9
PROFIT, OUTPUT AND COSTS
Q1: An electrician quits her current job, which pays
$40,000 a year. She can take a job with another firm for
$45,000 a year or she can work for herself. The
opportunity cost of working for herself is ________.
A $5,000 a year
B $40,000 a year
C $45,000 a year
D $85,000 a year
© 2012 Pearson Addison-Wesley
Q2: The _____ the Herfindahl-Hirschman Index, the
____ the industry.
A higher; less competitive is
B lower; less competitive is
C higher; the greater is the number of firms in
D lower; more profitable is
© 2012 Pearson Addison-Wesley
Q3: Jitters Coffee Company can lower the cost of
packaging a pound of coffee by doubling the quantity
packaged each day, Jitters is achieving ________.
A economies of scale
B economies of scope
C economies of team production
D all of the above
© 2012 Pearson Addison-Wesley
Q4: In the long run, a firm can vary ______.
A the capital it uses but not the quantity of labor it hires
B the quantity of labor it hires but not the capital it uses
C both the quantity of labor it hires and the capital it
uses
D neither the quantity of labor it hires nor the capital it
uses
© 2012 Pearson Addison-Wesley
Q5: Which of the following statements regarding the
marginal product curve is FALSE?
A If an increase in the number of workers increases
total product, then marginal returns are increasing.
B Increasing marginal returns is due to greater
efficiency from specialization in the production
process.
C The law of diminishing returns applies in the short
run.
D Along the marginal product curve, marginal returns
increase initially but then diminishing as the number
of workers increases.
© 2012 Pearson Addison-Wesley
Q6: Ernie’s Earmuffs produces 200 earmuffs a year at a
total cost of $2,000. Its fixed costs are $400. What is
Ernie’s total variable cost?
A $2,400 a year
B $2,000 a year
C $1,600 a year
D $800 a year
© 2012 Pearson Addison-Wesley
Q7: Fernando charges the restaurant Flaming Fernando’s
$1,000 annually for use of his name. If Fernando
increases the fee to use of his name, _______.
A the restaurant’s average fixed cost, average variable
cost, average total cost, and marginal cost curves all
shift upward.
B only the restaurant’s average fixed cost, average total
cost, and marginal cost curves shift upward.
C only the restaurant’s average variable cost, average
total cost, and marginal cost curves shift upward.
D only the restaurant’s average fixed cost and average
total cost curves shift upward.
© 2012 Pearson Addison-Wesley
Q8: Angel Rodriguez pulls up in his 24-foot panel truck
in front of La Bella Pizza. Even though it’s the middle of
the summer, he’s delivering firewood—to pizzerias. He
says even though fuel costs have doubled, it’s still worth
delivering firewood to pizzerias. How would a decrease
in gasoline prices affect Angel’s short-run costs?
A Short-run total cost would decrease.
B Short-run total variable cost would increase.
C Short-run fixed cost would decrease.
D Short-run average variable cost would increase.
© 2012 Pearson Addison-Wesley
Q9: A firm is reaping economies of scale and is on both
its LRAC curve and its short-run ATC curve. At that
level of output, the slope of its LRAC curve is
_________.
A zero, and the slope of the ATC curve is zero
B zero, and the slope of its ATC curve is negative
C negative, and the slope of its ATC curve is zero
D negative, and the slope of its ATC curve is negative
© 2012 Pearson Addison-Wesley
Q10: In 2008, Precision Pattern Interiors, which makes
high-end aircraft interiors, began a $1 million renovation
of its building. The company will also add new
equipment worth $400,000 and triple its work force.
Which of Precision Pattern Interiors decisions is a shortrun decision?
A Triple its work force
B $1 million renovation of its building
C The new equipment worth $400,000
D All of these decisions are short-run decisions.
© 2012 Pearson Addison-Wesley
Q11: Rogue Chocolatier sells specialty chocolate bars
with a high cocoa content. Rogue can produce 15
chocolate bars a day with one employee, 29 with 2, 35
with 3, and 40 with 4 employees. Which statement is
correct?
A Rogue’s marginal product curve slopes downward.
B Rogue’s marginal product curve initially slope upward
but eventually downward.
C Rogue’s total product curve slopes upward at an
increasing rate.
D Rogue’s marginal product curve slopes downward
initially but eventually upward.
© 2012 Pearson Addison-Wesley