Академический Документы
Профессиональный Документы
Культура Документы
Student: ___________________________________________________________________________
1.
2.
3.
Which of the following are factors of production for Terry's Taco Patio?
A. Economic costs and money
B. Average total cost and entrepreneurship
C. Productivity and labor
D. Corn tortillas and meat
4.
5.
6.
The maximum output that can be produced from a set of inputs is measured by:
A. The production function.
B. The demand schedule.
C. Fixed costs.
D. Marginal costs.
7.
Which of the following statements concerning the relationship between total product (TP) and marginal
physical product (MPP) is not correct?
A. TP will continue to rise even though MPP is falling but greater than zero.
B. TP is increasing at an increasing rate if MPP is increasing.
C. TP will fall if MPP is negative.
D. TP will fall if MPP is falling.
8.
9.
10. If the first, second, third and forth worker employed by the firm add 15, 21, 12 and 8 units of total
product respectively, we can conclude that:
A. The marginal product of all four workers is 14.
B. The total product of two workers is 42.
C. after the second worker marginal product declines.
D. adding a forth worker will cause total product to decline.
11. The law of diminishing returns means that:
A. The total product production function will eventually increase at a decreasing rate.
B. The marginal product will increase at an increasing rate.
C. Average total costs are rising and then falling as output is increased.
D. Average fixed cost will fall as production increases.
12. The change in total output that results from one additional unit of input is the:
A. Marginal physical product.
B. Average product of the input.
C. Unit cost of the input.
D. Input price.
13. Marginal physical product is:
A. Equal to the average output of a worker.
B. The additional utility a consumer gets from the last unit of a product.
C. The additional output from using one more unit of labor.
D. Equal to the total product of labor.
14. The law of diminishing returns can explain why:
A. Marginal cost eventually increases in the short run as more output is produced.
B. The demand curve is typically downward sloping.
C. The average fixed-cost curve declines as long as output increases.
D. Marginal cost decreases as more output is produced.
15. Ceteris paribus, the law of diminishing returns states that beyond some point the:
A. Return on stocks and bonds diminish as more are purchased.
B. Addition to total utility declines as more units are consumed.
C. Marginal physical product of a variable input declines as more of it is used.
D. Output of any good or service increases as more variable input is used.
16. If more of an input factor is used, while holding other inputs constant, a firm will eventually
experience:
A. Diminishing returns.
B. Falling marginal cost.
C. Rising marginal physical product.
D. Rising consumer demand.
17. As more labor is hired in the short run, diminishing returns are observed because:
A. The new workers are lazy.
B. The new workers have less capital and land to work with.
C. All the workers begin to socialize more and work less.
D. The new workers are less skilled.
18. The law of diminishing returns indicates that the marginal physical product of a factor declines as
more:
A. Output is produced with the most efficient combination of factors.
B. Of the factor is used, holding output constant.
C. Of the factor is used, holding other inputs constant.
D. Of the good is consumed.
19. Assume a toy company hires an additional worker to assemble toys, and the size of the factory and
amount of equipment remain constant. As a result, the level of output increases but by a smaller amount
than when the previous additional worker was hired. This is an example of:
A. The law of poor planning.
B. The law of diminishing returns.
C. Say's Law.
D. The law of substitution.
20. Assume a restaurant hires an additional chef who is as qualified as the current chefs. As a result, the level
of output increases but by a smaller amount than when the previous additional chef was hired. Which of
the following best explains this occurrence?
A. The chefs are working with a fixed amount of space and equipment and they get in each other's way.
B. The additional wages cause profit to decrease.
C. The amount of food available for preparation is limited so output decreases.
D. The two chefs do not agree on food preparation and spend too much time arguing.
21. Which of the following is the best explanation of why the law of diminishing returns does not apply in the
long run?
