Chapter 13 The Costs of Production
MULTIPLE CHOICE
1. Analyzing the behavior of the firm enhances our understanding of
a. what decisions lie behind the market supply curve.
b. how consumers allocate their income to purchase scarce resources.
c. how financial institutions set interest rates.
d. whether resources are allocated fairly.
ANS: A
PTS: 1
DIF: 1
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Applicative
2. A student might describe information about the costs of production as
a. dry and technical.
b. boring.
c. crucial to understanding firms and market structures.
d. All of the above could be correct.
ANS: D
PTS: 1
DIF: 1
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
3. A student might describe information about the costs of production as
a. exciting and fresh.
b. unimportant for understanding market structure.
c. dry and technical.
d. vibrant and enthralling.
ANS: C
PTS: 1
DIF: 1
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-0
Supply curve
13-0
Supply curve
13-0
Supply curve
4. Which field of economics studies how the number of firms affects the prices in a market and the efficiency of
market outcomes?
a. macroeconomics
b. industrial organization
c. labor economics
d. monetary economics
ANS: B
PTS: 1
DIF: 1
REF: 13-0
NAT: Analytic
LOC: Costs of production
TOP: Industrial organization
MSC: Definitional
5. Economists in the field of industrial organization study how
a. central banking policies affect financial markets.
b. firms’ demand for labor and individuals’ supply of labor affect resource markets.
c. firms’ decisions about prices and quantities depend on market conditions.
d. externalities and public goods affect the environment.
ANS: C
PTS: 1
DIF: 1
REF: 13-0
NAT: Analytic
LOC: Costs of production
TOP: Industrial organization
MSC: Definitional
1
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2 ❖ Chapter 13/The Costs of Production
6. Industrial organization is the study of how
a. labor unions organize workers in industries.
b.
profitable firms are in organized industries.
c. industries organize for political advantage.
d. firms' decisions regarding prices and quantities depend on the market conditions they face.
ANS: D
PTS: 1
DIF: 1
REF: 13-0
NAT: Analytic
LOC: Costs of production
TOP: Industrial organization
MSC: Definitional
7. To an economist, the field of industrial organization answers which of the following questions?
a. Why are consumers subject to the law of demand?
b. Why do firms experience diminishing marginal products of inputs?
c. How does the number of firms affect prices and the efficiency of market outcomes?
d. Why do firms consider production costs when determining product supply?
ANS: C
PTS: 1
DIF: 1
REF: 13-0
NAT: Analytic
LOC: Costs of production
TOP: Industrial organization
MSC: Definitional
WHAT ARE COSTS?
1. Economists assume that the typical person who starts her own business does so with the intention of
a. donating the profits from her business to charity.
b. capturing the highest number of sales in her industry.
c. maximizing profits.
d. minimizing costs.
ANS: C
PTS: 1
DIF: 1
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Profit maximization
MSC: Applicative
2. Economists normally assume that the goal of a firm is to
(i)
sell as much of its product as possible.
(ii)
set the price of the product as high as possible.
(iii)
maximize profit.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (iii) only
d. (i), (ii), and (iii)
ANS: C
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-1
Profit maximization
3. Economists normally assume that the goal of a firm is to earn
(i)
profits as large as possible, even if it means reducing output.
(ii)
profits as large as possible, even if it means incurring a higher total cost.
(iii)
revenues as large as possible, even if it reduces profits.
a. (i) and (ii) only
b. (i) and (iii) only
c. (ii) and (iii) only
d. (i), (ii), and (iii)
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Profit maximization
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 3
4. An entrepreneur’s motivation to start a business arises from
a. an innate love for the type of business that he or she starts.
b. a desire to earn a profit.
c. an altruistic desire to provide the world with a good product.
d. All of the above could be correct.
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
5. Economists normally assume that the goal of a firm is to
a. maximize its total revenue.
b. maximize its profit.
c. minimize its explicit costs.
d. minimize its total cost.
ANS: B
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
6. Economists assume that the goal of the firm is to maximize total
a. revenue.
b. profits.
c. costs.
d. satisfaction.
ANS: B
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
13-1
Profit maximization
REF:
TOP:
13-1
Profit maximization
REF:
TOP:
13-1
Profit maximization
7. When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision?
a. The cost of something is what you give up to get it.
b. A country's standard of living depends on its ability to produce goods and services.
c. Prices rise when the government prints too much money.
d. Governments can sometimes improve market outcomes.
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Profit maximization
MSC: Interpretive
8. The amount of money that a firm receives from the sale of its output is called
a. total gross profit.
b. total net profit.
c. total revenue.
d. net revenue.
ANS: C
PTS: 1
DIF: 1
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Total revenue
MSC: Definitional
9. Total revenue equals
a. price x quantity.
b. price/quantity.
c. (price x quantity) - total cost.
d. output - input.
ANS: A
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Definitional
1
REF:
TOP:
13-1
Total revenue
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4 ❖ Chapter 13/The Costs of Production
10. Which of the following can be added to profit to obtain total revenue?
a. net profit
b. capital profit
c. operational profit
d. total cost
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-1
Total revenue
11. If Darren sells 300 glasses of iced tea at $0.50 each, his total revenues are
a. $150.
b. $299.50.
c. $300.
d. $600.
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Total revenue
MSC: Analytical
12. If Tanya sells 200 glasses of fruit punch at $0.50 each, her total revenues are
a. $100.
b. $199.50.
c. $200.
d. $400.
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Total revenue
MSC: Analytical
13. Cody builds mailboxes. If he charges $20 for each mailbox, his total revenue will be
a. $1,000 if he sells 100 mailboxes.
b. $500 if he sells 25 mailboxes.
c. $20 regardless of how many mailboxes he sells.
d. $200 if he sells 5 mailboxes.
ANS: B
PTS: 1
DIF: 1
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Total revenue
MSC: Applicative
14. The Big Box corporation produced and sold 500 units of output. The average cost of production per unit was
$50. Each unit sold for a price of $65. The Big Box corporation’s total revenues are
a. $7,500.
b. $25,000.
c. $32,500.
d. $67,500.
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Total revenue
MSC: Applicative
15. Trevor’s Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each
tire sold for a price of $65. Trevor’s Tire Company’s total costs are
a. $7,500.
b. $25,000.
c. $32,500.
d. $67,500.
ANS: B
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Total revenue
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 5
16. Trevor’s Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each
tire sold for a price of $65. Trevor’s Tire Company’s total profits are
a. $7,500.
b. $25,000.
c. $32,500.
d. $67,500.
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Total revenue
MSC: Applicative
17. A certain firm manufactures and sells computer chips. Last year it sold 2 million chips at a price of $10 per
chip. For last year, the firm's
a. accounting profit was $20 million.
b. economic profit was $20 million.
c. total revenue was $20 million.
d. explicit costs was $20 million.
ANS: C
PTS: 1
DIF: 1
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Total revenue
MSC: Applicative
18. A certain firm produces and sells potato chips. Last year it sold 3 million bags of chips at a price of $3 per bag.
For last year, the firm's
a. accounting profit was $9 million.
b. economic profit was $9 million.
c. total revenue was $9 million.
d. explicit costs was $9 million.
ANS: C
PTS: 1
DIF: 1
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Total revenue
MSC: Applicative
19. The amount of money that a firm pays to buy inputs is called
a. total cost.
b. variable cost.
c. marginal cost.
d. fixed cost.
ANS: A
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-1
Total cost
20. Total cost is the
a. amount a firm receives for the sale of its output.
b. fixed cost less variable cost.
c. market value of the inputs a firm uses in production.
d. quantity of output minus the quantity of inputs used to make a good.
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Total cost
MSC: Definitional
21. Profit is defined as
a. net revenue minus depreciation.
b. total revenue minus total cost.
c. average revenue minus average total cost.
d. marginal revenue minus marginal cost.
ANS: B
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Definitional
1
REF:
TOP:
13-1
Profit
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
6 ❖ Chapter 13/The Costs of Production
22. Profit is defined as total revenue
a. plus total cost.
b. times total cost.
c. minus total cost.
d. divided by total cost.
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Definitional
1
REF:
TOP:
13-1
Profit
23. Daphne sells 300 glasses of lemonade at $0.50 each. Her total costs are $125. Her profits are
a. $25.
b. $124.50.
c. $125.
d. $150.
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Profit
MSC: Analytical
24. Joy sells 200 glasses of iced tea at $0.50 each. Her total costs are $25. Her profits are
a. $25.
b. $75.
c. $100.
d. $175.
ANS: B
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Profit
MSC: Analytical
25. Billy’s Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold
was $95. Total profit for Billy’s Bean Bag Emporium would be
a. -$3,875.
b. $26,125.
c. $28,500.
d. $30,000.
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Profit
MSC: Applicative
26. The things that must be forgone to acquire a good are called
a. implicit costs.
b. opportunity costs.
c. explicit costs.
d. accounting costs.
ANS: B
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
27. A firm's opportunity costs of production are equal to its
a. explicit costs only.
b. implicit costs only.
c. explicit costs + implicit costs.
d. explicit costs + implicit costs + total revenue.
ANS: C
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-1
Opportunity cost
REF:
TOP:
13-1
Opportunity cost
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 7
28. Wiladee used to work as an office manager, earning $25,000 per year. She gave up that job to start a tailoring
business. In calculating the economic profit of her tailoring business, the $25,000 income that she gave up is
counted as part of the tailoring firm's
a. total revenue.
b. opportunity costs.
c. explicit costs.
d. marginal costs.
ANS: B
PTS: 1
DIF: 1
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Interpretive
29. John has decided to start his own lawn-mowing business. To purchase the mowers and the trailer to transport
the mowers, John withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an
additional $2,000 from the bank at an interest rate of 7%. What is John's annual opportunity cost of the financial capital that has been invested in the business?
a. $30
b. $140
c. $170
d. $300
ANS: C
PTS: 1
DIF: 3
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Analytical
30. Gloria has decided to start her own snow removal business. To purchase the necessary equipment, Gloria
withdrew $2,000 from her savings account, which was earning 3% interest, and borrowed an additional $4,000
from the bank at an interest rate of 7%. What is Gloria's annual opportunity cost of the financial capital that
has been invested in the business?
a. $60
b. $280
c. $340
d. $660
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Analytical
31. Zach has decided to start his own photography studio. To purchase the necessary equipment, Zach withdrew
$10,000 from his savings account, which was earning 3% interest, and borrowed an additional $5,000 from the
bank at an interest rate of 8%. What is Zach's annual opportunity cost of the financial capital that has been invested in the business?
a. $300
b. $400
c. $700
d. $1,650
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Analytical
32. The value of a business owner's time is an example of
a. an opportunity cost.
b. a fixed cost.
c. an explicit cost.
d. total revenue.
ANS: A
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-1
Opportunity cost
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8 ❖ Chapter 13/The Costs of Production
33. An example of an opportunity cost that is also an implicit cost is
a. a lease payment.
b. the cost of raw materials.
c. the value of the business owner’s time.
d. All of the above are correct.
ANS: C
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-1
Opportunity cost
34. Which of the following statements is correct?
a. Opportunity costs equal explicit minus implicit costs.
b. Economists consider opportunity costs to be included in a firm’s total revenues.
c. Economists consider opportunity costs to be included in a firm’s costs of production.
d. All of the above are correct.
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Interpretive
35. Explicit costs
a. require an outlay of money by the firm.
b. include all of the firm's opportunity costs.
c. include the value of the business owner’s time.
d. Both b and c are correct.
ANS: A
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-1
Explicit costs
36. An example of an explicit cost of production would be the
a. cost of forgone labor earnings for an entrepreneur.
b. lost opportunity to invest in capital markets when the money is invested in one's business.
c. lease payments for the land on which a firm’s factory stands.
d. Both a and c are correct.
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Explicit costs
MSC: Interpretive
37. Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?
a. wages Pete could earn washing windows
b. dividends Pete's money was earning in the stock market before Pete sold his stock and bought a
shoe-shine booth
c. the cost of shoe polish
d. Both b and c are correct.
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Explicit costs
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 9
38. Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?
(i) shoe polish
(ii) rent on the shoe stand
(iii) wages Pete could earn delivering newspapers
(iv) interest that Pete’s money was earning before he spent his savings to set up the shoe-shine
business
a. (i) only
b. (i) and (ii) only
c. (iii) and (iv) only
d. (i), (ii), (iii), and (iv)
ANS: B
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Explicit costs
MSC: Interpretive
39. Explicit costs
a. do not require an outlay of money by the firm.
b. enter into the accountant's measurement of a firm's profit.
c. enter into the economist's measurement of a firm's profit.
d. Both b and c are correct.
ANS: D
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-1
Explicit costs
40. A difference between explicit and implicit costs is that
a. explicit costs must be greater than implicit costs.
b. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do.
c. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
d. implicit costs must be greater than explicit costs.
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Explicit costs | Implicit costs
MSC: Interpretive
41. Which of the following would be an example of an implicit cost?
(i)
forgone investment opportunities
(ii)
wages of workers
(iii)
raw materials costs
a. (i) only
b. (ii) only
c. (ii) and (iii) only
d. (i) and (iii) only
ANS: A
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-1
Implicit costs
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
10 ❖ Chapter 13/The Costs of Production
42. Pete owns a shoe-shine business. Which of the following costs would be implicit costs?
(i) shoe polish
(ii) rent on the shoe stand
(iii) wages Pete could earn delivering newspapers
(iv) interest that Pete’s money was earning before he spent his savings to set up the shoe-shine
business
a. (i) and (ii) only
b. (iv) only
c. (iii) and (iv) only
d. (i), (ii), (iii), and (iv)
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Implicit costs
MSC: Interpretive
43. Implicit costs
a. do not require an outlay of money by the firm.
b. do not enter into the economist's measurement of a firm's profit.
c. are also known as variable costs.
d. are not part of an economist’s measurement of opportunity cost.
ANS: A
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-1
Implicit costs
44. Which of the following is an example of an implicit cost?
(i)
the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street
brokerage firm
(ii)
interest paid on the firm's debt
(iii)
rent paid by the firm to lease office space
a. (ii) and (iii) only
b. (i) and (iii) only
c. (i) only
d. (iii) only
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Implicit costs
MSC: Interpretive
45. The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is
a. an explicit cost.
b. an accounting cost
c. an implicit cost.
d. forgone accounting profit.
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Implicit costs
MSC: Interpretive
46. Which of the following is an example of an implicit cost?
a. salaries paid to owners who work for the firm
b. interest on money borrowed to finance equipment purchases
c. cash payments for raw materials
d. foregone rent on office space owned and used by the firm
ANS: D
PTS: 1
DIF: 1
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-1
Implicit costs
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 11
47. Foregone investment opportunities are an example of
a. an explicit cost.
b. an implicit cost.
c. revenues.
d. profits.
ANS: B
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-1
Implicit costs
48. Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding
to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000,
and $45,000. What is Jacqui's economic profit from running her own business?
a. $-55,000
b. $-5,000
c. $5,000
d. $20,000
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit
MSC: Analytical
49. Bev is opening her own court-reporting business. She financed the business by withdrawing money from her
personal savings account. When she closed the account, the bank representative mentioned that she would
have earned $300 in interest next year. If Bev hadn’t opened her own business, she would have earned a salary of $25,000. In her first year, Bev’s revenues were $30,000. Which of the following statements is correct?
a. Bev’s total explicit costs are $25,300.
b. Bev’s total implicit costs are $300.
c. Bev’s accounting profits exceed her economic profits by $300.
d. Bev’s economic profit is $4,700.
ANS: D
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit | Accounting profit
MSC: Analytical
50. Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting
business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid
$25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist
to calculate his painting business’s costs.
a. Tyler says his costs are $25,900, and Greg says his costs are $66,500.
b. Tyler says his costs are $25,000, and Greg says his costs are $65,000.
c. Tyler says his costs are $66,500, and Greg says his costs are $66,500.
d. Tyler says his costs are $75,000, and Greg says his costs are $41,500.
ANS: A
PTS: 1
DIF: 3
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit | Accounting profit
MSC: Applicative
51. Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting
business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
12 ❖ Chapter 13/The Costs of Production
$25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist
to calculate his painting business’s profit.
a. Tyler says his profit is $25,900, and Greg says his profit is $66,500.
b. Tyler says his profit is $35,000, and Greg says he lost $5,900.
c. Tyler says his profit is $34,100, and Greg says he lost $6,500.
d. Tyler says his profit is $34,100, and Greg says his profit is $34,100.
ANS: C
PTS: 1
DIF: 3
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit | Accounting profit
MSC: Applicative
52. Which of the following statements is correct?
a. Assuming that explicit costs are positive, economic profit is greater than accounting profit.
b. Assuming that implicit costs are positive, accounting profit is greater than economic profit.
c. Assuming that explicit costs are positive, accounting profit is equal to economic profit.
d. Assuming that implicit costs are positive, economic profit is positive.
ANS: B
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit | Accounting profit
MSC: Interpretive
53. Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the
local farmer’s market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds
have grown into flowers, she can sell them for $150 at the farmer’s market. Katherine’s accounting profits are
a. $100, and her economic profits are $25.
b. $100, and her economic profits are $75.
c. $25, and her economic profits are $100.
d. $75, and her economic profits are $125.
