Chapter 6: The Costs of Production

Chapter 6: The Costs of Production

Multiple Choice Questions

THE PRODUCTION FUNCTION

1.

hich of the fo!!o"in# are factors of production$ %& Output in a production function. *& Producti+it,. %ns"er: C T,pe: Definition Pa#e: 1-.

C& 'and( !a)or( capita!( and entrepreneurship. D& %!! of the a)o+e.

-. % production function: %& /ho"s the cost of producin# an, !e+e! of output. *& Is a techno!o#ica! re!ationship )et"een factors of production and output. C& E0presses the !east1cost 2ethod of producin# a #i+en !e+e! of output. D& E0presses our a)i!it, to produce +arious co2)inations of #oods( usin# a!! of our resources. %ns"er: * T,pe: Definition Pa#e: 1-.

3. % production function 2atches a #i+en co2)ination of factor inputs "ith the: %& 'o"est a+era#e cost of producin# the output. *& 4a0i2u21cost 2ethod for co2)inin# the inputs. C& 'east cost of producin# output. D& 4a0i2u2 output that can )e techno!o#ica!!, produced fro2 the inputs. %ns"er: D T,pe: Definition Pa#e: 1-.

5. % production function sho"s the: %& 4ini2u2 a2ount of output that can )e o)tained fro2 a!ternati+e co2)inations of inputs. *& 4a0i2u2 6uantities of inputs re6uired to produce a #i+en 6uantit, of output. C& 4a0i2u2 output "e can produce "ith +ar,in# co2)inations of factor inputs. D& Output capacit, of the entire econo2,. %ns"er: C T,pe: Definition Pa#e: 1-.

..

hich of the fo!!o"in# state2ents is true a)out the production function$ %& It represents 2a0i2u2 technica! efficienc,. *& It represents the 2ost output attaina)!e fro2 an, co2)inations of factor inputs. C& It descri)es the output capacit, of a sin#!e fir2. D& %!! of the a)o+e. %ns"er: D T,pe: *asic Understandin# Pa#e: 1-.

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Chapter 6: The Costs of Production

6. /uppose "e can descri)e the production function for the 4C /hoe Co. "ith the e6uation( TP 7 8' 9"here ' 7 the nu2)er of "or:ers&. *ased on this infor2ation( "hich of the fo!!o"in# state2ents is true$ %& The 4C /hoe Co. "i!! ne+er e0perience econo2ies of sca!e. *& The !a" of di2inishin# returns does not app!, at the 4C /hoe Co. C& Di2inishin# returns )e#in after the se+enth "or:er. D& The 2ar#ina! ph,sica! product cur+e )eco2es ne#ati+e at 8 "or:ers. %ns"er: * T,pe: Co2p!e0 Understandin# Pa#e: 1-.

8. ;reater !a)or producti+it, 2eans: %& 'o"er output per !a)or hour. *& Hi#her !a)or cost per unit of output. %ns"er: D T,pe: *asic Understandin# Pa#e: 1-6

C& 'o"er output per "or:er. D& Hi#her output per "or:er.

<. Producti+it,: %& Increases "hen the +a!ue of output increases re!ati+e to the cost of inputs. *& Decreases "hen the +a!ue of output increases re!ati+e to the cost of inputs. C& Increases "hen the ratio of output per unit of input rises. D& Decreases "hen factors of production cost 2ore. %ns"er: C T,pe: Definition Pa#e: 1-6

=. % fir2>s producti+it, "i!! increase if: %& There is an increase in production ), the fir2. *& The fir2 hires 2ore "or:ers. %ns"er: C T,pe: *asic Understandin# Pa#e: 1-6

C& The "or:ers are #i+en additiona! capita! to use. D& The cost of resources increases.

1?. 'a)or producti+it, "i!! increase in response to: %& 'o"er "a#es. *& %n increase in the a2ount of capita! per "or:er. C& Hi#her resource costs. D& %!! of the a)o+e. %ns"er: * T,pe: *asic Understandin# Pa#e: 1-6

11. Technica! efficienc, is achie+ed "hen a fir2 produces: %& %t the a2ount indicated ), the production function. *& *e!o" the opportunit, cost for the resources it uses. C& The 2ini2u2 necessar, output to co+er the opportunit, cost of resources. D& %!! of the a)o+e. %ns"er: % T,pe: Definition Pa#e: 1-6

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Chapter 6: The Costs of Production

1-. Technica! efficienc,: %& Re6uires #ettin# 2a0i2u2 output fro2 the resources used in production. *& Re6uires co+erin# the opportunit, costs of the resources used in production. C& Re6uires production )e,ond the production function. D& %!! of the a)o+e. %ns"er: % T,pe: Definition Pa#e: 1-6

13.

hen a fir2 produces at a technica!!, efficient output !e+e!( it is: %& Producin# the output at the 2ini2u2 MC cur+e. *& Usin# the fe"est resources to produce a #ood or ser+ice. C& Producin# the output "here the AVC cur+e is at a 2ini2u2. D& Producin# the )est co2)ination of #oods and ser+ices. %ns"er: * T,pe: *asic Understandin# Pa#e: 1-6

15. The 2ost desired #oods and ser+ices that are #i+en up in order to #et 2ore of another #ood is the: %& %+era#e tota! cost. *& @aria)!e cost. C& 4ar#ina! cost. D& Opportunit, cost. %ns"er: D T,pe: *asic Understandin# Pa#e: 1-6

1.. Decisions "hich treat at !east one factor of production as fi0ed are referred to as: %& 'on#1run decisions. *& /hort1run decisions. C& Efficienc, decisions. D& In+est2ent decisions. %ns"er: * T,pe: Definition Pa#e: 1-6

16. The period in "hich at !east one input is fi0ed in 6uantit, is the: %& 'on# run. *& Production run. C& /hort run. D& In+est2ent decision. %ns"er: C T,pe: Definition Pa#e: 1-8

4%R;IN%' PRODUCTI@ITA

18. 4ar#ina! ph,sica! product is: %& Tota! output di+ided ), the 6uantit, of input. *& Input di+ided ), output. C& The chan#e in tota! output di+ided ), the chan#e in input 6uantit,. D& The chan#e in producti+it, associated "ith an additiona! unit of input. %ns"er: C T,pe: Definition Pa#e: 1-<

1<. The chan#e in tota! output associated "ith one additiona! unit of input is the: %& Opportunit, cost of the output. C& 4ar#ina! ph,sica! product. *& %+era#e producti+it,. D& 4ar#ina! cost.

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Chapter 6: The Costs of Production

%ns"er: C T,pe: Definition Pa#e: 1-<

1=. 4ar#ina! ph,sica! product is the: %& Chan#e in tota! input re6uired to produce one additiona! unit of output. *& Chan#e in tota! output associated "ith one additiona! unit of the +aria)!e input. C& Nu2)er of units of output o)tained fro2 a!! units of input e2p!o,ed. D& %dditiona! cost of an additiona! unit of output. %ns"er: * T,pe: Definition Pa#e: 1-<

-?.

hich of the fo!!o"in# is the s!ope of the production function "ith respect to an input$ %& 4ar#ina! ph,sica! product of the input. C& Unit cost of the input. *& %+era#e product of the input. D& Input price. %ns"er: % T,pe: *asic Understandin# Pa#e: 1-<

-1. If a fir2 cou!d hire a!! the "or:ers it "anted at a Bero "a#e 9i.e. the "or:ers are +o!unteers&( the fir2 shou!d hire: %& Enou#h "or:ers to produce the output "here di2inishin# returns )e#ins. *& Enou#h "or:ers to produce the output "here "or:er producti+it, is the hi#hest. C& Enou#h "or:ers to produce "here the 4PP 7 Bero. D& %!! the "or:ers that can fit into the factor,. %ns"er: C T,pe: Co2p!e0 Understandin# Pa#e: 1-<

--. The !a" of di2inishin# returns indicates that 2ar#ina! ph,sica! product of a factor dec!ines as: %& 4ore output is produced "ith the 2ost efficient co2)ination of factors. *& 4ore of the factor is used( ho!din# output constant. C& 4ore of the factor is used( ho!din# other inputs constant. D& %!! of the a)o+e. %ns"er: C T,pe: Definition Pa#e: 1-=

