are:
a. externalities. c. explicit costs.
b. implicit costs. d. sunk costs.
ANS: B PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
11. Payments to nonowners of a firm are called:

a. implicit costs. c. explicit costs.
b. accounting costs. d. economic costs.
ANS: A PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
12. The amount of money that could have been made by renting a piece of land to be used for building an
office building instead of using the land for employee parking is a(n):
a. implicit cost. c. explicit cost.
b. accounting cost. d. pure economic cost.
13. Implicit costs are best thought of as:

a. variable costs.
b. marginal costs.
c. accounting costs.
d. opportunity costs.
e. sunk costs.
14. Which of the following is an implicit cost of going to college?

a. Tuition.
b. Books.
c. Lost income.
d. Future income.
e. Room and board.
15. Which of the following are implicit costs for a typical firm?
a. Insurance costs.
b. Electricity costs.
c. Opportunity costs of capital owned and used by the firm.
d. Cost of labor hired by the firm.
e. The cost of raw materials.
ANS: C PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
16. A firm's opportunity cost of using resources provided by the firm's owners is called:
a. sunk costs.
b. fixed costs.
c. explicit costs.
d. implicit costs.
e. entrepreneurial costs.
17. A young chef is considering opening his own sushi bar. To do so, he would have to quit his current
job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his
brother for $6,000 a year. His expenses at the sushi bar would be $50,000, for food and $2,000 for gas
and electricity. What are his implicit costs?
a. $26,000.
b. $66,000.
c. $78,000.
d. $52,000.
e. $72,000.
18. Two friends, Diane and Sam, own and run a bar. Diane tends bar on Monday, Wednesday, and Friday
and receives a wage in addition to tips. Sam tends bar on Tuesday, Thursday, and Saturday and
receives only tips. Which of the following represents an implicit cost of operating the bar?
a. Diane's wage.
b. Sam's time.
c. Diane's tips.
d. Sam's tips.
e. Both Diane's and Sam's tips.
KEY: Bloom's: Analysis
19. Implicit costs are:

a. the opportunity costs of using resources owned by the entrepreneur in his/her own
business.
b. payments the business owner must make on borrowed funds.
c. costs which vary as the level of output varies.
d. those payments the business owner makes in cash.
e. the payments the business owner makes for public relations, such as donations to charity.
20. Sam quits his job as an airline pilot and opens his own pilot training school. He was earning $40,000
as a pilot. He withdraws $10,000 from his savings where he was earning 6 percent interest and uses the
money in his new business. He uses a building he owns as a hanger and could rent it out for $5,000 per
year. He rents a computer for $1,200, buys office supplies for $500, rents an airplane for $6,000, pays
$1,300 for fuel and maintenance, and hires one worker for $30,000. Sam's total revenue from pilot
training classes equaled $90,400. Sam's implicit costs for this year are equal to:
a. $84,400.
b. $39,000.
c. $55,000.
d. $45,600.
e. $40,000.
21. The sum of the explicit and implicit costs incurred in the production process is called:
a. fixed cost. c. marginal cost.
b. sunk cost. d. total cost.
22. Which of the following is most likely to be true of economic and accounting profits?
a. Economic profits are less than accounting profits.
b. Accounting profits are less than economic profits.
c. Economic profits plus accounting profits equal zero.
d. Accounting profits minus economic profits equal zero.
ANS: A PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
23. Economic profit is:

a. total revenues minus variable costs. c. total revenues minus explicit costs.
b. total revenues minus private costs. d. total revenues minus total costs.
24. Suppose that a small business takes in monthly revenue of $100,000. Labor, rental, energy, and other
purchased input costs are $70,000. The owner/entrepreneur could earn $5,000 per month in another
job, and the owner/entrepreneur could get a return of $5,000 each month if she sold her business and
invested the net proceeds in a financial asset, such as a treasury bond. Which of the following correctly
describes her monthly economic profit?
a. $100,000.
b. $90,000.
c. $70,000.
d. $30,000.
e. $20,000.
ANS: C PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
25. The difference between a firm's total revenues and total costs when all explicit and implicit costs are
included is the firm's:
a. economic profit. c. opportunity cost of capital.
b. accounting profit. d. long-run average total cost.
26. If a firm has total revenue of $200 million, explicit costs of $190 million, and implicit costs of $30
million, its economic profit is:
a. $200 million.
b. $70 million.
c. $10 million.
d. −$10 million.
e. −$20 million.
27. A firm has $200 million in total revenue and explicit costs of $190 million. Suppose its owners have
invested $100 million in the company at an opportunity cost of 10 percent interest rate per year. The
firm's economic profit is:
a. $400 million. c. $80 million.
b. $100 million. d. zero.
28. Economic profit is:

a. always less than zero.
b. never less than accounting profit.
c. less than accounting profit if implicit costs are zero.
d. less than accounting profit if implicit costs are greater than zero.
29. An economist left her $100,000-a-year teaching position to work full-time in her own consulting
business. In the first year, she had total revenue of $200,000 and business expenses of $100,000. She
made a(n):
a. economic profit.
b. economic loss.
c. implicit profit.
d. accounting loss but not an economic loss.
e. zero economic profit.
ANS: E PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
30. Economic profit equals accounting profit minus:

a. explicit costs. c. fixed costs.
b. implicit costs. d. variable costs.
ANS: B PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
31. An economist left his $100,000-a-year teaching position to work full-time in his own consulting
business. In the first year, he had total revenue of $200,000 and business expenses of $150,000. He
made a(n):
a. implicit profit.
b. economic loss.
c. economic profit.
d. accounting loss but not an economic loss.
e. zero economic profit.
32. A firm has $200 million in total revenue and explicit costs of $190 million. If its owners have invested
$100 million in the company at an opportunity cost of 10 percent interest per year, the firm's
accounting profit is:
a. $400 million.
b. $100 million.
c. $80 million.
d. $10 million.
e. zero.
33. Suppose a firm has total revenue of $200 million, explicit costs of $190 million, and implicit costs of
$20 million. This firm's accounting profit is:
a. $80 million. c. $10 million.
b. $70 million. d. −$10 million.
34. When total revenue minus total cost is equal to zero, the firm is:
a. earning above-average economic profit.
b. earning a normal profit.
c. losing too much money to stay in business.
d. earning abnormally low profits.
35. Normal profit is a term for:
a. explicit profit.
b. the minimum profit to keep a firm in operation.
c. the accounting profit forgone.
d. pure economic profit.
36. Normal profit is defined as a(n):

a. foregone percent rate of return.
b. opportunity profit.
c. implicit profit.
d. minimum necessary to keep a firm in operation.
37. Economists say that a firm has a normal profit when:

a. it earns a return of at least 10 percent. c. it can pay all its variable costs.
b. its accounting profit is positive. d. its economic profit is zero.
38. Which of the following is an example of a fixed input?

a. The acreage of a farmer's land. c. The size of a firm's plant.
b. Machinery. d. All of these.
STA: DISC: Costs of production TOP: Short-Run Production Costs
39. Variable inputs are defined as any resource that:

a. varies with the size of the firm's plant. c. can be changed as output changes.
b. cannot be changed as output changes. d. can be increased or decreased hourly.
STA: DISC: Costs of production | DISC: Productivity and growth
TOP: Short-Run Production Costs KEY: Bloom's: Knowledge
40. Which of the following represents the key difference between the short run and the long run?
a. In the long run, the firm makes commitments to a certain type of production technology
which are represented as fixed costs in the long run. For example, they have signed a lease
on a particular production facility. These fixed costs do not exist in the short run.
b. In the short run, the firm makes commitments to a certain type of production technology,
which are represented as fixed costs in the short run. For example, they have signed a lease
on a particular production facility. These fixed costs do not exist in the long run.
c. The short run refers to less than two years and the long run in over two years.
d. None of the above are correct.
41. During the short-run period of the production process, a firm will be:
a. unable to vary any of its factors of production.
b. able to vary 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.
42. The short run is a time period such that:

a. the existing firms in the market do not have sufficient time to change the amounts of any
of the inputs that they employ.
b. the existing firms in the market do not have sufficient time to either increase or decrease
their current rate of output.
c. the existing firms in the market do not have sufficient time to increase the size of their
existing plant or build a new factory.
d. new firms may build plants and enter the industry.
43. The short run is a period of time:

a. in which a firm uses at least one fixed input.
b. that is long enough to permit changes in the firm's plant size.
c. in which production occurs within one year.
d. in which production occurs within six months.
44. During the course of a week, McDonald's has enough time to hire or layoff workers, but it does not
have enough time to expand its kitchen or add an additional seating area. In this situation, McDonald's:
a. has no fixed costs. c. suffers an economic loss.
b. is in the short run. d. earns a large profit.
45. During the short run, a firm has enough time to adjust:
a. its technology.
b. its fixed inputs.
c. its variable inputs.
d. all of its inputs⎯both fixed and variable.
46. Which of the following factors of production is not variable in the long run?
a. the size of the firm's plant.
b. property taxes on the assets of the firm.
c. highly trained labor.
d. All factors of production are variable in the long run.
47. The long run is a period of:

a. at least one year.
b. sufficient length to allow a firm to expand output by hiring additional workers.
c. sufficient length to allow a firm to alter its plant size and capacity and all other factors of
production.
d. sufficient length to allow a firm to transform economic losses into economic profits by
hiring better workers.
48. The long run is a period of time:

a. that is too short to change the size of a firm's plant.
b. that is long enough to permit changes in all the firm's inputs, both fixed and variable.
c. in which production occurs beyond one year.
d. in which production occurs beyond five years.
49. The long run is a planning period:

a. during which the firm can vary all inputs including its plant size.
b. less than six months.
c. less than one year.
d. less than five years.
50. In the long run, total fixed cost:

a. falls. c. is constant.
b. rises. d. does not exist.
ANS: D PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
51. Which of the following statements is true?

a. Economic profit equals accounting profit minus implicit costs.
b. The short run is any period of time in which there is at least one fixed input.
c. A fixed input is any resource for which the quantity cannot change during the period under
consideration.
d. In the long run there are no fixed costs.
e. All of these.
52. The increase in total output that results from a unit increase in one unit of a variable input is equal to
the input's:
a. total product. c. average product.
b. marginal product. d. marginal cost.
53. Which of the following best describes a production function?