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit | Accounting profit
MSC: Analytical
54. Katherine gives piano lessons for $20 per hour. She also grows flowers, which she arranges and sells at the
local farmer’s market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds
have grown into flowers, she can sell them for $150 at the farmer’s market. Katherine’s accounting profits are
a. $100, and her economic profits are $100.
b. $100, and her economic profits are $0.
c. $0, and her economic profits are $100.
d. $0, and her economic profits are $-100.
ANS: B
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit | Accounting profit
MSC: Analytical
55. The difference between accounting profit and economic profit is
a. explicit costs.
b. implicit costs.
c. total revenue.
d. marginal product.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
TOP: Accounting profit | Economic profit
REF:
13-1
MSC: Definitional
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 13
56. Economic profit is equal to total revenue minus the
a. explicit cost of producing goods and services.
b. opportunity cost of producing goods and services.
c. accounting cost of producing goods and services.
d. implicit cost of producing goods and services.
ANS: B
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
57. Economic profit
a. will never exceed accounting profit.
b. is most often equal to accounting profit.
c. is always at least as large as accounting profit.
d. is a less complete measure of profitability than accounting profit.
ANS: A
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-1
Economic profit
13-1
Economic profit
58. When calculating a firm's profit, an economist will subtract only
a. explicit costs from total revenue because these are the only costs that can be measured explicitly.
b. implicit costs from total revenue because these include both the costs that can be directly measured
as well as the costs that can be indirectly measured.
c. the opportunity costs from total revenue because these include both the implicit and explicit costs
of the firm.
d. the marginal cost because the cost of the next unit is the only relevant cost.
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit
MSC: Definitional
59. Total revenue minus both explicit and implicit costs is called
a. accounting profit.
b. economic profit.
c. average total cost.
d. total cost.
ANS: B
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
60. Total revenue minus only explicit costs is called
a. accounting profit.
b. economic profit.
c. average total cost.
d. implicit profit.
ANS: A
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Definitional
1
61. Total revenue minus only implicit costs is called
a. accounting profit.
b. economic profit.
c. opportunity cost.
d. None of the above is correct.
ANS: D
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-1
Economic profit
REF:
TOP:
13-1
Economic profit
REF:
TOP:
13-1
Economic profit
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
14 ❖ Chapter 13/The Costs of Production
62. Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost during the year totaled $85,000. What is Tom’s
economic profit for his first year in business?
a. $0
b. $20,000
c. $65,000
d. $85,000
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit
MSC: Applicative
63. The difference between accounting profit and economic profit relates to
a. the manner in which revenues are defined.
b. how marginal revenue is calculated.
c. the manner in which costs are defined.
d. the price of the good in the market.
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Definitional
13-1
Economic profit
64. Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In
the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane’s
economic profit from her first year in her own practice is
a. -$39,000.
b. $124,000.
c. $163,000.
d. $184,000.
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit
MSC: Applicative
65. Accounting profit is equal to
a. marginal revenue minus marginal cost.
b. total revenue minus the explicit cost of producing goods and services.
c. total revenue minus the opportunity cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.
ANS: B
PTS: 1
DIF: 1
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Accounting profit
MSC: Definitional
66. Which of the following expressions is correct?
a. accounting profit = total revenue - explicit costs
b. economic profit = total revenue - implicit costs
c. economic profit = total revenue - explicit costs
d. Both a and b are correct.
ANS: A
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
67. Which of the following expressions is correct?
a. accounting profit = economic profit + implicit costs
b. accounting profit = total revenue - implicit costs
c. economic profit = accounting profit + explicit costs
d. economic profit = total revenue - implicit costs
ANS: A
PTS: 1
DIF: 3
NAT: Analytic
LOC: Costs of production
MSC: Analytical
REF:
TOP:
13-1
Accounting profit
REF:
TOP:
13-1
Accounting profit
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 15
68. Suppose that for a particular business there are no implicit costs. Then
a. accounting profit will be greater than economic profit.
b. accounting profit will be the same as economic profit.
c. accounting profit will be less than economic profit.
d. the relationship between accounting profit and economic profit cannot be determined without more
information.
ANS: B
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Accounting profit | Economic profit
MSC: Analytical
Scenario 13-1
Calvin wants to start his own business making candles. He can purchase a candle factory that costs $400,000.
Calvin currently has $500,000 in the bank earning 3 percent interest per year.
69. Refer to Scenario 13-1. If Calvin purchases the factory with his own money, what is the annual implicit opportunity cost of purchasing the factory?
a. $0
b. $3,000
c. $12,000
d. $15,000
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Implicit costs | Opportunity cost
MSC: Applicative
70. Refer to Scenario 13-1. Suppose Calvin purchases the factory using $200,000 of his own money and
$200,000 borrowed from a bank at an interest rate of 6 percent. What is Calvin’s annual opportunity cost of
purchasing the factory?
a. $3,000
b. $6,000
c. $15,000
d. $18,000
ANS: D
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Applicative
Scenario 13-2
Chelsea wants to start her own Christmas ornament business. She can purchase a suitable factory that costs
$100,000. Chelsea currently has $150,000 in the bank earning 3 percent interest per year.
71. Refer to Scenario 13-2. Suppose Chelsea purchases the factory using her own money. What is Chelsea’s annual implicit opportunity cost of purchasing the factory?
a. $2,000
b. $3,000
c. $4,500
d. $5,000
ANS: B
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Implicit costs | Opportunity cost
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
16 ❖ Chapter 13/The Costs of Production
72. Refer to Scenario 13-2. Suppose Chelsea purchases the factory using $50,000 of her own money and $50,000
borrowed from a bank at an interest rate of 6 percent. What is Chelsea’s annual opportunity cost of purchasing
the factory?
a. $2,000
b. $3,000
c. $4,500
d. $5,000
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Applicative
Scenario 13-3
Gary is a senior majoring in computer network development at Smart State University. While he has been
attending college, Gary started a computer consulting business to help senior citizens set up their network
connections and teach them how to use e-mail. Gary charges $25 per hour for his consulting services. Gary
also works 5 hours a week for the Economics Department to maintain that department's Web page. The
Economics Department pays Gary $20 per hour.
73. Refer to Scenario 13-3. If Gary can work additional hours at either job, what is the opportunity cost if Gary
spends one hour reading a novel?
a. $20
b. $25
c. $100
d. $125
ANS: B
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Analytical
74. Refer to Scenario 13-3. Which of the following statements is correct?
a. Gary should increase the number of hours he works for the Economics Department to make it
comparable to his consulting business income.
b. Gary is not maximizing his well-being if he continues to work for the Economics Department.
c. If Gary chooses one hour at the beach with his friends rather than spend one more hour with a
consulting client, the forgone income of $25 is considered a cost of the choice to go to the beach.
d. Both b) and c) are correct
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Analytical
Scenario 13-4
Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws
$50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his
savings account is 2%.
75. Refer to Scenario 13-4. Abdul’s explicit cost of capital is
a. $8,000.
b. $4,000.
c. $2,000.
d. $1,000.
ANS: A
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Analytical
REF:
TOP:
13-1
Explicit costs
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 17
76. Refer to Scenario 13-4. Abdul’s implicit cost of capital is
a. $8,000.
b. $4,000.
c. $2,000.
d. $1,000.
ANS: D
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Analytical
REF:
TOP:
13-1
Implicit costs
Scenario 13-5
Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws
$100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her
savings account is 2%.
77. Refer to Scenario 13-5. Emily’s explicit cost of capital is
a. $2,000.
b. $4,000.
c. $12,000.
d. $14,000.
ANS: C
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Analytical
78. Refer to Scenario 13-5. Emily’s implicit cost of capital is
a. $2,000.
b. $4,000.
c. $12,000.
d. $14,000.
ANS: A
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Analytical
REF:
TOP:
13-1
Explicit costs
REF:
TOP:
13-1
Implicit costs
79. Refer to Scenario 13-5. Emily’s total opportunity cost of capital is
a. $2,000.
b. $4,000.
c. $12,000.
d. $14,000.
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-1
Opportunity cost
Scenario 13-6
Tony is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his
local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to
also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day,
he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted
will yield $300 worth of wheat.
80. Refer to Scenario 13-6. What is the total opportunity cost of the day that Farmer Tony spent in the field planting wheat?
a. $130
b. $250
c. $300
d. $380
ANS: D
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
18 ❖ Chapter 13/The Costs of Production
81. Refer to Scenario 13-6. An economist would calculate Tony's total cost to equal
a. $130.
b. $250.
c. $300.
d. $380.
ANS: D
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Applicative
82. Refer to Scenario 13-6. Tony's accountant would calculate the total cost of his farming to equal
a. $25.
b. $130.
c. $300.
d. $380.
ANS: B
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Explicit costs
MSC: Analytical
83. Refer to Scenario 13-6. Tony's accounting profit equals
a. $-80.
b. $130.
c. $170.
d. $260.
ANS: C
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Applicative
84. Refer to Scenario 13-6. Tony's economic profit equals
a. $-130.
b. $-80.
c. $130.
d. $170.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Applicative
REF:
TOP:
13-1
Accounting profit
REF:
TOP:
13-1
Economic profit
Scenario 13-7
Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups,
and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for
cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each.
85. Refer to Scenario 13-7. What are Wanda’s explicit costs per glass?
a. $0.18
b. $0.10
c. $0.08
d. $0.02
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
86. Refer to Scenario 13-7. What are Wanda’s implicit costs per glass?
a. $0.18
b. $0.10
c. $0.08
d. $0.02
ANS: B
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-1
Explicit costs
13-1
Implicit costs
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 19
87. Refer to Scenario 13-7. What are Wanda’s total economic costs per glass?
a. $0.18
b. $0.10
c. $0.08
d. $0.02
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Total cost
MSC: Analytical
88. Refer to Scenario 13-7. What are Wanda’s total accounting profits?
a. $150
b. $126
c. $96
d. $24
ANS: B
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
89. Refer to Scenario 13-7. What are Wanda’s total economic profits?
a. $150
b. $126
c. $96
d. $54
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-1
Economic profit
13-1
Economic profit
Scenario 13-8
Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open
her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment
rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will
cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual
interest of $500.
90. Refer to Scenario 13-8. Ellie's annual implicit costs will equal
a. $55,200.
b. $75,200.
c. $80,500.
d. $165,700.
ANS: C
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Analytical
REF:
TOP:
91. Refer to Scenario 13-8. Ellie's annual accounting costs will equal
a. $55,200.
b. $75,200.
c. $80,500.
d. $165,700.
ANS: A
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-1
Implicit costs
13-1
Explicit costs
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
20 ❖ Chapter 13/The Costs of Production
92. Refer to Scenario 13-8. Ellie's annual economic costs will equal
a. $55,200.
b. $75,200.
c. $80,500.
d. $135,700.
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP: Explicit costs | Implicit costs
MSC: Analytical
13-1
93. Refer to Scenario 13-8. According to Ellie’s accountant, which of the following revenue totals will yield her
business $50,000 in profits?
a. $55,200
b. $105,200
c. $132,500
d. $185,700
ANS: B
PTS: 1
DIF: 3
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Accounting profit
MSC: Analytical
94. Refer to Scenario 13-8. According to an economist, which of the following revenue totals will yield Ellie’s
business $50,000 in economic profits?
a. $55,200
b. $100,200
c. $132,500
d. $185,700
ANS: D
PTS: 1
DIF: 3
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit
MSC: Analytical
Scenario 13-9
Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo
frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo
frame for $30 each.
95. Refer to Scenario 13-9. An accountant would calculate the total cost for one photo frame to be
a. $5.
b. $10.
c. $15.
d. $25.
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Explicit costs
MSC: Applicative
96. Refer to Scenario 13-9. An economist would calculate the total cost for one photo frame to be
a. $5.
b. $10.
c. $15.
d. $25.
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT:
Analytic LOC: Costs of production
TOP: Explicit costs | Implicit costs
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 21
97. Refer to Scenario 13-9. An accountant would calculate the total profit for one photo frame to be
a. $10.
b. $15.
c. $20.
d. $25.
ANS: D
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Accounting profit
MSC: Applicative
98. Refer to Scenario 13-9. An economist would calculate the total profit for one photo frame to be
a. $10.
b. $15.
c. $20.
d. $25.
ANS: B
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit
MSC: Applicative
Scenario 13-10
Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes.
He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each.
99. Refer to Scenario 13-10. The explicit cost for one birdhouse is
a. $4.
b. $5.
c. $8.
d. $9.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Applicative
100. Refer to Scenario 13-10. The implicit cost for one birdhouse is
a. $4.
b. $5.
c. $8.
d. $9.
ANS: A
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Applicative
REF:
TOP:
13-1
Explicit costs
REF:
TOP:
13-1
Implicit costs
101. Refer to Scenario 13-10. An accountant would calculate the total cost for one birdhouse to be
a. $5.
b. $8.
c. $9.
d. $13.
ANS: A
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Explicit costs
MSC: Applicative
102. Refer to Scenario 13-10. An economist would calculate the total cost for one birdhouse to be
a. $5.
b. $8.
c. $9.
d. $13.
ANS: C
PTS: 1
DIF: 2
REF: 13-1
NAT:
Analytic LOC: Costs of production
TOP: Explicit costs | Implicit costs
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
22 ❖ Chapter 13/The Costs of Production
103. Refer to Scenario 13-10. An accountant would calculate the total profit for one birdhouse to be
a. $7.
b. $11.
c. $12.
d. $15.
ANS: D
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Accounting profit
MSC: Applicative
104. Refer to Scenario 13-10. An economist would calculate the total profit for one birdhouse to be
a. $7.
b. $11.
c. $12.
d. $15.
ANS: B
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Accounting profit
MSC: Applicative
Scenario 13-11
Zach withdrew $400,000 out of his personal savings account and used it to start his new cookie business. The
bank account pays 3 percent interest per year. During the first year of his business, Zach sold 6,000 boxes of
cookies for $2.50 per box. Also during the first year, the cookie business made monetary outlays of $9,000.
You may assume that there is no opportunity cost to Zach’s time.
105. Refer to Scenario 13-11. Zach's accounting profit for the year was
a. $-494,000.
b. $-6,000.
c. $6,000.
d. $12,000.
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Applicative
106. Refer to Scenario 13-11. Zach's economic profit for the year was
a. $-506,000.
b. $-6,000.
c. $3,000.
d. $6,000.
ANS: B
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Applicative
13-1
Accounting profit
13-1
Economic profit
PRODUCTION AND COSTS
1. Which of these assumptions is often realistic for a firm in the short run?
a. The firm can vary both the size of its factory and the number of workers it employs.
b. The firm can vary the size of its factory but not the number of workers it employs.
c. The firm can vary the number of workers it employs but not the size of its factory.
d. The firm can vary neither the size of its factory nor the number of workers it employs.
ANS: C
PTS: 1
DIF: 1
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function | Short run
MSC: Definitional
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 23
2. Assume a certain firm regards the number of workers it employs as variable but regards the size of its factory
as fixed. This assumption is often realistic
a. in the short run but not in the long run.
b. in the long run but not in the short run.
c. both in the short run and in the long run.
d. neither in the short run nor in the long run.
ANS: A
PTS: 1
DIF: 1
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function | Short run
MSC: Interpretive
3. Suppose that a “doggie day care” firm uses only two inputs: hourly workers (labor) and a building (capital).
In the short run, the firm most likely considers
a. both labor and capital to be fixed.
b. both labor and capital to be variable.
c. labor to be variable and capital to be fixed.
d. capital to be variable and labor to be fixed.
ANS: C
PTS: 1
DIF: 1
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function | Short run
MSC: Interpretive
4. A production function describes
a. how a firm maximizes profits.
b. how a firm turns inputs into output.
c. the minimal cost of producing a given level of output.
d. the relationship between cost and output.
ANS: B
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
5. A production function is a relationship between inputs and
a. quantity of output.
b. revenue.
c. costs.
d. profit.
ANS: A
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-2
Production function
REF:
TOP:
13-2
Production function
6. If a firm uses labor to produce output, the firm’s production function depicts the relationship between
a. the number of workers and the quantity of output.
b. marginal product and marginal cost.
c. the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor.
d. fixed inputs and variable inputs in the short run.
ANS: A
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function
MSC: Interpretive
7. For a firm, the production function represents the relationship between
a. implicit costs and explicit costs.
b. quantity of inputs and total cost.
c. quantity of inputs and quantity of output.
d. quantity of output and total cost.
ANS: C
PTS: 1
DIF: 1
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Definitional
13-2
Production function
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
24 ❖ Chapter 13/The Costs of Production
8. For a firm, the relationship between the quantity of inputs and quantity of output is called the
a. profit function.
b. production function.
c. total-cost function.
d. quantity function.
ANS: B
PTS: 1
DIF: 1
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function
MSC: Definitional
Figure 13-1
Output
TP2
TP1
Inputs
9. Refer to Figure 13-1. Suppose the production function shifts from TP1 to TP2. Such a shift in the total product curve is most likely due to an increase in the firm's
a. costs of production.
b. productivity.
c. product price.
d. market share.
