Name:    Quiz #6: PRACTICE - micro Costs & Production

Multiple Choice
Identify the choice that best completes the statement or answers the question. 1.

In Exhibit 7-2, lines H, J, and K represent, respectively,
 a. marginal product, average product, and total product b. average fixed cost, average total cost, and average variable cost c. marginal cost, average total cost, and average variable cost d. average total cost, marginal cost, and average variable cost e. marginal cost, average product, average total cost 2.

In Exhibit 0109, when output is 10,
 a. total cost equals \$10 b. total fixed cost equals \$1 c. average variable cost equals \$1 d. marginal cost equals \$10 e. average fixed cost equals \$10

3.

In Exhibit 0109, what phrase best describes point d?
 a. average total cost b. average total cost for the quantity 10 c. average variable cost for the quantity 10 d. marginal cost e. marginal cost for the quantity 10

4.

In Exhibit 0109, the vertical distance between lines B and C at any level of output represents
 a. marginal cost b. average total cost c. average variable cost d. average fixed cost e. average marginal cost

5.

In exhibit 0109, when output = 10 units, the
 a. total cost = \$80 b. total cost = \$8 c. average total cost = \$8 d. a and b only e. all of the above 6.

In Exhibit 0103; the total product of four workers is
 a. 0 b. 10 c. 20 d. 140/4 e. 140

7.

In Exhibit 0103, the marginal product of the third worker is
 a. 20 b. 100/3 c. 60 d. 50 e. 140

8.

In Exhibit 0103, diminishing marginal returns occur when additional workers are added after the
 a. first worker b. third worker c. fourth worker d. fifth worker e. seventh worker

9.

The law of diminishing marginal returns states that
 a. long-run average costs decline as output increases b. if the marginal product is above the average product, the average will rise c. as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes d. as a person consumes more of a good, the marginal satisfaction from that good eventually diminishes e. if marginal product is positive, total product rises

10.

In the long run, all costs are fixed.
 a. True b. False

11.

Inputs that can be increased or decreased in the short run are called
 a. fixed inputs b. variable inputs c. economic inputs d. accounting inputs e. normal inputs

12.

The short run is a period of time
 a. equal to or less than six months b. during which all resources may be varied c. during which all resources are fixed d. during which at least one resource is fixed e. during which at least one resource may be varied

13.

The long run is a period of time
 a. during which at least one resource is fixed b. during which all resources are variable c. during which all resources are fixed d. less than one year e. greater than one year

14.

Which of the following is a fixed cost of preparing meals?
 a. dishwasher detergent b. chicken c. soda d. a microwave oven e. electricity

15.

If a firm shuts down (produces 0 units, but stays in business) in the short run and produces no output, its total cost will be
 a. zero b. equal to total variable cost c. equal to total fixed cost d. equal to explicit costs only e. impossible to calculate

16.

Which of the following is not an explicit cost?
 a. salaries b. sales taxes c. the cost of utilities, such as gas and electricity d. insurance premiums e. the value of the firm owner's time

17.

Two friends, Diane and Sam, own and run a bar. Diane tends bar on Monday, Wednesday, and Friday and receives a wage in addition to tips, but doesn’t share in the profits. Sam tends bar on Tuesday, Thursday, and Saturday.  Sam doesn’t get a wage, but he receives tips and shares in profits. Which of the following represents an implicit cost of operating the bar?
 a. Diane's wage b. Sam's time c. Diane's tips d. Sam's tips e. both Diane's and Sam's tips

18.

Accounting profit is
 a. always less than economic profit b. never less than economic profit c. equal to economic profit if a normal profit is earned d. less than economic profit only when implicit costs are greater than explicit costs e. greater than economic profit only when implicit costs are greater than explicit costs

19.

Suppose a lawyer leaves his \$50,000-a-year job and starts his own firm breeding pit bulls. In the first year, his accounting profits are \$70,000. The lawyer finances his new business with \$100,000 from his savings account, which had earned 10 percent interest. His economic profit is
 a. \$10,000 b. \$60,000 c. \$70,000 d. -\$80,000 e. -\$90,000

20.

If the Money Store earns a normal profit this year, its
 a. economic profit is equal to its accounting profit b. economic profit is zero c. economic profit is equal to the average accounting profit in other industries d. accounting profit is zero e. accounting profit is less than its economic profit

21.

Normal profit is defined as
 a. accounting profit b. economic profit c. accounting profit necessary to ensure that opportunity costs are covered d. accounting profit minus economic profit e. economic profit minus accounting profit

22.

The Toys-R-Danger-Us Toy Company can produce 500 water pistols for a total cost of \$1,400. If the variable cost of producing 500 water pistols is \$1,300, then
 a. fixed cost must be \$100 b. marginal cost must be \$1,300 c. marginal cost must be increasing d. average variable cost must be decreasing e. average fixed cost must be constant

23.

The short-run average variable cost curve
 a. is always downward-sloping b. starts at the origin and always slopes upward c. starts above the origin and always slopes upward d. is a horizontal line intersecting the vertical axis e. slopes downward at low rates of output, then slopes upward at higher rates of output

24.

The average total cost curve and the average variable cost curve
 a. are closer together as output increases, with average variable cost reaching its minimum level first b. are closer together as output increases, with average total cost reaching its minimum level first c. are farther apart as output increases, with average variable cost reaching its minimum level first d. are farther apart as output increases, with average total cost reaching its minimum level first e. are parallel to each other, and reach their minimum levels at the same rate of output

25.

In exhibit 0109, two curves intersect at point e.  These two curves are:
 a. ATC and AVC b. MC and AVC c. MC and ATC d. ATC and AFC

26.

For each size of plant a manufacturer could build, there is a different
 a. long-run average fixed cost curve b. long-run average variable cost curve c. short-run average total cost curve d. long-run average total cost curve e. long-run marginal cost curve

27.

The shape of the long-run average cost curve reflects
 a. market demand b. economies and diseconomies of scale c. increasing and diminishing marginal returns d. productivity of fixed inputs e. all of the above

28.

Diseconomies of scale are pictured on a graph by the upward-sloping portion of the
 a. marginal product curve b. short-run marginal cost curve c. long-run marginal cost curve d. short-run average cost curve e. long-run average cost curve

29.

An automobile racing team experiences has lower average costs when it enters 2 cars instead on entering only 1 car in each race.  A team with 3 cars has even lower costs than a team with 2 cars.  A team with 4 or 5 cars has the same average costs as the 3-car team.  But a team trying to enter 6 or more cars finds it’s average costs are higher than the 3-car teams.  Race car teams  experience ___________ when expanding to from 5 to 6 cars.
 a. declining profit b. higher prices c. diseconomies of scale d. economies of scale e. diminishing marginal returns

30.

An automobile racing team experiences has lower average costs when it enters 2 cars instead on entering only 1 car in each race.  A team with 3 cars has even lower costs than a team with 2 cars.  A team with 4 or 5 cars has the same average costs as the 3-car team.  But a team trying to enter 6 or more cars finds it’s average costs are higher than the 3-car teams.  Race car teams  experience ___________ when expanding to from 3 to 5 cars.
 a. declining profit b. higher prices c. diseconomies of scale d. economies of scale e. constant returns to scale