a. The relationship between consumer preferences and market demand.
b. The relationship between the quantity of labor employed and total cost.
c. The relationship between the maximum amounts of output a firm can produce and various
quantities of inputs.
d. The relationship between price and quantity supplied by sellers in a market.
54. If two workers can produce 22 units of output, and the addition of a third worker increases output to 30
units, the marginal product of the third worker is:
a. 8 units. c. 22 units.
b. 10 units. d. 30 units.
55. A firm can produce 450 gallons of milk per day with 4 workers and 500 gallons per day with 5
workers. The marginal product of the fifth worker expressed in gallons per worker per day, is:
a. 35. c. 70.
b. 50. d. 350.
56. A farm is able to produce 9,000 pints of strawberries per season on 10 acres. It adds one more acre and
is able to produce 12,000 pints per season. The marginal product of land for this farm is:
a. 900 pints per acre per year. c. 3,000 pints per acre per year.
b. 1,000 pints per acre per year. d. 12,000 pints per acre per year.
57. If the units of variable input in a production process are 1, 2, 3, 4, and 5, and the corresponding total
outputs are 30, 34, 37, 39, and 40, respectively. The marginal product of the fourth unit is:
a. 2. c. 37.
b. 1. d. 39.
58. A farm is able to produce 5,000 bushels of peaches per season on 100 acres. Assume it adds one more
acre and is able to produce 6,000 bushels per season. The marginal product of the additional acre of
land for this farm is:
a. 6,000 bushels per acre per year. c. 1,000 bushels per acre per year.
b. 5,000 bushels per acre per year. d. 11,000 bushels per acre per year.
59. A farm is able to produce 10,000 bushels of peanuts per season on 10 acres. Assume it adds one more
acre and is able to produce 12,000 bushels per season. The marginal product of the additional acre of
land for this farm is:
a. 10,000 bushels per acre per year. c. 2,000 bushels per acre per year.
b. 1,200 bushels per acre per year. d. 12,000 bushels per acre per year.
60. A farm can produce 10,000 bushels of wheat per year with 5 workers and 13,000 bushels with 6
workers. The marginal product of the sixth worker for this farm is:
a. 10,000 bushels. c. 500 bushels.
b. 3,000 bushels. d. 23,000 bushels.
61. Suppose when a car wash has 2 washing stations and 5 workers and is able to wash 100 cars per day.
When it adds a third station, but no more workers, it is able to wash 150 cars per day. The marginal
product of the third washing station is:
a. 100 cars per day. c. 5 cars per day.
b. 150 cars per day. d. 50 cars per day.
62. Marginal product measures the change in:

a. total cost brought about by changing production by one unit.
b. product price brought about by changing production by one unit.
c. a firm's revenue brought about by changing production by one unit.
d. the firm's output brought about by employing one additional unit of input.
e. the firm's profit brought about by employing one more input.
63. When a total output curve is falling, its corresponding marginal product curve is:
a. vertical. c. rising.
b. horizontal. d. falling.
Exhibit 7-1 Production of pizza data
Workers Pizzas
0 0
1 4
2 10
3 15
4 18
5 19
64. Exhibit 7-1 shows the change in the production of pizzas as more workers are hired. The marginal
product of the second employee equals:
a. 4.
b. 10.
c. 14.
d. 6.
e. 15.
product of the fifth employee equals:
a. 4.
b. 18.
c. 19.
d. 3.
e. 1.
66. Exhibit 7-1 shows the change in the production of pizzas as more workers are hired. The total output
of pizzas after hiring 4 workers is:
a. 4.
b. 15.
c. 18.
d. 3.
e. 1.
product of the labor input begins to fall with the employment of the ____ worker.
a. first
b. second
c. third
d. fourth
e. fifth
68. Exhibit 7-1 shows the change in the short run production of pizzas as more workers are hired. The
table shows marginal product increasing between the 0 to 2 hired workers. A possible reason for this
increased marginal product is:
a. increased wages.
b. increases in plant size.
c. decreases in fixed cost.
d. increased division of labor as additional workers are hired.
e. increased product price.
69. Exhibit 7-1 shows the change in the short-run production of pizzas as more workers are hired. The
table shows the marginal product of the labor input is decreasing with the hiring of the third worker. A
possible reason for this diminishing marginal product is:
a. decreased wages.
b. increases in plant size.
c. decreases in fixed cost.
d. increased division of labor as additional workers are hired.
e. decreases in labor productivity.
ANS: E PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
Exhibit 7-2 Cost schedule for pizza production
Labor Energy Materials

Pizzas Cost Cost Cost
0 $10 $ 0 $ 0
1 10 12 4
2 24 22 8
3 40 30 12
4 60 36 16
5 90 40 20
70. Exhibit 7-2 shows the labor, energy, and materials cost of making various quantities of pizzas. The
table shows that the labor cost of making pizzas will:
a. increase at a decreasing rate.
b. decrease at a decreasing rate.
c. decrease at an increasing rate.
d. increase at an increasing rate.
e. increase at a constant rate.
table shows that the energy cost of making pizzas will:
table shows that the materials cost of making pizzas will:
73. In the short run, a firm will eventually experience rising per-unit costs because of:
a. economies of scale. c. the law of supply.
b. diseconomies of scale. d. the law of diminishing returns.
74. Which of the following best describes the law of diminishing returns?
a. The principle that beyond some point the marginal product decreases as additional units of
a variable factor (ex: labor) are added to a fixed factor (ex: a restaurant kitchen).
b. The concept that as a person consumes more and more of a good, such as pizza slices, that
the marginal utility from each additional slice will decline.
c. The empirical fact that the profitability of firms declines in the long run due to increasing
competition.
d. None of the above.
75. Which of the following is an implication of the law of diminishing returns?

a. Total output will decline as more workers are hired.
b. In the long run, average total cost will eventually decline as output is expanded.
c. In the short run, expansion of output will eventually lead to increases in marginal cost and
average total cost.
d. A doubling of all inputs will lead to more than a doubling of output.
76. Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crops twice during the
growing season and notices that the second layer of fertilizer increases his crop, but not as much as the
first layer. What economic concept best explains this observation?
a. The law of diminishing marginal utility.
b. The law of diminishing returns.
c. Return equalization principle.
d. The principal-agent problem.
77. The law of diminishing marginal returns implies that, in the short run:
a. output must fall beyond a certain point.
b. price must fall beyond a certain point.
c. the marginal product of the variable input must eventually decrease.
d. wages of workers must eventually increase.
e. total cost must fall beyond a certain point.
78. In order for the law of diminishing returns to be present, we must have:
a. at least one factor of production to be fixed.
b. output decreasing as more laborers are hired.
c. the price of labor increasing as more workers are hired.
d. simultaneous changes in labor and capital.
e. double the output when labor input is doubled.
79. Applying a price of labor to the law of diminishing returns generates:

a. the law of increasing costs.
b. less output as more labor is hired.
c. differences in the quality of labor.
d. a negatively-sloped labor supply curve.
e. specialization and the division of labor.
80. As a fishing firm hires its first, second, and third workers, it could find that marginal product actually
rises. The reason for this is:
a. diminishing returns have set in.
b. the division of labor creates greater productivity.
c. the firm has hired another boat.
d. all tasks are shared by all workers.
e. less qualified workers are becoming available.
81. The law of diminishing returns applies to which of the following segments of the marginal product of
labor curve?
a. The entire curve. c. The upward sloping segment only.
b. The downward-sloping segment only. d. The point where labor input is zero.
82. The situation in which the marginal product of labor is greater than zero and declining as more labor is
hired is called the law of:
a. negative response. c. diminishing returns.
b. inverse return to labor. d. demand.
83. If a firm's use of labor obeys the law of diminishing returns, then:
a. it does not have enough time to hire or fire workers.
b. doubling the number of workers causes the firm's output to also double.
c. its marginal costs must be falling.
d. hiring additional workers adds less and less additional output.
84. The ____ is the situation in which the marginal product of labor is greater than zero and declining as
more labor is hired.
a. law of demand c. law of diminishing returns
b. law of diminishing supply d. law of returns to scale
Exhibit 7-3 A marginal product curve

85. As shown in Exhibit 7-3, the law of diminishing returns applies where there are:
a. more than 5 workers per day. c. more than 3 workers per day.
b. more than 4 workers per day. d. between 0 and 5 workers per day.
86. As shown in Exhibit 7-3, the marginal product of labor for the last worker hired when 2 workers are
employed per day is:
a. 50. c. 150.
b. 100. d. 175.
87. As shown in Exhibit 7-3, the marginal product of labor for the last worker hired when 5 workers are
employed per day is:
a. 50. c. 150.
b. 100. d. 175.
Exhibit 7-4 A marginal product curve

88. As shown in Exhibit 7-4, the law of diminishing returns applies in the range of:
a. over 10 workers per day. c. over 2 workers per day.
b. over 5 workers per day. d. between 0 and 5 workers per day.
89. As shown in Exhibit 7-4, which of the following conclusions can you draw about the firm's total
output curve?
a. It slopes downward throughout the range of 0−10 units of input.
b. It reaches a maximum at 5 units of output.
c. It has an inflection point at 5 units of input.
d. It has zero slope at 5 units of input.
Exhibit 7-5 Workers and output data
Total
Laborers Product
0 0
1 8
2 20
3 25
4 28
5 29
90. In Exhibit 7-5, diminishing returns set in when the ____ worker is hired.
a. first
b. second
c. third
d. fourth
e. fifth
91. In Exhibit 7-5, the marginal product of the second worker is:
a. 0.
b. 8.
c. 10.
d. 12.
e. 20.
92. Paul's Plumbing is a small business that employs 12 people. Which of the following is most likely to
be a fixed cost for Paul's Plumbing?
a. The tax and insurance payments on the property owned by the firm.
b. The wages paid to the 12 employees.
c. The payroll taxes on the wages of the 12 employees.
d. The salary paid to Paul, who is the manager of the firm.
STA: DISC: Costs of production TOP: Short-Run Cost Formulas
93. Which of the following is true about average fixed cost?

a. Average fixed cost has a U-shape, and marginal cost crosses average fixed cost at its
minimum point.
b. Average fixed cost does not vary as output increases.
c. Average fixed cost is the difference between marginal cost and average total cost.
d. Average fixed cost is total fixed cost divided by the quantity of output produced, and it
declines steadily as output increases.
94. Fixed costs are best defined as:

a. costs that do not vary with output.
b. costs that are at a minimum when output approaches the firm's capacity.
c. the amount that one more unit of output adds to total costs.
d. costs that decline as output increases.
95. Which of the following is most likely to be a fixed cost for a business?
a. expenditures on low-skill labor.
b. shipping charges for the delivery of products.
c. managerial salaries.
d. property taxes on the firm's buildings.
96. In the short run, if average variable cost equals $50, average total cost equals $75, and output equals
100, the total fixed cost must be:
a. $25. c. $5,000.
b. $2,500. d. $7,500.
97. The total fixed cost remains constant as which of the following varies?
a. Cost of resources. c. Output in a given period of time.
b. Time. d. Profit.
98. The total fixed cost curve:

a. varies with the quantity of inputs used.
b. decreases with output.
c. increases with output.
d. remains constant regardless of output.
99. Total fixed cost are costs that are fixed with respect to:
a. the rate of output. c. technology.
b. time. d. the minimum wage or price supports.
100. Bill is an accountant for a small machine shop. His boss has asked him to calculate the shop's total
fixed cost. Which method will get Bill the correct answer?
a. c and d.
b. Calculating the product of average total cost and quantity
c. Determining what the shop would pay for if they produced zero output
d. Subtracting the total variable costs from the total costs
e. Subtracting total variable costs from total revenue

a. TC = TFC − TVC.
b. AVC = TC / Q.
c. TFC = TC − TVC.
d. MC equals the change in ATC divided by the change in Q.
102. Which of the following is considered to be a fixed cost of operating an automobile?