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function
MSC: Analytical
10. Refer to Figure 13-1. Suppose the production function shifts from TP2 to TP1. Such a shift in the total product curve is most likely due to a decrease in the firm's
a. costs of production.
b. product price.
c. market share.
d. productivity.
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function
MSC: Analytical
11. Refer to Figure 13-1. Which of the following could explain why the total product curve would shift from TP1
to TP2?
a. There is less capital equipment available to the firm.
b. Labor skills have become rusty and outdated in the firm.
c. The firm has developed improved production technology.
d. The firm is now receiving a higher price for its product.
ANS: C
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 25
12. Refer to Figure 13-1. Which of the following could explain why the total product curve would shift from TP2
to TP1?
a. There is additional capital equipment available to the firm.
b. Labor skills have become rusty and outdated in the firm.
c. The firm has developed improved production technology.
d. The firm is now receiving a higher price for its product.
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function
MSC: Interpretive
13. Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her
sister Kate to work for her. Both she and Kate can make 35 pieces of pottery per week. What is Kate’s marginal product?
a. 55 pieces of pottery
b. 35 pieces of pottery
c. 22.5 pieces of pottery
d. 15 pieces of pottery
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Analytical
14. Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her
sister Kate to work for her. Kate can make 18 pieces of pottery per week. What would be the total output of
Grace’s firm if she hired her sister?
a. 18 pieces of pottery
b. 19 pieces of pottery
c. 20 pieces of pottery
d. 38 pieces of pottery
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Analytical
15. The marginal product of labor is equal to the
a. incremental cost associated with a one unit increase in labor.
b. incremental profit associated with a one unit increase in labor.
c. increase in labor necessary to generate a one unit increase in output.
d. increase in output obtained from a one unit increase in labor.
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Definitional
16. The marginal product of labor can be defined as the change in
a. profit divided by the change in labor.
b. output divided by the change in labor.
c. labor divided by the change in output.
d. labor divided by the change in total cost.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-2
Marginal product
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
26 ❖ Chapter 13/The Costs of Production
17. The marginal product of an input in the production process is the increase in
a. total revenue obtained from an additional unit of that input.
b. profit obtained from an additional unit of that input.
c. total revenue obtained from an additional unit of that input.
d. quantity of output obtained from an additional unit of that input.
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Definitional
18. When a firm's only variable input is labor, then the slope of the production function measures the
a. quantity of labor.
b. quantity of output.
c. total cost.
d. marginal product of labor.
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Applicative
19. Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 132). Then the marginal product of the 13th worker is
a. 8 units of output.
b. 10 units of output.
c. 122 units of output.
d. 132 units of output.
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Applicative
20. Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 5, Q = 125) and (L = 6, Q = 162). Then the marginal product of the 6th worker is
a. 25 units of output.
b. 27 units of output.
c. 37 units of output.
d. 162 units of output.
ANS: C
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Applicative
21. Let L represent the number of workers hired by a firm, and let Q represent that firm’s quantity of output. Assume two points on the firm’s production function are (L=6,Q=147) and (L=7,Q=174). The marginal product
of the seventh worker is
a. 25 units of output.
b. 27 units of output.
c. 37 units of output.
d. 174 units of output.
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 27
22. Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is
able to produce 176 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is
a. 10 units of output.
b. 11 units of output.
c. 16 units of output.
d. 176 units of output.
ANS: B
PTS: 1
DIF: 1
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Applicative
23. Suppose a firm currently produces 225 units of output per day with 15 workers. The firm is able to produce
235 units of output with a 16th worker. What is the marginal product of the 16th worker?
a. 10 units of output
b. 15 units of output
c. 16 units of output
d. 25 units of output
ANS: A
PTS: 1
DIF: 1
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Analytical
24. The marginal product of any input is the
a. increase in total cost associated with a one-unit increase in production.
b. change in total output associated with a $1.00 increase in total cost.
c. increase in total cost resulting from the hiring of an additional worker.
d. increase in total output obtained from one additional unit of that input.
ANS: D
PTS: 1
DIF: 1
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Definitional
25. Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Together, Eldin and Murphy can paint five houses per week. What is Murphy’s marginal product?
a. 2 houses
b. 3 houses
c. 5 houses
d. 8 houses
ANS: A
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Analytical
26. Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Murphy can paint five houses per week. What is the maximum total output possible if Eldin hires Murphy?
a. 2 houses
b. 3 houses
c. 5 houses
d. 8 houses
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
28 ❖ Chapter 13/The Costs of Production
Table 13-1
Number of Workers
0
1
2
3
4
5
Total Output
0
Marginal Product
-30
40
50
40
30
27. Refer to Table 13-1. What is total output when 1 worker is hired?
a. 30
b. 40
c. 120
d. 160
ANS: A
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
28. Refer to Table 13-1. What is total output when 2 workers are hired?
a. 10
b. 40
c. 70
d. 120
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
29. Refer to Table 13-1. What is total output when 3 workers are hired?
a. 10
b. 40
c. 70
d. 120
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
30. Refer to Table 13-1. What is total output when 4 workers are hired?
a. -10
b. 70
c. 120
d. 160
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
31. Refer to Table 13-1. What is total output when 5 workers are hired?
a. -10
b. 120
c. 160
d. 190
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-2
Marginal product
13-2
Marginal product
13-2
Marginal product
13-2
Marginal product
13-2
Marginal product
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 29
Table 13-2
Number of
Workers
0
1
2
3
4
Total
Output
0
200
450
600
650
Marginal
Product
--
32.
Refer to Table 13-2. What is the marginal product of the first worker?
a. 250 units
b. 200 units
c. 150 units
d. 50 units
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Analytical
33. Refer to Table 13-2. What is the marginal product of the second worker?
a. 250 units
b. 200 units
c. 150 units
d. 50 units
ANS: A
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Analytical
34. Refer to Table 13-2. What is the marginal product of the third worker?
a. 250 units
b. 200 units
c. 150 units
d. 50 units
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
35. Refer to Table 13-2. What is the marginal product of the fourth worker?
a. 250 units
b. 200 units
c. 150 units
d. 50 units
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-2
Marginal product
13-2
Marginal product
36. Refer to Table 13-2. At which number of workers does diminishing marginal product begin?
a. 1
b. 2
c. 3
d. 4
ANS: C
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
30 ❖ Chapter 13/The Costs of Production
Table 13-3
Number of
Workers
0
1
2
3
4
Output
0
90
170
230
240
Fixed
Cost
$50
$50
$50
$50
$50
Variable
Cost
$0
$20
$40
$60
$80
Total
Cost
$50
$70
$90
$110
$130
37. Refer to Table 13-3. The marginal product of the second worker is
a. 90 units.
b. 85 units.
c. 80 units.
d. 20 units.
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
38. Refer to Table 13-3. The marginal product of the third worker is
a. 230 units.
b. 100 units.
c. 77 units.
d. 60 units.
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
39. Refer to Table 13-3. The marginal product of the fourth worker is
a. 10 units.
b. 60 units.
c. 230 units.
d. 240 units.
ANS: A
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-2
Marginal product
13-2
Marginal product
13-2
Marginal product
40. Refer to Table 13-3. At which number of workers does diminishing marginal product begin?
a. 1
b. 2
c. 3
d. 4
ANS: B
PTS: 1
DIF: 1
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Analytical
41. Refer to Table 13-3. If the firm can sell its output for $1 per unit, what is the profit-maximizing level of output?
a. 240 units
b. 230 units
c. 190 units
d. 170 units
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Profit
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 31
42. When adding another unit of labor leads to an increase in output that is smaller than the increases in output
that resulted from adding previous units of labor, the firm is experiencing
a. diminishing labor.
b. diminishing output.
c. diminishing marginal product.
d. negative marginal product.
ANS: C
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Applicative
43. On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to
produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent
with the property of diminishing marginal product?
a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
b. The farmer is able to produce 5,800 bushels of wheat when he hires 4 workers.
c. The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers.
d. Any of the above could be correct.
ANS: A
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Analytical
44. On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to
produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent
with the property of diminishing marginal product?
a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
b. The farmer is able to produce 5,400 bushels of wheat when he hires 4 workers.
c. The farmer is able to produce 5,200 bushels of wheat when he hires 4 workers.
d. Any of the above could be correct.
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Analytical
45. When the marginal product of an input declines as the quantity of that input increases, the production function
exhibits
a. increasing marginal product.
b. diminishing marginal product.
c. diminishing total product.
d. Both b and c are correct.
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Definitional
46. As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers
may be underutilized because they have little work to do while waiting in line to use the machinery. When this
occurs, Bubba’s Bubble Gum Company encounters
a. economies of scale.
b. diseconomies of scale.
c. increasing marginal product.
d. diminishing marginal product.
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
32 ❖ Chapter 13/The Costs of Production
47. If a production function shows declining marginal product of an input as the quantity of the input increases,
then the production function exhibits
a. diminishing profitability.
b. increasing returns to scale.
c. increasing marginal product.
d. decreasing marginal product.
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Definitional
Figure 13-2
100
Output
90
80
70
60
50
40
30
20
10
1
2
3
4
5
6
7
8
W orkers
48. Refer to Figure 13-2. The graph illustrates a typical
a. total-cost curve.
b. production function.
c. production possibilities frontier.
d. marginal product of labor curve.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
49. Refer to Figure 13-2. As the number of workers increases,
a. total output increases but at a decreasing rate.
b. marginal product increases but at a decreasing rate.
c. marginal product increases at an increasing rate.
d. total output decreases.
ANS: A
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Analytical
50. Refer to Figure 13-2. As the number of workers increases,
a. marginal product decreases.
b. total output decreases.
c. marginal product increases but at a decreasing rate.
d. Both a and b are correct.
ANS: A
PTS: 1
DIF: 3
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Analytical
REF:
TOP:
13-2
Production function
REF:
TOP:
13-2
Marginal product
REF:
13-2
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 33
51. Refer to Figure 13-2. If the figure represented production at a cookie factory, the factory would be experiencing
a. diminishing marginal product of workers.
b. diminishing marginal cost of cookie production.
c. decreasing cost of cookie production.
d. decreasing output of cookies.
ANS: A
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Analytical
52. Refer to Figure 13-2. The graph illustrates a typical production function. Based on its shape, what does the
corresponding total cost curve look like?
a. an upward-sloping curve that increases at an increasing rate
b. an upward-sloping curve that increases at a decreasing rate
c. a downward-sloping curve
d. a horizontal straight line
ANS: A
PTS: 1
DIF: 3
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function | Total-cost curve
MSC:
Interpretive
Table 13-4
Charles’s Math Tutoring
Number of
Output (number
Workers
of students tutored per
week)
0
0
1
20
2
45
3
60
4
70
53.
Refer to Table 13-4. What is the marginal product of the second worker?
a. 15 students
b. 20 students
c. 22.5 students
d. 25 students
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Analytical
54. Refer to Table 13-4. What is the marginal product of the third worker?
a. 15 students
b. 20 students
c. 35 students
d. 60 students
ANS: A
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-2
Marginal product
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
34 ❖ Chapter 13/The Costs of Production
55. Refer to Table 13-4. Charles’s math tutoring company experiences diminishing marginal productivity with
the addition of the
a. first worker.
b. second worker.
c. third worker.
d. fourth worker.
ANS: C
PTS: 1
DIF: 3
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Analytical
56. Refer to Table 13-4. Suppose that Charles’s math tutoring company has a fixed cost of $50 per month for his
cell phone. Each worker costs Charles $60 per day. As output increases from 0 to 45 students, Charles’s total
cost curve
a. increases but gets flatter.
b. increases and gets steeper.
c. decreases and gets flatter.
d. decreases but gets steeper.
ANS: A
PTS: 1
DIF: 3
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Total-cost curve
MSC: Interpretive
57. Refer to Table 13-4. Suppose that Charles’s math tutoring company has a fixed cost of $50 per month for his
cell phone. Each worker costs Charles $60 per day. As output increases from 45 to 70 students, Charles’s
total cost curve
a. increases but gets flatter.
b. increases and gets steeper.
c. decreases and gets flatter.
d. decreases but gets steeper.
ANS: B
PTS: 1
DIF: 3
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Total-cost curve
MSC: Interpretive
Table 13-5
Number of
Workers
0
1
2
3
4
5
6
Output
0
1,000
2,000
2,700
3,200
3,500
3,600
58. Refer to Table 13-5. The marginal product of the third worker is
a. 1,000 units.
b. 900 units.
c. 700 units.
d. 500 units.
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-2
Marginal product
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 35
59. Refer to Table 13-5. The marginal product of the fourth worker is
a. 900 units.
b. 800 units.
c. 700 units.
d. 500 units.
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-2
Marginal product
60. Refer to Table 13-5. Diminishing marginal product begins with the addition of the
a. second worker.
b. third worker.
c. fourth worker.
d. fifth worker.
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Analytical
61. Refer to Table 13-5. Assume that fixed costs are $500, and variable costs are $100 per worker. For this firm,
what are the shapes of the production function and the total-cost curve?
a. Both the production function and total-cost curve are increasing at an increasing rate.
b. Both the production function and total-cost curve are increasing at a decreasing rate.
c. The production function is increasing at a decreasing rate, whereas the total-cost function is
increasing at an increasing rate.
d. The production function is increasing at an increasing rate, whereas the total-cost function is
increasing at a decreasing rate.
ANS: C
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function | Total-cost curve
MSC:
Analytical
Table 13-6
Wooden Chair Factory
Number
Number
of
of
Workers
Machines
1
2
3
4
5
6
7
2
2
2
2
2
2
2
Output
(chairs
produced
per hour)
5
10
20
35
55
70
80
Marginal
Product of
Labor
Cost of
Workers
Cost of
Machines
Total
Cost
62. Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine
is $20 per day regardless of the number of chairs produced. If the factory produces at a rate of 70 chairs per
hour and operates 8 hours per day, what is the factory’s total labor cost per day?
a. $72
b. $112
c. $576
d. $616
ANS: C
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Variable costs
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
36 ❖ Chapter 13/The Costs of Production
63. Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine
is $20 per day regardless of the number of chairs produced. What is the total daily cost of producing at a rate
of 55 chairs per hour if the factory operates 8 hours per day?
a. $480
b. $576
c. $520
d. $616
ANS: C
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Total cost
MSC: Applicative
64. Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine
is $20 per day regardless of the number of chairs produced. Assume the number of machines does not change.
If the factory produces at a rate of 78 chairs per hour, what is the total machine cost per day?
a. $20
b. $40
c. $240
d. We are unable to determine total machine costs from the information given.
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Fixed costs
MSC: Applicative
65. Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine
is $20 per day regardless of the number of chairs produced. If the factory produces at a rate of 35 chairs per
hour, what is the total labor cost per hour?
a. $40
b. $48
c. $384
d. $424
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Variable costs
MSC: Applicative
66. Refer to Table 13-6. Assume the Wooden Chair Factory currently employs 5 workers. What is the marginal
product of labor when the factory adds a 6th worker?
a. 5 chairs per hour
b. 15 chairs per hour
c. 25 chairs per hour
d. 70 chairs per hour
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Applicative
67. Refer to Table 13-6. Assume the Wooden Chair Factory currently employs 2 workers. What is the marginal
product of labor when the factory adds a 3rd worker?
a. 5 chairs per hour
b. 10 chairs per hour
c. 20 chairs per hour
d. 25 chairs per hour
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 37
68. Refer to Table 13-6. The Wooden Chair Factory experiences diminishing marginal product of labor with the
addition of which worker?
a. the third worker
b. the fourth worker
c. the fifth worker
d. the sixth worker
ANS: D
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Applicative
Figure 13-3
100
Cost
90
80
70
60
50
40
30
20
10
2
4
6
8
10
12
14
16
Quantity
69. Refer to Figure 13-3. The graph illustrates a typical
a. total-cost curve.
b. production function.
c. production possibilities frontier.
d. fixed-cost curve.
ANS: A
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-2
Total-cost curve
70. Refer to Figure 13-3. The graph illustrates a typical total cost curve. Based on its shape, what does the corresponding production function look like?
a. an upward-sloping curve that increases at an increasing rate
b. an upward-sloping curve that increases at a decreasing rate
c. a downward-sloping curve
d. a horizontal straight line
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Total-cost curve | Production function
MSC:
Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
38 ❖ Chapter 13/The Costs of Production
71. Refer to Figure 13-3. Which of the following is true of the production function (not pictured) that underlies
this total cost function?
(i)
Total output increases as the quantity of inputs increases but at a decreasing rate.
(ii)
Marginal product is diminishing for all levels of input usage.
(iii)
The slope of the production function decreases as the quantity of inputs increases.
a. (i) only
b. (ii) and (iii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
ANS: D
PTS: 1
DIF: 3
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Total-cost curve | Production function
MSC:
Interpretive
72. Refer to Figure 13-3. The changing slope of the total cost curve reflects
a. decreasing average variable cost.
b. decreasing average total cost.
c. decreasing marginal product.
d. increasing fixed cost.
