Deck 5: Production Technology and Cost

Question 1

_______ are costs that do not require a monetary payment.

A)Implicit costs
B)Explicit costs
C)Accounting costs
D)All opportunity costs

Answer 1

Implicit costs

Question 2

You are a student at a university. You pay $8,000 per year in tuition, $5,000 per year in living expenses, and $1,000 per year for books. Were you not in school, you could earn $15,000 per year and you would not live with your parents. What is your economic cost of a year in college?

A)$9,000
B)$15,000
C)$24,000
D)$29,000

Answer 2

$24,000

Question 3

In the short run, _______ factors of production are fixed, while in the long run, _______ of them are.

A)some; none
B)all; none
C)no; at least some
D)all; at least some

Answer 3

some; none

Question 4

Since all costs positive, then economic profits would always be smaller than accounting profits.

Question 5

Economic profit is total revenue less economic costs.

Question 6

Joe runs a restaurant. He pays his employees $200,000 per year. His ingredients cost him $50,000 per year. Prior to running his restaurant, Joe was a lawyer earning $150,000 per year. What would economists say is Joeʹs cost of running the restaurant?

A)$150,000
B)$200,000
C)$250,000
D)$400,000

Question 7

Economic cost is always less than accounting cost.

Question 8

Which of the following are included in calculating economic costs?

A)implicit costs
B)explicit costs
C)accounting costs
D)All of the above are correct.

Question 9

An example of an implicit cost is:

A)the wages paid to workers.
B)the interest on business loans.
C)the imputed rent on a store owned by the firm.
D)the materials used to produce the product.

Question 10

Which of the following statements is incorrect?

A)A firmʹs total economic cost is at least as large as the firmʹs total accounting cost.
B)A firmʹs total economic cost includes both explicit cost and implicit cost of the firm.
C)A firmʹs implicit cost is the opportunity cost of non-purchased inputs.
D)A firmʹs total accounting cost is at least as large as the firmʹs implicit cost.

Question 11

Which of the following is a short-run adjustment?

A)Three new firms enter the computer chip industry.
B)A firm hires six new workers.
C)The number of farms in Kansas increases by 10%.
D)A firm opens two new plants.

Question 12

Which of the following is a long-run adjustment?

A)A firm lays off two workers.
B)Two firms exit the asbestos removal industry.
C)A manufacturer increases its purchase of raw materials.
D)A farmer buys twice her usual amount of herbicide.

Question 13

Which of the following is a long-run adjustment?

A)A firm hires two new workers.
B)The number of professional baseball teams increases by two.
C)GM buys more steel for its auto plants in Michigan.
D)A farmer buys twice her usual amount of fertilizer.

Question 14

Accountants include _______ costs as part of a firmʹs costs, while economists include _______ costs.

A)explicit; no explicit
B)implicit; no implicit
C)explicit and implicit; implicit
D)explicit; explicit and implicit

Question 15

Jane is a student at a university. She pays $10,000 per year in tuition, $4,000 per year in living expenses, and $800 per year for books. Were she not in school, she could earn $20,000 per year working as a bookkeeper and she would not live with her parents. What is her economic cost of a year in college?

A)$10,000
B)$13,000
C)$30,800
D)$34,800

Question 16

Economic cost differs from accounting cost because accountants do not consider implicit costs.

Question 17

Which of the following is an example of something that economists would consider a cost but accountants would not?

A)the cost of materials and supplies purchased by a firm
B)the salary that the firm actually pays to the firmʹs owner
C)the interest income foregone by the firmʹs owner because the owner invested funds into the firm
D)the cost of advertising

Question 18

Which of the following is an example of something that economists would consider a cost but accountants would not?

A)the wages paid to employees of a firm
B)the wages that the owner of a firm could have earned in some alternative job
C)rent paid to a businessʹ landlord
D)the cost of leather used in the production of footballs

Question 19

Implicit cost is the opportunity cost of the inputs that do not require monetary payment.

Question 20

_______ are costs that require a monetary payment.

A)Implicit costs
B)Explicit costs
C)Accounting costs
D)B and C are correct.

Question 21

Diminishing marginal returns implies that firms:

A)require fewer and fewer workers to produce each additional unit of output.
B)require more and more workers to produce each additional unit of output.
C)get decreasing amounts of revenue for each unit of output they produce.
D)get increasing amounts of revenue for each unit of output they produce.