a. Gasoline.
b. Tires.
c. Oil change.
d. Maintenance.
e. Registration fees.
103. Which of the following is an example of a fixed cost for a fishing company?
a. The cost of hiring a fishing crew.
b. The fuel costs of running the boat.
c. The monthly loan payment on the boat.
d. The supply of nets, hooks, and fishing lines.
e. Bait.
104. If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total
variable cost must be:
a. $40. c. $6,000.
b. $60. d. $8,000.
105. Suppose that when output is 20, marginal cost is $20, and average total cost is $30. Then which of the
following is most likely to be true?
a. Average total cost is declining.
b. Average total cost is constant.
c. Average total cost is rising.
d. Average total cost is less than average fixed cost.
106. Which of the following best describes average variable cost?

a. The change in total cost when one additional unit of output is produced.
b. Total cost divided by the quantity of output produced.
c. Total variable cost divided by the quantity of output produced.
d. Total fixed cost divided by the quantity of output produced.
e. Costs that do not vary as output varies.
107. Which of the following is true if the total variable cost curve is rising?
a. Average fixed cost is increasing. c. Marginal cost is increasing.
b. Marginal cost is decreasing. d. Average fixed cost is constant.
108. If the total variable cost curve for a firm is S-shaped, what is the shape of the total cost curve for that
firm?
a. U-shaped
b. Flat.
c. Hill-shaped.
d. S-shaped.
e. There is not enough information.
109. Barbara owns a small shop where dresses are made. At the end of a given month, she has 250 dresses.
Her expenses for the month are $1,000 for rent, $6,000 for wages, $1,500 for fabric and thread, and
$500 for electricity. Her total variable costs for the month are:
a. c and e.
b. $4,000.
c. $32 per dress.
d. $7,500.
e. $8,000.
110. Suppose a firm has an output of 10,000 cans and a total fixed cost of $2,000. At an output of 5,000 the
difference between the total cost and the total variable cost is:
a. b and c.
b. $0.40.
c. the average fixed cost.
d. $2,000.
e. $0.20.
111. Which statement about the total variable cost curve is true?
a. It begins at the origin and increases before decreasing again.
b. The total variable cost curve is the same at all levels of output.
c. The total variable cost curve is increasing but at a decreasing rate.
d. It begins at the origin and is always increasing.
e. There is no such thing as a total variable cost curve.
112. Suppose a publisher faces the following costs of producing 10,000 newspapers each month: $5,500
cost of labor; $2,200 monthly mortgage payment; $250 cost of electricity to run the printing presses;
$800 for ink and paper; and $200 in city property taxes (based on the value of the building and land).
Its total variable costs are:
a. $8,950.
b. $8,750.
c. $6,550.
d. $6,300.
e. $5,500.
113. The total cost curve is the sum of the:

a. total fixed and total variable cost curves.
b. total fixed and marginal cost curves.
c. marginal cost and total variable cost curves.
d. none of these.
114. Which of the following is true if the total cost curve is rising?
a. Total fixed cost is decreasing. c. Marginal cost is decreasing.
b. Total fixed cost is increasing. d. Marginal cost is increasing.
115. What is the shape of the average fixed cost curve for a firm in the short run?
a. U-shaped.
b. A curve that constantly increases as output expands and eventually approaches infinity at
high rates of output.
c. A vertical line.
d. A curve that declines as output expands and approaches the horizontal-axis when output is
large.
116. Which of the following will become smaller and smaller as the firm expands output?
a. average total cost. c. marginal cost.
b. average fixed cost . d. total fixed cost.
117. The average fixed cost of a firm equal:

a. implicit costs divided by output.
b. explicit costs divided by output.
c. total cost minus variable cost.
d. total cost minus total variable cost divided by output.
118. When costs that vary with the level of output are divided by the output, you have calculated:
a. total changing cost. c. average fixed cost.
b. total fixed cost. d. average variable cost.
119. If fixed cost is $200,000 and variable cost is $30 per unit over the relevant range of output, when
10,000 units are produced, the average total cost will be:
a. $20. c. $50.
b. $30. d. $70.
120. Use the table below to answer the following question.
Units of Total Fixed Total Variable

Output Cost (dollars) Cost (dollars)
1 1,000 1,200
2 1,000 2,400
3 1,000 3,600
4 1,000 5,000
5 1,000 6,600
What is the average total cost at an output level of four units?

a. $1,200. c. $1,500.
b. $1,400. d. $2,000.
121. What is the shape of the average total cost curve for a firm in the short run?
a. U-shaped. c. A vertical line.
b. A horizontal line. d. A curve that slopes upward to the right.
122. Which of the following explains most accurately why the firm's short-run marginal cost curve will
eventually rise?
a. As more of the variable factor is used, its price will rise.
b. When diminishing marginal returns set in, it will take ever-larger quantities of the variable
resources to produce an additional unit of output.
c. As the variable factor is used more intensely, its marginal product will rise, causing an
increase in marginal costs.
d. As the size of the firm increases, the operational efficiency of the firm declines, causing an
increase in marginal costs.
123. Marginal cost is best defined as:

a. a cost that does not vary with the rate of output.
b. the difference between fixed and variable cost at any level of output.
c. the amount added to total cost when one more unit of output is produced.
d. the difference between price and average total cost at the profit-maximizing level of
output.
124. The change in total cost that results from the production of one additional unit is called:
a. marginal revenue. c. marginal cost.
b. average variable cost. d. average total cost.
125. Marginal cost is defined as the increase in total cost resulting from an increase in:
a. one unit of output. c. a firm's plant size.
b. output of 100 units. d. one unit of labor.
126. The minimum point on the marginal cost curve corresponds to the:
a. maximum point on the total cost curve.
b. minimum point on the total cost curve.
c. inflection point on the total variable cost curve.
d. midpoint of the total cost curve.
127. If both the marginal cost and the average variable cost curves are U-shaped. At the minimum point on
the average variable cost curve, the marginal cost must be:
a. greater than the average variable cost.
b. less than the average variable cost.
c. equal to the average variable cost.
d. at its minimum.
128. Which of the following is true at the point where diminishing returns set in?
a. Both marginal product and marginal cost are at a maximum.
b. Both marginal product and marginal cost are at a minimum.
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.
129. Suppose the fixed cost of building a nuclear power plant is $1 billion. Suppose also that the only
variable cost is the labor of Homer Simpson, and he earns $10 per hour. If the plant generates 1,000
kilowatts each hour, and has already generated 1 billion kilowatts, what can you say about the
marginal cost of the next kilowatt?
a. b and e.
b. The marginal cost is equal to $.01.
c. The marginal cost is equal to $1.01.
d. The marginal cost is rising.
e. The marginal cost is falling.
130. The marginal cost is the:

a. b and c.
b. change in total cost as the quantity changes by one unit.
c. change in total variable cost as the quantity changes by one unit.
d. change in total fixed cost as the quantity changes by one unit.
e. same as the fixed cost when average fixed cost is at a minimum.
131. American Airlines makes numerous nonstop flights from Chicago's O'Hare Airport to the airport at
Dallas-Fort Worth. The distance between those two cities is 1,000 miles. The only variable cost, fuel,
costs $.06 for each passenger-mile it flies. Bob, on his way to an emergency business meeting, buys a
ticket in coach class for $1,300 at the very last minute. The marginal cost of flying Bob from Chicago
to Dallas-Fort Worth is:
a. b and e.
b. higher than the average cost of previous passengers.
c. $600.
d. $160.
e. $60.
132. When the cost curves have U-shapes, at the point where marginal cost equals average total cost:
a. b and c.
b. marginal cost is rising.
c. average total cost is at its minimum.
d. average variable cost is falling.
e. the fixed cost has been fully depreciated.
133. At the point where marginal cost equals average variable cost,
a. b and c.
b. marginal cost is rising.
c. average total cost is at its minimum.
d. average variable cost is falling.
e. there is no total cost.
134. When marginal cost is below average total cost:

a. total cost is falling.
b. total cost is rising.
c. average total cost is falling.
d. average fixed cost is rising.
e. total variable cost is falling.
135. A bus is mostly filled with passengers and ready to travel from Los Angeles to San Francisco. At the
last minute, a person comes running up to the bus and takes a seat. The change in the bus company's
total cost as a result of transporting one more passenger on this trip is called:
a. marginal cost.
b. average total cost.
c. variable cost.
d. fixed cost.
e. opportunity cost.
136. A firm estimates that when output is 10, its total costs are $900. It also finds that when output is 11, its
total costs are $920. The marginal cost of the eleventh unit of output is:
a. $1.
b. $20.
c. $90.
d. $900.
e. $920.
Exhibit 7-6 Total cost curves
137. In Exhibit 7-6, the total fixed cost is:

a. 0.
b. 1,000.
c. 3,000.
d. 5,000.
e. 6,000.
138. In Exhibit 7-6, the total cost of producing 6,000 units of output is:
a. 1,000.
b. 3,000.
c. 5,000.
d. 6,000.
e. 8,000.
Exhibit 7-7 Cost schedule for a firm
Quantity Total Cost Marginal Cost

0 $ 200
1 900
2 $900
3 3,000
139. In Exhibit 7-7, by filling in the blanks it can be determined that the fixed costs are:
a. 0.
b. 200.
c. 900.
d. 1,000.
e. 3,000.
140. In Exhibit 7-7, by filling in the blanks it can be determined that the total cost of the second unit of
output is:
a. 0.
b. 700.
c. 1,000.
d. 1,200.
e. 1,800.
141. In Exhibit 7-7, by filling in the blanks it can be determined that the marginal cost of the first unit of
output is:
a. 200.
b. 700.
c. 900.
d. 1,000.
e. 3,000.
142. In Exhibit 7-7, by filling in the blanks, it can be determined that the marginal cost of the third unit of
output is:
a. 0.
b. 200.
c. 700.
d. 1,200.
e. 2,000.
Exhibit 7-8 Costs schedules for producing pizza
Fixed Variable Total Marginal

Pizzas Cost Cost Cost Cost
0 $ $ $ $
1 5
2 13
3 10
4 100 140
5 20
6 85
7 215
143. By filling in the blanks in Exhibit 7-8, the fixed cost of producing 6 pizzas is shown to be equal to:
a. $100.
b. $150.
c. $200.
d. $185.
e. $85.
144. By filling in the blanks in Exhibit 7-8, the total cost of producing zero pizzas is shown to be equal to:
a. zero.
b. $100.
c. $5.
d. $105.
e. $95.
145. By filling in the blanks in Exhibit 7-8, the total cost of producing 3 pizzas is shown to be equal to:
a. $100.
b. $105.
c. $113.
d. $123.
e. $23.
146. By filling in the blanks in Exhibit 7-8, the total cost of producing 5 pizzas is shown to be equal to:
a. $100.
b. $105.
c. $113.
d. $123.
e. $160.
147. By filling in the blanks in Exhibit 7-8, the variable cost of producing 4 pizzas is shown to be equal to:
a. $100.
b. $40.
c. $60.
d. $85.
e. $185.
148. By filling in the blanks in Exhibit 7-8, the average variable cost of producing 4 pizzas is shown to be
equal to:
a. $10.
b. $15.
c. $20.
d. $40.
e. $85.
149. By filling in the blanks in Exhibit 7-8, the average total cost of producing 5 pizzas is shown to be equal
to:
a. $12.
b. $15.
c. $32.
d. $85.
e. $160.
150. By filling in the blanks in Exhibit 7-8, the marginal cost of the fourth pizza is shown to be equal to:
a. $10.
b. $15.
c. $17.
d. $23.
e. $40.
151. By filling in the blanks in Exhibit 7-8, the marginal cost of the sixth pizza is shown to be equal to:
a. $10.
b. $15.
c. $20.
d. $25.
e. $85.
Exhibit 7-9 Cost schedule for firm X
Output Total Fixed Total Variable