ANS: C
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Total-cost curve | Marginal product
MSC: Interpretive
73. Refer to Figure 13-3. Which of the following statements best captures the nature of the underlying production
function (not pictured)?
a. Output increases at a decreasing rate with additional units of input.
b. Output increases at an increasing rate with additional units of input.
c. Output decreases at a decreasing rate with additional units of input.
d. Output decreases at an increasing rate with additional units of input.
ANS: A
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function
MSC: Interpretive
74. Refer to Figure 13-3. Assuming that the firm depicted produces cookies, which of the statements below is
most consistent with the shape of the total cost curve?
a. Producing an additional cookie is always more costly than producing the previous cookie.
b. Total production of cookies decreases with additional units of input.
c. Producing additional cookies is equally costly, regardless of how many cookies are already being
produced.
d. Producing additional cookies becomes increasingly costly only when the number of cookies already
being produced is large.
ANS: A
PTS: 1
DIF: 3
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function
MSC: Interpretive
Scenario 13-12
If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels
of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs
$120, and seeds are his only cost.
75. Refer to Scenario 13-12. Farmer Brown’s production function exhibits
a. increasing marginal product.
b. constant marginal product.
c. diminishing marginal product.
d. The production function is unrelated to the marginal product.
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Analytical
13-2
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 39
76. Refer to Scenario 13-12. Farmer Brown’s total-cost curve is
a. increasing at an increasing rate.
b. increasing at a decreasing rate.
c. increasing at a constant rate.
d. decreasing.
ANS: A
PTS: 1
DIF: 3
NAT: Analytic
LOC: Costs of production
TOP: Production function | Total-cost curve
MSC:
REF:
13-2
Analytical
Scenario 13-13
Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds,
she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3 bags, she gets 900
pumpkins. A bag of seeds costs $100, and seeds are her only cost.
77. Refer to Scenario 13-13. Joan’s production function exhibits
a. increasing marginal product.
b. decreasing marginal product.
c. constant marginal product.
d. Any of the above could be correct.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Analytical
78. Refer to Scenario 13-13. Joan’s total-cost curve is
a. increasing at an increasing rate.
b. increasing at a decreasing rate.
c. increasing at a constant rate.
d. decreasing.
ANS: A
PTS: 1
DIF: 3
NAT: Analytic
LOC: Costs of production
TOP: Production function | Total-cost curve
MSC:
REF:
13-2
REF:
13-2
Analytical
79. Which of the following statements about a production function is correct for a firm that uses labor to produce
output?
a. The production function depicts the relationship between the quantity of labor and the quantity of
output.
b. The slope of the production function measures marginal product.
c. The slopes of the production function and the total cost curve are inversely related; if one is
increasing, the other is decreasing.
d. All of the above are correct.
ANS: D
PTS: 1
DIF: 3
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function | Total-cost curve
MSC:
Interpretive
80. A total-cost curve shows the relationship between the
a. quantity of an input used and the total cost of production.
b. quantity of output produced and the total cost of production.
c. total cost of production and profit.
d. total cost of production and total revenue.
ANS: B
PTS: 1
DIF: 1
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Definitional
13-2
Total-cost curve
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
40 ❖ Chapter 13/The Costs of Production
81. If the total cost curve gets steeper as output increases, the firm is experiencing
a. diseconomies of scale.
b. economies of scale.
c. diminishing marginal product.
d. increasing marginal product.
ANS: C
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Total-cost curve
MSC: Interpretive
82. David’s firm experiences diminishing marginal product for all ranges of inputs. The total cost curve associated with David’s firm
a. gets flatter as output increases.
b. gets steeper as output increases.
c. is constant for all ranges of output.
d. is unrelated to the production function.
ANS: B
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Total-cost curve
MSC: Interpretive
THE VARIOUS MEASURES OF COST
1. Some costs do not vary with the quantity of output produced. Those costs are called
a. marginal costs.
b. average costs.
c. fixed costs.
d. explicit costs.
ANS: C
PTS: 1
DIF: 1
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Fixed costs
MSC: Definitional
2. Which of the following costs do not vary with the amount of output a firm produces?
a. average fixed costs
b. fixed costs and average fixed costs
c. marginal costs and average fixed costs
d. fixed costs
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Fixed costs
MSC: Definitional
3. Fixed costs can be defined as costs that
a. vary inversely with production.
b. vary in proportion with production.
c. are incurred only when production is large enough.
d. are incurred even if nothing is produced.
ANS: D
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
4. In the short run, a firm incurs fixed costs
a. only if it incurs variable costs.
b. only if it produces no output.
c. only if it produces a positive quantity of output.
d. whether it produces output or not.
ANS: D
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-3
Fixed costs
REF:
TOP:
13-3
Fixed costs
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 41
5. For a construction company that builds houses, which of the following costs would be a fixed cost?
a. the $50,000 per year salary paid to a construction foreman
b. the $30,000 per year salary paid to the company's bookkeeper
c. the $10,000 per year premium paid to an insurance company
d. All of the above are correct.
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Fixed costs
MSC: Interpretive
6. For a construction company that builds houses, which of the following costs would be a fixed cost?
a. the $20 per hour wage paid to a construction foreman
b. the $30,000 per year salary paid to the company's bookkeeper
c. the $2 per worker-hour paid to the state government for workers’ compensation insurance
d. All of the above are correct.
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Fixed costs
MSC: Interpretive
7. Which of the following costs of publishing a book is a fixed cost?
a. author royalties of 5% per book
b. the costs of paper and binding
c. shipping and postage expenses
d. composition, typesetting, and jacket design for the book
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-3
Fixed costs
8. Suppose that for a particular firm the only variable input into the production process is labor and that output
equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost
of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume
that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired.
What is the firm's fixed cost?
a. $40
b. $60
c. $80
d. $100
ANS: B
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Fixed costs
MSC: Analytical
9. Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely
to be considered fixed costs?
a. the cost of mustard
b. the cost of hotdog buns
c. wages paid to workers who sell hot dogs
d. the cost of bookkeeping services
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Fixed costs
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
42 ❖ Chapter 13/The Costs of Production
10. Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand
now include the cost of
a. building the lemonade stand.
b. hiring an artist to design a logo for her sign.
c. lemons and sugar.
d. All of the above are correct.
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Variable costs
MSC: Interpretive
11. Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand
now include the cost of
a. lemons and sugar.
b. paper cups.
c. the wages paid to her hourly workers.
d. All of the above are correct.
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Variable costs
MSC: Interpretive
12. If a firm produces nothing, which of the following costs will be zero?
a. total cost
b. fixed cost
c. opportunity cost
d. variable cost
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-3
Variable costs
13. For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?
a. the $20 million payment that the firm pays each year for accounting services
b. the cost of the steel that is used in producing automobiles
c. the rent that the firm pays for office space in a suburb of St. Louis
d. All of the above are correct.
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Variable costs
MSC: Interpretive
14. For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?
a. the unemployment insurance premium that the firm pays to the state of Missouri that is calculated
based on the number of worker-hours that the firm uses
b. the cost of the steel that is used in producing automobiles
c. the cost of the electricity of running the machines on the factory floor
d. All of the above are correct.
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Variable costs
MSC: Interpretive
15. When a firm is able to put idle equipment to use by hiring another worker,
a. variable costs will rise.
b. variable costs will fall.
c. fixed costs will fall.
d. both fixed costs and variable costs will rise.
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Variable costs
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 43
16. Which of the following is the best example of a variable cost?
a. monthly wage payments for hired labor
b. annual property tax payments for a building
c. monthly rent payments for a warehouse
d. annual insurance payments for a warehouse
ANS: A
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
17. Total cost can be divided into two types of costs:
a. fixed costs and variable costs.
b. fixed costs and marginal costs.
c. variable costs and marginal costs.
d. average costs and marginal costs.
ANS: A
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-3
Variable costs
REF:
TOP:
13-3
Total cost
18. Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the
firm hires 6 workers it produces 90 units of output. Fixed cost of production are $6 and the variable cost per
unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the
total cost of production when the firm hires 7 workers?
a. $66
b. $76
c. $906
d. $946
ANS: B
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Total cost
MSC: Applicative
19. Suppose that for a particular firm the only variable input into the production process is labor and that output
equals zero when no workers are hired. In addition, suppose that marginal cost of the third worker hired is
$40, and the average total cost when three workers are hired is $50. What is the total cost of production when
three workers are hired?
a. $50
b. $90
c. $120
d. $150
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Total cost
MSC: Analytical
20. Cindy’s Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units
of output (car washes). The firm's total cost is
a. $100.
b. $200.
c. $300.
d. $500.
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Total cost
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
44 ❖ Chapter 13/The Costs of Production
21. The cost of producing the typical unit of output is the firm's
a. average total cost.
b. opportunity cost.
c. variable cost.
d. marginal cost.
ANS: A
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Definitional
22. Average total cost is equal to
a. output/total cost.
b. total cost - total quantity of output.
c. average variable cost + total fixed cost.
d. total cost/output.
ANS: D
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Definitional
1
REF:
TOP:
13-3
Average total cost
REF:
TOP:
13-3
Average total cost
23. Average total cost equals
a. change in total costs divided by quantity produced.
b. change in total costs divided by change in quantity produced.
c. (fixed costs + variable costs) divided by quantity produced.
d. (fixed costs + variable costs) divided by change in quantity produced.
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Definitional
24. Average total cost tells us the
a. total cost of the first unit of output, if total cost is divided evenly over all the units produced.
b. cost of a typical unit of output, if total cost is divided evenly over all the units produced.
c. cost of the last unit of output, if total cost does not include a fixed cost component.
d. variable cost of a firm that is producing at least one unit of output.
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Interpretive
25. Which of the following expressions is correct?
a. marginal cost = (change in quantity of output)/(change in total cost)
b. average total cost = (total cost)/(quantity of output)
c. total cost = variable cost + marginal cost
d. average variable cost = (quantity of output)/(total variable cost)
ANS: B
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
26. Average total cost (ATC) is calculated as follows:
a. ATC = (change in total cost)/(change in quantity of output).
b. ATC = (change in total cost)/(change in quantity of input).
c. ATC = (total cost)/(quantity of output).
d. ATC = (total cost)/(quantity of input).
ANS: C
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-3
Average total cost
13-3
Average total cost
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 45
27. Which of the following measures of cost is best described as "the cost of a typical unit of output if total cost is
divided evenly over all the units produced?"
a. average fixed cost
b. average variable cost
c. average total cost
d. marginal cost
ANS: C
PTS: 1
DIF: 1
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Definitional
28. Larry's Lunchcart is a small street vendor business. If Larry makes 15 pretzels in his first hour of business and
incurs a total cost of $16.50, his average total cost per pretzel is
a. $1.10.
b. $6.50.
c. $15.00.
d. $16.50.
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Applicative
29. At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the
twenty-first pair of boots is $83. We can conclude that the
a. average variable cost of 21 pairs of boots is $23.
b. average total cost of 21 pairs of boots is $23.
c. average total cost of 21 pairs of boots is $15.09.
d. marginal cost of the 20th pair of boots is $20.
ANS: B
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Applicative
30. Suppose that for a particular firm the only variable input into the production process is labor and that output
equals zero when no workers are hired. In addition, suppose that when the firm hires 4 workers, the firm produces 50 units of output. If the fixed cost of production is $4, the variable cost per unit of labor is $20, and the
marginal product of labor for the fifth unit of labor is 2, what is the average total cost of production when the
firm hires 5 workers?
a. $2.00
b. $20.00
c. $20.80
d. $22.80
ANS: A
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Applicative
31. Tom’s Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for
10,000 tents. At that level of output, the firm's average total costs equal
a. $80
b. $90
c. $100
d. $110
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
46 ❖ Chapter 13/The Costs of Production
32. The Wacky Widget company has total fixed costs of $100,000 per year. The firm's average variable cost is $5
for 10,000 widgets. At that level of output, the firm's average total costs equal
a. $10
b. $15
c. $100
d. $150
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Applicative
33. Suppose that for a particular firm the only variable input into the production process is labor and that output
equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output
are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost
when six units are produced?
a. $10
b. $25
c. $30
d. $35
ANS: D
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Analytical
34. Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the
firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable
cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information,
what is the average total cost of production when the firm hires 7 workers?
a. $10.06
b. $9.64
c. 81 cents
d. 70 cents
ANS: C
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Applicative
35. The Wacky Widget company has total fixed costs of $100,000 per year. The firm’s average variable cost is
$10 for 10,000 widgets. At that level of output, the firm’s average total costs equal
a. $10
b. $15
c. $20
d. $25
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Applicative
36. Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of
output. The firm's total fixed costs equal
a. $2.
b. $4.
c. $1,000.
d. $2,000.
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average fixed cost
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 47
37. Which of the following statements is not correct?
a. Fixed costs are constant.
b. Variable costs change as output changes.
c. Average fixed costs are constant.
d. Average total costs are typically U-shaped.
ANS: C
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Applicative
REF:
TOP:
13-3
Average fixed cost
38. Suppose that for a particular firm the only variable input into the production process is labor and that output
equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the
total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units
were produced?
a. $4
b. $10
c. $40
d. $135
ANS: A
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average fixed cost
MSC: Analytical
39. A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000,
a. average fixed cost is 50 cents.
b. average variable cost is $2.
c. average total cost is $2.50.
d. average total cost is 50 cents.
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average fixed cost
MSC: Applicative
40. A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100,
a. average fixed cost is $10.
b. average variable cost is $3.
c. average total cost is $4.
d. average total cost is $5.
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average variable cost
MSC: Analytical
41. Variable cost divided by quantity produced is
a. average total cost.
b. marginal cost.
c. profit.
d. None of the above is correct.
ANS: D
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Definitional
2
42. Variable cost divided by the change in quantity produced is
a. average variable cost.
b. marginal cost.
c. average total cost.
d. None of the above is correct.
ANS: D
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-3
Average variable cost
REF:
TOP:
13-3
Average variable cost
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
48 ❖ Chapter 13/The Costs of Production
43. Cindy’s Car Wash has average variable costs of $2 and average total costs of $3 when it produces 100 units of
output (car washes). The firm's total variable cost is
a. $100.
b. $200.
c. $300.
d. $500.
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average variable cost
MSC: Applicative
44. Consider the following information about baseball production at Bobby's Baseball Factory:
Worker
Marginal Product
1
3
2
5
3
8
4
10
5
7
6
4
7
2
Bobby pays all his workers the same wage, and labor is his only variable cost. From this information we can
conclude that Bobby's average variable cost decreases
a. as output rises from 0 to 10, but rises after that.
b. as output rises from 0 to 26, but rises after that.
c. as output rises from 0 to 33, but increases after that.
d. continually as output rises.
ANS: B
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average variable cost
MSC: Applicative
45. A firm produces 400 units of output at a total cost of $1,200. If fixed costs are $200,
a. average fixed cost is $2.
b. average variable cost is $2.50.
c. average total cost is $4.
d. average total cost is $5.
