Name:    Chapter 13 Additional Practice Questions

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

1.

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.

2.

Airline ticket prices are increasing.  Why?
 a. Rising labor costs are decreasing the supply curve. c. Rising fuel costs and decreasing the supply curve. b. Increased travel during the upcoming holiday season is increasing demand. d. Increased travel during the upcoming holiday season is decreasing demand.

3.

Dolores used to work as a high school teacher for \$40,000 per year but quit in order to start her own catering business. To buy the necessary equipment, she withdrew \$20,000 from her savings, (which paid 3 percent interest) and borrowed \$30,000 from her uncle, whom she pays 3 percent interest per year. Last year she paid \$25,000 for ingredients and had revenue of \$60,000. She asked Louis the accountant and Greg the economist to calculate her profit for her.
 a. Louis says her profit is \$34,100 and Greg says her profit is \$6,500. b. Louis says her profit is \$34,100 and Greg says she lost \$6,500. c. Louis says her profit is \$35,000 and Greg says she lost \$5,000. d. Louis says her profit is \$33,500 and Greg says her profit is 33,500.

4.

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.

5.

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.

6.

Explicit costs
 a. require an outlay of money by the firm. b. include all of the firm's opportunity costs. c. include income that is forgone by the firm's owners. d. Both b and c are correct.

7.

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.

Table 13-5

 Measures of Cost for ABC Inc. Widget Factory Quantityof Widgets VariableCosts TotalCosts FixedCosts 0 \$10 1 \$ 1 2 \$ 3 \$13 3 \$ 6 \$16 4 \$10 5 \$25 6 \$21 \$10

8.

Refer to Table 13-5. The marginal cost of producing the sixth widget is
 a. \$1.00. b. \$3.50. c. \$5.00. d. \$6.00.

9.

Refer to Table 13-5. The average variable cost of producing four widgets is
 a. \$2.00 b. \$2.50 c. \$3.33 d. \$5.00

10.

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 amounted to \$20 million. b. economic profit amounted to \$20 million. c. total revenue amounted to \$20 million. d. explicit costs amounted to \$20 million.

11.

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.

12.

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.

13.

Today's demand curve for gasoline could shift in response to
 a. a change in today's price of gasoline. b. a change in the expected future price of gasoline. c. a change in the number of sellers of gasoline. d. All of the above are correct.

Figure 13-1

The figure below depicts a production function for a firm that produces cookies.

14.

Refer to Figure 13-1. 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.

15.

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.

16.

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

17.

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.

18.

Jane 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 Jane's economic profit from running her own business?
 a. \$-65,000 b. \$5,000 c. \$10,000 d. \$20,000

19.

A production function is a relationship between
 a. inputs and quantity of output. b. inputs and revenue. c. inputs and costs. d. inputs and profit.

20.

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.

21.

Assume a certain firm regards the number of workers it employs as variable, and that it 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.

22.

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 are boycotting local retailers whose prices are relatively higher. 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.

23.

Harry's Hotdogs is a small street vendor business owned by Harry Huggins. If Harry makes 15 hotdogs in his first hour of business and incurs a total cost of \$16.50, his average total cost per hotdog is
 a. \$1.10 b. \$6.50 c. \$15.00 d. \$16.50

24.

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. fixed costs and variable costs will rise.

25.

Those things that must be forgone to acquire a good are called
 a. substitutes. b. opportunity costs. c. explicit costs. d. competitors.

26.

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

27.

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.