-3. The !a" of di2inishin# returns states that )e,ond so2e point( ceteris paribus: %& The returns on stoc:s and )onds di2inish "ith hi#her securit, prices. *& The addition to tota! uti!it, di2inishes as 2ore units of a #ood are consu2ed. C& The 2ar#ina! ph,sica! product of a factor of production di2inishes as 2ore of that factor is used. D& The output of an, #ood increases as 2ore of a +aria)!e input is used. %ns"er: C T,pe: Definition Pa#e: 1-=

-5. The !a" of di2inishin# returns occurs "ith each additiona! unit of a +aria)!e input "hen: %& Tota! output )e#ins to dec!ine. C& Tota! output )e#ins to rise. *& 4ar#ina! ph,sica! product )eco2es ne#ati+e. D& 4ar#ina! ph,sica! product )e#ins to dec!ine. %ns"er: D T,pe: Definition Pa#e: 1-=

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Chapter 6: The Costs of Production

-.. In the short run( the !a" of di2inishin# returns: %& Occurs for on!, a fe" econo2ies. *& Can )e o)ser+ed in e+er, production process. C& Does not occur in co22and econo2ies. D& Can )e o+erco2e ), usin# 2ore +aria)!e inputs. %ns"er: * T,pe: *asic Understandin# Pa#e: 1-=

-6. The !a" of di2inishin# returns indicates that at so2e rate of output: %& Tota! output "i!! fa!! in the !on# run. *& 4ar#ina! ph,sica! product "i!! dec!ine in the !on# run. C& 4ar#ina! ph,sica! product "i!! dec!ine in the short run. D& %!! of the a)o+e. %ns"er: C T,pe: *asic Understandin# Pa#e: 1-=

-8. Di2inishin# returns occur )ecause of: %& Inefficienc, in the production process. *& The use of inferior factors of production. C& % risin# ratio of +aria)!e input to fi0ed input. D& 'o"er opportunit, costs of the factors of production. %ns"er: C T,pe: *asic Understandin# Pa#e: 1-=

-<.

hich of the fo!!o"in# is the )est e0p!anation of "h, the !a" of di2inishin# returns does not app!, in the !on# run$ %& In the !on# run( fir2s can increase the a+ai!a)i!it, of space and e6uip2ent to :eep up "ith the increase in +aria)!e inputs. *& The 4PP does not chan#e in the !on# run. C& In the !on# run( fir2s ha+e 2ore ti2e to find )etter 6ua!ified "or:ers. D& %!! factors of production are fi0ed in the !on# run. %ns"er: % T,pe: Co2p!e0 Understandin# Pa#e: 1-=

RE/OURCE CO/T/

-=. Profit is: %& The difference )et"een tota! cost and +aria)!e cost. *& The difference )et"een tota! re+enue and tota! cost. C& Earned at a!! points a!on# the production function. D& On!, possi)!e "ith technica! efficienc,. %ns"er: * T,pe: Definition Pa#e: 13?

3?. The difference )et"een tota! re+enue and tota! cost is: %& 4ar#ina! cost. *& %+era#e +aria)!e cost. C& Fi0ed cost.

D& Profit.

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Chapter 6: The Costs of Production

%ns"er: D T,pe: Definition Pa#e: 13?

31. The 2ost desira)!e rate of output for a fir2 is the output that: %& 4ini2iBes tota! costs. C& 4ini2iBes 2ar#ina! costs. *& 4a0i2iBes tota! profit. D& 4a0i2iBes tota! re+enue. %ns"er: * T,pe: *asic Understandin# Pa#e: 13?

3-. The shape of the 2ar#ina! cost cur+e ref!ects: %& The !a" of di2inishin# returns. *& The co2petiti+eness of the fir2.

C& The !a" of di2inishin# 2ar#ina! uti!it,. D& The !a" of de2and.

%ns"er: % T,pe: Co2p!e0 Understandin# Pa#e: 13?

33. 4ar#ina! cost: %& Is the chan#e in tota! output fro2 hirin# one 2ore factor of production. *& Is the chan#e in tota! cost fro2 producin# one additiona! unit of output. C& Fa!!s "hen there are di2inishin# returns. D& Is the chan#e in the tota! cost "hen hirin# one 2ore factor of production. %ns"er: * T,pe: Definition Pa#e: 13?

35. The increase in tota! cost associated "ith a 11unit increase in production is: %& 4ar#ina! ph,sica! product. *& 4ar#ina! cost. C& 4ar#ina! re+enue. %ns"er: * T,pe: Definition Pa#e: 13?

D& Profit.

3.. 4ar#ina! cost is e6ua! to: %& Tota! cost C output. *& Chan#e in tota! cost C chan#e in tota! output. %ns"er: * T,pe: Definition Pa#e: 131

C& Chan#e in tota! cost C chan#e in input. D& Tota! cost C input cost.

36. If an additiona! unit of !a)or costs D1. and has a MPP of .? units of output( the 2ar#ina! cost is: %& D?.3?. *& D?..?. C& D8..?. D& D8.?.??. %ns"er: % T,pe: %na!,tica! Pa#e: 131

38. If an additiona! unit of !a)or costs D-? and has a MPP of .? units of output( the 2ar#ina! cost is: %& D?..?. *& D?.5?. C& D-?.??. D& D1(???.??. %ns"er: * T,pe: %na!,tica! Pa#e: 131

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Chapter 6: The Costs of Production

3<. 4ar#ina! cost: %& Increases as a direct resu!t of di2inishin# returns. *& Rises "hene+er 2ar#ina! ph,sica! product decreases. C& Rises in the short run )ecause so2e resources are fi0ed. D& %!! of the a)o+e. %ns"er: D T,pe: Definition Pa#e: 131

3=. Risin# 2ar#ina! costs resu!t fro2: %& Risin# prices of fi0ed inputs. *& Risin# prices of +aria)!e inputs. %ns"er: C T,pe: *asic Understandin# Pa#e: 131

C& Fa!!in# 2ar#ina! ph,sica! product. D& %!! of the a)o+e.

5?. Risin# 2ar#ina! costs are the resu!t of: %& The !a" of di2inishin# returns. *& Decreasin# MPP. C& %ddin# 2ore +aria)!e factors of production to a fi0ed 6uantit, of other factors of production. D& %!! of the a)o+e. %ns"er: D T,pe: *asic Understandin# Pa#e: 131

51. ;i+en a constant price per unit for the +aria)!e input( 2ar#ina! cost "i!! increase "ith #reater output if: %& 4ar#ina! ph,sica! product is dec!inin#. C& Tota! +aria)!e cost is decreasin#. *& 4ar#ina! ph,sica! product is increasin#. D& Tota! fi0ed cost is increasin#. %ns"er: % T,pe: *asic Understandin# Pa#e: 131

5-.

hene+er di2inishin# returns appear "ith #reater output: %& 4ar#ina! cost "i!! )e risin#. C& MPP "i!! rise. *& There are disecono2ies of sca!e. D& %!! of the a)o+e. %ns"er: % T,pe: %na!,tica! Pa#e: 131

DO''%R CO/T/

53. The su2 of fi0ed cost and +aria)!e cost at an, rate of output is: %& Tota! +aria)!e cost. *& Tota! cost. C& %+era#e tota! cost. %ns"er: * T,pe: Definition Pa#e: 13-

D& %+era#e 2ar#ina! cost.

