Question 1

The vertical distance between the total cost and the total variable cost curves differs by an amount that

Accepted Answer

A)  initially increases, but then decreases, as output increases.
B)  is constant as output changes.
C)  decreases as output increases.
D)  increases as output increases.E) B) and D)
F) B) and C)

Question 2

Minimum efficient scale varies by industry.

Accepted Answer

A) True 
 B)False

Question 3

Diseconomies of scale arise primarily because

Accepted Answer

A)  the short-run average total cost curve rises when marginal product is increasing.
B)  of the difficulties involved in managing and coordinating a large business enterprise.
C)  firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available.
D)  beyond some point, marginal product declines as additional units of a variable resource (labor)  are added to a fixed resource (capital) .E) A) and B)
F) A) and C)

Question 4

The law of diminishing returns implies that

Accepted Answer

A)  the more hours you spend studying, the less you will know.
B)  your understanding will be increased by decreasing your marginal study time.
C)  eventually, the more hours you spend studying per day, the less you will learn with each added hour.
D)  the more hours you spend studying per day, the more you will learn with each added hour.E) C) and D)
F) A) and B)

Question 5

Marginal cost is the

Accepted Answer

A)  rate of change in total fixed cost that results from producing one more unit of output.
B)  change in total cost that results from producing one more unit of output.
C)  change in average variable cost that results from producing one more unit of output.
D)  change in average total cost that results from producing one more unit of output.E) B) and D)
F) C) and D)

Question 6

The total product curve graphically shows how much

Accepted Answer

A)  profit the firm will earn at various levels of production.
B)  output the firm will produce at various prices of its product.
C)  the costs of production will be as the firm changes its total production level.
D)  output the firm can produce with various quantities of its variable input.E) A) and B)
F) A) and C)

Question 7

Marginal product of labor refers to the

Accepted Answer

A)  last unit of output produced by labor at the end of each period.
B)  increase in output resulting from employing one more unit of labor.
C)  total output divided by the number of labor employed.
D)  smallest unit of the output produced by labor.E) C) and D)
F) A) and C)

Question 8

When marginal cost is increasing,

Accepted Answer

A)  total cost must be increasing.
B)  average total cost must be increasing.
C)  average total cost must be decreasing.
D)  average fixed cost might be increasing or decreasing.E) B) and D)
F) A) and B)

Question 9

The following is cost information for the Creamy Crisp Donut Company.Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000
Utilities (electricity, water, disposal)  costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's
Forgone interest on personal funds used to finance the business = $6,000
Creamy Crisp's accounting profit is

Accepted Answer

A)  $150,000.
B)  $380,000.
C)  $230,000.
D)  $294,000.E) None of the above
F) C) and D)

Question 10

A major factor explaining economies of scale is increased specialization of labor.

Accepted Answer

A) True 
 B)False

Question 11

An industry is expected to expand if firms in the industry are earning positive

Accepted Answer

A)  normal profits.
B)  economic profits.
C)  accounting profits.
D)  total revenues.E) A) and B)
F) All of the above

Question 12

When average costs are increasing, marginal costs are greater than average costs.

Accepted Answer

A) True 
 B)False

Question 13

A natural monopoly exists when

Accepted Answer

A)  unit costs are minimized by having one firm produce an industry's entire output.
B)  several formerly competing producers merge to become the only firm in an industry.
C)  short-run average total cost curves are tangent to long-run average total cost curves.
D)  minimum efficient scale is attained at a small level of output.E) A) and B)
F) All of the above

Question 14

At an output level of 50 units per day, a firm has average total costs of $60 and average variable costs of $35.Its total fixed costs are

Accepted Answer

A)  $925.
B)  $1,250.
C)  $1,750.
D)  $3,000.E) None of the above
F) A) and D)

Question 15

Which of the following would be an implicit cost for a firm? The cost

Accepted Answer

A)  of worker wages and salaries for the firm.
B)  paid for leasing a building for the firm.
C)  paid for production supplies for the firm.
D)  of wages forgone by the owner of the firm.E) B) and D)
F) C) and D)

Question 16

Average fixed costs diminish continuously as output increases.