Question 22

$$\begin{array} { | c | c | } \hline \text { Number af warkers } & \begin{array} { c } \text { Units of } \\\text { output }\end{array} \\\hline0& 0 \\\hline 1 & 1 0 \\\hline 2 & 30 \\\hline 3 & 44 \\\hline 4 & 55 \\\hline\end{array}$$ Table 5.1

-Refer to Table 5.1, which gives a firmʹs production function. Assume that all non -labor inputs are fixed. The marginal product of the fourth worker is:

A)12 units.
B)11 units.
C)5 units.
D)0 units.

Question 23

Diminishing marginal returns implies that:

A)marginal product is decreasing.
B)marginal product is increasing.
C)marginal product is constant.
D)marginal product may be increasing or decreasing.

Question 24

In the short run, at least one factor of production is fixed. This implies that beyond some level of output a firm will:

A)ʺlearn by doing.ʺ
B)experience diminishing marginal returns.
C)experience increasing marginal returns.
D)have a U-shaped long-run average cost curve.

Question 25

Explain the relationship between average fixed cost and marginal cost.

Question 26

A firm experiences diminishing marginal returns because:

A)all factors of production are variable.
B)people ʺlearn by doing.ʺ
C)all factors of production are fixed.
D)at least one factor of production is fixed.

Question 27

Which of the following is NOT true when the firm experiences diminishing marginal product?

A)The total product is decreasing.
B)The marginal product of the previous worker is higher than the current worker.
C)The firm is operating in the short run.
D)The firmʹs total cost is increasing.

Question 28

Explain the difference between fixed costs in the short run and in the long run.

Question 29

What are the differences between economic cost and accounting costs?

Question 30

Diminishing marginal returns implies that:

A)marginal costs are decreasing.
B)marginal costs are increasing.
C)marginal costs are constant.
D)marginal costs may be increasing or decreasing.

Question 31

$$\begin{array} { | c | c | } \hline \text { Number af warkers } & \begin{array} { c } \text { Units of } \\\text { output }\end{array} \\\hline0& 0 \\\hline 1 & 1 0 \\\hline 2 & 30 \\\hline 3 & 44 \\\hline 4 & 55 \\\hline\end{array}$$ Table 5.1

-Refer to Table 5.1, which gives a firmʹs production function. Assume that all non -labor inputs are fixed. Marginal product is maximized when the firm hires:

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

Question 32

Explain the difference between the short run and the long run.

Question 33

What are the explicit and implicit cost?

Question 34

Can a firmʹs accounting profit be smaller than the economic profit? Assume that all costs are positive.

Question 35

What is economic profit?

Question 36

When at least one factor of production is fixed, firms require more and more workers to produce each additional unit of output. This describes:

A)increasing marginal returns.
B)diminishing marginal returns.
C)learning by doing.
D)short-run adjustments.

Question 37

$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Number of } \\\text { workers }\end{array} & \text { Units of output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 55 \\\hline 3 & 95 \\\hline 4 & 125 \\\hline 5 & 150 \\\hline\end{array}$
Table 5.2

-Refer to Table 5.2, which gives a firmʹs production function. Assume that all non -labor inputs are fixed. The marginal product is maximized when the firm hires:

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

Question 38

$$\begin{array} { | c | c | } \hline \text { Number af warkers } & \begin{array} { c } \text { Units of } \\\text { output }\end{array} \\\hline0& 0 \\\hline 1 & 1 0 \\\hline 2 & 30 \\\hline 3 & 44 \\\hline 4 & 55 \\\hline\end{array}$$ Table 5.1

-Refer to Table 5.1, which gives a firmʹs production function. Assume that all non -labor inputs are fixed. Diminishing marginal returns set in with the addition of the:

A)third worker.
B)fourth worker.
C)fifth worker.
D)sixth worker.

Question 39

$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Number of } \\\text { workers }\end{array} & \text { Units of output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 55 \\\hline 3 & 95 \\\hline 4 & 125 \\\hline 5 & 150 \\\hline\end{array}$
Table 5.2

-Refer to Table 5.2, which gives a firmʹs production function. Assume that all non -labor inputs are fixed. Diminishing returns set in with the addition of the:

A)third worker.
B)fourth worker.
C)fifth worker.
D)sixth worker.

Question 40

The interest on a business loan is an implicit cost.

Question 41

Marginal product is defined as the change in _______ resulting from a one-unit increase in _______.

A)total product; input
B)total product; output
C)output; total product
D)total cost; output

Question 42

Average total cost equals:

A)total fixed cost plus total variable cost.
B)average fixed cost minus average variable cost.
C)average fixed cost plus average variable cost.
D)total cost minus average cost.