A. All factors of production are variable in the long run.
B. The MPP does not change in the long run.
C. In the long run, firms have enough time to find more qualified workers.
D. All factors of production are fixed in the long run.
22. Total revenue minus total cost equals:
A. Profit.
B. Variable costs.
C. Economic costs.
D. Marginal revenue.
23. Profit is the difference between:
A. Total cost and variable cost.
B. Total revenue and total cost.
C. Marginal cost and fixed cost.
D. Average total cost and economic cost.
24. A firm can be identified as profitable if the:
A. Sum of total revenue and total costs is high.
B. Difference between its total revenue and total costs is negative.
C. Difference between its total revenue and total costs is positive.
D. Total costs and marginal costs are low.
25. The most desirable rate of output is the one that:
A. Minimizes total costs.
B. Maximizes total profit.
C. Minimizes marginal costs.
D. Maximizes total revenue.
26. The market value of all resources used in producing a good or service is expressed by:
A. Implicit costs.
B. Total costs.
C. Fixed costs.
D. Variable costs.
37. If a firm increases output, total costs will rise because of a change in:
A. Fixed costs.
B. Absolute costs.
C. Variable costs.
D. Regular costs.
38. Average total cost is defined as:
A. Total cost divided by the quantity produced.
B. The change in total cost because of a one-unit increase in output.
C. The change in total output divided by the change in total cost.
D. Total output times total cost.
39. Which of the following is equivalent to average total cost?
A. Fixed cost plus variable cost.
B. Fixed cost and variable cost added together and then divided by output.
C. The change in total cost divided by the change in output.
D. Marginal cost plus variable cost.
40. The average total cost curve is:
A. Always upward sloping.
B. U-shaped.
C. Flat.
D. Always downward sloping.
41. The reason the average total cost curve declines initially is because of:
A. Falling average fixed cost.
B. Falling average variable costs.
C. Falling marginal cost.
D. Both A and B.
42. Marginal cost is equal to:
A. Total cost divided by output.
B. The change in total cost divided by the change in output.
C. The change in total cost divided by the change in price.
D. Total cost divided by total revenue.
43. Marginal cost will increase with greater output if:
A. Marginal physical product is declining.
B. Marginal physical product is increasing.
C. Total variable cost is decreasing.
D. Total fixed cost is increasing.
44. If an additional unit of labor costs $30 and has an MPP of 50 units of output, the marginal cost is:
A. $0.60.
B. $1.66.
C. $15.00.
D. $1500.00.
45. If an additional unit of labor costs $40 and has an MPP of 50 units of output, the marginal cost is:
A. $2,000.00.
B. $40.00.
C. $1.25.
D. $0.80.
46. If an additional unit of labor costs $25 and has an MPP of 40 units of output, the marginal cost is:
A. $0.63.
B. $1.60.
C. $25.00.
D. $1,000.00.
75. What are the daily accounting costs for the firm described above?
A. $320
B. $390
C. $470
D. $540
76. What are the daily explicit costs for the firm described above?
A. $320
B. $390
C. $400
D. $470
77. What are the daily implicit costs for the firm described above?
A. $70
B. $80
C. $150
D. $220
78. Based on the law of diminishing returns, if the number of workers increases and capital investments do
not keep pace then, ceteris paribus:
A. Marginal physical product of labor will increase.
B. Marginal physical product of labor will decrease.
C. The production function will definitely shift upward.
D. The average total cost curve will definitely decrease.
79. A firm's rising factor costs can be offset by:
A. Increases in productivity.
B. Diminishing marginal product.
C. Diminishing marginal utility.
D. Rising marginal cost.
80. Which of the following government policies is least likely to increase productivity?
A. Subsidies for schools
B. Student loans
C. Tax incentives for firms that invest in capital
D. Transfer payments to unemployed workers
81. If government policies to increase productivity are successful, then the:
A. Production function will shift upward.
B. Marginal cost curve will shift upward.
C. Average total cost curve will shift upward.
D. Variable cost curve will shift upward.
82. Advances in managerial knowledge shift the production function:
A. And the marginal cost curve upward.
B. And the average total cost curve downward.
C. Upward and the average total cost curve downward.
D. Downward and the marginal cost curve upward.
83. Improvements in technology shift the:
A. Production function downward.
B. Marginal cost curve downward.
C. Average total cost curve upward.
D. Fixed cost curve upward.
84. Which of the following would cause a firm's production function to shift upward?
A. An increase in production by the firm.
B. Hiring more workers.
C. Increased investment in capital.
D. An increase in factor costs.
85. An investment in human and nonhuman capital will result in:
A. An increase in the marginal physical product of labor.
B. An increase in marginal costs.
C. A decrease in the production function.
D. A decrease in production possibilities.
Table 5.1Labor and output data
86. What is the marginal physical product of the first unit of labor in Table 5.1?
A. 0
B. 14
C. 16
D. 30
87. What is the marginal physical product of the second unit of labor in Table 5.1?
A. 12
B. 14
C. 16
D. 30
88. What is the marginal physical product of the fourth unit of labor in Table 5.1?
A. 51
B. 42
C. 12
D. 9
89. With which unit of labor do diminishing marginal returns first appear in Table 5.1?
A. First
B. Second
C. Third
D. Fourth
90. What is the marginal cost of the 15th pair of jeans in Table 5.2?
A. $8.17
B. $20.00
C. $1.33
D. $4.00
91. What is the marginal cost of the 30th pair of jeans in Table 5.2?
A. $4.50
B. $45.00
C. $6.00
D. $1.50
92. What is the marginal cost of the 40th pair of jeans in Table 5.2?
A. $7.25
B. $11.00
C. $110.00
D. $2.75
93. If the firm in Table 5.2 receives $7.00 for each pair of jeans, in the short run it should:
A. Produce 30 pairs of jeans.
B. Produce 40 pairs of jeans.
C. Produce 20 pairs of jeans.
D. Only produce jeans if the price is greater than average total cost.
94. If the firm in Table 5.2 can sell jeans for $7.00 per pair, the total profit from producing 30 pair is:
A. $13.
B. $3.
C. $30.
D. $210.
95. If the firm in Table 5.2 can sell jeans for $7.00 per pair, the total profit from producing 40 pair is:
A. $-10.
B. $10.
C. $290.
D. $280.
Table 5.3Yearbook costs
(This table shows the total cost of producing yearbooks using a school's print shop.)
96. The production rate in Table 5.3 at which the lowest possible average total cost for yearbooks is achieved
would be:
A. 200 yearbooks per year.
B. 300 yearbooks per year.
C. 400 yearbooks per year.
D. 500 yearbooks per year.
97. In Table 5.3, marginal cost per yearbook, between 100 and 200 yearbooks is equal to:
A. $400.
B. $4.
C. $16.
D. $12.
This table shows total costs at different output levels for a given plant.
99. In Table 5.4, fixed costs:
A. Are equal to $40.
B. Are equal to zero.
C. Increase as output increases.
D. Decrease as output increases.
100.In Table 5.4, variable cost,
A. Is equal to $25 at an output of 10 units.
B. Is the greatest at an output of zero units.
C. Decreases as output increases.
D. Is equal to $40 at every output level.
101.In Table 5.4, the marginal cost is at a minimum when:
A. The first 10 units are produced.
B. Output increases from 10 units to 20 units.
C. Output increases from 20 units to 30 units.
D. Output increases from 30 units to 40 units.
102.In Table 5.4, the lowest average total cost occurs at a production rate of:
A. 10 units per day.
B. 20 units per day.
C. 30 units per day.
D. 40 units per day.
Table 5.5Production costs
103.In Table 5.5, the marginal cost of the first unit of output is:
A. $19.
B. $10.
C. $9.
D. $3.
104.In Table 5.5, the total cost of 2 units is:
A. $3.
B. $10.
C. $12.
D. $22.
113.In Table 5.6, the average variable cost of 3 units of output is:
A. $3.
B. $5.
C. $15.
D. $30.
Figure 5.1
114.In Figure 5.1, the marginal physical product of the third unit of labor is:
A. 8.
B. 12.
C. 28.
D. 40.
115.In Figure 5.1, the marginal physical product of the fourth unit of labor is:
A. 6.
B. 12.
C. 40.
D. 46.
116.In Figure 5.1, diminishing marginal returns first occur with the:
A. Second worker.
B. Third worker.
C. Fifth worker.
D. Sixth worker.
Figure 5.2
117.In Figure 5.2, what is the marginal cost of the 12th unit of output?
A. $6.00
B. $20.00
C. $52.00
D. $72.00
118.In Figure 5.2, what is the total fixed cost?
A. $20.00
B. $240.00
C. $740.00
D. $864.00
119.In Figure 5.2, what is the total cost of 10 units?
A. $240.00
B. $288.00
C. $500.00
D. $740.00
120.In Figure 5.2, what is the total variable cost when output is 10 units?
A. $500.00
B. $520.00
C. $720.00
D. $740.00
121.In Figure 5.2, what is the total variable cost when output is 12 units?
A. $500.00
B. $624.00
C. $720.00
D. $864.00
122.The production function indicates how much output producers will actually produce.
