Question 1

Suppose Larry's Lariats produces lassos in a factory,and uses nine feet of rope to make each lasso.The rope is put into a machine that automatically cuts it to the right length,then seals the ends to prevent fraying.The rope is then hand tied,dipped,and wound before being placed in a packaging machine to prepare it for retail sale.If Larry were to decrease the production of lassos,which of the following is true regarding the company's costs?

Accepted Answer

A)   The variable costs of rope would drop to zero.
B)   The fixed cost of the rope cutting machine would stay the same.
C)   The fixed cost of the employee's wages would stay the same.
D)   None of these is true.E) All of the above
F) A) and B)

Question 2

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

Accepted Answer

A)   $64,000
B)   $72,000
C)   $4,000
D)   $60,000E) A) and B)
F) A) and D)

Question 3

Average fixed costs:

Accepted Answer

A)   always trend downward as output increases.
B)   always trend upward as output increases.
C)   are a constant, regardless of quantity of output.
D)   are a vertical line.E) A) and B)
F) C) and D)

Question 4

If the marginal cost of hiring another worker to produce sandwiches is $4 per sandwich,and sandwiches sell for $5 each,then:

Accepted Answer

A)   another worker should be hired.
B)   another worker should not be hired.
C)   two more workers should be hired.
D)   Cannot answer this without more information.E) C) and D)
F) B) and D)

Question 5

Assume the table shown is for a hat factory,and shows the total production of hats given various numbers of employees.Adding a seventh employee adds:

Accepted Answer

A)   255 hats to total production.
B)   25 hats to total production.
C)   20 hats to total production.
D)   275 hats to total production.E) A) and B)
F) All of the above

Question 6

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

Accepted Answer

A)   Yes, because he's earning an accounting profit of $35,000.
B)   No, because he's earning an economic profit of $6,000.
C)   Yes, because his accounting profit is larger than his economic profit.
D)   No, because his accounting profit is larger than his economic profit.E) A) and B)
F) A) and C) B

Question 7

When a firm doubles its inputs,its output:

Accepted Answer

A)   will double.
B)   will less than double.
C)   will more than double.
D)   All of these are possible.E) All of the above
F) None of the above

Question 8

When a firm is on the flat portion of its long-run ATC curve,

Accepted Answer

A)   it is experiencing constant returns to scale.
B)   changing its firm size will not affect its total cost per unit.
C)   it is capturing the lowest average total costs possible in the industry.
D)   All of these are possibly true.E) B) and D)
F) B) and C)

Question 9

Diseconomies of scale refers to when in the long run:

Accepted Answer

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

Question 10

Marginal product is represented by:

Accepted Answer

A)   the x-axis of the total production curve.
B)   total product minus the total cost.
C)   the slope of the total production curve.
D)   total revenue minus total cost.E) All of the above
F) B) and D)

Question 11

The short run:

Accepted Answer

A)   is typically defined by the process cycle of the particular firm.
B)   is defined by the presence of a fixed cost for a firm.
C)   is generally less than a year.
D)   All of these are true.E) A) and B)
F) B) and D)

Question 12

When a firm can achieve economies of scale by expanding,its long-run ATC curve:

Accepted Answer

A)   slopes downward.
B)   slopes upward.
C)   is flat.
D)   Any of these is possible.E) A) and D)
F) A) and C)

Question 13

Economies of scale refers to when:

Accepted Answer

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

Question 14

A sandwich shop has six months left on its lease to its storefront and equipment and currently employs three workers who work on an on-call basis,with no contract.Ingredients are bought daily.How long is the long run for the sandwich shop?

