Question 1

The following statements about the "sunk cost fallacy" are true, except

Accepted Answer

A)  it's the tendency to drag past costs into current marginal cost-benefit calculations.
B)  it comes from a desire to "get one's money's worth" out of a past expenditure.
C)  it refers to the fact that average fixed costs are not a major part of production costs.
D)  it could lead one to "throw good money after bad."E) A) and C)
F) B) and D)

Question 2

Refer to the provided table. The marginal cost of producing the sixth unit of output is

Accepted Answer

A)  $10.
B)  $16.33.
C)  $25.
D)  $98.E) None of the above
F) A) and B)

Question 3

The question is based on the following table, which provides information on the production of a product that requires one variable input.  With the addition of the second unit of input, the marginal product is

Accepted Answer

A)  15 and the average product is 20.
B)  25 and the average product is 10.
C)  15 and the average product is 10.
D)  10 and the average product is 15.E) All of the above
F) None of the above

Question 4

Answer the question on the basis of the following cost data.  The average total cost of 5 units of output is

Accepted Answer

A)  $69.
B)  $3.
C)  $78.
D)  $10.E) A) and B)
F) B) and D)

Question 5

In the diagram, total product will be at a maximum at

Accepted Answer

A)  Q₃ units of labor.
B)  Q₂ units of labor.
C)  Q₁ units of labor.
D)  some point that cannot be determined with the provided information.E) B) and C)
F) A) and D)

Question 6

The question is based on the following table, which provides information on the production of a product that requires one variable input.  Marginal product is zero when the total product is

Accepted Answer

A)  0.
B)  5.
C)  56.
D)  58.E) All of the above
F) B) and C)

Question 7

The long run is characterized by

Accepted Answer

A)  the relevance of the law of diminishing returns.
B)  at least one fixed input.
C)  insufficient time for firms to enter or leave the industry.
D)  the ability of the firm to change its plant size.E) All of the above
F) B) and C)

Question 8

A firm doubles the quantity of all resources it employs and, as a result, output doubles. Which of the following is correct?

Accepted Answer

A)  There are increasing returns to scale.
B)  The long-run average total cost curve is flat.
C)  The law of diminishing returns is proven wrong.
D)  The example is for the short-run rather than the long-run.E) B) and C)
F) A) and C)

Question 9

The ABC Corporation decreases all of its inputs by 18 percent and finds that its output falls by 18 percent. This means that initially it was producing

Accepted Answer

A)  in the range of constant returns to scale.
B)  in the range of economies of scale.
C)  where AP is less than MP.
D)  in the range of diseconomies of scale.E) A) and C)
F) C) and D)

Question 10

At an output of 1,000 units per year, a firm's variable costs are $5,000 and its average fixed costs are $3. Its total costs per year are

Accepted Answer

A)  $10,000.
B)  $8,000.
C)  $6,000.
D)  $5,000.E) A) and C)
F) All of the above

Question 11

If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then

Accepted Answer

A)  it is encountering diseconomies of scale.
B)  it is encountering economies of scale.
C)  it is encountering constant returns to scale.
D)  the firm's long-run ATC curve will be rising.E) A) and D)
F) A) and C)

Question 12

The phrase "don't cry over spilt milk" could be rephrased in economic terms by saying,

Accepted Answer

A)  "Sunk costs are irrelevant to a decision."
B)  "Real resources have opportunity costs."
C)  "There will always be fixed costs of production."
D)  "The law of diminishing returns applies to everything."E) B) and C)
F) None of the above

Question 13

Answer the question on the basis of the following cost data.  The total cost of four units of output is

Accepted Answer

A)  $260.
B)  $77.5.
C)  $310.
D)  $215.E) A) and B)
F) A) and C)

Question 14

Refer to the provided table. The average total cost of producing 20 units of output is

Accepted Answer

A)  $4.00.
B)  $4.50.
C)  $6.50.
D)  $8.50.E) C) and D)
F) B) and C)

Question 15

If the short-run average variable costs of production for a firm are rising, then this indicates that

Accepted Answer

A)  average total costs are at a maximum.
B)  average fixed costs are constant.
C)  marginal costs are above average variable costs.
D)  average variable costs are below average fixed costs.E) A) and D)
F) A) and C)

Question 16

"The bigger the volume, the lower the cost, and we pass these savings on to you" is a familiar slogan. Its idea is illustrated in which of the provided graphs?

Accepted Answer

A)  graph A
B)  graph B
C)  graph C
D)  graph DE) All of the above
F) C) and D)

Question 17

The diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects

Accepted Answer

A)  increasing returns, followed by diminishing returns.
B)  economies of scale, followed by diseconomies of scale.
C)  constant costs.
D)  increasing costs, followed by decreasing costs.E) C) and D)
F) None of the above

Question 18

Which of the following statements is correct?

Accepted Answer

A)  Average total cost is the difference between average variable cost and average fixed cost.
B)  Marginal cost measures the cost per unit of output associated with any level of production.
C)  When marginal product rises, marginal cost must also rise.
D)  Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.E) B) and D)
F) None of the above

Question 19

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

Accepted Answer

A)  None are either implicit or explicit costs.
B)  All are opportunity costs.
C)  All are implicit costs.
D)  All are explicit costs.E) A) and C)
F) A) and D)

Question 20

Refer to the provided table. The average variable cost of producing 35 units of output is

Accepted Answer

A)  $6.00.
B)  $7.43.
C)  $4.57.
D)  $1.43.E) B) and D)
F) None of the above

Exam 9: Businesses and the Costs of Production

A firm doubles the quantity of all resources it employs and, as a result, output doubles. Which of the following is correct?

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"The bigger the volume, the lower the cost, and we pass these savings on to you" is a familiar slogan. Its idea is illustrated in which of the provided graphs?

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If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then

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The ABC Corporation decreases all of its inputs by 18 percent and finds that its output falls by 18 percent. This means that initially it was producing

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The long run is characterized by

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Answer the question on the basis of the following cost data. The average total cost of 5 units of output is

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Refer to the provided table. The average total cost of producing 20 units of output is

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Answer the question on the basis of the following cost data. The total cost of four units of output is

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The phrase "don't cry over spilt milk" could be rephrased in economic terms by saying,

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The diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects

Correct AnswerverifiedShow Answer

At an output of 1,000 units per year, a firm's variable costs are $5,000 and its average fixed costs are $3. Its total costs per year are

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The question is based on the following table, which provides information on the production of a product that requires one variable input. With the addition of the second unit of input, the marginal product is

Correct AnswerverifiedShow Answer

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

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Which of the following statements is correct?

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Refer to the provided table. The marginal cost of producing the sixth unit of output is

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If the short-run average variable costs of production for a firm are rising, then this indicates that

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Refer to the provided table. The average variable cost of producing 35 units of output is

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In the diagram, total product will be at a maximum at

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The question is based on the following table, which provides information on the production of a product that requires one variable input. Marginal product is zero when the total product is

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The following statements about the "sunk cost fallacy" are true, except

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