Question 1

Cy recently went into the business of producing and selling cardboard boxes.For this business,which of the following is most likely to be a fixed cost?

Accepted Answer

A)   fire insurance
B)   labor costs
C)   paper costs
D)   adhesive costs
E)   b, c, and d are equally likely to be fixed costsF) A) and E)
G) B) and C)

Question 2

Economies of scale are said to exist when inputs are increased by some percentage and output increases by a(n) __________ percentage,causing unit costs to __________.

Accepted Answer

A)   greater; fall
B)   smaller; fall
C)   greater; rise
D)   smaller; rise
E)   equal; fallF) C) and D)
G) B) and D)

Question 3

Economies of scale are exclusively a long-run phenomenon,while the law of diminishing returns applies to both the short-run and to the long-run.

Accepted Answer

A) True 
 B)False

Question 4

Exhibit 22-1
 
-Refer to Exhibit 22-1.Diminishing marginal returns set in with the addition of which unit of the variable input?

Accepted Answer

A)   the fourth
B)   the fifth
C)   the sixth
D)   the second
E)   the thirdF) C) and E)
G) C) and D)

Question 5

Which of the following is true of average fixed costs in the long run?

Accepted Answer

A)   Average fixed costs start increasing.
B)   Average fixed costs are above average variable costs.
C)   There are no fixed costs in the long run, so there are also no average fixed costs in the long run.
D)   Average fixed costs intersect the marginal cost curve at its minimum point.
E)   a and b.F) A) and B)
G) A) and C)

Question 6

Exhibit 22-11
 
-Refer to Exhibit 22-11.Marginal cost of the first unit of output is

Accepted Answer

A)   $170.
B)   $150.
C)   $70.
D)   $90.83.E) All of the above
F) C) and D)

Question 7

Which of the following is true?

Accepted Answer

A)   At some high level of output, AFC is zero.
B)   If the law of diminishing marginal returns did not exist, then the marginal cost curve would not have an upward-sloping portion.
C)   The marginal cost curve cuts the average variable cost curve at its midpoint.
D)   There are no fixed costs in the short run.
E)   none of the aboveF) None of the above
G) A) and E)

Question 8

Noble Prizewinner Ronald Coase argued that firms exist in order to reduce transaction costs.

Accepted Answer

A) True 
 B)False

Question 9

If the marginal cost (MC) curve is rising and is above the average fixed cost (AFC) curve,then

Accepted Answer

A)   the AFC curve is rising.
B)   the AFC curve is declining, although the MC curve has nothing to do with this.
C)   the AFC curve is at its minimum point.
D)   the AFC curve is at its maximum point.
E)   Nothing certain can be said about the AFC curve without additional information.F) A) and D)
G) B) and E)

Question 10

__________ scale exist when inputs are increased by some percentage and output increases by a smaller percentage,whereas __________ scale exist when inputs are increased by some percentage and output increases by the same percentage.

Accepted Answer

A)   Economies of; diseconomies of
B)   Constant returns to; economies of
C)   Diseconomies of; constant returns to
D)   Diseconomies of; economies ofE) A) and D)
F) A) and B)

Question 11

Exhibit 22-3
 
-Refer to Exhibit 22-3.The average fixed cost of producing 25 units of output is

Accepted Answer

A)   $500.00.
B)   $20.00.
C)   $50.00.
D)   $2.50.
E)   indeterminable with the information given.F) A) and E)
G) B) and C)

Question 12

There is a link between production and cost.We know this because

Accepted Answer

A)   there are two periods of production, the short run and the long run.
B)   what happens to MPP directs what happens to MC.
C)   average fixed cost continually declines as output increases.
D)   average productivity falls when marginal productivity is below it.
E)   none of the aboveF) All of the above
G) C) and D)

Question 13

Exhibit 22-14
  
Assume that labor is the only variable input.
-Refer to Exhibit 22-14.What is the marginal cost of producing this good with 3 and 4 laborers working [blanks (G) and (H) ],respectively?

Accepted Answer

A)   $200; $150
B)   $60; $30
C)   $12; $40
D)   $6; $8
E)   none of the aboveF) A) and B)
G) C) and D)

Question 14

One of the reasons why economies of scale exist is that the opportunity for labor specialization increases as the size of the firm grows.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is true?

Accepted Answer

A)   The short run is always somewhere between six and twelve months.
B)   In the short run, changes in output can only be brought about by a change in the quantity of variable inputs.
C)   The long run is any period of time over one year.
D)   In the short run, there are variable costs but no fixed costs.
E)   b and dF) A) and B)
G) A) and C)

Question 16

Exhibit 22-13
 
-Refer to Exhibit 22-13. What dollar amounts go in blanks (E) and (F) ?