55. The 2ar:et +a!ue of a!! resources used in producin# a #ood or ser+ice is e0pressed ),: %& Tota! costs. *& I2p!icit costs. C& Fi0ed costs. D& @aria)!e costs. %ns"er: % T,pe: *asic Understandin# Pa#e: 13Pa#e 8

Chapter 6: The Costs of Production

5.. %n increase in production in the short run a!"a,s resu!ts in an increase in: %& %+era#e tota! costs. *& 4ar#ina! costs. C& Tota! costs. D& %+era#e fi0ed costs. %ns"er: C T,pe: Co2p!e0 Understandin# Pa#e: 13-

56. The a2ount of fi0ed cost is: %& The difference )et"een a+era#e +aria)!e cost and a+era#e tota! cost in the short run. *& Tota! cost at an output of Bero. C& The difference )et"een tota! cost and 2ar#ina! cost in the !on# run. D& Represented ), a cur+e that s!opes do"n"ard as output increases. %ns"er: * T,pe: Definition Pa#e: 13-

58. In the short run( "hen a fir2 produces Bero output( tota! cost e6ua!s: %& Eero. *& @aria)!e costs. C& Fi0ed costs. D& 4ar#ina! costs. %ns"er: C T,pe: *asic Understandin# Pa#e: 13-

5<.

hich of the fo!!o"in# costs do not chan#e "hen output chan#es in the short run$ %& %+era#e +aria)!e costs. *& @aria)!e costs. C& %+era#e fi0ed costs. D& Fi0ed costs. %ns"er: D T,pe: *asic Understandin# Pa#e: 13-

5=. Costs of production that do not chan#e "ith the rate of output are: %& None0istent. *& @aria)!e costs. C& Fi0ed costs. D& 4ar#ina! costs. %ns"er: C T,pe: Definition Pa#e: 13-

.?.

hich of the fo!!o"in# costs re2ains constant at a!! !e+e!s of output$ %& Tota! costs. *& @aria)!e costs. C& Fi0ed costs. D& 4ar#ina! costs. %ns"er: C T,pe: Definition Pa#e: 13-

.1.

hich of the fo!!o"in# is 2ost !i:e!, a fi0ed cost$ %& Ra" 2ateria!s cost. *& 'a)or cost. C& Ener#, cost. %ns"er: D T,pe: *asic Understandin# Pa#e: 13-

D& Propert, ta0es.

.-.

hich of the fo!!o"in# "ou!d 2ost !i:e!, )e a fi0ed cost$ %& The cost of propert, insurance. *& The cost of "ater used in the production process. C& The cost of !a)or used in the production process. D& The cost of e!ectricit, used in the production process. Pa#e <

Chapter 6: The Costs of Production

%ns"er: % T,pe: *asic Understandin# Pa#e: 13-

.3. %t an, #i+en rate of output( the difference )et"een tota! cost and fi0ed cost is: %& 4ar#ina! cost. *& %+era#e +aria)!e cost. C& Eero in the short run. D& @aria)!e cost. %ns"er: D T,pe: Definition Pa#e: 13-

.5. Costs of production that chan#e "ith the rate of output are: %& /un: costs. *& @aria)!e costs. C& Opportunit, costs. %ns"er: * T,pe: Definition Pa#e: 13-

D& Fi0ed costs.

... Chan#es in short1run tota! costs resu!t fro2 chan#es in on!,: %& @aria)!e costs. *& Fi0ed costs. C& Profit. D& The price e!asticit, of de2and. %ns"er: % T,pe: *asic Understandin# Pa#e: 13-

.6. Chan#es in 2ar#ina! costs resu!t fro2 chan#es in: %& @aria)!e costs. *& Fi0ed costs. C& Profit. D& The price e!asticit, of de2and. %ns"er: % T,pe: *asic Understandin# Pa#e: 13-

.8. In the short run( "hich of the fo!!o"in# is 2ost !i:e!, a +aria)!e cost$ %& Contractua! !ease pa,2ents. C& Propert, ta0es. *& 'a)or and ra" 2ateria!s costs. D& Interest pa,2ents on )orro"ed funds. %ns"er: * T,pe: *asic Understandin# Pa#e: 13-

.<. In the !on# run( "hich of the fo!!o"in# is !i:e!, to )e a +aria)!e cost$ %& Factor, renta!. C& Interest pa,2ents on )orro"ed funds. *& a#e costs. D& %!! of the a)o+e are +aria)!e costs. %ns"er: D T,pe: Co2p!e0 Understandin# Pa#e: 13-

.=. In the short run( "hen a fir2 produces Bero output( +aria)!e cost e6ua!s: %& Eero. *& Tota! cost. C& Fi0ed cost. D& 4ar#ina! cost. %ns"er: % T,pe: *asic Understandin# Pa#e: 13-

6?. In the !on# run( chan#es in tota! costs are caused ), chan#es in: %& Fi0ed costs. *& @aria)!e costs. C& Profits. D& /un: costs.

Pa#e =

Chapter 6: The Costs of Production

%ns"er: * T,pe: *asic Understandin# Pa#e: 13-

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Chapter 6: The Costs of Production

61.

hich of the fo!!o"in# is true as output increases$ %& Fi0ed costs dec!ine )ecause the costs are spread o+er #reater production. *& 4ar#ina! costs re2ain fi0ed. C& @aria)!e costs rise. D& %+era#e tota! costs dec!ine )ecause of di2inishin# returns. %ns"er: C T,pe: *asic Understandin# Pa#e: 13-

6-.

hich of the fo!!o"in# costs a!"a,s increases "hen output increases ), one unit$ %& Tota! costs. *& %+era#e tota! costs. C& 4ar#ina! costs. D& Fi0ed costs. %ns"er: % T,pe: *asic Understandin# Pa#e: 13-

63.

hich of the fo!!o"in# is e6ui+a!ent to ATC$ %& FC F VC. *& AFC F AVC. C& Chan#e in output di+ided ), chan#e in tota! cost. D& Tota! cost ti2es the 6uantit, produced. %ns"er: * T,pe: Definition Pa#e: 133

65.

hich of the fo!!o"in# is e6ui+a!ent to ATC$ %& FC F VC. *& FC F MC. C& Chan#e in tota! cost di+ided ), chan#e in output. D& 9FC F VC& C Q. %ns"er: D T,pe: *asic Understandin# Pa#e: 133

6..

hich of the fo!!o"in# contri)utes to the t,pica! U1shape of the ATC cur+e$ %& The initia! do2inance of di2inishin# returns. *& The e+entua! do2inance of the risin# MC cur+e. C& The stead, i2pact of a risin# AFC cur+e. D& %!! of the a)o+e. %ns"er: * T,pe: *asic Understandin# Pa#e: 133

66.

hich of the fo!!o"in# 2ust a!"a,s )e do"n"ard1s!opin#$ %& The 2ar#ina! cost cur+e "hen it is )e!o" the a+era#e tota! cost cur+e. *& The 2ar#ina! cost cur+e "hen it is a)o+e the a+era#e tota! cost cur+e. C& The a+era#e tota! cost cur+e "hen it is )e!o" the 2ar#ina! cost cur+e. D& The a+era#e tota! cost cur+e "hen it is a)o+e the 2ar#ina! cost cur+e. %ns"er: D T,pe: Co2p!e0 Understandin# Pa#e: 135

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Chapter 6: The Costs of Production

68.

hich one of the fo!!o"in# cur+es 2ust )e fa!!in# as output increases "hen the 2ar#ina! cost is )e!o" it$ %& The a+era#e +aria)!e cost cur+e. C& The a+era#e fi0ed cost cur+e. *& The a+era#e tota! cost cur+e. D& %!! of the a)o+e. %ns"er: D T,pe: *asic Understandin# Pa#e: 135

6<. The a+era#e fi0ed cost cur+e: %& Is U1shaped as a resu!t of di2inishin# returns. *& Dec!ines as !on# as output increases. C& Is intersected at its 2ini2u2 point ), 2ar#ina! cost. D& Intersects the 2ar#ina! cost cur+e at its 2ini2u2 point. %ns"er: * T,pe: *asic Understandin# Pa#e: 135

6=. %s the production rate is increased( a+era#e fi0ed costs: %& %re constant. *& First fa!!( then rise 9in a U1shaped cur+e&. %ns"er: C T,pe: *asic Understandin# Pa#e: 135

C& Dec!ine.

D& Increase.

