Question 1

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) B) and C)
F) A) and B)

Question 2

The real opportunity cost of producing product X is the amounts of products Y, Z, and so forth, that might have been produced if resources had not been used to produce X.

Accepted Answer

A) True 
 B)False

Question 3

Normal profit is

Accepted Answer

A)  determined by subtracting implicit costs from total revenue.
B)  determined by subtracting explicit costs from total revenue.
C)  the return to the entrepreneur when economic profits are zero.
D)  the average profitability of an industry over the preceding 10 years.E) B) and C)
F) A) and D)

Question 4

Normal profit is an implicit cost.

Accepted Answer

A) True 
 B)False

Question 5

Introduction of the Verson Stamping Machine helped firms in the automobile industry

Accepted Answer

A)  eliminate diminishing returns in production.
B)  achieve greater economies of scale.
C)  reach their minimum efficient scale at a lower level of production.
D)  shift their AVC, ATC, and MC curves upward.E) None of the above
F) B) and C)

Question 6

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

Accepted Answer

A)  payments of wages to its office workers
B)  rent paid for the use of equipment owned by the Schultz Machinery Company
C)  use of savings to pay operating expenses instead of generating interest income
D)  economic profits resulting from current productionE) A) and B)
F) C) and D)

Question 7

If total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be

Accepted Answer

A)  $200.
B)  $250.
C)  $800.
D)  $3,200.E) B) and C)
F) A) and D)

Question 8

If you owned a small farm, which of the following would most likely be a fixed cost?

Accepted Answer

A)  harvest labor
B)  hail insurance
C)  fertilizer
D)  seedE) C) and D)
F) None of the above

Question 9

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

Accepted Answer

A)  None are either implicit or explicit costs.
B)  All are opportunity costs.
C)  All are implicit costs.
D)  All are explicit costs.E) None of the above
F) A) and C)

Question 10

If long-run average total cost decreases as output increases, this is due to

Accepted Answer

A)  declining average fixed costs.
B)  the law of diminishing returns.
C)  economies of scale.
D)  externalities.E) A) and B)
F) All of the above

Question 11

If economic profits in an industry are zero and implicit costs are greater than zero, then

Accepted Answer

A)  resources will move out of the industry.
B)  there will be no production in the short run.
C)  accounting profits are greater than zero.
D)  new firms will enter the industry.E) B) and C)
F) B) and D)

Question 12

The basic difference between the short run and the long run is that

Accepted Answer

A)  all costs are fixed in the short run, but all costs are variable in the long run.
B)  the law of diminishing returns applies in the long run but not in the short run.
C)  at least one resource is fixed in the short run, while all resources are variable in the long run.
D)  economies of scale may be present in the short run but not in the long run.E) A) and D)
F) None of the above

Question 13

Fixed cost is

Accepted Answer

A)  the cost of producing one more unit of capital, for example, machinery.
B)  any cost that does not change when the firm changes its output.
C)  average cost multiplied by the firm's output.
D)  usually zero in the short run.E) B) and D)
F) All of the above

Question 14

A natural monopoly is characterized by

Accepted Answer

A)  collusion with other competitors to divide up the market.
B)  a decreasing average-cost curve extending beyond the market's size.
C)  a firm protected from competition by a government regulation.
D)  a firm having control over the entire supply of a basic input in the production process.E) None of the above
F) A) and D)

Question 15

When the price of gasoline increases significantly, the delivery companies like UPS, FedEx, and the USPS all find

Accepted Answer

A)  their TVC curves shifting up.
B)  their TFC curves shifting up.
C)  themselves moving up along their TC curves.
D)  themselves moving up along their TVC curves.E) All of the above
F) C) and D)

Question 16

When the total product is at its maximum level, the marginal product is zero.

Accepted Answer

A) True 
 B)False

Question 17

Marginal product

Accepted Answer

A)  diminishes at all levels of production.
B)  may initially increase, then diminish, but never become negative.
C)  may initially increase, then diminish, and ultimately become negative.
D)  is always less than average product.E) B) and C)
F) B) and D)

Question 18

If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that

Accepted Answer

A)  technological progress has occurred.
B)  economies of scale are being realized.
C)  the firm is encountering diminishing returns.
D)  diseconomies of scale are being encountered.E) B) and C)
F) A) and D)

Question 19

The law of diminishing returns only applies in cases where

Accepted Answer

A)  there is increasing scarcity of factors of production.
B)  the price of extra units of a factor is increasing.
C)  there is at least one fixed factor of production.
D)  capital is a variable input.E) A) and B)
F) A) and C)

Question 20

(Consider This)  In order to apply the concept of diminishing returns to study time,

Accepted Answer

A)  the amount of study time available must be held constant.
B)  study time must be considered a long-run production process.
C)  all inputs to the learning process must be allowed to vary.
D)  all inputs to the learning process except for study time must be assumed to be fixed.E) None of the above
F) A) and C)

Exam 9: Businesses and the Costs of Production

The basic difference between the short run and the long run is that

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The real opportunity cost of producing product X is the amounts of products Y, Z, and so forth, that might have been produced if resources had not been used to produce X.

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If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that

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If long-run average total cost decreases as output increases, this is due to

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If total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be

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When the total product is at its maximum level, the marginal product is zero.

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If economic profits in an industry are zero and implicit costs are greater than zero, then

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Fixed cost is

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Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

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What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

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The law of diminishing returns only applies in cases where

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A natural monopoly is characterized by

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(Consider This) In order to apply the concept of diminishing returns to study time,

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When the price of gasoline increases significantly, the delivery companies like UPS, FedEx, and the USPS all find

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If you owned a small farm, which of the following would most likely be a fixed cost?

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Normal profit is an implicit cost.

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When a firm is experiencing diseconomies of scale,

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Marginal product

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Normal profit is

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Introduction of the Verson Stamping Machine helped firms in the automobile industry

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