Question 1

If the price of a fixed factor of production increases by 50 percent, what effect would this have on the marginal-cost schedule facing a firm?

Accepted Answer

A)  None, because fixed costs do not affect marginal cost.
B)  Marginal cost would increase by 50 percent.
C)  Marginal cost would increase by less than 50 percent.
D)  Marginal cost would increase by more than 50 percent.E) A) and C)
F) B) and D)

Question 2

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed.  The marginal product of the fourth worker is

Accepted Answer

A)  37.5 units of output.
B)  36 units of output.
C)  24 units of output.
D)  15 units of output.E) A) and D)
F) None of the above

Question 3

Which of the following is correct?

Accepted Answer

A)  There is no relationship between MP and MC.
B)  When AP is rising, MC is falling, and when AP is falling, MC is rising.
C)  When MP is rising, MC is rising, and when MP is falling, MC is falling.
D)  When MP is rising, MC is falling, and when MP is falling, MC is rising.E) A) and B)
F) A) and C)

Question 4

According to the law of diminishing marginal returns,

Accepted Answer

A)  output will fall and then rise as additional units of input are employed.
B)  employing additional inputs will diminish total output.
C)  the additional output generated by additional units of an input will diminish.
D)  the additional inputs necessary to produce an additional unit of output will diminish.E) C) and D)
F) A) and B)

Question 5

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, we can conclude that

Accepted Answer

A)  marginal product of the third worker is 9.
B)  the third worker has to work with poorer-quality tools and raw materials.
C)  the firm will not want to hire more than three workers.
D)  the first worker puts forth more effort than the second and third workers.E) All of the above
F) A) and D)

Question 6

Fixed costs are those costs that are

Accepted Answer

A)  zero if the firm produces no output in the short run.
B)  unchanging through time.
C)  independent of the rate of output.
D)  for inputs whose prices are fixed.E) C) and D)
F) B) and C)

Question 7

Refer to the diagram. Constant returns to scale

Accepted Answer

A)  occur over the 0 Q₁ range of output.
B)  occur over the Q₁ Q₃ range of output.
C)  begin at output Q₃.
D)  are in evidence at all output levels.E) A) and B)
F) None of the above

Question 8

Refer to the short-run production and cost data. The curves of Figures A and B suggest that

Accepted Answer

A)  marginal product and marginal cost reach their maximum points at the same output.
B)  marginal cost reaches a minimum where marginal product is at its maximum.
C)  marginal cost and marginal product reach their minimum points at the same output.
D)  AVC cuts MC at the latter's minimum point.E) All of the above
F) None of the above

Question 9

Suppose that a firm produces 275,000 units a year and sells them all for $8 each. The explicit costs of production are $1,800,000 and the implicit costs of production are $400,000. The firm earns an accounting profit of

Accepted Answer

A)  $400,000 and an economic profit of $0.
B)  $2,200,000 and an economic profit of $275,000.
C)  $275,000 and an economic profit of $2,200,000.
D)  $0 and an economic profit of $400,000.E) B) and D)
F) A) and C)

Question 10

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

Accepted Answer

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

Question 11

The following schedule gives the cost data for a firm.  Diseconomies of scale start between

Accepted Answer

A)  0 and 10 units of output.
B)  40 and 50 units of output.
C)  20 and 30 units of output.
D)  30 and 40 units of output.E) All of the above
F) None of the above

Question 12

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed.  What is the firm's average product when four workers are hired?

Accepted Answer

A)  21.5 units of output.
B)  43 units of output.
C)  41.25units of output.
D)  28.75units of output.E) A) and C)
F) A) and D)

Question 13

If a firm's revenues just cover all its implicit costs, then

Accepted Answer

A)  normal profit is zero.
B)  economic profit is zero.
C)  total revenues equal its explicit costs.
D)  total revenues equal its implicit costs.E) C) and D)
F) B) and C)

Question 14

Marginal product is

Accepted Answer

A)  the change in total output attributable to the employment of one more worker.
B)  the change in total revenue attributable to the employment of one more worker.
C)  the change in total cost attributable to the employment of one more worker.
D)  total product divided by the number of workers employed.E) B) and D)
F) None of the above

Question 15

When producing 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25. Total cost at this output level is

Accepted Answer

A)  $93.75.
B)  $97.78.
C)  $750.
D)  $880.E) All of the above
F) None of the above

Question 16

Refer to the diagram. The profit-maximizing level of output for this firm

Accepted Answer

A)  is at point a.
B)  is at point b.
C)  is at point c.
D)  cannot be determined from the information given.E) A) and B)
F) A) and C)

Question 17

When a firm is experiencing diseconomies of scale,

Accepted Answer

A)  it should increase the amount of labor it hires.
B)  it should lower its price to the competitive level.
C)  its average total costs will decline if it reduces its scale of operations.
D)  it should increase the size of its plant to decrease its average total costs.E) A) and B)
F) None of the above

Question 18

Answer the question on the basis of the following cost data.  The marginal cost curve would intersect the average variable cost curve at about

Accepted Answer

A)  2 units of output.
B)  4 units of output.
C)  6 units of output.
D)  7 units of output.E) All of the above
F) A) and B)

Question 19

The law of diminishing returns describes the

Accepted Answer

A)  relationship between total costs and total revenues.
B)  profit-maximizing position of a firm.
C)  relationship between resource inputs and product outputs in the short run.
D)  relationship between resource inputs and product outputs in the long run.E) All of the above
F) B) and C)

Question 20

Over the range of positive, but diminishing, marginal returns for an input, the total product curve

Accepted Answer

A)  falls.
B)  rises at a constant rate.
C)  rises at a decreasing rate.
D)  rises at an increasing rate.E) A) and D)
F) B) and C)

Exam 9: Businesses and the Costs of Production

The law of diminishing returns describes the

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Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. What is the firm's average product when four workers are hired?

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Answer the question on the basis of the following cost data. The marginal cost curve would intersect the average variable cost curve at about

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When producing 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25. Total cost at this output level is

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When a firm is experiencing diseconomies of scale,

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Over the range of positive, but diminishing, marginal returns for an input, the total product curve

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Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. The marginal product of the fourth worker is

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Refer to the short-run production and cost data. The curves of Figures A and B suggest that

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If the price of a fixed factor of production increases by 50 percent, what effect would this have on the marginal-cost schedule facing a firm?

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Suppose that a firm produces 275,000 units a year and sells them all for $8 each. The explicit costs of production are $1,800,000 and the implicit costs of production are $400,000. The firm earns an accounting profit of

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Refer to the diagram. The profit-maximizing level of output for this firm

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

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Refer to the diagram. Constant returns to scale

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According to the law of diminishing marginal returns,

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The following schedule gives the cost data for a firm. Diseconomies of scale start between

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If a firm's revenues just cover all its implicit costs, then

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Marginal product is

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Which of the following is correct?

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Fixed costs are those costs that are

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The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, we can conclude that

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