8?. For "hich of the fo!!o"in# costs does the a+era#e cost cur+e fa!! continuous!,$ %& Fi0ed costs. *& @aria)!e costs. C& Tota! costs. D& %!! of the a)o+e. %ns"er: % T,pe: *asic Understandin# Pa#e: 135

81. The a+era#e +aria)!e cost cur+e s!opes up"ard "ith a hi#her rate of output in the short run )ecause of: %& The effect of di2inishin# returns. C& Disecono2ies of sca!e. *& The shape of the a+era#e fi0ed cost cur+e. D& %!! of the a)o+e. %ns"er: % T,pe: *asic Understandin# Pa#e: 135

8-. In the short run( a+era#e costs 2a, rise as a fir2 increases the rate of production )ecause: %& Inf!ation causes the prices of resources to increase. *& The supp!, cur+e for the product shifts. C& /o2e inputs( such as p!ant and e6uip2ent( cannot )e chan#ed. D& %!! of the a)o+e. %ns"er: C T,pe: *asic Understandin# Pa#e: 135

83. % U1shaped a+era#e tota! cost cur+e i2p!ies: %& First( di2inishin# returns( and then( increasin# returns. *& First( 2ar#ina! cost )e!o" a+era#e tota! cost( and then 2ar#ina! cost a)o+e a+era#e tota! cost. C& That tota! costs are at a 2ini2u2 at the 2ini2u2 of the a+era#e cost cur+e. D& % !inear tota! cost cur+e. %ns"er: * T,pe: Co2p!e0 Understandin# Pa#e: 13.

Pa#e 1-

Chapter 6: The Costs of Production

85. The 2ar#ina! cost cur+e intersects the 2ini2u2 of the cur+e representin#: %& TC. *& ATC. C& AFC. D& %!! of the a)o+e. %ns"er: * T,pe: *asic Understandin# Pa#e: 13.

8.. If the 2ar#ina! cost cur+e is risin#( then "hich of the fo!!o"in# 2ust )e true$ %& The a+era#e tota! cost cur+e 2ust )e risin#. *& The a+era#e tota! cost cur+e 2ust )e )e!o" the 2ar#ina! cost cur+e. C& The a+era#e tota! cost cur+e 2ust )e a)o+e the 2ar#ina! cost cur+e. D& Tota! costs 2ust )e risin#. %ns"er: D T,pe: *asic Understandin# Pa#e: 13.

86. The tendenc, for tota! costs to rise 2ore s!o"!, at first and then to increase 2ore 6uic:!, resu!ts in: %& First( di2inishin# returns( and then( increasin# returns. *& First( fa!!in# 2ar#ina! costs( and then( risin# 2ar#ina! costs. C& First( ne#ati+e 2ar#ina! costs( and then( positi+e 2ar#ina! costs. D& First( risin# a+era#e costs( and then( fa!!in# a+era#e costs. %ns"er: * T,pe: *asic Understandin# Pa#e: 13.

88.

hen the a+era#e tota! cost cur+e is risin#( then the 2ar#ina! cost cur+e "i!! )e: %& *e!o" the a+era#e fi0ed cost cur+e. C& %)o+e the a+era#e tota! cost cur+e. *& Fa!!in# "ith #reater output. D& *e!o" the a+era#e tota! cost cur+e. %ns"er: C T,pe: *asic Understandin# Pa#e: 13.

8<.

hich of the fo!!o"in# contri)utes to an up"ard1s!opin# !on#1run a+era#e tota! cost cur+e$ %& 'on#1run 2ar#ina! cost a)o+e !on#1run a+era#e tota! cost !a" of di2inishin# returns. *& 'on#1run 2ar#ina! cost )e!o" !on#1run a+era#e tota! cost. C& Econo2ies of sca!e. D& The !a" of di2inishin# returns. %ns"er: % T,pe: *asic Understandin# Pa#e: 13.

ECONO4IC @/. %CCOUNTIN; CO/T/

8=. E0p!icit costs: %& Inc!ude on!, pa,2ents to !a)or. *& %re the su2 of actua! 2onetar, pa,2ents 2ade for resources used to produce a #ood. C& Inc!ude the 2ar:et +a!ue of a!! resources used to produce a #ood. D& %re the tota! +a!ue of resources used to produce a #ood )ut for "hich no 2onetar, pa,2ent is actua!!, 2ade. %ns"er: * T,pe: Definition Pa#e: 15?

Pa#e 13

Chapter 6: The Costs of Production

<?. I2p!icit costs: %& Inc!ude on!, pa,2ents to !a)or. *& %re the su2 of actua! 2onetar, pa,2ents 2ade for resources used to produce a #ood. C& Inc!ude the +a!ue of a!! resources used to produce a #ood. D& %re the +a!ue of resources used to produce a #ood )ut for "hich no 2onetar, pa,2ent is actua!!, 2ade. %ns"er: D T,pe: Definition Pa#e: 15?

<1. Econo2ic cost: %& Inc!udes on!, i2p!icit costs. *& Is on!, the su2 of actua! 2onetar, pa,2ents 2ade for resources used to produce a #ood. C& Inc!udes the 2ar:et +a!ue of a!! resources used to produce a #ood. D& Is on!, the +a!ue of resources used to produce a #ood for "hich no 2onetar, pa,2ent is actua!!, 2ade. %ns"er: C T,pe: Definition Pa#e: 15?

<-. Econo2ic cost: %& Inc!udes )oth i2p!icit and e0p!icit costs. *& Is the su2 of actua! 2onetar, pa,2ents 2ade for resources used to produce a #ood. C& Inc!udes on!, i2p!icit costs. D& Decreases as the !e+e! of production increases. %ns"er: % T,pe: Definition Pa#e: 15?

<3. The difference )et"een the accountant>s and the econo2ist>s 2easure2ent of costs e6ua!s: %& E0p!icit cost. C& Tota! re+enue 2inus cost. *& The opportunit, cost of unpaid resources. D& 4ar#ina! cost. %ns"er: * T,pe: Definition Pa#e: 15?

<5. Econo2ic and accountin# costs "i!! differ "hene+er: %& There is 2ore than one factor of production. *& The fir2 fai!s to 2a0i2iBe its profits. C& %n, factor of production is not paid an e0p!icit factor pa,2ent. D& Fir2s operate as proprietorships or partnerships instead of as corporations. %ns"er: C T,pe: *asic Understandin# Pa#e: 15?

<.. %ccountin# costs and econo2ic costs 2a, differ )ecause: %& The e0p!icit cost for at !east one factor is !ess than the factor>s opportunit, cost. *& %ccountin# costs inc!ude i2p!icit costs and econo2ic costs do not. C& E0p!icit costs are positi+e. D& %!! of the a)o+e. %ns"er: % T,pe: Co2p!e0 Understandin# Pa#e: 15?

Pa#e 15

Chapter 6: The Costs of Production

<6.

hich of the fo!!o"in# state2ents a)out the re!ationship )et"een econo2ic costs and accountin# costs is true$ %& %ccountin# costs are a!"a,s !ess than or e6ua! to econo2ic costs. *& %ccountin# costs 2ust e6ua! econo2ic costs 9), definition&. C& %ccountin# costs are a!"a,s #reater than econo2ic costs. D& %ccountin# costs are e6ua! to or #reater than econo2ic costs. %ns"er: % T,pe: Co2p!e0 Understandin# Pa#e: 15?

'ON;1RUN CO/T/

<8. In econo2ics( the !on# run is considered to )e: %& % +aria)!e ti2e dependin# on the nature of )usiness. *& /i0 to nine 2onths. C& One ,ear. D& 4ore than t"o ,ears. %ns"er: % T,pe: *asic Understandin# Pa#e: 15?

<<. The situation in "hich a!! factors of production as +aria)!e are referred to as: %& The !on# run. *& The short run. C& The efficienc, decision. D& Econo2ies of sca!e. %ns"er: % T,pe: Definition Pa#e: 15?

<=. The period in "hich there are no fi0ed costs is the: %& Production run. *& 'on# run. C& /hort run. %ns"er: * T,pe: Definition Pa#e: 15?

D& I2p!icit run.

=?. The !on#1run a+era#e tota! cost cur+e is constructed fro2 the: %& 4ini2u2 points of the short1run 2ar#ina! cost cur+es. *& 4ini2u2 points of the short1run a+era#e +aria)!e cost cur+es. C& 'o"est a+era#e tota! cost for producin# each !e+e! of output. D& 4ini2u2 points of the !on#1run 2ar#ina! cost cur+es. %ns"er: C T,pe: Co2p!e0 Understandin# Pa#e: 151

=1. The !on#1run 2ar#ina! cost cur+e: %& Is the su2 of the short1run 2ar#ina! cost cur+es. *& Dec!ines as !on# as output increases. C& Is intersected at its 2ini2u2 point ), !on#1run a+era#e tota! cost. D& Intersects the !on#1run a+era#e tota! cost cur+e at its 2ini2u2 point. %ns"er: D T,pe: *asic Understandin# Pa#e: 15-

Pa#e 1.