Quantity Cost Cost
0 $100 $ 0
1 100 50
2 100 84
3 100 108
4 100 127
5 100 150
152. As shown in Exhibit 7-9, the total cost of producing 4 units is:
a. zero. c. $250.
b. $227. d. $100.
153. As shown in Exhibit 7-9, the total cost of producing 5 units is:
a. zero. c. $250.
b. $227. d. $100.
154. As shown in Exhibit 7-9, the marginal cost of producing the third unit is:
a. $50. c. $24.
b. $16. d. $23.
Exhibit 7-10 Short-run cost schedule for book publisher's hourly production
Total Total Total

Output Variable Cost Cost
0 cases of books $ 0 $200
1 100 300
2 150 350
3 250 450
4 450 650
155. In Exhibit 7-10, the publisher's fixed cost is equal to:

a. $50. c. $200.
b. $100. d. $300.
156. In Exhibit 7-10, the average variable cost of producing 2 cases of books is:
a. $50 per case. c. $100 per case.
b. $75 per case. d. $150 per case.
157. In Exhibit 7-10, the marginal cost of increasing production from 2 to 3 cases of books is:
a. $100. c. $450.
b. $150. d. $800.
Exhibit 7-11 Short-run cost curves schedule for pizzeria's hourly production
Total Total Total

Product Variable Cost Cost
0 pizzas $ 0 $ 20
10 50 70
20 80 100
30 130 150
40 230 250
158. In Exhibit 7-11, the pizzeria's fixed cost is equal to:

a. $20. c. $50.
b. $30. d. $70.
159. In Exhibit 7-11, the average total cost or producing 40 pizzas per hour is equal to:
a. $5 per pizza. c. $6.25 per pizza.
b. $5.75 per pizza. d. $10 per pizza.
160. In Exhibit 7-11, what is the marginal cost of increasing production from 10 to 20 pizzas per hour?
a. $2 per pizza. c. $4 per pizza.
b. $3 per pizza. d. $5 per pizza.
Exhibit 7-12 Cost schedule for producing pizza
Fixed Variable Total

Pizzas Cost Cost Cost
0 $ $ $
1 48
2 17
3 27
4 78
5 40
6 64
7 80
161. By filling in the blanks in Exhibit 7-12, the AFC of 4 pizzas is shown to be equal to:
a. $10.
b. $9.50.
c. $19.50.
d. $40.
e. $78.
162. By filling in the blanks in Exhibit 7-12, the AFC of 3 pizzas is shown to be equal to:
a. $10.
b. $13.33.
c. $9.
d. $22.33.
e. $40.
163. By filling in the blanks in Exhibit 7-12, the AVC of 4 pizzas is shown to be equal to:
a. $10.
b. $9.50.
c. $19.50.
d. $40.
e. $78.
164. By filling in the blanks in Exhibit 7-12, the AVC of 3 pizzas is shown to be equal to:
a. $10.
b. $13.33.
c. $9.
d. $22.33.
e. $40.
165. By filling in the blanks in Exhibit 7-12, the ATC of 3 pizzas is shown to be equal to:
a. $10.
b. $13.33.
c. $9.
d. $22.33.
e. $40.
166. By filling in the blanks in Exhibit 7-12, the ATC of 4 pizzas is shown to be equal to:
a. $10.
b. $9.50.
c. $19.50.
d. $40.
e. $78.
167. By filling in the blanks in Exhibit 7-12, the marginal cost of the fourth pizza is shown to be equal to:
a. $10.
b. $11.
c. $12.
d. $13.
e. $14.
168. By filling in the blanks in Exhibit 7-12, the marginal cost of the third pizza is shown to be equal to:
a. $10.
b. $11.
c. $12.
d. $13.
e. $14.
Exhibit 7-13 Cost curves
169. In Exhibit 7-13, TFC is shown by the graph labeled:

a. I.
b. II.
c. III.
d. IV.
e. V.
170. In Exhibit 7-13, AFC is shown by the graph labeled:

a. I.
b. II.
c. III.
d. IV.
e. V.
171. In Exhibit 7-13, ATC is shown by the graph labeled:

a. I.
b. II.
c. III.
d. IV.
e. V.
172. Which of the following must be true if average total cost is rising?
a. Average fixed cost must be rising.
b. Total fixed cost must be rising.
c. Average variable cost must be falling.
d. Marginal cost must be greater than average total cost.
STA: DISC: Costs of production TOP: Marginal Cost Relationships

a. The law of diminishing returns states that beyond some point the marginal product of a
variable resource continues to rise.
b. The marginal product is the change in total output by adding one additional unit of a fixed
input.
c. Fixed costs are costs which vary with the output level.
d. When marginal productivity of a variable input is falling then marginal costs of production
must be rising.
e. When marginal cost is below average cost, average cost rises; when marginal cost is above
average cost, average cost falls.
174. Which of the following is true at the point where diminishing returns set in?
a. Both marginal product and marginal cost are at a maximum.
b. Both marginal product and marginal cost are at a minimum.
c. Marginal product is at a maximum and marginal cost at a minimum.
d. Marginal product is at a minimum and marginal cost at a maximum.
175. If total cost is $1,000 when output is zero, and total cost is $1,200 when output is one, and total cost is
$1,500 when output is two, then which of the following is true?
a. Total fixed cost is $1,500.
b. The marginal cost of producing the first unit of output is $1,200.
c. The marginal cost of producing the second unit of output is $300.
d. The average fixed cost is $750 when two units of output are produced.
176. Which of the following best describes marginal cost?

a. The change in total cost when one additional unit of output is produced.
b. Total cost divided by the quantity of output produced.
c. Total variable cost divided by the quantity of output produced.
d. Total fixed cost divided by the quantity of output produced.
e. Costs that do not vary as output varies, and that must be paid even if output is zero.
177. In the long run, total fixed cost will:

a. remain constant. c. decrease.
b. increase. d. not exist by definition.
STA: DISC: Costs of production TOP: Long-Run Production Costs
178. For a typical firm, the long-run average total cost curve:
a. is tangent to the minimum point of each possible short-run average total cost curves.
b. is tangent to each possible short-run average total cost curve at one point.
c. intersects each possible short-run average total cost curve at two points.
d. passes through the minimum points of all possible short-run average total cost curves.
179. Each potential short-run average total cost curve is tangent to the long-run average cost curve at:
a. the level of output that minimizes short-run average total cost.
b. the minimum point of the average total cost curve.
c. the minimum point of the long-run average cost curve.
d. a single point on the short-run average total cost curve.
180. When the curve that envelops the series of possible short-run average total cost curves is horizontal,
this means that there are:
a. economies of scale.
b. diseconomies of scale.
c. constant returns to scale.
d. diminishing returns.
e. some fixed factors of production.
181. If the minimum points of all the possible short-run average total cost curves become successively
lower as quantity of output increases, then:
a. the firm should try to produce less output.
b. total fixed costs are constant along the LRAC curve.
c. there are economies of scale.
d. the firm is probably having significant management problems.
e. when output is doubled, total costs are doubled.
182. A downward-sloping portion of a long-run average total cost curve is the result of:
a. economies of scale. c. diminishing returns.
b. diseconomies of scale. d. the existence of fixed resources.
STA: DISC: Costs of production TOP: Different Scales of Production
183. In the long run, firms in many industries often experience a falling average total cost curve as a result
of:
a. gains through trade. c. economies of scale.
b. increasing marginal returns. d. lower fixed costs.
184. A large aircraft manufacturer, like Boeing, may have a cost advantage over a new smaller
manufacturer because of:
a. diseconomies of scale.
b. economies of scale.
c. diminishing returns to a fixed factor of production.
d. the principal agent problem is generally less severe for larger firms.
185. Long-run economies of scale exist when the long-run average cost curve:
a. rises. c. falls.
b. remains constant. d. does not exist.
186. Long-run economies of scale exist over the range of output for which the long-run average cost curve:
a. is constant. c. is rising.
b. is falling. d. does not exist.
187. Economies of scale are created by greater efficiency of capital and by:
a. longer chains of command in management.
b. better wages for labor.
c. smaller plant sizes.
d. increased specialization of labor.
188. Economies of scale imply that within some range one can increase the size of operation and:
a. total cost will decrease.
b. fixed cost will decrease.
c. average total cost will decrease.
d. average total cost will increase.
e. average variable cost will decrease.
189. The decreasing portion of a firm's long run average cost curve is attributable to:
a. diminishing returns to scale.
b. increasing marginal cost.
c. economies of scale.
d. diseconomies of scale.
e. constant returns to scale.
190. Economies of scale can be caused by all of the following except:

a. price discounts for large scale purchases.
b. labor specialization.
c. use of more productive equipment.
d. increases in the firm's average total cost.
e. more cost-efficient methods of marketing.
191. Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart
buys their goods in large quantities and therefore at cheaper prices. Wal-Mart also locates its stores
where land prices are low, usually outside of the community business district. Many customers shop at
Wal-Mart because of low prices and free parking. Local retailers, like the neighborhood drug store,
often go out of business because they lose customers. This story demonstrates that:
a. consumers are boycotting local retailers.
b. Wal-Mart engages in illegal acts of monopolization.
c. there are diseconomies of scale in retail sales.
d. there are economies of scale in retail sales.
e. Wal-Mart is managed by ruthless business people.
192. Which of the following is not a source of economies of scale?