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average variable cost
MSC: Applicative
Table 13-7
The Flying Elvis Copter Rides
Quantity
Total
Cost
0
1
2
3
$50
$150
G
M
Fixed
Cost
Variable
Cost
Marginal
Cost
$50
A
H
N
$0
B
I
O
-C
$120
P
46. Refer to Table 13-7. What is the value of A?
a. $25
b. $50
c. $100
d. $200
ANS: B
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
1
Average
Fixed
Cost
-D
J
Q
REF:
TOP:
Average
Variable
Cost
-E
K
$120
Average
Total
Cost
-F
L
R
13-3
Fixed costs
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 49
47. Refer to Table 13-7. What is the value of B?
a. $25
b. $50
c. $100
d. $200
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
48. Refer to Table 13-7. What is the value of C?
a. $25
b. $50
c. $100
d. $200
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
49. Refer to Table 13-7. What is the value of D?
a. $25
b. $50
c. $100
d. $200
ANS: B
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
50. Refer to Table 13-7. What is the value of E?
a. $25
b. $50
c. $100
d. $150
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
51. Refer to Table 13-7. What is the value of F?
a. $50
b. $100
c. $150
d. $200
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
52. Refer to Table 13-7. What is the value of G?
a. $30
b. $120
c. $220
d. $270
ANS: D
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
1
REF:
TOP:
13-3
Variable costs
2
REF:
TOP:
13-3
Marginal cost
2
REF:
TOP:
13-3
Average fixed cost
2
REF:
TOP:
13-3
Average variable cost
2
REF:
TOP:
13-3
Average total cost
3
REF:
TOP:
13-3
Total cost
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
50 ❖ Chapter 13/The Costs of Production
53. Refer to Table 13-7. What is the value of H?
a. $0
b. $50
c. $220
d. $270
ANS: B
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
54. Refer to Table 13-7. What is the value of I?
a. $110
b. $120
c. $220
d. $270
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
55. Refer to Table 13-7. What is the value of J?
a. $25
b. $50
c. $110
d. $220
ANS: A
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
56. Refer to Table 13-7. What is the value of K?
a. $25
b. $50
c. $110
d. $220
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
57. Refer to Table 13-7. What is the value of L?
a. $60
b. $135
c. $240
d. $270
ANS: B
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
58. Refer to Table 13-7. What is the value of M?
a. $50
b. $140
c. $360
d. $410
ANS: D
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
1
REF:
TOP:
13-3
Fixed costs
2
REF:
TOP:
13-3
Variable costs
2
REF:
TOP:
13-3
Average fixed cost
3
REF:
TOP:
13-3
Average variable cost
3
REF:
TOP:
13-3
Average total cost
3
REF:
TOP:
13-3
Total cost
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 51
59. Refer to Table 13-7. What is the value of N?
a. $50
b. $140
c. $360
d. $410
ANS: A
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
60. Refer to Table 13-7. What is the value of O?
a. $40
b. $140
c. $360
d. $410
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
61. Refer to Table 13-7. What is the value of P?
a. $50
b. $140
c. $360
d. $410
ANS: B
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
62. Refer to Table 13-7. What is the value of Q?
a. $16.67
b. $50
c. $136.67
d. $360
ANS: A
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
63. Refer to Table 13-7. What is the value of R?
a. $16.67
b. $50
c. $136.67
d. $360
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
1
REF:
TOP:
13-3
Fixed costs
3
REF:
TOP:
13-3
Variable costs
3
REF:
TOP:
13-3
Marginal cost
3
REF:
TOP:
13-3
Marginal cost
3
REF:
TOP:
13-3
Average total cost
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
52 ❖ Chapter 13/The Costs of Production
Table 13-8
Quantity
of Output
0
1
2
3
4
5
6
Fixed
Cost
$20
$20
$20
$20
$20
$20
$20
Variable
Cost
$0
$10
$40
$80
$130
$200
$300
64. Refer to Table 13-8. What is the average fixed cost of producing 5 units of output?
a. $4
b. $5
c. $40
d. $44
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average fixed cost
MSC: Analytical
65. Refer to Table 13-8. What is the average variable cost of producing 5 units of output?
a. $4
b. $5
c. $40
d. $44
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average variable cost
MSC: Analytical
66. Refer to Table 13-8. What is the marginal cost of producing the fifth unit of output?
a. $4
b. $40
c. $50
d. $70
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Analytical
67. Refer to Table 13-8. What is the shape of the marginal cost curve for this firm?
a. constant
b. upward-sloping
c. downward-sloping
d. U-shaped
ANS: B
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 53
Table 13-9
Quantity
of Posters
0
1
2
3
4
5
6
Measures of Cost for Very Brady Poster Factory
Variable
Total
Costs
Costs
$1
$3
$6
$10
Fixed
Costs
$10
$13
$16
$25
$21
$10
68. Refer to Table 13-9. The average fixed cost of producing 5 posters is
a. $1.00.
b. $2.00.
c. $3.00.
d. $5.00.
ANS: B
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Applicative
69. Refer to Table 13-9. The average variable cost of producing 4 posters is
a. $2.00.
b. $2.50.
c. $3.33.
d. $5.00.
ANS: B
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Applicative
70. Refer to Table 13-9. The total cost of producing 1 poster is
a. $1.00.
b. $10.00.
c. $11.00.
d. $22.00.
ANS: C
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Applicative
REF:
TOP:
71. Refer to Table 13-9. The marginal cost of producing the 6th poster is
a. $1.00.
b. $3.50.
c. $5.00.
d. $6.00.
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Applicative
72. Refer to Table 13-9. What is the variable cost of producing 0 posters?
a. $0.00
b. $1.00
c. $10.00
d. $10.00
ANS: A
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Applicative
13-3
Average fixed cost
13-3
Average variable cost
13-3
Total cost
13-3
Marginal cost
13-3
Variable costs
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
54 ❖ Chapter 13/The Costs of Production
73. Refer to Table 13-9. What is the marginal cost of producing the 1st poster?
a. $1.00
b. $10.00
c. $11.00
d. It can't be determined from the information given.
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Applicative
74. Refer to Table 13-9. What is the variable cost of producing 5 posters?
a. $13.00
b. $14.00
c. $15.00
d. It can't be determined from the information given.
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Applicative
13-3
Variable costs
Table 13-10
Eileen’s Elegant Earrings produces pairs of earrings for its mail order catalogue business. Each pair is shipped
in a separate box. She rents a small room for $150 a week in the downtown business district that serves as her
factory. She can hire workers for $275 a week. There are no implicit costs.
Number of
Boxes of
Marginal
Cost of
Cost
Total Cost
Workers
Earrings
Product
Factory
of
of
Produced per
of Labor
Workers
Inputs
Week
0
0
1
330
$150
$275
$425
2
630
3
150
$825
$975
4
890
5
950
60
$1,375
6
10
$1,800
75. Refer to Table 13-10. What is the marginal product of the second worker?
a. 110
b. 200
c. 260
d. 300
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Applicative
76. Refer to Table 13-10. What is the total cost associated with making 890 boxes of earrings per week?
a. $1,250
b. $1,325
c. $1,400
d. $1,575
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Total cost
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 55
77. Refer to Table 13-10. During the week of July 4th, Eileen doesn't produce any earrings. What are her costs
during the week?
a. $0
b. $150
c. $275
d. $425
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Fixed costs
MSC: Applicative
78. Refer to Table 13-10. One week, Eileen earns a profit of $125. If her revenue for the week is $1100, how
many boxes of earrings did she produce?
a. 140
b. 330
c. 780
d. 950
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Accounting profit
MSC: Applicative
79. Refer to Table 13-10. Eileen has received an order for 3,000 boxes of earrings for next week. If she expects
that the trend in the marginal product of labor will continue in the same direction, it is most likely that her best
decision will be to
a. not commit to meeting the order until she can move to a larger room and hire more workers to
produce the earrings.
b. close her business until she is able to hire more productive workers.
c. hire about 12 new workers and hope she can satisfy the order.
d. commit to meeting the order and then take three weeks to complete the job.
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
56 ❖ Chapter 13/The Costs of Production
Table 13-11
Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled
children in public school districts. The owner rents several small rooms in an office building in the suburbs for
$600 a month and has leased computer equipment that costs $480 a month.
Output
(Instructional
Modules
per Month)
Fixed
Costs
Variable
Costs
Total
Cost
0
1
2
3
4
5
6
7
8
9
10
$1,080
$1,080
$ 400
$1,480
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
$965
$1,350
$1,900
$2,500
Marginal
Cost
$400
$450
$2,430
$475
$216
$4,280
$4,100
$5,400
$7,300
$700
$135
$10,880
$980
80. Refer to Table 13-11. What is the marginal cost of creating the tenth instructional module in a given month?
a. $900
b. $1,250
c. $2,500
d. $3,060
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Applicative
81. Refer to Table 13-11. What is the average variable cost for the month if 6 instructional modules are produced?
a. $180.00
b. $533.33
c. $700.00
d. $713.33
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average variable cost
MSC: Applicative
82. Refer to Table 13-11. What is the average fixed cost for the month if 9 instructional modules are produced?
a. $108.00
b. $120.00
c. $150.00
d. $811.11
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average fixed cost
MSC: Applicative
83. Refer to Table 13-11. How many instructional modules are produced when marginal cost is $1,300?
a. 4
b. 5
c. 7
d. 8
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 57
84. Refer to Table 13-11. One month, Teacher's Helper produced 18 instructional modules. What was the average
fixed cost for that month?
a. $60
b. $108
c. $811
d. It can't be determined from the information given.
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average fixed cost
MSC: Applicative
Table 13-12
Betty’s Bakery
Quantity
of
cakes
1
2
3
4
5
6
7
8
Fixed
Cost
Variable
Cost
Total
Cost
$13
$28
$38
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
Marginal
Cost
$70
$64
$110
$108
$133
$185
85. Refer to Table 13-12. What is the fixed cost of production at Betty’s Bakery?
a. $12
b. $20
c. $25
d. $51
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Fixed costs
MSC: Applicative
86. Refer to Table 13-12. What is the variable cost of producing 5 cakes at Betty’s Bakery?
a. $64
b. $85
c. $90
d. $100
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Variable costs
MSC: Applicative
87. Refer to Table 13-12. What is the variable cost of producing 8 cakes at Betty’s Bakery?
a. $120
b. $140
c. $155
d. $160
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Variable costs
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
58 ❖ Chapter 13/The Costs of Production
88. Refer to Table 13-12. What is the total cost of producing 2 cakes at Betty’s Bakery?
a. $48
b. $53
c. $58
d. $62
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Total cost
MSC: Applicative
89. Refer to Table 13-12. What is the total cost of producing 7 cakes at Betty’s Bakery?
a. $140
b. $150
c. $153
d. $158
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Total cost
MSC: Applicative
90. Refer to Table 13-12. What is the average variable cost of producing 3 cakes at Betty’s Bakery?
a. $14
b. $15
c. $16
d. $17
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average variable cost
MSC: Applicative
91. Refer to Table 13-12. What is the average variable cost of producing 6 cakes at Betty’s Bakery?
a. $16
b. $17
c. $18
d. $19
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average variable cost
MSC: Applicative
92. Refer to Table 13-12. What is the average fixed cost of producing 3 cakes at Betty’s Bakery?
a. $1.67
b. $2.67
c. $5.33
d. $8.33
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average fixed cost
MSC: Applicative
93. Refer to Table 13-12. What is the average fixed cost of producing 8 cakes at Betty’s Bakery?
a. $2.12
b. $3.13
c. $20.00
d. $24.37
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average fixed cost
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 59
94. Refer to Table 13-12. What is the average total cost of producing 2 cakes at Betty’s Bakery?
a. $14.00
b. $18.50
c. $22.50
d. $26.50
ANS: D
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Applicative
95. Refer to Table 13-12. What is the average total cost of producing 6 cakes at Betty’s Bakery?
a. $16.34
b. $22.00
c. $22.17
d. $22.57
ANS: C
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Applicative
96. Refer to Table 13-12. What is the marginal cost of the 2nd cake at Betty’s Bakery?
a. $14
b. $15
c. $28
d. $34
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Applicative
97. Refer to Table 13-12. What is the marginal cost of the 4th cake at Betty’s Bakery?
a. $13
b. $15
c. $19
d. $64
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Applicative
98. Refer to Table 13-12. What is the marginal cost of the 8th cake at Betty’s Bakery?
a. $20
b. $27
c. $160
d. $185
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
60 ❖ Chapter 13/The Costs of Production
Table 13-13
Output
0
10
20
30
40
50
Total Cost
$40
$60
$90
$130
$180
$240
99. Refer to Table 13-13. What is the total fixed cost for this firm?
a. $20
b. $30
c. $40
d. $50
ANS: C
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Analytical
REF:
TOP:
13-3
Fixed costs
100. Refer to Table 13-13. What is average fixed cost when output is 40 units?
a. $1.00
b. $3.32
c. $5.00
d. $8.00
ANS: A
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average fixed cost
MSC: Analytical
101. Refer to Table 13-13. What is average variable cost when output is 50 units?
a. $3.60
b. $4.00
c. $4.40
d. $4.80
ANS: B
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average variable cost
MSC: Analytical
102. Refer to Table 13-13. What is variable cost when output equals 30 units?
a. $4
b. $40
c. $90
d. $130
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Variable costs
MSC: Analytical
Scenario 13-14
If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels
of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs
$120, and seeds are his only cost.
103. Refer to Scenario 13-14. Farmer Brown’s marginal-cost curve is
a. increasing.
b. decreasing.
c. constant.
d. U-shaped.
ANS: A
PTS: 1
DIF: 3
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-3
Marginal-cost curve
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 61
104. Refer to Scenario 13-14. Farmer Brown’s marginal cost of producing 9 units of output (using 2 bags of seed)
is
a. $240.
b. $120.
c. $40.
d. $30.
ANS: D
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal-cost curve
MSC: Analytical
Scenario 13-15
Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants 1 bag
of seeds, he gets 30 watermelons. If he plants 2 bags of seeds, he gets 50 watermelons. If he plants 3 bags of
seeds he gets 60 watermelons. A bag of seeds costs $100, and the costs of seeds are his only costs.
105. Refer to Scenario 13-15. Which of the following statements is (are) true?
(i)
Farmer Jack experiences decreasing marginal product.
(ii)
Farmer Jack's production function is nonlinear.
(iii)
Farmer Jack's total cost curve is linear.
a. (i) only
b. (i) and (ii) only
c. (ii) only
d. (i) and (iii) only
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Production function
MSC: Analytical
106. Refer to Scenario 13-15. Farmer Jack's marginal cost
(i)
curve is U-shaped.
(ii)
decreases with increased watermelon output.
(iii)
reflects diminishing marginal product.
a. (ii) only
b. (iii) only
c. (i) and (iii) only
d. (i) and (ii) only
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Analytical
107. Refer to Scenario 13-15. Farmer Jack's production function will
a. decrease at a decreasing rate.
b. decrease at an increasing rate.
c. increase at a decreasing rate.
d. increase at an increasing rate.
ANS: C
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
TOP: Production function | Marginal cost
REF:
TOP:
13-3
Marginal cost
REF:
13-3
MSC: Analytical
108. Refer to Scenario 13-15. What is the shape of Farmer Jack’s marginal cost curve?
a. upward sloping
b. downward sloping
c. U-shaped
d. constant
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
62 ❖ Chapter 13/The Costs of Production
Scenario 13-16
A certain firm produces and sells staplers. Last year, it produced 7,000 staplers and sold each stapler for $6. In
producing the 7,000 staplers, it incurred variable costs of $28,000 and a total cost of $45,000.
109. Refer to Scenario 13-16. The firm's fixed cost was
a. $7,000.
b. $17,000.
c. $28,000.
d. $42,000.
ANS: B
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Applicative
REF:
TOP:
13-3
Fixed costs
110. Refer to Scenario 13-16. In producing the 7,000 staplers, the firm's average fixed cost was
a. $1.00.
b. $1.32.
c. $2.21.
d. $2.43.
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average fixed cost
MSC: Applicative
111. Refer to Scenario 13-16. In producing the 7,000 staplers, the firm's average variable cost was
a. $2.43.
b. $4.00.
c. $6.00.
d. $6.43.
ANS: B
PTS: 1
DIF: 1
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average variable cost
MSC: Applicative
112. Refer to Scenario 13-16. In producing the 7,000 staplers, the firm's average total cost was
a. $2.43.
b. $4.00.
c. $6.00.
d. $6.43.
ANS: D
PTS: 1
DIF: 1
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Applicative
113. Refer to Scenario 13-16. Suppose the owner of the business had an offer to work for another firm for
$25,000. The firm's accounting profit for the year was
a. $-28,000.
b. $-25,000
c. $-3,000.
d. $17,000.
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Accounting profit
MSC: Applicative
114. Refer to Scenario 13-16. Suppose the owner of the business had an offer to work for another firm for
$25,000. The firm's economic profit for the year was
a. $-28,000.
b. $-25,000
c. $-3,000.
d. $17,000.
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Economic profit
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 63
115. Marginal cost is equal to
a. TC/Q.
b. ATC/Q.
c. TC/Q.
d. Q/TC.
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Definitional
1
REF:
TOP:
13-3
Marginal cost
116. The amount by which total cost rises when the firm produces one additional unit of output is called
a. average cost.
b. marginal cost.
c. fixed cost.
d. variable cost.
ANS: B
PTS: 1
DIF: 1
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Definitional
117. The cost of producing an additional unit of output is the firm's
a. marginal cost.
b. productivity offset.
c. variable cost.
d. average variable cost.
ANS: A
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-3
Marginal cost
118. Marginal cost equals
(i)
change in total cost divided by change in quantity produced.
(ii)
change in variable cost divided by change in quantity produced.
(iii)
the average fixed cost of the current unit.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) only
d. (i), (ii), and (iii)
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Definitional
119. Marginal cost equals
a. total cost divided by quantity of output produced.
b. total output divided by the change in total cost.
c. the slope of the total cost curve.
d. the slope of the line drawn from the origin to the total cost curve.
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Definitional
13-3
Marginal cost
120. Marginal cost tells us the
a. value of all resources used in a production process.
b. marginal increment to profitability when price is constant.
c. amount by which total cost rises when output is increased by one unit.
d. amount by which output rises when labor is increased by one unit.
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
64 ❖ Chapter 13/The Costs of Production
121. Which of the following measures of cost is best described as "the increase in total cost that arises from an extra unit of production?"
a. variable cost
b. average variable cost
c. average total cost
d. marginal cost
ANS: D
PTS: 1
DIF: 1
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Definitional
122. A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its
total costs are $3,500. When it produces 101 units of output, its total costs are $3,750. What is the marginal
cost of producing the 101st unit of output?
a. $250
b. $275
c. $340.91
d. $350
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Analytical
123. A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its
total costs are $4,500. The marginal cost of producing the 101st unit of output is $300. What is the total cost
of producing 101 units?
a. $46.53
b. $800
c. $4,800
d. $5,300
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Analytical
124. A firm has a fixed cost of $700 in its first year of operation. When the firm produces 99 units of output, its
total costs are $4,000. The marginal cost of producing the 100th unit of output is $200. What is the total cost
of producing 100 units?
a. $42
b. $900
c. $4,200
d. $4,900
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Analytical
125. A firm has a fixed cost of $200 in its first year of operation. When the firm produces 99 units of output, its
total costs are $4,000. The marginal cost of producing the 100th unit of output is $700. What is the total cost
of producing 100 units?
a. $900
b. $4,200
c. $4,700
d. $4,900
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 65
126. Thirsty Thelma owns and operates a small lemonade stand. When Thelma is producing a low quantity of lemonade she has few workers and her equipment is not being fully utilized. Because she can easily put her idle
resources to use,
a. the marginal cost of an extra worker is large.
b. the marginal cost of one more glass of lemonade is smaller than if output were high.
c. the marginal product of an extra worker is small.
d. her lemonade stand is likely to be crowded with workers.