Chapter 6: The Costs of Production

ECONO4IE/ OF /C%'E

=-. Econo2ies of sca!e are reductions in a+era#e: %& Tota! cost that resu!t fro2 dec!inin# a+era#e fi0ed costs. *& Fi0ed cost that resu!t fro2 reducin# the fir2>s sca!e of operations. C& Tota! cost that resu!t fro2 usin# operations of !ar#er siBe. D& Fi0ed cost resu!tin# fro2 i2pro+ed techno!o#, and production efficienc,. %ns"er: C T,pe: Definition Pa#e: 153

=3. If a #i+en a2ount of output can )e produced ), se+era! s2a!! p!ants or one 2uch !ar#er p!ant "ith identica! 2ini2u2 per1unit costs( this !on#1run situation ref!ects the e0istence of: %& Econo2ies of sca!e. C& Constant returns to sca!e. *& Disecono2ies of sca!e. D& Di2inishin# returns. %ns"er: C T,pe: Co2p!e0 Understandin# Pa#e: 153

=5.

hen the siBe of a factor, 9and a!! its associated inputs& dou)!es and( as a resu!t( output 2ore than dou)!es: %& The !a" of di2inishin# returns 2ust not app!, in the s2a!!er factor,. *& Econo2ies of sca!e 2ust e0ist. C& The short1run ATC cur+e 2ust )e dec!inin#. D& 4ar#ina! costs 2ust )e dec!inin#. %ns"er: * T,pe: Co2p!e0 Understandin# Pa#e: 153

=.. Econo2ies of sca!e: %& E0ist in )oth the short run and the !on# run. *& E0p!ain "h, a+era#e +aria)!e and a+era#e tota! costs dec!ine in the short run. C& E0p!ain "h, a+era#e tota! costs dec!ine as output increases in the !on# run. D& E0p!ain "h, a+era#e tota! costs increase as output increases in the !on# run. %ns"er: C T,pe: Definition Pa#e: 153

=6. Econo2ies of sca!e are reductions in: %& %+era#e tota! costs that resu!t fro2 dec!inin# a+era#e fi0ed costs. *& Fi0ed costs that resu!t fro2 reducin# the fir2>s sca!e of operations. C& 4ar#ina! costs resu!tin# fro2 i2pro+ed techno!o#, and production efficienc,. D& 4ini2u2 a+era#e tota! costs that resu!t fro2 usin# operations of !ar#er siBe. %ns"er: D T,pe: Definition Pa#e: 153

=8. Disecono2ies of sca!e are ref!ected in: %& The do"n"ard1s!opin# se#2ent of the !on#1run a+era#e tota! cost cur+e. *& The do"n"ard1s!opin# se#2ent of the !on#1run 2ar#ina! cost cur+e. C& % do"n"ard shift of the !on#1run a+era#e tota! cost cur+e. D& The up"ard1s!opin# se#2ent of the !on#1run a+era#e tota! cost cur+e.

Pa#e 16

Chapter 6: The Costs of Production

%ns"er: D T,pe: Co2p!e0 Understandin# Pa#e: 153

=<. Disecono2ies of sca!e are ref!ected in: %& The risin# se#2ent of the !on#1run a+era#e tota! cost cur+e. *& The risin# se#2ent of the short1run 2ar#ina! cost cur+e. C& ;reater efficienc, that resu!ts fro2 specia!iBation. D& Do"n"ard shifts of the a+era#e tota! cost cur+e. %ns"er: % T,pe: Co2p!e0 Understandin# Pa#e: 155

==.

hich of the fo!!o"in# is a !on#1run concept$ %& Di2inishin# 2ar#ina! producti+it,. *& Di2inishin# returns. %ns"er: C T,pe: %na!,tica! Pa#e: 155

C& Disecono2ies of sca!e. D& %!! of the a)o+e.

THE ECONO4A TO4ORRO

1??. GUnit !a)or costG is the sa2e thin# as: %& The "a#e rate. *& The "a#e rate C MPP. C& The chan#e in !a)or cost di+ided ), the chan#e in output. D& MC. %ns"er: * T,pe: Definition Pa#e: 15.

1?1.

hen the "a#e rate is D8 per hour and the MPP of a "or:er is 3. units per hour( the unit !a)or cost is: %& D?.-? per unit. *& D8.?? per hour. C& D-5. per unit. D& D-5. per hour. %ns"er: % T,pe: %na!,tica! Pa#e: 15.

1?-.

hich of the fo!!o"in# "i!! increase producti+it,$ %& Techno!o#ica! ad+ances. *& Increased 2ana#eria! capa)i!ities. %ns"er: D T,pe: *asic Understandin# Pa#e: 15.

C& Increased !a)or s:i!!s. D& %!! of the a)o+e.

1?3.

hich of the fo!!o"in# "ou!d cause a fir2>s production function to shift up"ard$ %& %n increase in production ), the fir2. C& Increased trainin# for the fir2>s "or:ers. *& Hirin# 2ore "or:ers. D& %n increase in factor costs. %ns"er: C T,pe: *asic Understandin# Pa#e: 15.

1?5. %ssu2in# !a)or is a +aria)!e input( an increase in !a)or producti+it, "ou!d resu!t in: Pa#e 18

Chapter 6: The Costs of Production

%& %n up"ard shift in the MPP cur+e. *& % do"n"ard shift in the MC cur+e.

C& % do"n"ard shift in the ATC cur+e. D& %!! of the a)o+e.

%ns"er: D T,pe: Co2p!e0 Understandin# Pa#e: 15.

1?.. Techno!o#ica! chan#es that increase producti+it, shift the: %& Production function do"n"ard. *& %+era#e tota! cost cur+e do"n"ard. C& 4ar#ina! cost cur+e up"ard as output increases. D& %!! of the a)o+e. %ns"er: * T,pe: Co2p!e0 Understandin# Pa#e: 15.

1?6. Hi#her education !e+e!s and )etter 2ana#e2ent shou!d: %& Cause MPP to s!ope do"n"ard. *& /hift the !on#1run a+era#e tota! cost cur+e do"n"ard. C& 'ead to #reater disecono2ies of sca!e. D& %!! of the a)o+e. %ns"er: * T,pe: %na!,tica! Pa#e: 15.

1?8.

hen the production function shifts up"ard: %& MC shifts do"n"ard. *& AVC shifts do"n"ard. %ns"er: D T,pe: *asic Understandin# Pa#e: 15.

C& ATC shifts do"n"ard.

D& %!! of the a)o+e.

1?<.

hen the production function shifts do"n"ard the: %& MC shifts up"ard. *& AVC shifts do"n"ard. C& ATC shifts do"n"ard. %ns"er: % T,pe: *asic Understandin# Pa#e: 15.

D& %!! of the a)o+e.

1?=. The creation of the or!d ide %& Reduced infor2ation costs. *& Reduced transaction costs.

e) has: C& Increased producti+it,. D& %!! of the a)o+e.