Accepted Answer

A)   $200; $30
B)   $40; $80
C)   $200; $15
D)   $3; $40
E)   There is not enough information to answer this question.F) A) and B)
G) B) and C)

Question 17

As the marginal physical product curve rises,

Accepted Answer

A)   the marginal cost curve rises.
B)   the marginal cost curve falls.
C)   the total cost curve rises.
D)   the total cost curve falls.E) B) and C)
F) C) and D)

Question 18

Exhibit 22-5
 
-Refer to Exhibit 22-5.Diseconomies of scale are present between

Accepted Answer

A)   points A and B.
B)   points A and C.
C)   points B and C.
D)   points B and D.
E)   points C and D.F) C) and D)
G) A) and B)

Question 19

Accounting profit equals economic profit if __________ equals __________.

Accepted Answer

A)   explicit costs; implicit costs
B)   total revenue; marginal cost
C)   implicit costs; zero
D)   explicit costs; zero
E)   unit cost; marginal costF) A) and C)
G) B) and E)

Question 20

There is a monitorless team (firm) of 10 persons.The 10 persons agree to work together and split the revenue (they earn) equally.In this setting,the cost of shirking to an individual is

Accepted Answer

A)   higher than it would be if the individual worked alone.
B)   the same as it would be if the individual worked alone.
C)   lower than it would be if the individual worked alone.
D)   necessarily greater than the benefits of shirking.
E)   necessarily less than the benefits of shirking.F) D) and E)
G) All of the above

Exam 22: Production and Costs

Accounting profit equals economic profit if __________ equals __________.

Correct AnswerverifiedShow Answer

One of the reasons why economies of scale exist is that the opportunity for labor specialization increases as the size of the firm grows.

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Exhibit 22-3 -Refer to Exhibit 22-3.The average fixed cost of producing 25 units of output is

Correct AnswerverifiedShow Answer

There is a link between production and cost.We know this because

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

Exhibit 22-1 -Refer to Exhibit 22-1.Diminishing marginal returns set in with the addition of which unit of the variable input?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Exhibit 22-14 Assume that labor is the only variable input. -Refer to Exhibit 22-14.What is the marginal cost of producing this good with 3 and 4 laborers working [blanks (G) and (H) ],respectively?

Correct AnswerverifiedShow Answer

Economies of scale are said to exist when inputs are increased by some percentage and output increases by a(n) __________ percentage,causing unit costs to __________.

Correct AnswerverifiedShow Answer

There is a monitorless team (firm) of 10 persons.The 10 persons agree to work together and split the revenue (they earn) equally.In this setting,the cost of shirking to an individual is

Correct AnswerverifiedShow Answer

If the marginal cost (MC) curve is rising and is above the average fixed cost (AFC) curve,then

Correct AnswerverifiedShow Answer

Cy recently went into the business of producing and selling cardboard boxes.For this business,which of the following is most likely to be a fixed cost?

Correct AnswerverifiedShow Answer

__________ scale exist when inputs are increased by some percentage and output increases by a smaller percentage,whereas __________ scale exist when inputs are increased by some percentage and output increases by the same percentage.

Correct AnswerverifiedShow Answer

Which of the following is true of average fixed costs in the long run?

Correct AnswerverifiedShow Answer

Economies of scale are exclusively a long-run phenomenon,while the law of diminishing returns applies to both the short-run and to the long-run.

Correct AnswerverifiedShow Answer

Exhibit 22-5 -Refer to Exhibit 22-5.Diseconomies of scale are present between

Correct AnswerverifiedShow Answer

Noble Prizewinner Ronald Coase argued that firms exist in order to reduce transaction costs.

Correct AnswerverifiedShow Answer

Exhibit 22-13 -Refer to Exhibit 22-13. What dollar amounts go in blanks (E) and (F) ?

Correct AnswerverifiedShow Answer

As the marginal physical product curve rises,

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Exhibit 22-11 -Refer to Exhibit 22-11.Marginal cost of the first unit of output is

Correct AnswerverifiedShow Answer

Accounting profit equals economic profit if equals .

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Economies of scale are said to exist when inputs are increased by some percentage and output increases by a(n) percentage,causing unit costs to .

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scale exist when inputs are increased by some percentage and output increases by a smaller percentage,whereas scale exist when inputs are increased by some percentage and output increases by the same percentage.

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