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Interpretive
127. Randy is a minor-league baseball player. His current cumulative batting average is 0.270. Randy believes
that if he can raise his cumulative batting average to 0.300, he will have a chance to play in the major leagues.
Which of the following statements is correct?
a. If Randy gets between 27 and 30 hits out of his next 100 at bats, he will be able to raise his
cumulative batting average to 0.300.
b. If Randy gets 30 hits out of his next 100 at bats, he will be able to raise his cumulative batting
average to 0.300.
c. Randy must get more than 30 hits out of his next 100 at bats in order to raise his cumulative batting
average to 0.300.
d. Either b or c could be correct.
ANS: C
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Average total cost
MSC: Analytical
128. Johnny is a sophomore in college and has a 1.5 cumulative grade point average (GPA). Johnny's cumulative
GPA will fall even further next semester if he performs worse than
(i)
his cumulative GPA.
(ii)
he ever performed before.
(iii)
he did last semester.
a. (i) and (ii) only
b. (i) and (iii) only
c. (ii) and (iii) only
d. (i), (ii), and (iii)
ANS: A
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Analytical
129. Johnny is a sophomore in college and has a 1.5 cumulative grade point average (GPA). Johnny's cumulative
GPA will be better next semester if he
(i)
performs better than he did last semester.
(ii)
performs better than his cumulative GPA.
(iii)
gives an average performance.
a. (ii) only
b. (iii) only
c. (i) and (ii)
d. (ii) and (iii)
ANS: A
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
66 ❖ Chapter 13/The Costs of Production
130. Jennifer is a junior in college. Her current cumulative grade point average (GPA) is 3.5 out of a 4.0 scale.
Jennifer is hoping that by the time she graduates, she can raise her cumulative GPA to a 3.7. Which of the following statements is correct?
a. If Jennifer earns between a 3.5 and a 3.7 GPA in her senior year, she will be able to raise her
cumulative GPA to a 3.7.
b. If Jennifer earns a 3.7 GPA in her senior year, she will be able to raise her cumulative GPA to a 3.7.
c. Jennifer must earn above a 3.7 GPA in her senior year in order to raise her cumulative GPA to a
3.7.
d. Either b or c could be correct.
ANS: C
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Average total cost
MSC: Analytical
131. If Franco's Pizza Parlor knows that the marginal cost of the 500 th pizza is $3.50 and that the average total cost
of making 499 pizzas is $3.30, then
a. average total costs are rising at Q = 500.
b. average total costs are falling at Q = 500.
c. total costs are falling at Q = 500.
d. average variable costs must be falling.
ANS: A
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Average total cost
MSC: Analytical
132. Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the
firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable
cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information,
what is the marginal cost of production when the firm hires the 7th worker?
a. $1.50
b. $2.50
c. $5
d. $10
ANS: B
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 67
Figure 13-4
MC
B
D
C
A
A
C
D
B
Output
133. Refer to Figure 13-4. Which of the above marginal cost curves reflects diminishing marginal product?
a. A
b. B
c. C
d. D
ANS: A
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal-cost curve | Diminishing marginal product
MSC: Analytical
134. Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the
firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable
cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information,
what is the average variable cost of production when the firm hires 7 workers?
a. $12.67
b. $11
c. 81 cents
d. 75 cents
ANS: D
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Average variable cost
MSC:
Applicative
135. Marginal cost increases as the quantity of output increases. This reflects the property of
a. increasing total cost.
b. diminishing total cost.
c. increasing marginal product.
d. diminishing marginal product.
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Diminishing marginal product MSC:
Interpretive
136. If marginal cost is rising,
a. average variable cost must be falling.
b. average fixed cost must be rising.
c. marginal product must be falling.
d. marginal product must be rising.
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Diminishing marginal product
2
REF:
13-3
MSC:
Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
68 ❖ Chapter 13/The Costs of Production
137. Diminishing marginal product suggests that the marginal
a. cost of an extra worker is unchanged.
b. cost of an extra worker is less than the previous worker's marginal cost.
c. product of an extra worker is less than the previous worker's marginal product.
d. product of an extra worker is greater than the previous worker's marginal product.
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Diminishing marginal product MSC:
Interpretive
138. Diminishing marginal product suggests that
a. additional units of output become less costly as more output is produced.
b. marginal cost is upward sloping.
c. the firm is at full capacity.
d. adding additional workers will lower total cost.
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Diminishing marginal product MSC:
Interpretive
139. The fundamental reason that marginal cost eventually rises as output increases is because of
a. economies of scale.
b. diseconomies of scale.
c. diminishing marginal product.
d. rising average fixed cost.
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Diminishing marginal product MSC:
Interpretive
140. The average-fixed-cost curve
a. is constant.
b. is always decreasing.
c. intersects marginal cost at the minimum of average fixed cost.
d. intersects marginal cost at the minimum of marginal cost.
ANS: B
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-3
Average-fixed-cost curve
141. Consider the following information about bread production at Beth's Bakery:
Worker
Marginal Product
1
5
2
7
3
10
4
11
5
8
6
6
7
4
Beth pays all her workers the same wage, and labor is her only variable cost. From this information we can
conclude that Beth's marginal cost
a. declines as output increases from 0 to 33, but increases after that.
b. declines as output increases from 0 to 11, but increases after that.
c. increases as output increases from 0 to 11, but declines after that.
d. is constant.
ANS: A
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 69
142. The average-total-cost curve intersects
a. average fixed cost at the minimum of average total cost.
b. average variable cost at the minimum of average total cost.
c. marginal cost at the minimum of average total cost.
d. marginal cost at the minimum of marginal cost.
ANS: C
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
TOP: Marginal-cost curve | Average-total-cost curve MSC:
REF:
13-3
Interpretive
Scenario 13-17
Suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker
regardless of the current output level.
143. Refer to Scenario 13-17. Average total cost will be
a. rising at all points.
b. falling at all points.
c. constant.
d. U-shaped.
ANS: D
PTS: 1
DIF: 3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average total cost
MSC: Analytical
144. Refer to Scenario 13-17. Average fixed cost will be
a. rising at all points.
b. falling at all points.
c. U-shaped.
d. constant.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average fixed cost
MSC: Analytical
145. Refer to Scenario 13-17. Average variable cost will be
a. rising at all points.
b. falling at all points.
c. U-shaped.
d. constant.
ANS: A
PTS: 1
DIF: 3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average variable cost
146. Refer to Scenario 13-17. Marginal cost will be
a. rising at all points.
b. falling at all points.
c. U-shaped.
d. constant.
ANS: A
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Analytical
3
REF:
13-3
REF:
13-3
REF:
13-3
MSC: Analytical
REF:
TOP:
13-3
Cost curves | Marginal cost
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
70 ❖ Chapter 13/The Costs of Production
Figure 13-5
Cost
D
11
C
10
B
9
8
7
6
5
4
3
2
1
A
1
2
3
4
5
6
7
8
9
10
11
12 Quantity
147. Refer to Figure 13-5. Curve A represents which type of cost curve?
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
ANS: D
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average fixed cost
MSC: Interpretive
13-3
148. Refer to Figure 13-5. Which of the curves is most likely to represent average fixed cost?
a. A
b. B
c. C
d. D
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average fixed cost
MSC: Interpretive
149. Refer to Figure 13-5. Curve C represents which type of cost curve?
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
ANS: B
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average total cost
MSC: Interpretive
13-3
150. Refer to Figure 13-5. Which curve is most likely to represent average total cost?
a. A
b. B
c. C
d. D
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average total cost
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 71
151. Refer to Figure 13-5. Curve D represents which type of cost curve?
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
ANS: A
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-3
Cost curves | Marginal cost
152. Refer to Figure 13-5. Which curve is most likely to represent marginal cost?
a. A
b. B
c. C
d. D
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Marginal cost
MSC: Interpretive
153. Refer to Figure 13-5. Curve D is increasing because
a. of diminishing marginal product.
b. of increasing marginal product.
c. marginal product first increases, then decreases.
d. marginal product first decreases, then increases.
ANS: A
PTS: 1
DIF: 3
NAT: Analytic
LOC: Costs of production
MSC: Analytical
REF:
TOP:
154. Refer to Figure 13-5. Curve A is always declining because
a. of diminishing marginal product.
b. we are dividing fixed costs by higher and higher levels of output.
c. marginal product first increases, then decreases.
d. marginal product first decreases, then increases.
ANS: B
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average fixed cost
MSC: Analytical
155. Refer to Figure 13-5. Curve D intersects curve C
a. where the firm maximizes profit.
b. at the minimum of average fixed cost.
c. at the efficient scale.
d. where fixed costs equal variable costs.
ANS: C
PTS: 1
DIF: 3
NAT:
Analytic LOC: Costs of production
MSC: Analytical
13-3
Cost curves | Marginal cost
13-3
REF: 13-3
TOP: Cost curves | Efficient scale
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
72 ❖ Chapter 13/The Costs of Production
Figure 13-6
156. Refer to Figure 13-6. Which of the following can be inferred from the figure above?
(i)
Marginal cost is increasing at all levels of output.
(ii)
Marginal product is increasing at low levels of output.
(iii)
Marginal product is decreasing at high levels of output.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) and (iii) only
d. (ii) only
ANS: B
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Marginal cost
MSC: Analytical
157. Refer to Figure 13-6. Why doesn’t the total cost curve begin at the origin (the point 0,0)?
a. because variable costs are positive when output is zero
b. because fixed costs are positive when output is zero
c. because the firm is producing at the efficient scale
d. because the firm is maximizing profits
ANS: B
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Fixed costs
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 73
Figure 13-7
158. Refer to Figure 13-7. Which of the figures represents the total cost curve for a typical firm?
a. Figure 1
b. Figure 2
c. Figure 3
d. Figure 4
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves
MSC: Analytical
159. Refer to Figure 13-7. Which of the figures represents the marginal cost curve for a typical firm?
a. Figure 1
b. Figure 2
c. Figure 3
d. Figure 4
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Marginal cost
MSC: Analytical
160. Refer to Figure 13-7. Which of the figures represents the production function for a typical firm?
a. Figure 1
b. Figure 2
c. Figure 3
d. Figure 4
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Production function
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
74 ❖ Chapter 13/The Costs of Production
Figure 13-8
Cost
MC
AT C
AVC
A
B
C
D
Quantity
161. Refer to Figure 13-8. The efficient scale of production occurs at which quantity?
a. A
b. B
c. C
d. D
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Efficient scale
MSC: Analytical
162. Refer to Figure 13-8. Quantity C represents the output level where the firm
a. maximizes profits.
b. minimizes total costs.
c. produces at the efficient scale.
d. minimizes marginal costs.
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Efficient scale
MSC: Analytical
163. Refer to Figure 13-8. Quantity B represents the output level where the firm
a. maximizes profits.
b. minimizes average variable costs.
c. produces at the efficient scale.
d. minimizes marginal costs.
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average variable cost
MSC: Analytical
164. Which of the following factors is most likely to shift IBM's total cost and marginal cost curves downward?
a. a technological advance resulting in increased productivity
b. higher property taxes charged by the municipal government
c. increased wages to attract additional computer operators
d. a reduction in subsidies from the state government
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 75
165. If marginal cost is equal to average total cost, then
a. marginal cost is minimized.
b. average total cost is minimized.
c. average variable cost is minimized.
d. marginal cost is zero.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-3
Cost curves
166. Which of the following statements is correct?
a. If marginal cost is rising, then average total cost is rising.
b. If marginal cost is rising, then average variable cost is rising.
c. If average variable cost is rising, then marginal cost is minimized.
d. If average total cost is rising, then marginal cost is greater than average total cost.
ANS: D
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves
MSC: Interpretive
167. The average fixed cost curve
a. always declines with increased levels of output.
b. always rises with increased levels of output.
c. declines as long as it is above marginal cost.
d. declines as long as it is below marginal cost.
ANS: A
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average fixed cost
MSC: Interpretive
REF:
13-3
168. Average total cost is very high when a small amount of output is produced because
a. average variable cost is high.
b. average fixed cost is high.
c. marginal cost is high.
d. marginal product is high.
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average total cost
MSC: Interpretive
169. When marginal cost is less than average total cost,
a. marginal cost must be falling.
b. average variable cost must be falling.
c. average total cost is falling.
d. average total cost is rising.
ANS: C
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
170. When marginal cost exceeds average total cost,
a. average fixed cost must be rising.
b. average total cost must be rising.
c. average total cost must be falling.
d. marginal cost must be falling.
ANS: B
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
2
REF:
TOP:
13-3
Cost curves
REF:
TOP:
13-3
Cost curves
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
76 ❖ Chapter 13/The Costs of Production
171. Average total cost is increasing whenever
a. total cost is increasing.
b. marginal cost is increasing.
c. marginal cost is less than average total cost.
d. marginal cost is greater than average total cost.
ANS: D
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
172. Marginal cost is equal to average total cost when
a. average variable cost is falling.
b. average fixed cost is rising.
c. marginal cost is at its minimum.
d. average total cost is at its minimum.
ANS: D
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-3
Cost curves
REF:
TOP:
13-3
Cost curves
173. If marginal cost is below average total cost, then average total cost
a. is constant.
b. is falling.
c. is rising.
d. may rise or fall depending on the size of fixed costs.
ANS: B
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-3
Cost curves
174. At all levels of production higher than the point where the marginal cost curve crosses the average variable
cost curve, average variable cost
a. rises.
b. remains unaffected.
c. falls.
d. All of the above are possible depending on the shape of the marginal cost curve.
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves
MSC: Interpretive
175. Which of the following statements about costs is correct?
a. When marginal cost is less than average total cost, average total cost is rising.
b. The total cost curve is U-shaped.
c. As the quantity of output increases, marginal cost eventually rises.
d. All of the above are correct.
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Marginal cost
MSC: Interpretive
176. Whenever marginal cost is greater than average total cost,
a. average total cost is rising.
b. marginal cost is falling.
c. average total cost is falling.
d. Both b and c are correct.
ANS: A
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average total cost
MSC: Interpretive
REF:
13-3
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 77
177. At what level of output will average variable cost equal average total cost?
a. when marginal cost equals average total cost
b. for all levels of output in which average variable cost is falling
c. when marginal cost equals average variable cost
d. There is no level of output where this occurs, as long as fixed costs are positive.
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average total cost
MSC: Interpretive
178. Which of the following must always be true as the quantity of output increases?
a. Marginal cost must rise.
b. Average total cost must rise.
c. Average variable cost must rise.
d. Average fixed cost must fall.
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average fixed cost
MSC: Interpretive
179. Which of the following statements is not correct?
a. The marginal cost of the fifth unit of output equals the total cost of five units minus the total cost of
four units.
b. The total variable cost of seven units equals the average variable cost of seven units times seven.
c. If marginal cost is rising, then average variable cost must be rising.
d. The marginal cost of the fifth unit of output equals the total variable cost of five units minus the
total variable cost of four units.
ANS: C
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Average variable cost
MSC: Interpretive
180. When marginal cost is rising, average variable cost
a. must be rising.
b. must be falling.
c. must be constant.
d. could be rising or falling.
ANS: D
PTS: 1
DIF: 3
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-3
Cost curves
181. When marginal cost is greater than average cost, average cost is
a. rising.
b. falling.
c. constant.
d. The direction of change in average cost cannot be determined from this information.
ANS: A
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves
MSC: Applicative
182. When average cost is greater than marginal cost, marginal cost must be
a. rising.
b. falling.
c. constant.
d. The direction of change in marginal cost cannot be determined from this information.
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
78 ❖ Chapter 13/The Costs of Production
183. Which of the following is not a property of a firm's cost curves?
a. Marginal cost must eventually rise as a result of diminishing marginal product.
b. Average total cost is U-shaped.
c. Economies of scale will exist when average total cost falls as output rises.
d. Average total cost will cross marginal cost at the minimum of marginal cost.
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves
MSC: Definitional
184. If marginal cost is greater than average total cost, then
a. profits are increasing.
b. economies of scale are becoming greater.
c. average total cost remains constant.
d. average total cost is increasing.
ANS: D
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-3
Cost curves
185. The minimum points of the average variable cost and average total cost curves occur where the
a. marginal cost curve lies below the average variable cost and average total cost curves.
b. marginal cost curve intersects those curves.
c. average variable cost and average total cost curves intersect.
d. slope of total cost is the smallest.
ANS: B
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves
MSC: Interpretive
186. Which of the following statements is correct?
a. For most producers, the average total cost curve never crosses the marginal cost curve.
b. The average fixed cost curve must eventually rise.
c. The average total cost curve first rises, then falls with increased output.
d. The marginal cost curve eventually rises with the quantity of output.