%ns"er: D T,pe: *asic Understandin# Pa#e: 158

Use the fo!!o"in# to ans"er 6uestions 11?1116: Table 6.1

Pa#e 1<

Chapter 6: The Costs of Production

U n its o f la b o r ? 1 3 5

U n its o f o u tp u t ? 1. 3. 5. .-

Pa#e 1=

Chapter 6: The Costs of Production

11?.

hat is the 2ar#ina! ph,sica! product of the first unit of !a)or in Ta)!e 6.1$ %& ?. *& 3.. C& 18. D& 1.. %ns"er: D T,pe: %na!,tica! Pa#e: 1-<

111.

hat is the 2ar#ina! ph,sica! product of the second unit of !a)or in Ta)!e 6.1$ %& -?. *& 18. C& 3.. D& .. %ns"er: % T,pe: %na!,tica! Pa#e: 1-<

11-.

ith "hich unit of !a)or do di2inishin# 2ar#ina! returns first appear in Ta)!e 6.1$ %& The first. *& The second. C& The third. D& The fourth. %ns"er: C T,pe: %na!,tica! Pa#e: 15<

113. %t "hat output !e+e! in Ta)!e 6.1 is !a)or producti+it, the hi#hest$ %& 1. *& -. C& 3. D& 5. %ns"er: * T,pe: *asic Understandin# Pa#e: 15<

115. If a fifth unit of !a)or "as added to Ta)!e 6.1( its MPP "ou!d 2ost !i:e!, )e: %& Eero. *& 8. C& 'ess than 8. D& ;reater than 8. %ns"er: C T,pe: *asic Understandin# Pa#e: 15<

11..

hat is the !a)or cost per unit of output in Ta)!e 6.1 "hen output is increased fro2 1. to 3. units of output$ %& -? units of !a)or. *& ?.53 units of !a)or. C& ?.?. units of !a)or. D& 1 unit of !a)or. %ns"er: C T,pe: %na!,tica! Pa#e: 15<

116.

hat is the !a)or cost per unit of output in Ta)!e 6.1 "hen output is increased fro2 3. to 5. units of output$ %& 1? units of !a)or. *& ?.8< units of !a)or. C& ?.1? units of !a)or. D& 1 unit of !a)or. %ns"er: C T,pe: %na!,tica! Pa#e: 131

Use the fo!!o"in# to ans"er 6uestions 11811-3: Table 6.2

O u tp u ts (u n its p e r d a y T o ta l c o s t (d o lla r s p e r d a y ? 5? 1? .5 -? 63? <?

Pa#e -?

Chapter 6: The Costs of Production

118. %+era#e fi0ed cost at -? units of output in Ta)!e 6.- is: %& D1.??. *& D-.??. C& D-..?. D& D5.??. %ns"er: * T,pe: %na!,tica! Pa#e: 13.

11<. The 2ar#ina! cost )et"een -? and 3? units of output in Ta)!e 6.- is: %& D1.6?. *& D5.??. C& D1.<?. D& D1<.??. %ns"er: C T,pe: %na!,tica! Pa#e: 136

11=. %)o+e 1? units of output( the a+era#e fi0ed cost in Ta)!e 6.-: %& Rises a)o+e D-.??. *& Re2ains constant. C& /ta,s )e!o" D?..?. %ns"er: D T,pe: %na!,tica! Pa#e: 135

D& Continues to dec!ine.

1-?. %t -? units of output in Ta)!e 6.- the a+era#e +aria)!e cost is: %& D1.1? per unit. *& D1.8. per unit. C& D-.?? per unit. D& D3.1? per unit. %ns"er: % T,pe: %na!,tica! Pa#e: 13.

1-1. For the output !e+e!s in Ta)!e 6.-( the 2ini2u2 of the a+era#e +aria)!e cost cur+e occurs at a production rate of: %& Eero units per da,. *& 1? units per da,. C& -? units per da,. D& 3? units per da,. %ns"er: C T,pe: %na!,tica! Pa#e: 13.

1--. %t 1? units of output in Ta)!e 6.-( the tota! fi0ed costs are: %& D55. *& D15. C& D5?. D& D.5. %ns"er: C T,pe: %na!,tica! Pa#e: 13-

1-3. %t 3? units of output in Ta)!e 6.-( the tota! +aria)!e costs are: %& D3?. *& D5?. C& D.?. D& D<?. %ns"er: * T,pe: %na!,tica! Pa#e: 13-

Use the fo!!o"in# to ans"er 6uestions 1-511-=: Co2p!ete Ta)!e 6.3. Then use the infor2ation in the ta)!e to ans"er the indicated 6uestions. Table 6.!

Pa#e -1

Chapter 6: The Costs of Production

Q ? 1 3

T"C HHHH HHHH HHHH HHHH

T# C HHHH HHHH HHHH 1.

TC 1. -3 HHHH HHHH

$# C HHHH HHHH HHHH

M C HHHH 5 HHHH

1-5. Tota! fi0ed costs in Ta)!e 6.3 are e6ua! to: %& D? )ecause the pro)!e2 in+o!+es the !on# run. %ns"er: * T,pe: %na!,tica! Pa#e: 13-

*& D1..

C& D3?.

D& D6?.

1-.. The 2ar#ina! cost of the first unit of output in Ta)!e 6.3 is: %& D3. *& D5. C& D<. D& D1.. %ns"er: C T,pe: %na!,tica! Pa#e: 136

1-6. The tota! cost of - units of output in Ta)!e 6.3 is: %& D1.. *& D-8. C& D-3. D& D6.. %ns"er: * T,pe: %na!,tica! Pa#e: 13-

1-8. The tota! +aria)!e cost of 1 units of output in Ta)!e 6.3 is: %& D1.. *& D1-. C& D3?. D& D<. %ns"er: D T,pe: %na!,tica! Pa#e: 13-

1-<. The 2ar#ina! cost of the third unit of output in Ta)!e 6.3 is: %& D3. *& D5. C& D<. D& D1.. %ns"er: % T,pe: %na!,tica! Pa#e: 136

1-=. The a+era#e +aria)!e cost of the second unit of output in Ta)!e 6.3 is: %& D1.. *& D.. C& D<. D& D6. %ns"er: D T,pe: %na!,tica! Pa#e: 135

Pa#e --

Chapter 6: The Costs of Production

Use the fo!!o"in# to ans"er 6uestions 13?1133: "i%ure 6.1

13?. The 2ar#ina! ph,sica! product of the third unit of !a)or in Fi#ure 6.1 is: %& -.?. *& 6.?. C& 6.68. D& -?.?. %ns"er: * T,pe: %na!,tica! Pa#e: 1-<

131. The 2ar#ina! ph,sica! product of the fifth unit of !a)or in Fi#ure 6.1 is: %& 1. *& .. C& -?. D& -.. %ns"er: % T,pe: %na!,tica! Pa#e: 1-<

13-. The 2ar#ina! ph,sica! product of !a)or in Fi#ure 6.1 is ne#ati+e for the: %& Third "or:er. *& Fourth "or:er. C& Fifth "or:er. D& /i0th "or:er. %ns"er: D T,pe: %na!,tica! Pa#e: 1-<

133. In Fi#ure 6.1 di2inishin# 2ar#ina! returns first occur "ith the: %& Fifth "or:er. *& Fourth "or:er. C& Third "or:er. D& /econd "or:er. %ns"er: C T,pe: %na!,tica! Pa#e: 1-=

Pa#e -3

Chapter 6: The Costs of Production

Use the fo!!o"in# to ans"er 6uestions 1351138: "i%ure 6.2 1? < 6 5 1 3 5 . 6 8 < = a h i 1? j b d c e f g M PP

' a ) o r In p u t 9" o r: e rs p e r p e rio d &

135. In Fi#ure 6.-( if 3 units of !a)or are used( 2ar#ina! costs are: %& Increasin#. *& Decreasin#. C& Eero. D& Ne#ati+e. %ns"er: * T,pe: %na!,tica! Pa#e: 131

13.. In Fi#ure 6.-( if . units of !a)or are used( 2ar#ina! costs are: %& Increasin#. *& Constant. C& Decreasin#. D& Eero. %ns"er: % T,pe: %na!,tica! Pa#e: 131

136. In Fi#ure 6.-( at "hich !e+e! of !a)or input is 2ar#ina! cost 2ini2iBed$ %& 1. *& 5. C& =. D& 1?. %ns"er: * T,pe: %na!,tica! Pa#e: 131

138. In Fi#ure 6.-( if 6 units of !a)or are used( 2ar#ina! costs are: %& Increasin#. *& Constant. C& Decreasin#. D& Eero. %ns"er: % T,pe: %na!,tica! Pa#e: 131

Pa#e -5

Chapter 6: The Costs of Production

Use the fo!!o"in# to ans"er 6uestion 13<: "i%ure 6.!

4 % R ; IN % ' P H A / IC % ' P R O D U C T

. ) 5 3 a 1

J J
c

J
1 3 5 . 6

4 PP

J
8 <
' % * O R IN P U T

J
=

1?