Question 43

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average variable cost at a given level of output is represented by:

A)the vertical distance between Curve 1 and Curve 3 at a given level of output.
B)the vertical distance between Curve 1 and Curve 2 at a given level of output.
C)the vertical sum of Curve 1 and Curve 3 at a given level of output.
D)the vertical sum of Curve 1 and Curve 2 at a given level of output.

Question 44

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average total cost at a given level of output is represented by:

A)the vertical distance between curve 1 and Curve 2 at a given level of output.
B)the vertical sum of Curve 1 and Curve 2 at a given level of output.
C)the vertical sum of Curve 2 and Curve 3 at a given level of output.
D)the vertical distance between Curve 2 and Curve 3 at a given level of output.

Question 45

Figure 5.4
One can tell that Figure 5.4 shows short run costs because:

A)the slope of total costs and variable costs are the same.
B)costs are rising.
C)total costs are positive when output is zero implying fixed costs.
D)all of the above

Question 46

Average variable cost equals:

A)total fixed cost plus total variable cost.
B)average total cost minus average fixed cost.
C)average total cost plus average fixed cost.
D)total cost minus average cost.

Question 47

Figure 5.4
In Figure 5.4, the difference between total costs and variable cost is:

A)average total cost.
B)fixed cost.
C)total costs are positive when output is zero implying fixed costs.
D)all of the above

Question 48

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average total cost curve is represented by:

A)Curve 1.
B)Curve 2.
C)Curve 3.
D)The vertical sum of curve 1 and curve 2.

Question 49

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average fixed cost curve is represented by:

A)Curve 1.
B)Curve 2.
C)Curve 3.
D)The vertical sum of curve 1 and curve 2.

Question 50

_______ is a cost that independent of the quantity produced by the firm and is incurred by the firm in the short run.

A)Fixed cost
B)Economic cost
C)Variable cost
D)Average total cost

Question 51

Markʹs Baseballs produces baseballs. Markʹs Baseballs has total fixed costs of $500. Markʹs average variable cost is $20, and his average total cost is $25. Mark is currently producing:

A)5 baseballs.
B)25 baseballs.
C)100 baseballs.
D)a number of baseballs that cannot be determined from the information provided.

Question 52

Marginal product in the short run:

A)increases at all levels of production.
B)diminishes at all levels of production.
C)may initially increase, then eventually decrease.
D)may initially decrease, then eventually increase.

Question 53

$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Number of } \\\text { workers }\end{array} & \text { Units of output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 55 \\\hline 3 & 95 \\\hline 4 & 125 \\\hline 5 & 150 \\\hline\end{array}$
Table 5.2

-Refer to Table 5.2, which gives a firmʹs production function. Assume that all non -labor inputs are fixed. The marginal product of the fourth worker is:

A)0 units.
B)10 units.
C)25 units.
D)30 units.

Question 54

Average fixed cost is defined as:

A)total variable cost divided by quantity.
B)quantity divided by total variable cost.
C)the change in total variable cost divided by the change in quantity.
D)total fixed cost divided by quantity.

Question 55

Average variable cost is defined as:

A)total variable cost divided by quantity.
B)quantity divided by total variable cost.
C)the change in total variable cost divided by the change in quantity.
D)the change in quantity divided by the change in total variable cost.

Question 56

$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Number of } \\\text { workers }\end{array} & \text { Units of output } \\\hline 0 & 0 \\\hline 1 & 25 \\\hline 2 & 55 \\\hline 3 & 95 \\\hline 4 & 125 \\\hline 5 & 150 \\\hline\end{array}$
Table 5.2

-Refer to Table 5.2, which gives a firmʹs production function. Assume that all non -labor inputs are fixed. The marginal product of the fifth worker is:

A)0 units.
B)10 units.
C)25 units.
D)30 units.

Question 57

Average total cost is defined as:

A)total variable cost divided by quantity.
B)quantity divided by total variable cost.
C)the change in total variable cost divided by the change in quantity.
D)total cost divided by quantity.

Question 58

_______ is a cost that changes with the quantity produced by the firm and is incurred by the firm in the short run.

A)Fixed cost
B)Economic cost
C)Variable cost
D)Average total cost

Question 59

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average variable cost curve is represented by:

A)Curve 1.
B)Curve 2.
C)Curve 3.
D)The vertical sum of curve 2 and curve 3.