a. Division and specialization of labor.
b. Increase in output.
c. More efficient use of capital.
d. All of the above.
e. Centralized marketing.
193. A car leasing company that expands its size by buying its competitors may run the risk of increasing
production cost per unit due to:
a. diseconomies of scale.
b. economies of scale.
c. diminishing returns.
d. greater use of large-volume purchases.
194. In the long run, a firm might experience rising per-unit cost due to:
a. economies of scale.
b. diseconomies of scale.
c. the law of supply.
d. the law of diminishing marginal returns.
195. Diseconomies of scale exist over the range of output for which the long-run average cost curve is:
a. constant. c. rising.
b. falling. d. subject to diminishing returns.
196. Diseconomies of scale exist over the range of output for which the long-run average cost curve is:
a. constant. c. rising.
b. falling. d. none of these.
197. If a firm enlarges its factory size and realizes higher average (per unit) costs of production then:
a. it has experienced economies of scale.
b. it has experienced diseconomies of scale.
c. it has experienced constant returns to scale.
d. the long-run average cost curve slopes downward.
e. the long-run average cost curve shifts upward.
198. The primary source of scale diseconomies appears to be:

a. a firm's inability to acquire quality resources.
b. too little demand for the firm's product.
c. consumers who resist dealing with large firms.
d. division of labor.
e. the organizational difficulties of managing an ever larger enterprise.
199. Diseconomies of scale exist for all of the following reasons except:
a. bureaucratic inefficiencies.
b. management problems.
c. failures in information flows.
d. firm size is too small.
e. organizational problems.
200. Suppose there is a technology to produce Grendels such that there are diseconomies of scale after the
first unit is produced. There are both fixed (a physical plant called a lair) and variable (food that grows
in lairs) costs of production. Which statement is true?
a. b and d.
b. Producing multiple units increases the average fixed cost.
c. There will be no more than one firm in this industry.
d. It is cheaper to make five Grendels by buying five lairs and producing one Grendel in each
lair than it is to produce five Grendels in one lair.
e. This is an impossible situation.
201. If a firm's long-run average cost curve is rising, it is experiencing:
a. a constant return to scale. c. diseconomies of scale.
b. economies of scale. d. none of these.
202. Constant returns to scale exist over the range of output for which the long-run average cost is:
a. neither rising or falling. c. rising.
b. falling. d. none of these.
203. Constant returns to scale cause the long-run average cost curve to be:
a. horizontal. c. upward-sloping.
b. vertical. d. downward-sloping.
Exhibit 7-14 Cost curves
204. In Exhibit 7-14, economies of scale only exist for output levels up to:
a. 1,000.
b. 2,000.
c. 3,000.
d. 4,000.
e. greater than 4,000.
205. In Exhibit 7-14, constant returns to scale only exist for output levels between:
a. 0 and 1,000.
b. 1,000 and 2,000.
c. 2,000 and 3,000.
d. 3,000 and 4,000.
e. 4,000 and infinity.
206. In Exhibit 7-14, a firm finds that it is experiencing numerous managerial and information problems.
The position of its short- and long-run average total cost curves suggest that it is operating at a
production level:
a. between 0 and 1,000.
b. between 1,000 and 2,000.
c. between 2,000 and 3,000.
d. between 3,000 and 4,000.
e. where it should shut down immediately.
207. In Exhibit 7-14, the U-shaped LRAC curve indicates which of the following as quantity increases from
0 to 4,000?
a. Diseconomies of scale; constant returns to scale; economies of scale.
b. Constant returns to scale; economies of scale; diseconomies of scale.
c. Economies of scale; constant returns to scale; diseconomies of scale.
d. Diseconomies of scale; economies of scale; constant returns to scale.
e. Economies of scale; diseconomies of scale; constant returns to scale.
Exhibit 7-15 Long-run average cost
208. In Exhibit 7-15, short-run average total cost, short-run marginal cost, and long-run average cost are all
equal at which level of output per week?
a. 500 units. c. 1,500 units.
b. 1,000 units. d. 2,000 units.
209. If the firm represented in Exhibit 7-15 is operating with a plant whose size corresponds to short-run
average total cost curve A, the level of output that would minimize its short-run average total cost is:
a. 500 units per week. c. 1,500 units per week.
b. 1,000 units per week. d. 2,000 units per week.
210. Given the short-run average total cost curves in Exhibit 7-15, what level of output per week minimizes
average total cost?
a. 500 units. c. 1,500 units.
b. 1,000 units. d. 2,000 units.
211. In Exhibit 7-15, economies of scale exist up to:

a. 500 units of output per week. c. 1,500 units of output.
b. 1,000 units of output per week. d. 2,000 units of output.
212. In Exhibit 7-15, diseconomies of scale are shown in the range of:
a. 0 to 500 units per week. c. 1,000 to 2,000 units per week.
b. 500 to 1,000 units per week. d. zero per week.
Exhibit 7-16 Long-run average cost curves

213. In Exhibit 7-16, which firm's long-run average cost curve experiences constant returns to scale?
a. Firm A. c. Firm C.
b. Firm B. d. Firms A and C.
214. Which firm in Exhibit 7-16 displays a long-run average cost curve with diseconomies beginning at
2,000 units of output per week?
b. Firm B. d. Firms A and C.
215. Which firm in Exhibit 7-16 displays a long-run average cost curve with economies of scale throughout
the range of output shown?
b. Firm B. d. Firms A and B.
Exhibit 7-17 Long-run average cost curve

216. In Exhibit 7-17, short-run average total cost, short-run marginal cost, and long-run average cost are all
equal at which level of output per week?
a. Q1 units. c. Q3 units.
b. Q2 units. d. Q4 units.
217. If the firm represented in Exhibit 7-17 is operating with a plant whose size corresponds to short-run
average total cost curve A, the level of output that would minimize its short-run average total cost is:
a. Q1 units per week. c. Q3 units per week.
b. Q2 units per week. d. Q4 units per week.
218. Given the short-run average total cost curves in Exhibit 7-17, what level of output per week minimizes
average total cost?
a. Q1 units. c. Q3 units.
b. Q2 units. d. Q4 units.
219. In Exhibit 7-17, economies of scale exist up to:

a. Q1 units of output per week. c. Q3 units of output.
b. Q2 units of output per week. d. Q4 units of output.
TRUE/FALSE
1. Economic profit equals accounting profit minus implicit costs.

ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
2. If economic profit is zero, then a normal profit is earned.

3. Suppose a firm earns an accounting profit. This means the firm also earns a positive economic profit.
ANS: F PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

4. Economic profit equals accounting profit minus implicit costs.

5. Suppose Joe Rich owns his own company and does not pay himself a salary. This means the salary he
could have earned in alternative employment is considered an implicit cost for the firm.

6. If marginal product is at a maximum, then marginal cost is at a minimum.
ANS: T PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic

7. In the short-run, total fixed costs always exceed total variable costs.
ANS: F PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic

8. In the long run, all costs are fixed costs.

9. All of a firm's inputs are considered to be variable in the long run.

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

11. A firm's marginal product curve slopes downward throughout its length.
ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

12. The marginal product curve rises when the marginal cost curve rises.

13. For most firms, the costs of energy and raw materials will be total fixed costs.

14. A firm's average fixed cost curve can never be U-shaped, even if its other average cost curves are
U-shaped.

15. The vertical distance between the average total cost curve and the average variable cost curve at any
given output level equals average fixed cost at that particular output level.
ANS: T PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

16. If a firm's average variable cost curve is rising, its marginal cost must exceed its average variable cost.

17. Marginal cost is calculated by dividing the change in total cost by the change in total output.

18. If the total variable cost of producing 5 units of output is $10 and the total variable cost of producing 6
units is $15, the marginal cost of producing a sixth unit is $5.

19. The marginal product curve rises when the marginal cost curve rises.

20. The law of diminishing returns causes a firm's short-run marginal cost curve to be s-shaped.

21. If a firm's marginal cost exceeds its average cost, then its average cost must be rising.

22. Each short-run average total cost curve is tangent at its lowest point to the long-run average cost curve.

23. Economies of scale exist over all ranges of output for which short-run average total cost exceeds
long-run average cost.

24. If a firm increases output and its average total cost rises, then the firm is experiencing economies of
scale.

25. The primary cause of diseconomies of scale is scarcity of machinery and capital.

26. Diseconomies of scale cause the short-run marginal cost curve to slope upwards.

27. Diseconomies of scale occur when high levels of output are produced in a short period of time.
ESSAY
1. What is the difference between economic and accounting profit? Why is a distinction between them
important?
ANS:
An economic profit includes implicit costs and accounting profit does not. A distinction between them
is important because an accounting profit is a relative amount of money. Some amount of accounting
profit may or may not be a sufficient amount of profit to keep an entrepreneur in his/her present line of
business. Whereas an economic profit, if it is earned, is always good news because it is an amount of
profit above the entrepreneur's opportunity cost.
PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic

2. Distinguish the short run from the long run. Generally, what causes costs of production to vary with
output in the short run? What generally causes costs of production to vary in the long run?
ANS:
The short run is any amount of time in which at least one resource is fixed. In the short run there are
some fixed costs. In the long run, nothing is fixed. There are no fixed costs in the long run. Costs of
production vary with output in the short run because of increasing and diminishing returns. Costs of
production vary with output in the long run because of economies and diseconomies of scale.

3. What are the seven short run cost calculations? How are they related?
ANS:
The seven short run cost calculations are: TC, TFC, TVC, MC, ATC, AFC, and AVC. Note that TC =
TFC + TVC; ATC = AFC + AVC. MC = (Change in TC) / (Change in Q) = (Change in TVC) /
(Change in Q); ATC = TC/Q; AVC = TVC/Q; AFC = TFC/Q.

4. Distinguish economies and diseconomies of scale. How can the extent to which economies and
diseconomies of scale explain the size and number of real world firms in an industry?
ANS:
Economies of scale exist when a firm increases its scale of operations and lower per unit costs of
production are experienced. Diseconomies of scale exist when a firm increases its scale of operations
and higher per unit costs of production are experienced. If economies of scale are extensive we would
expect to find a small number of very large firms operating within the industry. Conversely, if
diseconomies of scale set in relatively early, we would expect to find a large number of relatively
small firms operating within the industry.