True False
123.A production function shows the maximum amount of a particular good or service that can be produced
with different combinations of resources.
True False
124.Actual output will always equal the limit described by the production function.
True False
125.Marginal physical product is the change in total output associated with an additional unit of input.
True False
126.Total output may continue to rise even though marginal physical product is decreasing.
True False
127.If the marginal physical product of an input is decreasing, output will also be decreasing.
True False
128.According to the law of diminishing returns, the marginal physical product of a variable input declines as
more of it is employed with a given quantity of other inputs.
True False
129.The short run implies that all factor inputs are fixed.
True False
130.In the long run, all costs are variable.
True False
131.Profit is equal to total revenue minus total cost.
True False
132.Fixed costs are the same as total costs at a production rate of zero units in the short run.
True False
133.Fixed costs can be avoided in the short run.
True False
134.In the short run, when output is zero, total costs are zero.
True False
135.Marginal cost is equal to the change in variable costs divided by the change in output.
True False
136.In the short run, if marginal cost is less than price for the last unit produced, the firm should expand
output.
True False
137.How intensively to use existing plant and equipment is a long-run investment decision.
True False
138.Long-run choices imply that all factors are variable.
True False
139.Investment decisions are long-run decisions.
True False
140.Economic costs are the value of all resources used to produce a good or service.
True False
141.Economic and accounting costs differ by the amount of explicit costs.
True False
142.Economic costs include only the explicit payments made for a factor of production.
True False
143.When implicit costs exist, economic profit will be less than accounting profit.
True False
144.School subsidies and capital investment tax incentives are examples of government policy designed to
increase productivity.
True False
145.A firm's production function will shift downward if worker productivity increases.
True False
146.When the marginal physical product curve shifts upward because of technological advances, the marginal
cost curve shifts downward.
True False
147.Why in the short-run does marginal physical product increase but beyond some point start to decrease and
eventually become negative?
148.Explain how the firm's total cost curve would change if the wage rate paid to the labors increases verses
the effect when the firm's property taxes are doubled? What would happen to the firm's profits assuming
the revenue does not change? What might the firm do in the long-run verses the short-run?
149.What is the relationship between increasing returns to scale and decreasing long run average total costs?
151.Distinguish between explicit and implicit costs and give an example of each. Why would accounting
profit be greater than or equal to economic profit?
ch5 Key
1.
2.
3.
Which of the following are factors of production for Terry's Taco Patio?
A. Economic costs and money
B. Average total cost and entrepreneurship
C. Productivity and labor
D. Corn tortillas and meat
Corn tortillas and meat would be a part of variable capital.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-01
Schiller - Chapter 05 #3
Topic: Capacity Constraints: The Production Function
4.
5.
6.
The maximum output that can be produced from a set of inputs is measured by:
A. The production function.
B. The demand schedule.
C. Fixed costs.
D. Marginal costs.
A production function gives the maximum amount of output with a given amount of inputs.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-01
Schiller - Chapter 05 #6
Topic: Capacity Constraints: The Production Function
7.
Which of the following statements concerning the relationship between total product (TP) and
marginal physical product (MPP) is not correct?
A. TP will continue to rise even though MPP is falling but greater than zero.
B. TP is increasing at an increasing rate if MPP is increasing.
C. TP will fall if MPP is negative.
D. TP will fall if MPP is falling.
So long as MPP is greater than zero, it will be adding to TP at a decreasing rate.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-01
Schiller - Chapter 05 #7
Topic: Capacity Constraints: The Production Function
8.
9.
10.
If the first, second, third and forth worker employed by the firm add 15, 21, 12 and 8 units of total
product respectively, we can conclude that:
A. The marginal product of all four workers is 14.
B. The total product of two workers is 42.
C. after the second worker marginal product declines.
D. adding a forth worker will cause total product to decline.
At first marginal physical product increases but eventually the law of diminishing returns will cause
marginal physical product to decline.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #10
Topic: Capacity Constraints: The Production Function
11.
12.
The change in total output that results from one additional unit of input is the:
A. Marginal physical product.
B. Average product of the input.
C. Unit cost of the input.
D. Input price.
Marginal physical product is equal to the change in total product divided by the change in the quantity
of resource applied.
AACSB: Analytic
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-02
Schiller - Chapter 05 #12
Topic: Capacity Constraints: The Production Function
13.
14.
15.