Accepted Answer

A)   A year, the typical term for long run, as there is nothing unusual about this business
B)   The long and short run are the same in this case
C)   Six months, after which all inputs listed become variable
D)   None of these is true.E) A) and C)
F) A) and D)

Question 15

Average total cost:

Accepted Answer

A)   is the sum of average fixed costs and average variable costs.
B)   is total cost divided by total output.
C)   is minimized when it equals marginal cost.
D)   All of these are true.E) B) and C)
F) A) and B)

Question 16

Returns to scale describes the long-run relationship between:

Accepted Answer

A)   the quantity of input and the average variable cost.
B)   the quantity of output and the average variable cost.
C)   the quantity of input and the average total cost.
D)   the quantity of output and average total cost.E) A) and B)
F) A) and C)

Question 17

Tina withdraws $20,000 from her money market account to start up her own house cleaning business.Over that time,the account would have earned 3 percent interest.In order to properly account for all costs of her business,Tina must not forget:

Accepted Answer

A)   the opportunity cost of $2,600.
B)   the opportunity cost of $600.
C)   the fixed cost of $20,600.
D)   the fixed cost of $20,600 and the opportunity cost of $600.E) B) and D)
F) B) and C)

Question 18

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

Accepted Answer

A)   $78,000
B)   $142,000
C)   $138,000
D)   $150,000E) A) and D)
F) C) and D) B

Question 19

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

Accepted Answer

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

Question 20

If a firm decreases production,then its:

Accepted Answer

A)   variable costs decrease.
B)   fixed costs decrease.
C)   total costs stay the same.
D)   None of these is true.E) A) and B)
F) A) and C)

Exam 12: The Costs of Production

Correct Answer
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Correct Answer
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Average fixed costs:

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If the marginal cost of hiring another worker to produce sandwiches is $4 per sandwich,and sandwiches sell for $5 each,then:

Correct Answer
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Assume the table shown is for a hat factory,and shows the total production of hats given various numbers of employees.Adding a seventh employee adds:

Correct Answer
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Correct Answer
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B

When a firm doubles its inputs,its output:

Correct Answer
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When a firm is on the flat portion of its long-run ATC curve,

Correct Answer
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Diseconomies of scale refers to when in the long run:

Correct Answer
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Marginal product is represented by:

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The short run:

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When a firm can achieve economies of scale by expanding,its long-run ATC curve:

Correct Answer
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Economies of scale refers to when:

Correct Answer
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A sandwich shop has six months left on its lease to its storefront and equipment and currently employs three workers who work on an on-call basis,with no contract.Ingredients are bought daily.How long is the long run for the sandwich shop?

Correct Answer
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Average total cost:

Correct Answer
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Returns to scale describes the long-run relationship between:

Correct Answer
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Tina withdraws $20,000 from her money market account to start up her own house cleaning business.Over that time,the account would have earned 3 percent interest.In order to properly account for all costs of her business,Tina must not forget:

Correct Answer
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Correct Answer
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B

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

Correct Answer
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B

If a firm decreases production,then its:

Correct Answer
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Exam 12: The Costs of Production

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Average fixed costs:

Correct AnswerverifiedShow Answer

If the marginal cost of hiring another worker to produce sandwiches is $4 per sandwich,and sandwiches sell for $5 each,then:

Correct AnswerverifiedShow Answer

Assume the table shown is for a hat factory,and shows the total production of hats given various numbers of employees.Adding a seventh employee adds:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

When a firm doubles its inputs,its output:

Correct AnswerverifiedShow Answer

When a firm is on the flat portion of its long-run ATC curve,

Correct AnswerverifiedShow Answer

Diseconomies of scale refers to when in the long run:

Correct AnswerverifiedShow Answer

Marginal product is represented by:

Correct AnswerverifiedShow Answer

The short run:

Correct AnswerverifiedShow Answer

When a firm can achieve economies of scale by expanding,its long-run ATC curve:

Correct AnswerverifiedShow Answer

Economies of scale refers to when:

Correct AnswerverifiedShow Answer

A sandwich shop has six months left on its lease to its storefront and equipment and currently employs three workers who work on an on-call basis,with no contract.Ingredients are bought daily.How long is the long run for the sandwich shop?

Correct AnswerverifiedShow Answer

Average total cost:

Correct AnswerverifiedShow Answer

Returns to scale describes the long-run relationship between:

Correct AnswerverifiedShow Answer

Tina withdraws $20,000 from her money market account to start up her own house cleaning business.Over that time,the account would have earned 3 percent interest.In order to properly account for all costs of her business,Tina must not forget:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

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

Correct AnswerverifiedB

If a firm decreases production,then its:

Correct AnswerverifiedShow Answer

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B

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B

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B

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