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Pea Ridge is in the extreme north-west part of Arkansas, situated
in Benton, the corner county of the State. A range of hills—a spur of
the Ozark Mountains—sweeps from Missouri into this corner of the
State, and from thence branches into the Indian Territory, where the
section known as the Boston Mountains is found. Sugar Creek, where
the battle commenced, is situated close to Bentonville, the capital of
the county on the north. Pea Ridge is also adjacent to the same town,
and forms a part of the mountain range just described.
At this time it became evident to the several commanders that a
general contest was inevitable. A decisive combat was, in fact,
desired by both of the opposing forces. General McIntosh, confident
of success with his large army, under the leadership of Price,
McCulloch, Pike and Van Dorn, believed that he could strike a fatal
blow at the Union cause west of the Mississippi, by the annihilation
of the Federal army. General Curtis, on the other hand, was not less
anxious for a contest, even at the fearful disadvantage offered him.
With his keen discrimination, he saw the glorious results of a defeat
of the four rebel chieftains united against him. Should he prove
successful in the almost desperate encounter, it would prove the
destruction of the rebel forces in the two States, and leave a clear
field for future operation. Should he fail—but no true general even
thinks of that after he has made up his mind to fight.
At this time his force was divided into three divisions, as follows:
General Sigel’s Division.—First Brigade, Colonel Gruesel.—36th
Illinois, Col. Gruesel; 25th Illinois, Col. Coler; 44th Illinois, Col.
Knoblesdorf. Second Brigade, Col. Osterhaus.—12th Missouri, Col.
Osterhaus; 17th Missouri, Col. Hassendeufel; 2d Missouri, Col.
Schaeffer. Third Brigade, Col. Asboth.—3d Missouri, Col. Friala;
Illinois Cavalry, (one battalion,) Capt’s. Jenks and Smith; 3d Iowa
Cavalry.
General Davis’s Division.—First Brigade, Col. Benton.—8th
Indiana, Col. Benton; 18th Indiana, Col. Patterson; 22d Indiana, Col.
Hendricks. Second Brigade, Col. Julius White.—59th Illinois, Col.
Fredericks; 37th Illinois, Col. Burnes; Missouri Cavalry, (battalion,)
Maj. Broen; 2d Ohio, battery, Col. Catin; 1st Missouri Light Artillery,
one battery.
General Carr’s Division.—First Brigade, Col. Dodge.—4th Iowa,
Lieut.-Col. Galighan; 35th Illinois, Col. G. A. Smith; 24th Missouri,
(battalion,) Maj. Weston. Second Brigade, Col. Vandenier.—9th
Iowa, Lieut.-Col. Herron; 25th Missouri, Col. Phelps; 9th Iowa,
battery, Capt. Hayden; 1st Iowa, battery, Lieut. David. Third
Brigade, Col. Ellis.—1st Missouri Cavalry, Col. Ellis; 3d Illinois, ——;
6th Missouri, battalion, Maj. Wright.
Opposed to the forces of General Curtis, just enumerated, the rebel
army had fully ten thousand Missouri State troops under Major-
General Price; six to eight regiments of Arkansas troops under
General McCulloch; six regiments of Texans under General Earl Van
Dorn; three thousand Cherokee, Choctaw and Seminole Indians
under Colonel Albert Pike, all under command of Major-General
McIntosh. Besides those mentioned, there were two or three
regiments of Louisiana troops and companies of Mississippi and
Alabama regiments under the command of their respective colonels,
majors and captains.
Upon this occasion the Union troops were well armed and
equipped, while the weapons of the rebels varied in character and
effectiveness. Many of them were excellent, embracing Minie rifles,
Enfield muskets, and good United States muskets. The larger
portion, however, were hunting rifles and shot-guns. The rebels had
eighty-two field pieces, twenty of which were rifled, while General
Curtis’ forces had but forty-nine; nearly all, however, were of
superior manufacture and destructive power.
On the evening of the 5th of March, the scouts of General Sigel
brought in word, that large forces of the rebel cavalry were on the
Pineville road at Osage Spring. Sigel was evidently in a bad position,
and on the following day he commenced moving back, his pickets
being driven in before he could get his wagon train in motion. His
route lay a few miles to the north, when he struck the bed of Sugar
creek, along which he travelled six miles. It was there the battle first
began. General Sigel with two battalions of Missouri infantry and a
squadron of cavalry formed the rear guard of his division, and were
delayed by the train which moved slowly along the rough roads. He
determined not to desert a single wagon to the rebels, although by so
doing, he could have easily reached the main body of the Union
forces.
The enemy made his appearance with 4,000 cavalry, at about 10
o’clock in the morning, a few miles out of Bentonville, and
immediately commenced the attack by a desperate charge. Sigel had
with him nearly 1,000 men. He sent forward two hundred infantry to
prevent the enemy cutting him off, and with the remainder he
received the whole of the vast army. He ordered his men to stand
firm and take good aim. The teams were put upon good pace, and the
enemy came rushing on in several lines. The horsemen on the flanks
and infantry in the rear awaited their approach until within about
200 yards, when they delivered a terrible volley of Minie balls into
the rebel ranks, which had the effect of throwing them into
temporary confusion. In a few minutes the leaders succeeded in
getting them into something like order. This time they came up to
close quarters. The same volley, succeeded by a second and a third,
greeted them. The enemy came on in crowds, and their cavalry
closed all around the little band, notwithstanding horses and riders
were falling thick and fast before its steady fire. General Sigel rode
undismayed along the whole line, inspiring his men. Some of the
cavalry on the flank had succeeded in getting across the road so
cutting the train in two. Here the enemy set up a shout of triumph.
It was short lived. In a minute more the bayonets of the Union
men had done their work, leaving hundreds of dead and wounded in
their tracks. The enemy was driven off, broken and dismayed. Galled
and maddened at the repulse, his scattered ranks could be seen
reforming to renew the attack.
The column was yet seven miles from the encampment. A dispatch
had been sent forward to General Curtis, explaining the position and
asking for assistance. It was hardly possible that the messenger could
have been captured. The enemy was advancing on the road and along
the ridges enclosing the stream. At about two o’clock a second attack
was made and desperately carried forward. The rebel cavalry spurred
their horses right on to the irresistible bayonets, delivering their load
of buckshot from their miscellaneous guns, and then brandishing
huge knives, which every one of them carried in place of sabres.
They surrounded the rear guard a second time, and for a few
minutes friend could hardly be distinguished from foe. The dense
smoke enveloped the whole of the combatants, and for some time it
was doubtful whether any of the Union band survived. The faithful
Germans never faltered for a moment. Their gallant leader struck
down a dozen who clamored for his life, and hewed his way through
a line of enemies to rejoin his command. The bayonets proved the
invincibility of the Union infantry against horsemen. The foe retired
a second time, and for an hour could not be induced to return. By
this time the advance, which had been constantly skirmishing with
the rebel cavalry, announced reinforcements in sight, and a faint
cheer went up, which was re-echoed by the troops from the camp. A
third and last attempt was made to capture the train. It failed, and
the enemy withdrew about 3½ o’clock.
General Sigel reached camp at 4½ o’clock, to receive the
congratulations of the whole army. His loss in the entire march was
estimated at 60 killed and 200 wounded, many of whom fell into the
hands of the rebels, it being impossible to bring them off.
The night of the 6th of March was passed in a state of suspense.
The houses in the valley had been appropriated as hospitals, and a
strong force posted on the hill on the south bank of the creek under
Colonel Carr, with General Sigel occupying the ridge on the north
side, while Colonel Davis occupied the centre, near the crossing. The
enemy, it was supposed, would naturally make the attack from the
Fayetteville road, and the baggage trains and hospitals had been
placed to the rear of the lines. During the night the manifestations
showed conclusively that he was approaching in great strength by the
road leading from Bentonville to Keatsville, thus getting to the flank
and rear. This road lies, after crossing Sugar creek, over a high table
land, called Pea Ridge. It extends from the stage road westwardly
some eight miles along the right bank of Sugar creek.
The ridge is covered with a growth of stunted oaks, and a
sprinkling of larger growth, called post-oaks. Three or four farms
were located upon the ridge two miles west of the road, to which the
name of Leetown has been given. It was near these farms that the
principal part of the fighting took place.
Thursday night, March 6th, was clear and cold; the reflection of
the enemy’s camp-fires could be seen stretching along for miles to
the right. On the Fayetteville road the Union pickets reported
nothing unusual. Several Union field pieces had been placed in
position, sweeping that road. The men slept on their arms, that is
each man lay on the ground in fine of battle with his musket by him,
ready for action at a moment’s notice. A strong picket guard was
extended for a quarter of a mile beyond the lines, and the Federal
soldiers awaited the break of day with premonitions that the
morrow’s sun would be the last which would rise for many of them.
ATTACK OF COLONEL OSTERHAUS’ MISSOURI CAVALRY ON

THE TEXAS RANGERS.
The evidences were very clear on the morning, that a strong force
had been posted on the Fayetteville road, thus standing directly
between the Union forces and their next line at Cassville, completely
cutting off communication with the outer world. The line of battle
was changed. Colonel Carr was sent back along the Fayetteville road,
two miles, with his right resting on Cross Timber Hollows at the head
of Beaver Creek, a tributary of Big Sugar Creek, immediately facing
the rebel batteries on the side of Elkhorn tavern. General Davis, with
the central division, was posted on the top of Pea Ridge, leaving Sigel
to cover the camp with his left wing resting on Sugar Creek. In this
position things stood when the rebels opened the fight with artillery
on the extreme right, from a very advantageous position at the
distance of a mile. The Federal batteries soon replied. The fight raged
in front of Colonel Carr’s division from 10 to 11 o’clock, when another
battery was ordered up to his support, for he was hotly pressed. The
left, as yet, had not been menaced. General Sigel felt confident that
the enemy might be expected to make a descent from the south side,
and it was deemed indispensable to keep the men ready for action in
that direction. Colonel Osterhaus was sent with his brigade in the
morning along the high land in the direction of Leestown, where he
intercepted the reinforcements of the enemy. This was one of the
most spirited and successful attacks of the battle, and resulted in a
complete diversion of the enemy from the overpowered forces of
Colonel Carr, on the Fayetteville road.
The Union cavalry penetrated along the main ridge beyond the
road by which the enemy had advanced, and were on the point of
seizing some of his wagons when a brigade of rebel cavalry and
infantry attacked them. Then followed one of the most sanguinary
contests that ever has been recorded between cavalry. Most of the
fighting was done at close quarters. Pistols and carbines having been
exhausted, sabres were brought into requisition. The rattle of steel
against steel, sabres against muskets and cutlasses, was terrific. The
rebels were Texas Rangers, and fought like demons. The slaughter
was awful. The Missouri cavalry cleaving right and left, left winrows
of dead and wounded in front of their horses. The enemy fell back in
dismay, the valorous Federals pursued them along the road for a
mile, when they opened a battery upon the mass of friends and foes,
plowing through them with solid shot and shell. Colonel Osterhaus
had succeeded in his attempt, and retired, bringing off his dead and
wounded in safety.
Meantime the contest was raging furiously on the extreme right on
both sides of the Fayetteville road. The First and Second Iowa
batteries, planted at an eminence overlooking the declivity in the
road, were plying shrapnel and canister into the ranks of the enemy,
who appeared in immense numbers on all sides, as if to surround the
right of the Union line, and thus completely environ them. In order
to defeat this object, a severe struggle took place for the occupancy of
a rising knoll on the east side of the road. The enemy gained upon
the Federals, and it was not until the men were half stricken down
that they yielded the point. Word had been passed back to General
Curtis that the enemy was pressing severely on the right flank, and
the Union forces were sent back. The section of a battery had been
left on the hill, and the enemy was now turning it upon the Union
lines. Colonel Carr, fearing that no reinforcements would arrive,
collected his strength, and mustered his entire force for a last
desperate charge, resolved to retake the position or perish in the
attempt. A heavy firing on the centre, and a cheer from the advancing
division of General Davis favored the effort. The troops marched up
to the battery amid a storm of shot from their own guns, and, after a
desperate hand-to-hand struggle, finally drove the enemy down the
ravine, in hopeless confusion. Colonel Carr received a wound in the
arm, but remained on the field.
During the night a sharp fire of artillery had been kept up upon the
left, and from two Missouri batteries on the centre, under Colonels
Patterson and Fiala. The enemy had made frequent attempts to gain
a position nearer the Union lines, and succeeded in getting so near
that the balls from their guns would strike near the tents and
baggage wagons. Towards night the enemy made an attempt to break
the Federal centre, but the timely support of a brigade of General
Sigel and a section of artillery promptly repulsed them. The night
closed with skirmishing and sharpshooting.
Occasionally the report of a musket could be heard during the
night, then a second, and an interval of silence. But few of the
soldiers slept. The communication with Springfield was cut off, and
Union messengers were falling into the enemy’s hands. As yet the
Federals had gained little advantage, and with desperate fighting had
only succeeded in repelling equally desperate attacks. Nothing but
hard fighting could avail them. Filled with these thoughts, the
soldiers solemnly gave their wives and children into each others’
charge, no one being aware who the survivor would be. Young men
talked in low voices of the loved ones at home, fathers, mothers,
sisters, sweethearts—and messages full of tender pathos were left to
be given after death. It was indeed, an anxious, mournful night.
The fight on the morning of the 8th, commenced by a salute from
the Union batteries on the extreme right. General Asboth, with a
regiment of infantry and a battalion of cavalry, had been sent to the
support of Colonel Carr, while General Sigel was moving up to a
fresh position on the ridge near Leestown. The enemy was
unprepared for this sudden and vigorous assault, and fled after a
short and spiritless resistance. They ran, leaving four pieces of
artillery behind them, and a fifth was afterwards taken in the pursuit.
The enemy was being turned by the left flank, General Sigel pushing
boldly after him. An hour or more was spent in contesting the
possession of a spot on Cox’s farm, when the rebels fell back to the
hollow.
A pause ensued, when the right, under General Davis, moved
along, and after a sharp contest of half an hour, in which the rebel
General McIntosh, was killed, the enemy began to retreat to Cross
Timber Hollow. The whole line was then ordered forward. The rebels
attempted to make a stand on the next hill, but the Union artillery
played upon them with disastrous effect. The enemy on the road near
the tavern refused to be moved. General Asboth, with a large column
of cavalry, was sent round to outflank them, when another desperate
conflict ensued between the Union cavalry and the Texas and
Louisiana troops. The Indians also took part in it, but beyond shrieks
and yells their influence was not felt. The batteries of the enemy fired
chains, spikes, pieces of bar-iron, and solid shot. It was evident that
his canister and shell were exhausted. Now the Federal batteries on
the right were ordered to the front. Taking a position within five
hundred yards, they poured in an incessant shower of grape, canister
and shell for twenty minutes. A general bayonet charge was then
ordered, and the Union line rushed down the valley and ascended the
opposite hill. A cheer went up from them as they delivered volley
after volley into the enemy’s ranks. The rebels cheered also; and it
was evident that they doubled the Union forces, from the
overwhelming shout that rang up from their lines.
At this time General Sigel was carrying everything before him on
the extreme left. The foe was running, and the Union men catching
the inspiration of the moment rushed on in pursuit. Before one
o’clock the rout was complete.
To the westward of Pea Ridge there was a wide strip of timber
which had been blown down by a hurricane the previous summer.
Across this swarth of uprooted trees, which were larger and denser in
the low lands, the enemy’s cavalry and artillery attempted to retreat,
and were mercilessly pelted with shell. The panic was overwhelming,
and their defeat decided. Muskets, clothing, and shot-guns were
strewn along the woods. Horses roamed about in wild droves. The
cries of the cavalry men and the yells of the Indians, with the groans
of the wounded, surpassed all description. Caissons overturned,
wagons broken down, and horses dying and dead strewed the whole
road. Thirteen cannon, 6 and 12-pounders, were taken in all, besides
thousands of shot-guns and loads of provisions.
It was in this position of affairs that General Price with a
detachment of his army had, in his attempt to make a stand on the
Keatsville road, caught the contagion of his fleeing comrades, and
betook himself to the northward, Colonel Carr and General Asboth
keeping closely after him.
This was probably one of the most hotly contested battles of the
war, when every thing is taken into consideration, and it is worthy of
remark that few officers were wounded, although at all times
exposed even to recklessness. For three days the fighting continued,
the men only resting during the darkness, to renew the attack with
the first light, and even then were but partially allowed to slumber.
Pea Ridge will never be forgotten while we have a history.
The Federal loss in killed, wounded and missing, was 1,351. That of
the rebels about 2,000. Generals McIntosh and McCulloch were
killed.
BATTLE OF NEWBERN, N. C.
March 14, 1862.
Newbern, in Craven county, N. C., is situated at the confluence of