I 11

13<. Refer to Fi#ure 6.3. 4a0i2u2 production occurs at a !e+e! of !a)or input e6ua! to: %& - "or:ers. *& 5 "or:ers. C& < "or:ers. D& 1? "or:ers. %ns"er: D T,pe: Co2p!e0 Understandin# Pa#e: 1-8

Use the fo!!o"in# to ans"er 6uestions 13=1153: "i%ure 6.&

Pa#e -.

Chapter 6: The Costs of Production

13=.

hat is the 2ar#ina! cost of the 1-?th unit of output in Fi#ure 6.5$ %& D-.. *& D1??. C& D1?5. D& D155. %ns"er: D T,pe: %na!,tica! Pa#e: 135

15?.

hat is the tota! fi0ed cost in Fi#ure 6.5$ %& D5<. *& D1?(???. C& D5(<??. D& D15(<??. %ns"er: C T,pe: %na!,tica! Pa#e: 135

151.

hat is the tota! cost of 1-? units in Fi#ure 6.5$ %& D1?(???. *& D15(<??. C& D18(-<?. D& D18(86?. %ns"er: C T,pe: %na!,tica! Pa#e: 135

15-.

hat is the a+era#e fi0ed cost "hen output is 1-? units in Fi#ure 6.5$ %& D1?. *& D5?. C& D5<. D& D5(<??. %ns"er: * T,pe: %na!,tica! Pa#e: 135

153.

hat is the tota! +aria)!e cost "hen output is 1?? units in Fi#ure 6.5$ %& D1-(5<?. *& D1?5. C& D1??. D& D1-(???. %ns"er: % T,pe: %na!,tica! Pa#e: 135

Use the fo!!o"in# to ans"er 6uestions 155115<: "i%ure 6.'

Pa#e -6

Chapter 6: The Costs of Production

P ) O * U C T +O , C O - T - (.

M C

$TC $# C

$ "C ( Q 1 Q 2 Q ! Q&

O U TPU T
155. Refer to Fi#ure 6... Di2inishin# returns )e#in at an output of: %& K . *& K . C& K . D& K .
1 3 5

%ns"er: % T,pe: Co2p!e0 Understandin# Pa#e: 13?

15.. Refer to Fi#ure 6... The +ertica! distance )et"een the AVC and the ATC cur+es represents: %& 4ar#ina! costs. C& %+era#e fi0ed costs. *& Tota! fi0ed costs. D& The increasin# efficienc, of "or:ers. %ns"er: C T,pe: Co2p!e0 Understandin# Pa#e: 135

156. Refer to Fi#ure 6... The +ertica! distance )et"een the ATC and AVC cur+es 2u!tip!ied ), the nu2)er of units produced e6ua!s: %& 4ar#ina! costs. *& Tota! fi0ed costs. C& Tota! +aria)!e cost. D& Tota! cost. %ns"er: * T,pe: %na!,tica! Pa#e: 135

158. Refer to Fi#ure 6.. at an output of K . The ATC at K 2u!tip!ied ti2es K e6ua!s:
5 5 5

%& 4ar#ina! costs.

*& Tota! profit.

C& Tota! re+enue.

D& Tota! cost.

%ns"er: D T,pe: %na!,tica! Pa#e: 135

15<. In Fi#ure 6..( at "hat output does this fir2 2a0i2iBe technica! efficienc,$ %& K . *& K . C& K . D& K .
1 3 5

%ns"er: D T,pe: %na!,tica! Pa#e: 1-6

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Chapter 6: The Costs of Production

Use the fo!!o"in# to ans"er 6uestions 15=11.?: "i%ure 6.6

T o ta ! C o s t

P R O D U C T IO N C O / T / 9D &

T o ta ! F i0 e d C o s t ? 1? -? 3? O U TPU T 5? .?

15=. Refer to Fi#ure 6.6. The +ertica! difference )et"een the tota! cost cur+e and the tota! fi0ed cost cur+e represents: %& Tota! +aria)!e costs. C& %+era#e fi0ed costs. *& Tota! 2ar#ina! costs. D& %+era#e +aria)!e costs. %ns"er: % T,pe: Co2p!e0 Understandin# Pa#e: 133

1.?. Refer to Fi#ure 6.6. The )est esti2ate of "here di2inishin# returns )e#ins is at an output of: %& 1?. *& -?. C& 3?. D& 5?. %ns"er: * T,pe: Co2p!e0 Understandin# Pa#e: 133

Use the fo!!o"in# to ans"er 6uestions 1.111.3: "i%ure 6./ 0on%1run a2era%e total cost cur2e

Pa#e -<

Chapter 6: The Costs of Production

1.1. In Fi#ure 6.8( a fir2 that produces o+er 5?? units of output shou!d choose a p!ant "ith "hich short1run a+era#e tota! cost function$ %& ATC . *& ATC . C& ATC . D& Either ATC or ATC .
1 3 3

%ns"er: C T,pe: *asic Understandin# Pa#e: 151

1.-. In Fi#ure 6.8( disecono2ies of sca!e occur at output rates: %& Up to -?? units per period. C& *et"een 5?? and .?? units per period. *& *et"een -?? and 3?? units per period. D& ;reater than .?? units per period. %ns"er: D T,pe: *asic Understandin# Pa#e: 151

1.3. In Fi#ure 6.8( the !on#1run a+era#e tota! cost cur+e is #i+en ), the cur+ed !ine se#2ent: %& ACE. *& ABFDGE. C& ABF on!,. D& BFD. %ns"er: * T,pe: *asic Understandin# Pa#e: 151

Use the fo!!o"in# to ans"er 6uestions 1.511..: "i%ure 6.3

Pa#e -=

Chapter 6: The Costs of Production

% @ E R % ; E C O / T / 9D &

L1

L-

L3

L5

L.

O U TPU T

1.5. Refer to Fi#ure 6.<. Econo2ies of sca!e occur in the fo!!o"in# ran#e of factor, siBes: %& L1 to L-. *& L1 to L3. C& L3 on!,. D& %!! of the factories e0hi)it econo2ies of sca!e. %ns"er: * T,pe: Co2p!e0 Understandin# Pa#e: 153

1... Refer to Fi#ure 6.<. Disecono2ies of sca!e )e#in: %& %t the 2ini2u2 points on a!! fi+e %TC cur+es. *& %fter the third factor,. C& %fter the fifth factor,. D& None of the factories e0hi)it disecono2ies of sca!e. %ns"er: * T,pe: Co2p!e0 Understandin# Pa#e: 153

The fo!!o"in# 2u!tip!e1choice 6uestions re6uire critica! thin:in# a)out n the !e"s and #or$d Vie" artic!es that appeared in the te0t.

1.6. %n n the !e"s artic!e ta!:s a)out a Ioint +enture )et"een ;enera! 4otors and IsuBu to )ui!d a ne" factor, outside Da,ton( Ohio. hich of the fo!!o"in# state2ents is true a)out the costs of this factor,$ %& In the p!annin# sta#e( a!! construction costs are +aria)!e. *& Once the factor, is )ui!t( there are fi0ed costs. C& Once the factor, is )ui!t( the ATC and AVC cur+es are separate. D& %!! of the a)o+e. %ns"er: D T,pe: *asic Understandin# Pa#e: 151

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Chapter 6: The Costs of Production

1.8. One n the !e"s artic!e reports profit for a Houston1)ased funera! #iant is 31 cents on e+er, do!!ar +s. a profit of 1- cents for the funera! industr, in #enera!. /uch profits are 2ost !i:e!, the resu!t of: %& Constant return to sca!e. C& Hi#her 2ini2u2 a+era#e costs. *& Econo2ies of sca!e. D& % do"n"ard shift in the production function. %ns"er: * T,pe: Co2p!e0 Understandin# Pa#e: 153

1.<. One n the !e"s artic!e reports profit for a Houston1)ased funera! #iant is 31 cents on e+er, do!!ar +s. a profit of 1- cents for the funera! industr, in #enera!. /uch profits are 2ost !i:e!, the resu!t of: %& Econo2ies of sca!e. *& Reductions in 2ini2u2 a+era#e costs )ecause of siBe. C& % !o"er ATC cur+e. D& %!! of the a)o+e. %ns"er: D T,pe: Co2p!e0 Understandin# Pa#e: 153