ANS: D
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Cost curves | Marginal cost
MSC: Interpretive
187. The marginal cost curve crosses the average total cost curve at
a. the efficient scale.
b. the minimum point on the average total cost curve.
c. a point where the marginal cost curve is rising.
d. All of the above are correct.
ANS: D
PTS: 1
DIF: 2
NAT:
Analytic LOC: Costs of production
MSC: Interpretive
188. The efficient scale of the firm is the quantity of output that
a. maximizes marginal product.
b. maximizes profit.
c. minimizes average total cost.
d. minimizes average variable cost.
ANS: C
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF: 13-3
TOP: Cost curves | Efficient scale
REF:
TOP:
13-3
Efficient scale
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 79
189. The firm's efficient scale is the quantity of output that minimizes
a. average total cost.
b. average fixed cost.
c. average variable cost.
d. marginal cost.
ANS: A
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
190. When a firm is operating at an efficient scale,
a. average variable cost is minimized.
b. average fixed cost is minimized.
c. average total cost is minimized.
d. marginal cost is minimized.
ANS: C
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
2
REF:
TOP:
13-3
Efficient scale
REF:
TOP:
13-3
Efficient scale
REF:
TOP:
13-4
Short run | Long run
COSTS IN THE SHORT RUN AND IN THE LONG RUN
1. The nature of a firm’s cost (fixed or variable) depends on the
a. firm’s revenues.
b. time horizon under consideration.
c. price the firm charges for output.
d. explicit but not implicit costs.
ANS: B
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
2. One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing
firm is that in the short run,
a. output is not variable.
b. the number of workers used to produce the firm's product is fixed.
c. the size of the factory is fixed.
d. there are no fixed costs.
ANS: C
PTS: 1
DIF: 1
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Short run
MSC: Interpretive
3. When a factory is operating in the short run,
a. it cannot alter variable costs.
b. total cost and variable cost are usually the same.
c. average fixed cost rises as output increases.
d. it cannot adjust the quantity of fixed inputs.
ANS: D
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
4. The length of the short run
a. is different for different types of firms.
b. can never exceed 3 years.
c. can never exceed 1 year.
d. is always less than 6 months.
ANS: A
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
1
REF:
TOP:
13-4
Short run
REF:
TOP:
13-4
Short run
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
80 ❖ Chapter 13/The Costs of Production
5. How long does it take a firm to go from the short run to the long run?
a. six months
b. one year
c. two years
d. It depends on the nature of the firm.
ANS: D
PTS: 1
DIF: 1
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-4
Short run
6. A local potato chip company plans to operate out of its current factory, which is estimated to last 25 years. All
cost decisions it makes during the 25-year period
a. are short-run decisions.
b. are long-run decisions.
c. involve only maintenance of the factory.
d. are zero because the cost decisions were made at the beginning of the business.
ANS: A
PTS: 1
DIF: 1
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Short run
MSC: Interpretive
7. In the short run, a firm that produces and sells cell phones can adjust
a. how many workers to hire.
b. the size of its factories.
c. where to produce along its long-run average-total-cost curve.
d. All of the above are correct.
ANS: A
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
8. The total cost to the firm of producing zero units of output is
a. zero in both the short run and the long run.
b. its fixed cost in the short run and zero in the long run.
c. its fixed cost in both the short run and the long run.
d. its variable cost in both the short run and the long run.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-4
Short run
13-4
Short run | Long run
9. In the long run, a firm that produces and sells electronic book readers gets to choose
a. how many workers to hire.
b. the size of its factories.
c. which short-run average-total-cost curve to use.
d. All of the above are correct.
ANS: D
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Long run
MSC: Interpretive
10. In the long run,
a. inputs that were fixed in the short run remain fixed.
b. inputs that were fixed in the short run become variable.
c. inputs that were variable in the short run become fixed.
d. variable inputs are rarely used.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-4
Long run
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 81
11. The long-run average total cost curve is always
a. flatter than the short-run average total cost curve, but not necessarily horizontal.
b. horizontal.
c. falling as output increases.
d. rising as output increases.
ANS: A
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Interpretive
12. When comparing short-run average total cost with long-run average total cost at a given level of output,
a. short-run average total cost is typically above long-run average total cost.
b. short-run average total cost is typically the same as long-run average total cost.
c. short-run average total cost is typically below long-run average total cost.
d. the relationship between short-run and long-run average total cost follows no clear pattern.
ANS: A
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Analytical
13. Which of the following explains why long-run average cost at first decreases as output increases?
a. diseconomies of scale
b. less-efficient use of inputs
c. fixed costs becoming spread out over more units of output
d. gains from specialization of inputs
ANS: D
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Interpretive
14. The most likely explanation for economies of scale is
a. coordination problems.
b. specialization of labor.
c. increasing marginal cost.
d. decreasing marginal cost.
ANS: B
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Applicative
15. When a firm is experiencing economies of scale, long-run
a. average total cost is minimized.
b. average total cost is greater than long-run marginal cost.
c. average total cost is less than long-run marginal cost.
d. marginal cost is minimized.
ANS: B
PTS: 1
DIF: 3
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-4
Economies of scale
REF:
TOP:
13-4
Economies of scale
16. Economies of scale occur when a firm’s
a. marginal costs are constant as output increases.
b. long-run average total costs are decreasing as output increases.
c. long-run average total costs are increasing as output increases.
d. marginal costs are equal to average total costs for all levels of output.
ANS: B
PTS: 1
DIF: 1
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Definitional
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
82 ❖ Chapter 13/The Costs of Production
17. Economies of scale occur when
a. long-run average total costs rise as output increases.
b. long-run average total costs fall as output increases.
c. average fixed costs are falling.
d. average fixed costs are constant.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-4
Economies of scale
18. A firm that wants to achieve economies of scale could do so by
a. assigning limited tasks to its employees, so they can master those tasks.
b. employing a smaller number of workers.
c. producing a smaller quantity of output.
d. producing an output level higher than the efficient scale.
ANS: A
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Interpretive
19. Economies of scale arise when
a. an economy is self-sufficient in production.
b. individuals in a society are self-sufficient.
c. fixed costs are large relative to variable costs.
d. workers are able to specialize in a particular task.
ANS: D
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-4
Economies of scale
20. If long-run average total cost decreases as the quantity of output increases, the firm is experiencing
a. economies of scale.
b. diseconomies of scale.
c. coordination problems arising from the large size of the firm.
d. fixed costs greatly exceeding variable costs.
ANS: A
PTS: 1
DIF: 1
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Interpretive
21. In the long run Firm A incurs total costs of $1,050 when output is 30 units and $1,200 when output is 40 units.
Firm A exhibits
a. diseconomies of scale because total cost is rising as output rises.
b. diseconomies of scale because average total cost is rising as output rises.
c. economies of scale because total cost is rising as output rises.
d. economies of scale because average total cost is falling as output rises.
ANS: D
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Analytical
22. In the long run Firm A incurs total costs of $1,200 when output is 30 units and $1,400 when output is 40 units.
Firm A exhibits
a. c
b. diseconomies of scale because average total cost is rising as output rises.
c. economies of scale because total cost is rising as output rises.
d. economies of scale because average total cost is falling as output rises.
ANS: D
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 83
23. Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its
goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices
are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low
prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers.
This story demonstrates that
a. consumers do not react to changing prices.
b. there are diseconomies of scale in retail sales.
c. there are economies of scale in retail sales.
d. there are diminishing returns to producing and selling retail goods.
ANS: C
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Interpretive
24. Which of the following statements is not correct?
a. In the long run, there are no fixed costs.
b. Marginal cost is independent of fixed costs.
c. Economies of scale is a short-run concept.
d. Diminishing marginal product explains increasing marginal cost.
ANS: C
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-4
Economies of scale
25. In the long run Al’s Sandwich Shop incurs total costs of $2,500 when output is 1,250 units and $3,000 when
output is 1,500 units. For this range of output, Al’s exhibits
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. efficient scale.
ANS: B
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Analytical
26. In the long run Irene’s Ice Cream Parlor incurs total costs of $2,500 when output is 1,250 units and $4,000
when output is 1,500 units. For this range of output, Irine’s exhibits
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. efficient scale.
ANS: C
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Analytical
27. In the long run Willie’s Chocolate Factory incurs total costs of $2,500 when output is 1,250 units and $2,750
when output is 1,500 units. For this range of output, Willie’s exhibits
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. efficient scale.
ANS: A
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
84 ❖ Chapter 13/The Costs of Production
28. At low levels of production, the firm
a. benefits from increased size because it can take advantage of greater specialization.
b. has the potential for economies of scale.
c. is unlikely to experiences acute problems with coordination.
d. All of the above are correct.
ANS: D
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Interpretive
29. The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total
costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. negative profits.
ANS: B
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Analytical
30. When a firm experiences constant returns to scale,
a. long-run average total cost is unchanged, even when output increases.
b. long-run marginal cost is greater than long-run average total cost.
c. long-run marginal cost is less than long-run average total cost.
d. the firm is likely to experience coordination problems.
ANS: A
PTS: 1
DIF: 1
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Constant returns to scale
MSC: Definitional
31. Constant returns to scale occur when a firm’s
a. marginal costs are constant as output increases.
b. long-run average total costs are decreasing as output increases.
c. long-run average total costs are increasing as output increases.
d. long-run average total costs do not vary as output increases.
ANS: D
PTS: 1
DIF: 1
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Definitional
32. Constant returns to scale occur when the firm’s long-run
a. total costs are constant as output increases.
b. average total costs are constant as output increases.
c. average cost curve is falling as output increases.
d. average cost curve is rising as output increases.
ANS: B
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-4
Constant returns to scale
13-4
Constant returns to scale
33. If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve
would
a. slope downward.
b. be horizontal.
c. slope upward.
d. slope downward for low output levels and upward for high output levels.
ANS: B
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Constant returns to scale
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 85
34. When a firm’s long-run average total costs do not vary as output increases, the firm exhibits
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. an efficient use of resources.
ANS: B
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Constant returns to scale
MSC: Interpretive
35. In the long run Firm A incurs total costs of $1,200 when output is 30 units and $1,600 when output is 40 units.
Firm A exhibits
a. diseconomies of scale because total cost is rising as output rises.
b. constant returns to scale because average total cost is constant as output rises.
c. diseconomies of scale because average total cost is rising as output rises.
d. economies of scale because average total cost is falling as output rises.
ANS: B
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Constant returns to scale
MSC: Analytical
36. In the long run Firm A incurs total costs of $900 when output is 30 units and $1,200 when output is 40 units.
Firm A exhibits
a. diseconomies of scale because total cost is rising as output rises.
b. constant returns to scale because average total cost is constant as output rises.
c. diseconomies of scale because average total cost is rising as output rises.
d. economies of scale because average total cost is falling as output rises.
ANS: B
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Constant returns to scale
MSC: Analytical
37. When a firm experiences diseconomies of scale,
a. short-run average total cost is minimized.
b. long-run average total cost is minimized.
c. long-run average total cost increases as output increases.
d. long-run average total cost decreases as output increases.
ANS: C
PTS: 1
DIF: 1
NAT: Analytic
LOC: Costs of production
MSC: Definitional
38. When a firm is experiencing diseconomies of scale, long-run
a. average total cost is minimized.
b. average total cost is greater than long-run marginal cost.
c. average total cost is less than long-run marginal cost.
d. marginal cost is minimized.
ANS: C
PTS: 1
DIF: 3
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-4
Diseconomies of scale
REF:
TOP:
13-4
Diseconomies of scale
39. Diseconomies of scale occur when a firm’s
a. marginal costs are constant as output increases.
b. long-run average total costs are decreasing as output increases.
c. long-run average total costs are increasing as output increases.
d. marginal costs are equal to average total costs for all levels of output.
ANS: C
PTS: 1
DIF: 1
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Diseconomies of scale
MSC: Definitional
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
86 ❖ Chapter 13/The Costs of Production
40. Diseconomies of scale occur when
a. average fixed costs are falling.
b. average fixed costs are constant.
c. long-run average total costs rise as output increases.
d. long-run average total costs fall as output increases.
ANS: C
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Definitional
REF:
TOP:
13-4
Diseconomies of scale
41. In the long run, when marginal cost is above average total cost, the average total cost curve exhibits
a. economies of scale.
b. diseconomies of scale.
c. constant returns to scale.
d. efficient scale.
ANS: B
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Diseconomies of scale
MSC: Applicative
42. In the long run Firm A incurs total costs of $1,200 when output is 30 units and $1,650 when output is 40 units.
Firm A exhibits
a. diseconomies of scale because total cost is rising as output rises.
b. diseconomies of scale because average total cost is rising as output rises.
c. economies of scale because total cost is rising as output rises.
d. economies of scale because average total cost is falling as output rises.
ANS: B
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Diseconomies of scale
MSC: Analytical
43. Firms may experience diseconomies of scale when
a. they are too small to take advantage of specialization.
b. large management structures are bureaucratic and inefficient.
c. there are too few employees, and managers do not have enough to do.
d. average fixed costs begin to rise again.
ANS: B
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Diseconomies of scale
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 87
Figure 13-9
The figure below depicts average total cost functions for a firm that produces automobiles.
44. Refer to Figure 13-9. Which of the curves is most likely to characterize the short-run average total cost curve
of the smallest factory?
a. ATCA
b. ATCB
c. ATCC
d. ATCD
ANS: A
PTS: 1
DIF: 1
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Analytical
45. Refer to Figure 13-9. Which curve represents the long-run average total cost?
a. ATCA
b. ATCB
c. ATCC
d. ATCD
ANS: D
PTS: 1
DIF: 1
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Analytical
46. Refer to Figure 13-9. In the long run, the firm can operate on which of the following average total cost
curves?
a. ATCA
b. ATCB
c. ATCC
d. All of the above are correct.
ANS: D
PTS: 1
DIF: 1
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
88 ❖ Chapter 13/The Costs of Production
47. Refer to Figure 13-9. The firm experiences economies of scale at which output levels?
a. output levels less than M
b. output levels between M and N
c. output levels greater than N
d. All of the above are correct as long as the firm is operating in the long run.
ANS: A
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Analytical
48. Refer to Figure 13-9. At levels of output less than M, the firm experiences
a. economies of scale.
b. diseconomies of scale.
c. constant returns to scale.
d. both diminishing marginal productivity and coordination problems.
ANS: A
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Analytical
49. Refer to Figure 13-9. The firm experiences constant returns to scale at which output levels?
a. output levels less than M
b. output levels between M and N
c. output levels greater than N
d. All of the above are correct as long as the firm is operating in the long run.
ANS: B
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Constant returns to scale
MSC: Analytical
50. Refer to Figure 13-9. At levels of output between M and N, the firm experiences
a. economies of scale.
b. diseconomies of scale.
c. constant returns to scale.
d. both the benefits of specialization and diminishing marginal productivity.
ANS: C
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Constant returns to scale
MSC: Analytical
51. Refer to Figure 13-9. This firm experiences diseconomies of scale at what output levels?
a. output levels greater than N
b. output levels between M and N
c. output levels less than M
d. All of the above are correct as long as the firm is operating in the long run.
ANS: A
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Diseconomies of scale
MSC: Analytical
52. Refer to Figure 13-9. At output levels greater than N, the firm experiences
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. minimum efficient scale.
ANS: C
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Diseconomies of scale
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 89
Figure 13-10
53. Refer to Figure 13-10. The three average total cost curves on the diagram labeled ATC1, ATC2, and ATC3
most likely correspond to three different
a. time horizons.
b. products.
c. firms.
d. factory sizes.
ANS: D
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Analytical
54. Refer to Figure 13-10. The firm experiences economies of scale if it changes its level of output from
a. Q1 to Q2.
b. Q2 to Q3.
c. Q3 to Q4.
d. Q4 to Q5.
ANS: A
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Analytical
55. Refer to Figure 13-10. The firm experiences constant returns to scale if it changes its level of output from
a. Q1 to Q2.
b. Q2 to Q4.
c. Q1 to Q3.
d. Q4 to Q5.
ANS: B
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Constant returns to scale
MSC: Analytical
56. Refer to Figure 13-10. The firm experiences diseconomies of scale if it changes its level of output from
a. Q1 to Q2.
b. Q2 to Q3.
c. Q3 to Q4.
d. Q4 to Q5.
ANS: D
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Diseconomies of scale
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
90 ❖ Chapter 13/The Costs of Production
Table 13-14
Listed in the table are the long-run total costs for three different firms.
Quantity
1
2
3
4
5
Firm A
100
100
100
100
100
Firm B
100
200
300
400
500
Firm C
100
300
600
1,000
1,500
57.