Accepted Answer

A) True 
 B)False

Question 17

Implicit and explicit costs are different in that

Accepted Answer

A)  explicit costs are opportunity costs; implicit costs are not.
B)  implicit costs are opportunity costs; explicit costs are not.
C)  the latter refer to nonexpenditure costs and the former to monetary payments.
D)  the former refer to nonexpenditure costs and the latter to monetary payments.E) B) and C)
F) None of the above

Question 18

The vertical distance between the TC curve and TVC curve is equal to

Accepted Answer

A)  ATC.
B)  AVC.
C)  TFC.
D)  MC.E) A) and B)
F) A) and C)

Question 19

Round Things, Inc.'s production process exhibits economies of scale.Currently their long-run average cost is $12/unit.If Round Things doubles its use of all inputs, its new long-run average total cost will be

Accepted Answer

A)  $12/unit/
B)  less than $12/unit.
C)  greater than $24/unit/
D)  greater than $12/unit but less than $24/unit/E) A) and C)
F) C) and D)

Question 20

Implicit costs are

Accepted Answer

A)  the same as economic costs.
B)  comprised entirely of actual expenses paid by the firm for its inputs.
C)  opportunity costs of self-employed resources.
D)  always greater than accounting costs.E) A) and C)
F) B) and D)

Exam 9: Businesses and the Costs of Production

The total product curve graphically shows how much

Correct Answer
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Diseconomies of scale arise primarily because

Correct Answer
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When marginal cost is increasing,

Correct Answer
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Implicit costs are

Correct Answer
verified

The vertical distance between the TC curve and TVC curve is equal to

Correct Answer
verified

The law of diminishing returns implies that

Correct Answer
verified

A natural monopoly exists when

Correct Answer
verified

Round Things, Inc.'s production process exhibits economies of scale.Currently their long-run average cost is $12/unit.If Round Things doubles its use of all inputs, its new long-run average total cost will be

Correct Answer
verified

When average costs are increasing, marginal costs are greater than average costs.

Correct Answer
verified

The vertical distance between the total cost and the total variable cost curves differs by an amount that

Correct Answer
verified

An industry is expected to expand if firms in the industry are earning positive

Correct Answer
verified

A major factor explaining economies of scale is increased specialization of labor.

Correct Answer
verified

Minimum efficient scale varies by industry.

Correct Answer
verified

At an output level of 50 units per day, a firm has average total costs of $60 and average variable costs of $35.Its total fixed costs are

Correct Answer
verified

Average fixed costs diminish continuously as output increases.

Correct Answer
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Correct Answer
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Marginal cost is the

Correct Answer
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Which of the following would be an implicit cost for a firm? The cost

Correct Answer
verified

Implicit and explicit costs are different in that

Correct Answer
verified

Marginal product of labor refers to the

Correct Answer
verified

Exam 9: Businesses and the Costs of Production

The total product curve graphically shows how much

Correct AnswerverifiedShow Answer

Diseconomies of scale arise primarily because

Correct AnswerverifiedShow Answer

When marginal cost is increasing,

Correct AnswerverifiedShow Answer

Implicit costs are

Correct AnswerverifiedShow Answer

The vertical distance between the TC curve and TVC curve is equal to

Correct AnswerverifiedShow Answer

The law of diminishing returns implies that

Correct AnswerverifiedShow Answer

A natural monopoly exists when

Correct AnswerverifiedShow Answer

Round Things, Inc.'s production process exhibits economies of scale.Currently their long-run average cost is $12/unit.If Round Things doubles its use of all inputs, its new long-run average total cost will be

Correct AnswerverifiedShow Answer

When average costs are increasing, marginal costs are greater than average costs.

Correct AnswerverifiedShow Answer

The vertical distance between the total cost and the total variable cost curves differs by an amount that

Correct AnswerverifiedShow Answer

An industry is expected to expand if firms in the industry are earning positive

Correct AnswerverifiedShow Answer

A major factor explaining economies of scale is increased specialization of labor.

Correct AnswerverifiedShow Answer

Minimum efficient scale varies by industry.

Correct AnswerverifiedShow Answer

At an output level of 50 units per day, a firm has average total costs of $60 and average variable costs of $35.Its total fixed costs are

Correct AnswerverifiedShow Answer

Average fixed costs diminish continuously as output increases.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Marginal cost is the

Correct AnswerverifiedShow Answer

Which of the following would be an implicit cost for a firm? The cost

Correct AnswerverifiedShow Answer

Implicit and explicit costs are different in that

Correct AnswerverifiedShow Answer

Marginal product of labor refers to the

Correct AnswerverifiedShow Answer

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