Ceteris paribus, the law of diminishing returns states that beyond some point the:
A. Return on stocks and bonds diminish as more are purchased.
B. Addition to total utility declines as more units are consumed.
C. Marginal physical product of a variable input declines as more of it is used.
D. Output of any good or service increases as more variable input is used.
By varying one factor while holding all other factors of production constant less and less additional
output will be produced.
AACSB: Analytic
Blooms: Understand
Difficulty: Hard
Learning Objective: 05-02
Schiller - Chapter 05 #15
Topic: Capacity Constraints: The Production Function
16.
If more of an input factor is used, while holding other inputs constant, a firm will eventually
experience:
A. Diminishing returns.
B. Falling marginal cost.
C. Rising marginal physical product.
D. Rising consumer demand.
The fixed factors of production must be used with more and more units of the variable factor and
beyond some point additional amounts of input will yield less and less output.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #16
Topic: Capacity Constraints: The Production Function
17.
As more labor is hired in the short run, diminishing returns are observed because:
A. The new workers are lazy.
B. The new workers have less capital and land to work with.
C. All the workers begin to socialize more and work less.
D. The new workers are less skilled.
The fixed factors of production must be used with more and more units of the variable factor and
beyond some point additional amounts of input will yield less and less output.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #17
Topic: Capacity Constraints: The Production Function
18.
The law of diminishing returns indicates that the marginal physical product of a factor declines as
more:
A. Output is produced with the most efficient combination of factors.
B. Of the factor is used, holding output constant.
C. Of the factor is used, holding other inputs constant.
D. Of the good is consumed.
The fixed factors of production must be used with more and more units of the variable factor and
beyond some point additional amounts of input will yield less and less output.
AACSB: Analytic
Blooms: Remember
Difficulty: Hard
Learning Objective: 05-02
Schiller - Chapter 05 #18
Topic: Capacity Constraints: The Production Function
19.
Assume a toy company hires an additional worker to assemble toys, and the size of the factory and
amount of equipment remain constant. As a result, the level of output increases but by a smaller
amount than when the previous additional worker was hired. This is an example of:
A. The law of poor planning.
B. The law of diminishing returns.
C. Say's Law.
D. The law of substitution.
The fixed factors of production must be used with more and more units of the variable factor and
beyond some point additional amounts of input will yield less and less output.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Easy
Learning Objective: 05-02
Schiller - Chapter 05 #19
Topic: Capacity Constraints: The Production Function
20.
Assume a restaurant hires an additional chef who is as qualified as the current chefs. As a result, the
level of output increases but by a smaller amount than when the previous additional chef was hired.
Which of the following best explains this occurrence?
A. The chefs are working with a fixed amount of space and equipment and they get in each other's
way.
B. The additional wages cause profit to decrease.
C. The amount of food available for preparation is limited so output decreases.
D. The two chefs do not agree on food preparation and spend too much time arguing.
Since the other factors of production are fixed, they must be used with more of the variable input
which means that while the total output will increase each chef will yield less output.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #20
Topic: Capacity Constraints: The Production Function
21.
Which of the following is the best explanation of why the law of diminishing returns does not apply in
the long run?
A. All factors of production are variable in the long run.
B. The MPP does not change in the long run.
C. In the long run, firms have enough time to find more qualified workers.
D. All factors of production are fixed in the long run.
Short run assumes that only the variable factors can be changed whereas in the long run all factors of
production can be changed.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #21
Topic: Capacity Constraints: The Production Function
22.
23.
24.
25.
26.
The market value of all resources used in producing a good or service is expressed by:
A. Implicit costs.
B. Total costs.
C. Fixed costs.
D. Variable costs.
Whether the firm purchases a resource or uses one that it owns the market value of those resources
will equal total costs.
AACSB: Analytic
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #26
Topic: Costs Of Production
27.
28.
The sum of fixed cost and variable cost at any rate of output is equal to:
A. Average total cost.
B. Total profit.
C. Total cost.
D. Marginal cost.
Total costs is equal to variable costs plus fixed costs.
AACSB: Analytic
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-03
Schiller - Chapter 05 #28
Topic: Costs Of Production
29.
30.
Costs of production that do not change with the rate of output are:
A. Nonexistent.
B. Variable costs.
C. Fixed costs.
D. Marginal costs.
Fixed costs in the short run are constant and do not vary with output.