Question 60

In the short run, the firmʹs total cost equals:

A)the total fixed costs + the total variable costs.
B)the average fixed costs +average variable costs.
C)the average fixed cost + the marginal cost.
D)the total variable costs only.

Question 61

When a firm is experiencing diminishing returns:

A)average cost is always increasing.
B)average cost is always decreasing.
C)marginal costs are always less than average costs.
D)none of the above

Question 62

$\begin{array} { | c | c | c | c | c | c | c | } \hline \text { Number of Cakes } & \text {V C} &\text { M C} & \text {A V C }& \text {F C} &\text { T C }& \text {A T C} \\\hline \text { I } & & & & 50 & & \\\hline 1 & & 30 & & & & \\\hline 2 & & & & & & 50 \\\hline 3& & & 25 & & & \\\hline 4 & & & & & 155 & \\\hline\end{array}$ Table 5.3

-Table 5.3 presents the cost schedule for Candyʹs Cakes. If Candy produces two cakes, Candyʹs marginal cost is:

A)$0.
B)$20.
C)$25.
D)$50.

Question 63

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. The average fixed cost at a given level of output is represented by:

A)the vertical distance between Curve 1 and Curve 2 at a given level of output.
B)the vertical distance between Curve 1 and Curve 3 at a given level of output.
C)the vertical sum of Curve 1 and Curve 2 at a given level of output.
D)the vertical sum of Curve 1 and Curve 3 at a given level of output.

Question 64

$\begin{array}{|c|c|c|c|c|c|c|}\hline \text { Number of Figs } & V C & M C & A V C & F C & T C & A T C \\\hline 0 & & & & 100 & & \\\hline 1 & 90 & 90 & & & & \\\hline 2 & & & & & & 135 \\\hline 3 & & & 80 & & & \\\hline 4 & & & & & 400 & \\\hline\end{array}$
Table 5.4

-Table 5.4 presents the cost schedule for Davidʹs Figs. If David produces two figs, Davidʹs average variable costs are:

A)$80.
B)$85.
C)$90.
D)$170.

Question 65

When marginal costs are increasing:

A)a firm is experiencing diminishing returns.
B)average cost is always increasing.
C)average cost is always decreasing.
D)marginal costs are always greater than average costs.

Question 66

Figure 5.1
Refer to Figure 5.1, which shows a family of average cost curves. Why does the vertical distance between Curve 1 and Curve 2 decrease as output increases from Q1 to Q2?

A)Because average variable cost first decreases, then increases as output increases from Q1 to Q2.
B)Because average fixed cost decreases as output increases from Q1 to Q2.
C)Because average total cost first decreases, then increases as output increases from Q1 to Q2.
D)Because average variable cost increases faster than average fixed cost as output level approaches Q2.

Question 67

Which of the following is true?

A)ATC = AVC - AFC.
B)TVC/Q = TC/Q + TFC/Q
C)ΔTC/ΔQ = ΔAVC/ΔQ
D)ΔTVC/ΔQ = MC

Question 68

$\begin{array} { | c | c | c | c | c | c | c | } \hline \text { Number of Cakes } & \text {V C} &\text { M C} & \text {A V C }& \text {F C} &\text { T C }& \text {A T C} \\\hline \text { I } & & & & 50 & & \\\hline 1 & & 30 & & & & \\\hline 2 & & & & & & 50 \\\hline 3& & & 25 & & & \\\hline 4 & & & & & 155 & \\\hline\end{array}$ Table 5.3

-Table 5.3 presents the cost schedule for Candyʹs Cakes. If Candy produces three cakes, Candyʹs marginal costs are:

A)$0.
B)$25.
C)$41.67.
D)$75.

Question 69

$\begin{array}{|c|c|c|c|c|c|c|}\hline \text { Number of Figs } & V C & M C & A V C & F C & T C & A T C \\\hline 0 & & & & 100 & & \\\hline 1 & 90 & 90 & & & & \\\hline 2 & & & & & & 135 \\\hline 3 & & & 80 & & & \\\hline 4 & & & & & 400 & \\\hline\end{array}$
Table 5.4

-Table 5.4 presents the cost schedule for Davidʹs Figs. If David produces zero fig, Davidʹs total costs are:

A)$0.
B)$90.
C)$100.
D)$130.

Question 70

In the short run, the marginal cost of the first unit of output is $20, the marginal cost of producing the second unit of output is $16, and the marginal cost of producing the third unit of output is $12. The firmʹs total variable cost of producing three units of output is:

A)$12.
B)$16.
C)$20.
D)$48.