the Trent and Neuse rivers, which flow into Pamlico Sound, from
whence, through Ocrakoke Inlet, communication is had with the
Atlantic. It is eighty miles N. E. of Wilmington, and one hundred from
Raleigh; has a population of six thousand, and considerable
commerce.
BATTLE OF NEWBERN, N. C., MARCH 14, 1862.
The importance of Newbern was early appreciated by the rebels,

who adopted vigorous means for its defence. The approaches to the
city on the south bank of the Neuse, the only available route of an
assailant, were defended by formidable earthworks, and, as a
protection against gunboats, a line of vessels, backed by a chevaux-
de-frise, was placed in the channel, commanded by heavy batteries.
The expedition designed to operate against Newbern sailed from
Hatteras Inlet on the 12th of March, the land forces under General
Burnside, and the naval forces under Commander Rowan. The land
forces consisted of the brigades of Generals Foster, Reno and Parke,
much reduced, however, by regiments left behind at Roanoke Island
and Hatteras Inlet, and not exceeding eight thousand men. They
were supported by McCook’s battery of boat howitzers, three
companies of marines, and a detachment of the Union Coast Guard.
The distance from Hatteras Inlet to the entrance of Pamlico Sound is
twenty-three miles; thence, through the sound and up the river to
Newbern, about fifty miles.
Early on the morning of the 12th the entire force started for
Newbern, and that night anchored off the mouth of Slocum’s Creek,
some eighteen miles from Newbern, where General Burnside decided
to make a landing. The landing commenced by seven o’clock the next
morning, under cover of the naval fleet, and was effected with the
greatest enthusiasm by the troops. Many, too impatient for the boats,
leaped into the water, and waded waist deep to the shore; then, after
a toilsome march through the mud, the head of the column moved
within a mile and a half of the enemy’s stronghold, at eight P. M., a
distance of twelve miles from the point of landing, where they
bivouacked for the night, the rear of the column coming up with the
boat howitzers about three o’clock next morning. This detention was
caused by the shocking condition of the roads, consequent upon the
heavy rain that had fallen during the day and the whole of the night.
It required a whole regiment to drag the eight pieces which had been
landed from the navy and the vessels of General Burnside.
By signals agreed upon, the naval vessels, with the armed vessels
carrying the land forces, were informed of each others’ progress, and
were thereby enabled to assist the march by shelling the road in
advance.
At daylight on the morning of the 14th, an advance of the entire
division was ordered. General Foster’s brigade marched up the main
country road to attack the enemy’s left; General Reno up the
railroad, to attack their right, and General Parke was to follow
General Foster and attack the enemy in front, with instructions to
support either or both brigades.
On the morning of the 14th, at seven o’clock, the column of
General Reno, on the railroad, was the first to move, the Twenty-first
Massachusetts, as the right flank regiment, leading the advance. The
regiment had not proceeded far before it saw a train of cars standing
on the track. In front of the locomotive, on a platform car, a large
rifled gun was placed in position to rake the road. The men advanced
at the double-quick and poured in a volley with such accuracy of aim
that the enemy, who had already rolled the gun and caisson off the
car, did not stop to unload the carriage, but ran into the
intrenchments, and the train was backed towards Newbern, leaving
the platform car standing on the track. The Twenty-first had got
within short range of the enemy’s earthworks, but now fell back, and,
forming line of battle in the woods, opened fire. The Fifty-first New
York was moved to the left and ordered forward to engage a series of
redans, the Ninth New Jersey occupying the left of the line, and the
Fifty-first Pennsylvania held in reserve, in rear of the Ninth, a little to
the left.
Meanwhile General Foster’s brigade had advanced up the main
road to the clearing, when the Twenty-fourth Massachusetts was sent
into the woods to the right of the road, and opening a heavy fire on
the enemy commenced the action of the first brigade. The Twenty-
seventh was sent to their left to support them, and, news being
received that the enemy were trying to outflank the Federals on the
right, the Twenty-fifth was sent to resist the movement. The Twenty-
third being moved to the front next in line of battle, opened fire upon
the enemy, which was replied to by very heavy volleys, and a
cannonade from a park of field pieces behind the breastwork. The
very first cannon-shot killed Lieutenant-Colonel Henry Merritt of the
Twenty-third. General Foster’s line of battle was completed by
moving the Tenth Connecticut to the extreme left, a position which
they were compelled to maintain under the most discouraging
disadvantages. The ground was very wet, swampy, and cut up into
gulleys and ravines, which opened toward the enemy, offering no
protection from his fire.
General Parke’s brigade, which had followed the first brigade up
the main road, was placed in line between the Tenth Connecticut and
Twenty-first Massachusetts, the Fourth Rhode Island holding the
right of line, the Eighth Connecticut the next place, the Fifth Rhode
Island, next, and the Eleventh Connecticut on the left. The line of
battle was now complete, the Twenty-fourth Massachusetts on the
extreme right, and the Fifty-first Pennsylvania at the extreme left,
and extended more than a mile. The naval battery was in position at
the centre, with Captain Bennett’s and Captain Dayton’s rifles
alongside, and were all worked with the greatest gallantry
throughout the day.
The fire of the enemy was now telling so severely upon the Twenty-
first that Colonel Clark ordered the regiment forward on a double-
quick, and at the head of four companies entered the breastworks
from the railroad track in company with General Reno, and the
colors were taken into a frame house which stood near, and waved
from the roof. The men at the nearest guns seeing the movement,
abandoned their pieces and fled, and the four companies being
formed again in line of battle, charged down the line upon the
battery. Colonel Clark mounted the first gun, waved the colors, and
had nearly reached the second when two full regiments of the enemy
emerged from a grove of young pines and advanced upon his men,
who, seeing that they were likely to be captured or cut to pieces,
leaped over the parapet and retired to their position in the woods.
On being driven from the battery, Colonel Clark informed Colonel
Rodman of the Fourth Rhode Island of the state of affairs inside, and
that officer decided upon a charge with the bayonet. His regiment
had been firing, like the rest of the line, by companies and otherwise.
When the command was given to charge, they advanced at the
double-quick directly up to the battery, firing as they ran, and
entered at the right flank, between a brick-yard and the end of the
parapet. With a steady line of cold, sharp steel, the Rhode Islanders
bore down upon the enemy, and, routing them, captured the whole
battery, with its two flags, and planted the stars and stripes upon the
parapet. The Eighth Connecticut, Fifth Rhode Island and Eleventh
Connecticut, coming up to their support, the rebels fled with
precipitation, and left the Union troops in undisputed possession.
General Reno’s brigade were still attacking the redans and small
battery on the right of the railroad, and the firing was very heavy.
The Twenty-first was engaging the battery of five small pieces, the
Fifty-first New York the first of the redans, and the Ninth New Jersey
the next two. The Fifty-first Pennsylvania was still in reserve, drawn
up in a hollow or ravine, from which they would move up to the top
of the eminence, discharge their volleys, and retire to such cover as
the inequalities of ground might furnish. General Reno, becoming
impatient at the loss of life which his regiments, particularly that of
Colonel Ferrero, was suffering, urged that regiment to advance as
soon as possible; so Lieutenant-Colonel Potter took a color over the
brow of the hill into another hollow, and from thence charged up an
acclivity and over brushwood and abattis into the redan. The Fifty-
first Pennsylvania was ordered up to participate in the decisive
charge of the whole brigade upon the line of redans, and passing
through the Fifty-first New York, as it was lying on the ground after
having exhausted all its ammunition, came under the heaviest fire,
and without flinching or wavering moved to its place, and rushed,
with the other regiments, upon the defences of the enemy. The
movement of Colonel Hartranft’s regiment was executed splendidly,
and proved a complete success.
The movement of the Third brigade was supported by a charge of
the Fourth Rhode Island from the captured main battery upon the
works which were being assailed, and the enemy, already
demoralized by the breaking of their centre, fell back before the
grand charge upon the left and front of their position, and fled in
confusion. On the extreme right the brave Twenty-fourth and its
supporting regiments had been advancing inch by inch, standing up
against the enemy’s musketry and cannonade without faltering, and
almost at the time when the Fourth Rhode Island charged in at the
right flank, the colors of the Twenty-fourth were planted on the
parapet at the left, and the whole of the First brigade poured into the
fortification. The whole line of earthworks was now in Union hands,
and the cheers of the Federal men, from one end of it to the other,
broke out with fresh spirit as each new regimental color was unfurled
on the parapet.
The approaches to Newbern were defended by a line of water
batteries or forts communicating with extensive field fortifications.
The lower fort is about six miles from the city; the next
communicates with the unfinished batteries and breastworks; the
others were distributed about equal distances along the shore. The
line of fortifications attacked and stormed was some three miles in
extent. At the river bank a hexagonal fort, or water battery, with a
large bomb-proof and thirteen heavy guns, commanded in addition,
the river approach. By means of pivot carriages the cannon could be
turned upon an advancing land force, and even sweep the line of
breastworks itself in case the garrison should be driven out. From the
fort to the centre of the line a well-made breastwork extended, with a
deep moat in front. At the centre was a bastion and sallyport, after
which the breastwork was continued to the railroad embankment,
which was used as a means of defence. Beyond the railroad, but
completely protecting the right flank of the main battery, was a small
battery, of irregular shape, communicating with a system of thirteen
redans, or rifle-pits, each pair of which were constructed on a knoll