Refer to Table 13-14. Which firm is experiencing diseconomies of scale?
a. Firm A only
b. Firm B only
c. Firm C only
d. Firm A and Firm B only
ANS: C
PTS: 1
DIF: 3
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Diseconomies of scale
MSC: Analytical
58. Refer to Table 13-14. Which firm is experiencing constant returns to scale?
a. Firm A only
b. Firm B only
c. Firm C only
d. Firm A and Firm B only
ANS: B
PTS: 1
DIF: 3
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Constant returns to scale
MSC: Analytical
Table 13-15
Consider the following table of long-run total cost for four different firms:
Quantity
1
2
3
4
5
Firm 1
$210
$340
$490
$660
$850
Firm 2
$180
$350
$510
$660
$800
Firm 3
$120
$250
$390
$540
$700
Firm 4
$150
$300
$450
$600
$750
6
$1,060
$930
$870
$900
7
$1,290
$1,050
$1,050
$1,050
59. Refer to Table 13-13. Which firm has constant returns to scale over the entire range of output?
a. Firm 1
b. Firm 2
c. Firm 3
d. Firm 4
ANS: D
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Constant returns to scale
MSC: Applicative
60. Refer to Table 13-13. Which firm has diseconomies of scale over the entire range of output?
a. Firm 1 only
b. Firms 1 and 2 only
c. Firm 3 only
d. Firm 4 only
ANS: C
PTS: 1
DIF: 3
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Diseconomies of scale
MSC: Applicative
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 91
61. Refer to Table 13-13. Which firm has economies of scale over the entire range of output?
a. Firm 1 only
b. Firms 1 and 2 only
c. Firm 2 only
d. Firm 3 only
ANS: C
PTS: 1
DIF: 3
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Applicative
62. Refer to Table 13-13. Which firm has economies of scale and then diseconomies of scale as output increases
from 1 to 7?
a. Firm 1
b. Firm 2
c. Firm 3
d. Firm 4
ANS: A
PTS: 1
DIF: 3
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Applicative
63. Refer to Table 13-13. Which firm's long-run marginal cost decreases as output increases?
a. Firm 1
b. Firm 2
c. Firm 3
d. Firm 4
ANS: B
PTS: 1
DIF: 3
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Applicative
64. Refer to Table 13-13. Firm 1's efficient scale occurs at what quantity?
a. 2
b. 3
c. 4
d. 5
ANS: B
PTS: 1
DIF: 3
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Applicative
13-4
Efficient scale
CONCLUSION
1. In his book, An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith described a visit he
made to a
a. car factory.
b. pin factory.
c. washing machine factory.
d. farm.
ANS: B
PTS: 1
DIF: 1
REF: 13-5
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Interpretive
2. In his book, An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith credits economies
of scale to
a. competition.
b. opportunity costs.
c. specialization.
d. incentives.
ANS: C
PTS: 1
DIF: 1
REF: 13-5
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
92 ❖ Chapter 13/The Costs of Production
3. In setting the production level, a firm's cost curves
a. by themselves do not tell us what decisions the firm will make.
b. dictate what decisions the firm will make.
c. have no bearing on what decisions the firm will make.
d. None of the above is correct.
ANS: A
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-5
Cost curves
TRUE/FALSE
1. The economic field of industrial organization examines how firms’ decisions about prices and quantities depend on the market conditions they face.
ANS: T
PTS: 1
DIF: 2
REF: 13-0
NAT: Analytic
LOC: Costs of production
TOP: Industrial organization
MSC: Interpretive
2. The field of industrial organization addresses how the number of firms affects prices in a market and the efficiency of the market outcome.
ANS: T
PTS: 1
DIF: 1
REF: 13-0
NAT: Analytic
LOC: Costs of production
TOP: Industrial organization
MSC: Definitional
3. A firm’s total profit equals its marginal revenue minus its marginal cost.
ANS: F
PTS: 1
DIF: 1
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Definitional
13-1
Profit
4. Profit equals total revenue minus total cost.
ANS: T
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Definitional
13-1
Profit
1
REF:
TOP:
5. The difference between economic profit and accounting profit is that economic profit is calculated based on
both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only.
ANS: T
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit | Accounting profit
MSC: Interpretive
6. Accounting profit is greater than or equal to economic profit.
ANS: T
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
TOP: Accounting profit | Economic profit
7. Economic profit is greater than or equal to accounting profit.
ANS: F
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
TOP: Accounting profit | Economic profit
REF:
13-1
MSC: Analytical
REF:
13-1
MSC: Analytical
8. Although economists and accountants treat many costs differently, they both treat the cost of capital the same.
ANS: F
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit | Accounting profit
MSC: Interpretive
9. Accountants keep track of the money that flows into and out of firms.
ANS: T
PTS: 1
DIF: 1
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-1
Accounting profit
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 93
10. When economists speak of a firm's costs, they are usually excluding the opportunity costs.
ANS: F
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Interpretive
11. Economists and accountants both include forgone income as a cost to a small business owner.
ANS: F
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Interpretive
12. Anna borrows $5,000 from a bank and withdraws $1,000 from her personal savings to start a coffee shop.
The interest rate is 5 percent for both the bank loan and her personal savings. Her opportunity cost of capital
is $250.
ANS: F
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Analytical
13. Economists and accountants usually disagree on the inclusion of implicit costs into the cost analysis of a firm.
ANS: T
PTS: 1
DIF: 1
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Implicit costs
MSC: Interpretive
14. Implicit costs are costs that do not require an outlay of money by the firm.
ANS: T
PTS: 1
DIF: 1
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Implicit costs
MSC: Definitional
15. Accountants often ignore implicit costs.
ANS: T
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
1
REF:
TOP:
13-1
Implicit costs
16. The opportunity cost of capital is an implicit cost almost every business incurs.
ANS: T
PTS: 1
DIF: 1
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Implicit costs
MSC: Definitional
17. An example of an explicit cost would be the wages that a business owner pays her employees.
ANS: T
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Explicit costs
MSC: Applicative
18. An example of an explicit cost for the owner of a tattoo parlor would be the wages that she could earn if she
worked as a graphic artist for an advertising agency.
ANS: F
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Explicit costs
MSC: Applicative
19. Diminishing marginal productivity implies decreasing total product.
ANS: F
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Interpretive
13-2
20. Diminishing marginal product exists when the total cost curve becomes horizontal as outputs increases.
ANS: F
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
94 ❖ Chapter 13/The Costs of Production
21. Diminishing marginal product exists when the production function becomes flatter as inputs increase.
ANS: T
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product
MSC: Interpretive
22. A second or third worker may have a higher marginal product than the first worker in certain circumstances.
ANS: T
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Interpretive
23. The typical total-cost curve is U-shaped.
ANS: F
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
2
REF:
TOP:
13-2
Total-cost curve
2
REF:
TOP:
13-2
Average-fixed-cost curve
25. In the short run, if a firm produces nothing, total costs are zero.
ANS: F
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-2
Total cost | Fixed costs
26. If a firm produces nothing, it still incurs its fixed costs.
ANS: T
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-2
Fixed costs
24. The average-fixed-cost curve is constant.
ANS: F
PTS: 1
DIF:
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
27. For a typical firm, fixed costs increase in direct proportion to the increases in output.
ANS: F
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Fixed costs
MSC: Interpretive
28. The shape of the total-cost curve is unrelated to the shape of the production function.
ANS: F
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Total-cost curve | Production function
MSC:
Interpretive
29. The shape of the total-cost curve is inversely related to the shape of the production function.
ANS: T
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Total-cost curve | Production function
MSC:
Interpretive
30. The graph of the production function plots total cost versus quantity of output.
ANS: F
PTS: 1
DIF: 1
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Production function
MSC: Definitional
31. Suppose that a worker can produce 100 units of output in 7 hours. In the 8th hour, he can produce 12 units of
output. The worker can produce 112 units of output in 8 hours.
ANS: T
PTS: 1
DIF: 2
REF: 13-2
NAT: Analytic
LOC: Costs of production
TOP: Marginal product
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 95
32. Marginal costs are costs that do not vary with the quantity of output produced.
ANS: F
PTS: 1
DIF: 1
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost
MSC: Definitional
33. Several related measures of cost can be derived from a firm's total cost.
ANS: T
PTS: 1
DIF: 2
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Interpretive
13-3
Cost curves
34. Variable costs usually change as the firm alters the quantity of output produced.
ANS: T
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Variable costs
MSC: Definitional
35. Variable costs equal fixed costs when nothing is produced.
ANS: F
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-3
Variable costs
36. The cost of producing an additional unit of a good is not the same as the average cost of the good.
ANS: T
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Interpretive
37. Average variable cost is equal to total variable cost divided by quantity of output.
ANS: T
PTS: 1
DIF: 1
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average variable cost
MSC: Definitional
38. The average-total-cost curve is unaffected by diminishing marginal product.
ANS: F
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Diminishing marginal product | Average total cost
MSC: Interpretive
39. The average-total-cost curve reflects the shape of both the average-fixed-cost and average-variable-cost
curves.
ANS: T
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average-total-cost curve
MSC: Interpretive
40. If the marginal-cost curve is rising, then so is the average-total-cost curve.
ANS: F
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Average total cost
MSC: Interpretive
41. The marginal-cost curve intersects the average-total-cost curve at the minimum point of the average-total-cost
curve.
ANS: T
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost | Marginal cost
MSC: Interpretive
42. The marginal-cost curve intersects the average-total-cost curve at the minimum point of the marginal-cost
curve.
ANS: F
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost | Marginal cost
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
96 ❖ Chapter 13/The Costs of Production
43. The marginal-cost curve intersects the average-total-cost curve at the output level where average fixed costs
are zero.
ANS: F
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost | Marginal cost
MSC: Interpretive
44. Assume Jack received all As in his classes last semester. If Jack gets all Bs in his classes this semester, his
GPA may or may not fall.
ANS: T
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost | Marginal cost
MSC: Interpretive
45. Average total cost and marginal cost express information that is already contained in a firm's total cost.
ANS: T
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Interpretive
46. Average total cost reveals how much total cost will change as the firm alters its level of production.
ANS: F
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Interpretive
47. If the marginal cost of producing the tenth unit of output is $3, and if the average total cost of producing the
tenth unit of output is $2, then at ten units of output, average total cost is rising.
ANS: T
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Average total cost
MSC: Analytical
48. If the marginal cost of producing the tenth unit of output is $2.50, and if the average total cost of producing the
tenth unit of output is $3, then at ten units of output, average total cost is rising.
ANS: F
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Average total cost
MSC: Analytical
49. If the marginal cost of producing the fifth unit of output is higher than the marginal cost of producing the
fourth unit of output, then at five units of output, average total cost must be rising.
ANS: F
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Average total cost
MSC: Analytical
50. The shape of the marginal cost curve tells a producer something about the marginal product of her workers.
ANS: T
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal cost | Marginal product
MSC: Interpretive
51. The marginal-cost curve intersects the average-fixed-cost curve at the minimum of marginal cost.
ANS: F
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal-cost curve | Average-fixed-cost curve MSC:
Interpretive
52. When average total cost is above marginal cost, average total cost is rising.
ANS: F
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Marginal-cost curve | Average-total-cost curve MSC:
Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 97
53. When average total cost rises if a producer either increases or decreases production, then the firm is said to be
operating at efficient scale.
ANS: T
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Efficient scale
MSC: Interpretive
54. In the long run, a factory is usually considered a fixed input.
ANS: F
PTS: 1
DIF: 2
NAT: Analytic
LOC: Costs of production
MSC: Interpretive
REF:
TOP:
13-4
Long run
55. Fixed costs are those costs that remain fixed no matter how long the time horizon is.
ANS: F
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Long run
MSC: Interpretive
56. The fact that many inputs are fixed in the short run but variable in the long run has little impact on the firm's
cost curves.
ANS: F
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Long run
MSC: Interpretive
57. There is general agreement among economists that the long-run time period exceeds one year.
ANS: F
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Long run
MSC: Interpretive
58. As a firm moves along its long-run average cost curve, it is adjusting the size of its factory to the quantity of
production.
ANS: T
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Long run | Average-total-cost curve
MSC: Interpretive
59. Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above the
long-run curve.
ANS: T
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Long run | Average-total-cost curve
MSC: Interpretive
60. Economies of scale often arise because higher production levels allow specialization among workers.
ANS: T
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Interpretive
61. If long-run average total cost is rising, then the firm is experiencing economies of scale.
ANS: F
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Definitional
62. In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories.
ANS: T
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
98 ❖ Chapter 13/The Costs of Production
63. The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as
they are.
ANS: T
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Interpretive
64. When a firm experiences economies of scale, long-run average total cost falls as the quantity of output increases.
ANS: T
PTS: 1
DIF: 1
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Definitional
65. Diseconomies of scale often arise because higher production levels allow specialization among workers.
ANS: F
PTS: 1
DIF: 2
REF: 13-4
NAT: Analytic
LOC: Costs of production
TOP: Diseconomies of scale
MSC: Interpretive
Table 13-16
Listed in the table are the long-run total costs for three different firms.
Quantity
1
2
3
4
Firm A
100
100
100
100
Firm B
100
200
300
400
Firm C
100
300
600
1,000
5
100
500
1,500
66. Refer to Table 13-16. Firm A is experiencing economies of scale.
ANS: T
PTS: 1
DIF: 3
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-4
Economies of scale
67. Refer to Table 13-16. Firm A is experiencing constant returns to scale.
ANS: F
PTS: 1
DIF: 3
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-4
Constant returns to scale
68. Refer to Table 13-16. Firm B is experiencing constant returns to scale.
ANS: T
PTS: 1
DIF: 3
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-4
Constant returns to scale
69. Refer to Table 13-16. Firm B is experiencing diseconomies of scale.
ANS: F
PTS: 1
DIF: 3
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-4
Diseconomies of scale
70. Refer to Table 13-16. Firm C is experiencing diseconomies of scale.
ANS: T
PTS: 1
DIF: 3
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-4
Diseconomies of scale
71. Refer to Table 13-16. Firm C is experiencing economies of scale.
ANS: F
PTS: 1
DIF: 3
REF:
NAT: Analytic
LOC: Costs of production
TOP:
MSC: Analytical
13-4
Economies of scale
72. Adam Smith's example of the pin factory demonstrates that economies of scale result from specialization.
ANS: T
PTS: 1
DIF: 2
REF: 13-5
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Interpretive
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 13/The Costs of Production ❖ 99
73. Adam Smith describes a visit to a car factory when discussing economies of scale in his book An Inquiry into
the Nature and Causes of the Wealth of Nations.
ANS: F
PTS: 1
DIF: 1
REF: 13-5
NAT: Analytic
LOC: Costs of production
TOP: Economies of scale
MSC: Interpretive
SHORT ANSWER
1. What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?
ANS:
The opportunity cost of an item refers to all those things that must be forgone to acquire that item. Both
explicit and implicit costs are included as opportunity costs.
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Opportunity cost
MSC: Definitional
2. A key difference between accountants and economists is their different treatment of the cost of capital. Does
this cause an accountant's estimate of total costs to be higher or lower than an economist's estimate? Explain.
ANS:
An accountant would not include the forgone interest income that the money could have earned elsewhere if it
had not been invested in the business. Therefore, an accountant's estimate of total cost will be less than an
economist's.
PTS: 1
DIF: 2
REF: 13-1
NAT: Analytic
LOC: Costs of production
TOP: Economic profit | Accounting profit
MSC: Analytical
3. The production function depicts a relationship between which two variables? Also, draw a production function
that exhibits diminishing marginal product.
ANS:
The production function depicts the relationship between output and a given input. The graph below shows
output increasing but at a decreasing rate as the quantity of inputs increases.
PTS: 1
DIF:
LOC: Costs of production
MSC: Applicative
2
REF:
TOP:
13-2
NAT: Analytic
Production function
4. How would a production function that exhibits decreasing marginal product affect the shape of the total cost
curve? Explain or draw a graph.
ANS:
The total cost curve will increase at an increasing rate, or in other words, the total cost curve gets steeper as
the amount produced rises.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
100 ❖ Chapter 13/The Costs of Production
PTS:
1
DIF: 2
LOC:
Costs of production
MSC: Analytical
REF: 13-3
NAT: Analytic
TOP: Diminishing marginal product | Total-cost curve
5. What effect, if any, does diminishing marginal product have on the shape of the marginal cost curve?
ANS:
Diminishing marginal product causes the marginal cost curve to rise.
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC:
Costs of production
TOP: Diminishing marginal product | Marginal cost
MSC: Analytical
6. Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shop's average
total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bob's economist explains that ATC is U-shaped for two reasons. The first is the existence
of diminishing marginal product, which causes it to rise. What would be the second reason? Assume that the
marginal cost curve is linear. (Hint: The second reason relates to average fixed cost)
ANS:
Average fixed cost always declines as output rises because fixed cost is being spread over a larger number of
units, thus causing the average total cost curve to fall.
PTS: 1
DIF: 3
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost
MSC: Analytical
7. If the average total cost curve is falling, what is necessarily true of the marginal cost curve? If the average total
cost curve is rising, what is necessarily true of the marginal cost curve?
ANS:
When average total cost curve is falling, marginal cost is below ATC. If the average total cost curve is rising,
marginal cost is above ATC.
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost | Marginal cost
MSC: Analytical
8. According to the mathematical laws that govern the relationship between average total cost and marginal cost,
where must these two curves intersect?
ANS:
The two curves will cross at the minimum point on the average total cost curve.
PTS: 1
DIF: 2
REF: 13-3
NAT: Analytic
LOC: Costs of production
TOP: Average total cost | Marginal cost
MSC: Analytical
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.