1.=. One #or$d Vie" artic!e tit!ed GUnited /tates ;ains Cost %d+anta#e.G Durin# the 1==?s( unit !a)or costs in the United /tates dec!ined: %& %nd the U./. "as !ess co2petiti+e in "or!d 2ar:ets. *& *ecause producti+it, ad+ances "ere s2a!! and "a#e increases "ere hi#h. C& *ecause producti+it, ad+ances "ere #reater than "a#e increases. D& %nd cost cur+es shifted up"ard. %ns"er: C T,pe: Co2p!e0 Understandin# Pa#e: 156

16?. %n n the !e"s artic!e has the head!ine GUnited /tates ;ains Cost %d+anta#e.G One reason for the increase in #!o)a! co2petiti+eness cou!d )e: %& The !a" of de2and. C& Discono2ies of sca!e. *& The !a" of di2inishin# returns. D& 'o"er unit !a)or costs. %ns"er: D T,pe: Co2p!e0 Understandin# Pa#e: 156

161. %n n the !e"s artic!e sa,s producti+it, ad+ances ha+e contri)uted to U./. co2petiti+eness in "or!d 2ar:ets. hen i2pro+e2ents in producti+it, reduce costs the production function shifts: %& Up"ard and cost cur+es shift up"ard. C& Do"n"ard and cost cur+es shift up"ard. *& Up"ard and cost cur+es shift do"n"ard. D& Do"n"ard and cost cur+es shift do"n"ard. %ns"er: * T,pe: Co2p!e0 Understandin# Pa#e: 156

True4"alse Questions

THE PRODUCTION FUNCTION

F 16-. The production function sho"s the 2a0i2u2 a2ount of a particu!ar #ood or ser+ice that can )e produced "ith #i+en co2)inations of resources.

Pa#e 31

Chapter 6: The Costs of Production

%ns"er: True T,pe: *asic Understandin# Pa#e: 1-.

F 163. The production function sho"s the 2ini2u2 output that "ou!d e6ua! the opportunit, cost of the resources used to produce the output. %ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 1-.

F 165. The producti+it, of an, input is independent and is not affected ), the other resources that are used. %ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 1-.

F 16..

hen a fir2 is a)!e to achie+e the output indicated ), a production function( it is producin# "ith technica! efficienc,.

%ns"er: True T,pe: *asic Understandin# Pa#e: 1-6

F 166. /hort1run choices i2p!, that at !east one factor of production is fi0ed. %ns"er: True T,pe: *asic Understandin# Pa#e: 1-8

4%R;IN%' PRODUCTI@ITA

F 168. Tota! output 2a, continue to rise e+en thou#h 2ar#ina! ph,sica! product is dec!inin#. %ns"er: True T,pe: *asic Understandin# Pa#e: 1-<

F 16<. Tota! output 2a, continue to rise e+en thou#h 2ar#ina! ph,sica! product is ne#ati+e. %ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 1-<

F 16=. The 2ar#ina! ph,sica! product of a +aria)!e input e+entua!!, dec!ines as 2ore of it is e2p!o,ed "ith a #i+en 6uantit, of other 9fi0ed& inputs. %ns"er: True T,pe: *asic Understandin# Pa#e: 1-<

F 18?. The !a" of di2inishin# returns indicates that the 2ar#ina! ph,sica! product of a +aria)!e input dec!ines as 2ore of it is e2p!o,ed( ceteris paribus. %ns"er: True T,pe: *asic Understandin# Pa#e: 1-=

Pa#e 3-

Chapter 6: The Costs of Production

F 181. The !a" of di2inishin# returns is ref!ected in the do"n"ard s!opin# portion of the short1run 2ar#ina! cost cur+e. %ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 1-=

RE/OURCE CO/T/

F 18-. The difference )et"een tota! re+enue and tota! cost is profit. %ns"er: True T,pe: *asic Understandin# Pa#e: 13?

F 183. 4ar#ina! cost a!"a,s ref!ects the cost of +aria)!e factors. %ns"er: True T,pe: *asic Understandin# Pa#e: 13?

F 185.

hene+er MPP is increasin# "ith output( the 2ar#ina! cost of producin# a #ood 2ust )e fa!!in#.

%ns"er: True T,pe: *asic Understandin# Pa#e: 13?

F 18.. If MPP dec!ines "ith #reater output( then MC 2ust increase. %ns"er: True T,pe: *asic Understandin# Pa#e: 13?

DO''%R CO/T/

F 186. Tota! cost refers to the 2ar:et +a!ue of a!! resources used in producin# a #ood or ser+ice. %ns"er: True T,pe: *asic Understandin# Pa#e: 13-

F 188. The tota! cost at a Bero !e+e! of output is a!"a,s e6ua! to the +aria)!e cost. %ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 13-

F 18<. ATC 7 AFC F AVC.

%ns"er: True T,pe: *asic Understandin# Pa#e: 135

F 18=.

hen 2ar#ina! cost is )e!o" a+era#e tota! cost( a+era#e +aria)!e cost "i!! a!"a,s fa!!.

Pa#e 33

Chapter 6: The Costs of Production

%ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 135

F 1<?.

hen the 2ar#ina! cost cur+e is )e!o" the a+era#e tota! cost cur+e( the a+era#e tota! cost cur+e 2ust )e fa!!in#.

%ns"er: True T,pe: *asic Understandin# Pa#e: 135

F 1<1. The 2ar#ina! cost cur+e intersects the 2ini2u2 of the a+era#e tota! cost cur+e and a!so the 2ini2u2 of the a+era#e +aria)!e cost cur+e. %ns"er: True T,pe: *asic Understandin# Pa#e: 135

ECONO4IC @/. %CCOUNTIN; CO/T/

F 1<-. The difference )et"een the accountant>s and the econo2ist>s 2easure2ent of cost e6ua!s i2p!icit costs. %ns"er: True T,pe: *asic Understandin# Pa#e: 15?

F 1<3. Econo2ic and accountin# costs "i!! di+er#e "hene+er an, factor of production is not paid an e0p!icit "a#e. %ns"er: True T,pe: *asic Understandin# Pa#e: 15?

F 1<5. %ccountin# costs and econo2ic costs differ ), the a2ount of e0p!icit costs. %ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 15?

'ON;1RUN CO/T/

F 1<.. 'on#1run choices i2p!, that a!! factors 2ust )e +aria)!e. %ns"er: True T,pe: *asic Understandin# Pa#e: 15?

F 1<6. There are sti!! so2e fi0ed costs in the !on# run( such as rent. %ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 15?

F 1<8. The !on#1run cost cur+e is si2p!, a su22ar, of the )est short1run fi0ed cost cur+es.

Pa#e 35

Chapter 6: The Costs of Production

%ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 15-

ECONO4IE/ OF /C%'E

F 1<<. If a !ar#er p!ant reduces 2ini2u2 a+era#e costs( there are econo2ies of sca!e. %ns"er: True T,pe: *asic Understandin# Pa#e: 153

Pa#e 3.

Chapter 6: The Costs of Production

F 1<=. If a fir2 has constant returns to sca!e( the !on#1run cost cur+e "i!! )e do"n"ard s!opin#. %ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 155

F 1=?. Disecono2ies of sca!e i2p!, that the a+era#e tota! cost cur+e is do"n"ard1s!opin# in the !on# run. %ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 155

THE ECONO4A TO4ORRO

F 1=1. 4ore education and )etter techno!o#, contri)ute to an increase in producti+it,( ceteris paribus. %ns"er: True T,pe: *asic Understandin# Pa#e: 15.

F 1=-. Unit !a)or cost represents the increase in output )ecause of an additiona! "or:er is hired. %ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 15.

F 1=3. *etter 2ana#e2ent shifts the production function do"n"ard and the tota! cost cur+e up"ard. %ns"er: Fa!se T,pe: *asic Understandin# Pa#e: 15.

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Chapter 6: The Costs of Production

$ns5ers to Table
Table 6.! $ns5er Q ? 1 3 T"C 1. 1. 1. 1. T#C ? < 11. TC 1. -3 -8 3? $#C < 6 8.. MC < 5 3

Pa#e 38