Question 71

In the short run, the marginal cost of the first unit of output is $40, the average variable cost of producing three units of output is $32, and the marginal cost of producing the second unit of output is $32. What is the marginal cost of producing the third unit of output?

A)$24
B)$32
C)$40
D)$96

Question 72

$\begin{array} { | c | c | c | c | c | c | c | } \hline \text { Number of Cakes } & \text {V C} &\text { M C} & \text {A V C }& \text {F C} &\text { T C }& \text {A T C} \\\hline \text { I } & & & & 50 & & \\\hline 1 & & 30 & & & & \\\hline 2 & & & & & & 50 \\\hline 3& & & 25 & & & \\\hline 4 & & & & & 155 & \\\hline\end{array}$ Table 5.3

-Table 5.3 presents the cost schedule for Candyʹs Cakes. If Candy produces one cake, Candyʹs total variable costs are:

A)$0.
B)$30.
C)$50.
D)$80.

Question 73

$\begin{array}{|c|c|c|c|c|c|c|}\hline \text { Number of Figs } & V C & M C & A V C & F C & T C & A T C \\\hline 0 & & & & 100 & & \\\hline 1 & 90 & 90 & & & & \\\hline 2 & & & & & & 135 \\\hline 3 & & & 80 & & & \\\hline 4 & & & & & 400 & \\\hline\end{array}$
Table 5.4

-Table 5.4 presents the cost schedule for Davidʹs Figs. If David produces three figs, Davidʹs total variable costs are:

A)$0.
B)$41.67.
C)$80.
D)$240.

Question 74

$\begin{array}{|c|c|c|c|c|c|c|}\hline \text { Number of Figs } & V C & M C & A V C & F C & T C & A T C \\\hline 0 & & & & 100 & & \\\hline 1 & 90 & 90 & & & & \\\hline 2 & & & & & & 135 \\\hline 3 & & & 80 & & & \\\hline 4 & & & & & 400 & \\\hline\end{array}$
Table 5.4

-Table 5.4 presents the cost schedule for Davidʹs Figs. If David produces four figs, Davidʹs average total costs are:

A)$60.
B)$75.
C)$100.
D)$400.

Question 75

When a firm is experiencing diminishing marginal returns:

A)average cost is increasing.
B)average cost is decreasing.
C)marginal costs are increasing.
D)marginal costs are decreasing.

Question 76

In the short run, the marginal cost of producing the first unit of output is $50, the marginal cost of the second unit of output is $20, and the marginal cost of producing the third unit of output is $16. The firmʹs total cost of producing three units of output is:

A)$16.
B)$48.
C)$86.
D)cannot be determined from the information provided

Question 77

If a firmʹs total fixed costs are $30, the firmʹs marginal cost of producing the first unit of output is $30, and the average total cost of producing two units of output is $42, the marginal cost of the second unit of output is:

A)$84.
B)$54.
C)$42.
D)$24.

Question 78

$\begin{array}{|c|c|c|c|c|c|c|}\hline \text { Number of Figs } & V C & M C & A V C & F C & T C & A T C \\\hline 0 & & & & 100 & & \\\hline 1 & 90 & 90 & & & & \\\hline 2 & & & & & & 135 \\\hline 3 & & & 80 & & & \\\hline 4 & & & & & 400 & \\\hline\end{array}$
Table 5.4

-Table 5.4 presents the cost schedule for Davidʹs Figs. If David produces two figs, Davidʹs marginal costs are:

A)$80.
B)$90.
C)$100.
D)$170.

Question 79

In the short run, the marginal cost of the first unit of output is $20, the average variable cost of producing three units of output is $16, and the marginal cost of producing the second unit of output is $16. What is the marginal cost of producing the third unit of output?

A)$12
B)$16
C)$20
D)$48

Question 80

$\begin{array} { | c | c | c | c | c | c | c | } \hline \text { Number of Cakes } & \text {V C} &\text { M C} & \text {A V C }& \text {F C} &\text { T C }& \text {A T C} \\\hline \text { I } & & & & 50 & & \\\hline 1 & & 30 & & & & \\\hline 2 & & & & & & 50 \\\hline 3& & & 25 & & & \\\hline 4 & & & & & 155 & \\\hline\end{array}$ Table 5.3

-Table 5.3 presents the cost schedule for Candyʹs Cakes. If Candy produces zero cake, Candyʹs total costs are:

A)$0.
B)$50.
C)$100.
D)$150