AACSB: Analytic
Blooms: Understand
Difficulty: Easy
Learning Objective: 05-03
Schiller - Chapter 05 #30
Topic: Costs Of Production
31.
32.
33.
It is impossible to:
A. Determine total costs in the short run.
B. Identify variable costs in the long run.
C. Identify variable costs in the short run.
D. Avoid fixed costs in the short run.
While fixed costs do not factor in to short-run production decisions a certain amount of fixed capital is
necessary for any amount of production.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #33
Topic: Costs Of Production
34.
35.
When producing jeans, which of the following is not a variable cost in the short run?
A. Wages
B. Zippers
C. Rent for the factory
D. Denim material
Factory rent would not normally be related to production volume and would be defined as fixed costs.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #35
Topic: Costs Of Production
36.
Which of the following is most likely a variable cost in the short run?
A. Labor
B. Property taxes
C. Rent
D. A business license
Since labor would be directly related to levels of production it would be a variable cost.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #36
Topic: Costs Of Production
37.
If a firm increases output, total costs will rise because of a change in:
A. Fixed costs.
B. Absolute costs.
C. Variable costs.
D. Regular costs.
Since variable costs are related to changes in volume and total costs is the sum of both fixed and
variable costs, total costs will increase with increased volume.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #37
Topic: Costs Of Production
38.
39.
40.
41.
The reason the average total cost curve declines initially is because of:
A. Falling average fixed cost.
B. Falling average variable costs.
C. Falling marginal cost.
D. Both A and B.
The average total costs curve falls at first because both the average variable cost curve and the average
fixed cost curve are falling but since the average variable cost curve will start to rise beyond some
point in production volume (because of the law of diminishing returns), average total cost curve will
start to rise.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #41
Topic: Costs Of Production
42.
43.
44.
If an additional unit of labor costs $30 and has an MPP of 50 units of output, the marginal cost is:
A. $0.60.
B. $1.66.
C. $15.00.
D. $1500.00.
Marginal cost is found by dividing the change in cost by the change in output.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #44
Topic: Costs Of Production
45.
If an additional unit of labor costs $40 and has an MPP of 50 units of output, the marginal cost is:
A. $2,000.00.
B. $40.00.
C. $1.25.
D. $0.80.
Marginal cost is found by dividing the change in cost by the change in output.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #45
Topic: Costs Of Production
46.
If an additional unit of labor costs $25 and has an MPP of 40 units of output, the marginal cost is:
A. $0.63.
B. $1.60.
C. $25.00.
D. $1,000.00.
Marginal cost is found by dividing the change in cost by the change in output.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #46
Topic: Costs Of Production
47.
Marginal cost:
A. Is the change in fixed cost divided by the change in quantity.
B. May initially decline and then increases as more output is produced.
C. May initially increase and then falls as more output is produced.
D. Is fixed cost and variable cost added together and then divided by quantity.
Marginal cost may initially decline because the marginal physical product is initially increasing and
additional labor increases unit output however beyond some point marginal physical product (because
of the law of diminishing returns) will start to decline and marginal cost will then start to rise.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #47
Topic: Costs Of Production
48.
49.
50.
51.
52.
In the short run, a manufacturer should produce the next unit of output as long as:
A. Marginal cost is greater than price.
B. Price is greater than total cost.
C. Price is greater than marginal cost.
D. Price equals total cost.
For a manufacturer if the price is greater than the marginal cost then the total profit will increase or a
loss will decrease.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-04
Schiller - Chapter 05 #52
Topic: Supply Horizons
53.
If price is greater than marginal cost for the last unit produced:
A. Profit is increasing.
B. Profit is decreasing.
C. Only economic costs are being covered.
D. Average total cost is covered.
If the additional revenue (price) added is greater than the additional cost, profits will increase or the
loss will decrease.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-04
Schiller - Chapter 05 #53
Topic: Supply Horizons
54.
If price is greater than marginal cost but not average total cost, then:
A. Total revenues are greater than total costs.
B. The firm is earning a profit.
C. Eventually the firm will go out of business.
D. The firm is experiencing diminishing marginal utility.
Since price in a competitive market is equal to marginal revenue and average revenue and if average
revenue is less than average total cost, the firm's profit will be negative and the firm will eventually go
out of business.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Hard
Learning Objective: 05-04
Schiller - Chapter 05 #54
Topic: Supply Horizons
55.