rising between ravines, the conformation of the ground furnishing in
itself a most admirable basis for field-works. The locality was chosen
with rare judgment, and all that engineering skill could accomplish
was done to make these fortifications an impassable barrier to hostile
troops. From the railroad westward, a swift, deep brook, with muddy
bottom, and a wide border of swamp on both sides, ran in front of
the redans; and on the side of approach, the timber was so very
heavy, that, when felled, it presented a barricade which would seem
enough of itself to stop any army of French Zouaves. On the brow of
each mound, brushwood had been piled with regularity to the height
of four feet in front of the redans, rendering it extremely difficult to
take them by assault from the front. The redans were constructed of
heavy timbers, covered with at least five feet thickness of earth, while
an interior ditch say three feet in depth gave complete protection to
the garrison from volleys of musketry, or discharges of grape and
canister shot.
Inside, the battery presented a most revolting appearance. Beneath
the parapet, in the ditch, on the open ground under the gun-
carriages, lay the dead and mangled bodies of rebels. On every side
lay heaped the bleeding carcasses of artillery horses, killed by musket
or rifle balls. Here and there a broken gun-carriage, or caisson, lay
tilted into the mud. Stores of all kinds were scattered over the ground
or trampled in the black mire. Muskets with broken stocks or bent
barrels were thrown about in every direction. It was a scene of wild
confusion on all sides.
It was not known with certainty that there was no other battery
erected formidable as this still further up the road; but thinking it
best to increase the panic which had seized upon the enemy, General
Burnside ordered an advance. General Foster immediately sent
forward the Twenty-fourth, Twenty-fifth, Twenty-seventh, and the
whole brigade by the straight road. In the charge on the rifle-pit
about one hundred rebels, among them the Colonel of the Thirty-
third North Carolina and a number of commissioned officers, were
captured. When these were secured in an old brick-kiln and placed
under guard, Generals Reno and Parke moved their brigades after
General Foster’s, the former going before up the railroad track and
the latter by the country road. The march to Newbern was
unobstructed, the enemy having apparently all he could do to get
away on any terms, and early in the afternoon the Union forces
reached the bank of the river immediately opposite the city. Long
before they came in sight of it, however, dense volumes of smoke
were seen rising in that direction, and the suspicion that the place
had been fired by the enemy was fully realized when its steeples and
houses came in view. Newbern had been fired in seven different
places, and if the wind had not mercifully subsided there would
hardly have been a house left standing by nightfall. The splendid
railroad bridge, seven hundred yards long, had been set on fire by a
scow load of turpentine which had drifted against it, and the great
structure was wrapped in one grand sheet of flame. Preparations
were made by General Foster to move his forces across the river. This
was accomplished by the assistance of a light draft stern-wheel
steamer which had been captured with four or five small side-wheel
boats by the naval gunboats, which by this time were quite up to the
city wharves.
To the eastward of the city a very large rebel camp, with barracks
and tents, was found deserted and taken possession of. Stragglers
from different regiments wandered through the city and committed
some acts of depredation; but were speedily checked by a strong
Provost-Guard appointed by the commanding General.
The forts taken were Fort Dixie, 4 guns; 1 100-pound rifle and 3
32-pounders. Fort Thompson, 12 guns; 2 100-pound rifle and 10 32-
pounders. Fort Ellis, 8 guns; 1 8-inch columbiad, 1 100-pounder,
under casemate, and 6 32-pounders. Fort Lane, 4 guns; 2 100-
pounders and 2 32-pounders. Two forts, at the foot of the city,
mounting 2 guns each. Three guns on a car and two lying on the
wharf.
The Federal loss was about 100 killed and 450 wounded. That of
the rebels, who were protected by their fortifications, about 220 in
killed and wounded. About 300 prisoners were taken by Lieutenant
Hammond of the gunboat Hetzel, who was serving one of the guns of
McCook’s battery.
NAVAL OPERATIONS.
The naval operations under Commander Rowan, were conducted
with great skill and success. The navigation was impeded in every
possible way by the rebels. Sunken vessels closed the main channels
at all accessible points, while torpedoes, chevaux-de-frise and fire-
rafts threatened destruction on every side. Captain Rowan hoisted
his pennant on Thursday morning on board the steamer Delaware.
At half-past eight A. M., the gunboats commenced shelling the woods
in the vicinity of the proposed place of landing, taking stations at
intervals along the shore to protect the advance of the troops. At
half-past nine A. M., the troops commenced landing, and at the same
time six naval boat howitzers with their crews, under the command
of Lieutenant R. S. McCook, of the Stars and Stripes, were put on
shore to assist the attacks. The army commenced to move up the
beach at half-past eleven A. M., the debarkation of troops still
continuing. In the mean time the vessels were slowly moving up,
throwing shell in the woods beyond. At a quarter-past four, P. M., the
first of the enemy’s batteries opened fire on the foremost of the
gunboats, which was promptly returned at long range. The troops
were now all disembarked, and steadily advancing without
resistance. At sundown the firing was discontinued, and the fleet
came to anchor in position to cover the troops on shore. At half-past
six, A. M., Friday, 14th instant, there was heard a continuous firing of
heavy guns and musketry inland, and immediately the fleet
commenced throwing shells in advance of the position supposed to
be held by the Union troops. The fleet steadily moved up, and
gradually closed in towards the batteries. The lower fortifications
were discovered to have been abandoned by the enemy.
A boat was dispatched to it and the stars and stripes planted on the
ramparts. As they advanced, the upper batteries opened fire. The fire
was returned with effect, the magazine of one exploding. Having
proceeded in an extended line as far as the obstructions in the river
would permit, the signal was made to follow the movements of the
flag-ship, and the whole fleet advanced in order, concentrating their
fire on Fort Thompson, mounting thirteen guns, on which rested the
enemy’s land defences. The army, having driven them out of these
defences, the forts were abandoned. Several of the vessels were
slightly injured in passing the barricades of piles and torpedoes
which had been placed in the river. The upper battery having been
evacuated on the appearance of the combined forces, it was
abandoned and subsequently blew up. They now steamed rapidly up
to the city. Upon the approach of the Federals, several points of the
city were fired by the enemy, where stores had been accumulated.
Two small batteries, constructed of cotton bales, and mounting two
guns each, were also fired by them. Two small steamers were
captured, another having been burned. A large raft, composed of
barrels of pitch and bales of cotton, which had been prepared to send
down upon the fleet, was fired, and floating against the railroad
bridge, set it on fire and destroyed it. In addition to the prizes, a
quantity of pitch, tar, and a gunboat, and another vessel on the
stocks, several vessels afloat, and an immense quantity of arms and
munitions of war, fell into their hands.
Washington, Morehead City and Beaufort were in turn occupied by
General Burnside’s forces without resistance, and the inhabitants
generally evinced a friendly spirit. The commandant of Fort Macon
having refused to surrender, preparations were immediately made to
invest and capture that place.
THE CAPTURE OF NEW MADRID, MO.
March 14, 1862.
Shortly before the evacuation of Columbus, General Pope, with a

large force, was dispatched by the commander of the Department to
besiege the town of New Madrid, on the Mississippi river, in the
extreme south-eastern section of Missouri. This place had been
strongly fortified by the rebels, and garrisoned by five regiments of
infantry and several companies of artillery. The town is about seven
miles below Island No. 10, but owing to a bend in the river, lies
nearly west. Its possession was deemed important, in order to
advance the Union forces down the Mississippi.

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Survey of Economics 8th Edition Tucker Test Bank

1. Which of the following is an explicit cost?

2. Explicit costs would include:

3. Unlike implicit costs, explicit costs:

5. Which of the following is not an explicit cost?

9. Which of the following would be considered an implicit cost?

11. Payments to nonowners of a firm are called:

13. Implicit costs are best thought of as:

14. Which of the following is an implicit cost of going to college?

19. Implicit costs are:

23. Economic profit is:

28. Economic profit is:

30. Economic profit equals accounting profit minus:

36. Normal profit is defined as a(n):

37. Economists say that a firm has a normal profit when:

38. Which of the following is an example of a fixed input?

39. Variable inputs are defined as any resource that:

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

43. The short run is a period of time:

47. The long run is a period of:

48. The long run is a period of time:

49. The long run is a planning period:

50. In the long run, total fixed cost:

51. Which of the following statements is true?

53. Which of the following best describes a production function?

62. Marginal product measures the change in:

Exhibit 7-1 Production of pizza data

Exhibit 7-2 Cost schedule for pizza production

Labor Energy Materials

75. Which of the following is an implication of the law of diminishing returns?

79. Applying a price of labor to the law of diminishing returns generates:

Exhibit 7-3 A marginal product curve

Exhibit 7-4 A marginal product curve

Exhibit 7-5 Workers and output data

93. Which of the following is true about average fixed cost?

94. Fixed costs are best defined as:

98. The total fixed cost curve:

101. Which of the following statements is true?

102. Which of the following is considered to be a fixed cost of operating an automobile?

106. Which of the following best describes average variable cost?

113. The total cost curve is the sum of the:

117. The average fixed cost of a firm equal:

120. Use the table below to answer the following question.

Units of Total Fixed Total Variable

What is the average total cost at an output level of four units?

123. Marginal cost is best defined as:

130. The marginal cost is the:

134. When marginal cost is below average total cost:

137. In Exhibit 7-6, the total fixed cost is: