Question 1

Which of the following would increase a firm's average total costs?

Accepted Answer

A)  economies of scale
B)  an increase in input prices
C)  an improvement in technology
D)  an increase in demand for the firm's product

Question 2

The law of diminishing returns states that

Accepted Answer

A)  as we continually add variable factors to a fixed amount of other resources, output eventually increases at a decreasing rate.
B)  as we increase plant size, costs must diminish.
C)  the additional output generated by the employment of additional units of a variable input eventually decline.
D)  both a and c are correct.

Question 3

Whenever average total cost exceeds marginal cost,

Accepted Answer

A)  average total cost is rising.
B)  average total cost is falling.
C)  marginal cost is rising.
D)  marginal cost is falling.

Question 4

If most firms in an industry are earning a 7 percent rate of return on their assets, but your business is earning 9 percent, your rate of economic profit is

Accepted Answer

A)  minus 2 percent.
B)  2 percent.
C)  9 percent.
D)  16 percent.

Question 5

Which of the following reflects diseconomies of scale?

Accepted Answer

A)  Marginal product decreases as output increases.
B)  Short-run marginal cost increases as output increases.
C)  Long-run marginal cost increases as output increases.
D)  Short-run average cost increases as output increases.
E)  As output doubles, long-run total cost more than doubles.

Question 6

If fixed cost at quantity (Q)  = 100 is $130, then

Accepted Answer

A)  fixed cost at Q = 0 is $0.
B)  fixed cost at Q = 0 is less than $130.
C)  fixed cost at Q = 200 is $260.
D)  fixed cost at Q = 200 is $130.
E)  it is impossible to calculate fixed costs at any other quantity.

Question 7

If a firm increases its output and finds that its average total cost decreases as a result, this implies that

Accepted Answer

A)  marginal cost exceeds average total cost.
B)  the cost of producing an additional unit of output is more than the average total cost.
C)  average fixed cost is increasing.
D)  average total cost exceeds marginal cost.

Question 8

Which of the following is not an advantage of the corporate structure over proprietorship and partnership forms of business organization?

Accepted Answer

A)  Stockholders in the corporation have limited liability, whereas proprietors or partners have unlimited liability.
B)  Ownership rights of a corporation may be transferred more easily.
C)  Large investment funds are more easily attracted by the corporation.
D)  Corporations are less likely to suffer from the principal-agent problem.

Question 9

Which of the following will become smaller and smaller as the firm expands output?

Accepted Answer

A)  average total cost
B)  average fixed cost
C)  marginal cost
D)  total fixed cost

Question 10

Figure 8-8
 
-In Figure 8-8, which output minimizes per-unit cost?

Accepted Answer

A)  4
B)  6
C)  7
D)  8

Question 11

Which of the following explains most accurately why the firm's short-run marginal cost curve will eventually rise?

Accepted Answer

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.

Question 12

If a firm produces nothing, which of the following costs will be zero?

Accepted Answer

A)  total cost
B)  fixed cost
C)  opportunity cost
D)  variable cost

Question 13

Figure 8-4
 
-According to Figure 8-4, at what output would a properly constructed marginal cost curve cross the ATC curve?

Accepted Answer

A)  2
B)  3
C)  4
D)  5

Question 14

If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then

Accepted Answer

A)  the law of diminishing returns is in effect.
B)  long-run average costs must be decreasing.
C)  the firm is experiencing diseconomies of scale.
D)  the firm should increase production.
E)  the firm is experiencing constant returns to scale.

Question 15

The optimal plant size depends on

Accepted Answer

A)  whether the firm confronts diminishing returns on its fixed factors of production.
B)  the output the firm expects to produce.
C)  whether the plant uses capital-intensive or labor-intensive production techniques.
D)  the preferences of the individual firm owners.

Question 16

The increase in total output that results from a unit increase in the employment of a variable input is equal to the input's

Accepted Answer

A)  total product.
B)  marginal product.
C)  average product.
D)  marginal cost.

Question 17

The upward-sloping portion of a long-run average total cost curve is the result of

Accepted Answer

A)  economies of scale.
B)  diseconomies of scale.
C)  diminishing returns.
D)  the existence of fixed resources.

Question 18

Normal profit is a term for

Accepted Answer

A)  explicit profit.
B)  the competitive rate of return.
C)  the accounting profit forgone.
D)  pure economic profit.

Question 19

Figure 8-14
The following question(s)  refer(s)  to the below cost curves for one very small firm in a large market.
 
-Refer to Figure 8-14. If the firm produces 10 units of output, its average total cost is

Accepted Answer

A)  6.
B)  7.
C)  12.
D)  13.

Question 20

The table below presents the schedule of total costs for Sharpie's Pencil Company. 
Beyond 110,000 units, the per-unit marginal cost of producing an additional 10,000 pencils is

Accepted Answer

A)  5 cents.
B)  5.5 cents.
C)  6 cents.
D)  7 cents.

Exam 8: A: Costs and the Supply of Goods

Which of the following would increase a firm's average total costs?

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If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then

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The law of diminishing returns states that

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Which of the following reflects diseconomies of scale?

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If a firm increases its output and finds that its average total cost decreases as a result, this implies that

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Figure 8-4 -According to Figure 8-4, at what output would a properly constructed marginal cost curve cross the ATC curve?

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Figure 8-8 -In Figure 8-8, which output minimizes per-unit cost?

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The increase in total output that results from a unit increase in the employment of a variable input is equal to the input's

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The table below presents the schedule of total costs for Sharpie's Pencil Company. Beyond 110,000 units, the per-unit marginal cost of producing an additional 10,000 pencils is

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Normal profit is a term for

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If a firm produces nothing, which of the following costs will be zero?

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If fixed cost at quantity (Q) = 100 is $130, then

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Which of the following is not an advantage of the corporate structure over proprietorship and partnership forms of business organization?

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If most firms in an industry are earning a 7 percent rate of return on their assets, but your business is earning 9 percent, your rate of economic profit is

Correct AnswerverifiedShow Answer

Whenever average total cost exceeds marginal cost,

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Figure 8-14 The following question(s) refer(s) to the below cost curves for one very small firm in a large market. -Refer to Figure 8-14. If the firm produces 10 units of output, its average total cost is

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Which of the following explains most accurately why the firm's short-run marginal cost curve will eventually rise?

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The upward-sloping portion of a long-run average total cost curve is the result of

Correct AnswerverifiedShow Answer

Which of the following will become smaller and smaller as the firm expands output?

Correct AnswerverifiedShow Answer

The optimal plant size depends on

Correct AnswerverifiedShow Answer

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