In the long run, a company will stay in business as long as price is:
A. Greater than or equal to marginal costs.
B. Equal to variable costs.
C. Equal to marginal physical product.
D. Greater than or equal to average total costs.
Since price in a competitive market is equal to marginal revenue and average revenue and if average
revenue is greater than or equal to average total cost, the firm will be operating at a profit or
breakeven.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Hard
Learning Objective: 05-04
Schiller - Chapter 05 #55
Topic: Supply Horizons
56.
57.
58.
59.
60.
61.
The planning period over which at least one resource input is fixed in quantity is the:
A. Long run.
B. Production run.
C. Short run.
D. Investment decision.
In the short run we assume that only the variable factors of production can be changed.
AACSB: Analytic
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-04
Schiller - Chapter 05 #61
Topic: Capacity Constraints: The Production Function
62.
63.
64.
65.
66.
Explicit costs:
A. Include only payments to labor.
B. Are the sum of actual monetary payments made for resources used to produce a good.
C. Include the market value of all resources used to produce a good.
D. Are the total value of resources used to produce a good but for which no monetary payment is
actually made.
Explicit costs are the monetary payments that a firm must make to outsiders.
AACSB: Analytic
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-05
Schiller - Chapter 05 #66
Topic: Economic Versus Accounting Costs
67.
68.
69.
70.
71.
The best measure of the economic cost of doing your homework is:
A. The tuition you pay for the class.
B. The amount you would have to pay to get someone else to do it.
C. Your instructor's salary.
D. The best opportunity you give up when you do your homework.
Economic costs are best measured by what you must give up in order to receive the good or service.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-05
Schiller - Chapter 05 #71
Topic: Economic Versus Accounting Costs
72.
73.
74.
Suppose a firm incurred explicit costs of $900 and implicit costs of $200 during a day. If that day the
firm sold 8 units at $300 per unit its accounting profits are:
A. $1,500 and its economic profits are $1,700
B. $1,500 and its economic profits are $1,300
C. $1,300 and its economic profits are $1,700
D. $1,300 and its economic profits are $1,300
Economic profit is $200 less than accounting profit by the amount of implicit costs or $1,300.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-05
Schiller - Chapter 05 #74
Topic: Economic Versus Accounting Costs
Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80
for equipment rental. The owner of the firm owns the building in which it operates. If the firm were
not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600.
Schiller - Chapter 05
75.
What are the daily accounting costs for the firm described above?
A. $320
B. $390
C. $470
D. $540
Accounting costs would be those costs that the firm paid out with monetary consideration.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-05
Schiller - Chapter 05 #75
Topic: Economic Versus Accounting Costs
76.
What are the daily explicit costs for the firm described above?
A. $320
B. $390
C. $400
D. $470
Explicit costs are those costs that the firm pays with monetary resources.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-05
Schiller - Chapter 05 #76
Topic: Economic Versus Accounting Costs
77.
What are the daily implicit costs for the firm described above?
A. $70
B. $80
C. $150
D. $220
Implicit costs are the monetary income that a firm sacrifices when it uses a resource that it owns.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-05
Schiller - Chapter 05 #77
Topic: Economic Versus Accounting Costs
78.
Based on the law of diminishing returns, if the number of workers increases and capital investments
do not keep pace then, ceteris paribus:
A. Marginal physical product of labor will increase.
B. Marginal physical product of labor will decrease.
C. The production function will definitely shift upward.
D. The average total cost curve will definitely decrease.
Worker productivity is tied to the amount of capital per worker and if the amount of capital relative to
labor decreases then so too will worker productivity.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Hard
Learning Objective: 05-02
Schiller - Chapter 05 #78
Topic: Policy Perspectives
79.
80.
81.
82.
83.
84.
Which of the following would cause a firm's production function to shift upward?
A. An increase in production by the firm.
B. Hiring more workers.
C. Increased investment in capital.
D. An increase in factor costs.
Increased investment in capital would improve the marginal efficiency of capital whereas the other
changes would be a movement along the production function curve.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-01
Schiller - Chapter 05 #84
Topic: Policy Perspectives
85.
Schiller - Chapter 05
86.
What is the marginal physical product of the first unit of labor in Table 5.1?
A. 0
B. 14
C. 16
D. 30
Since the output at zero units of input is zero and the output at one unit of input is 14 the marginal
physical product is the change in output per one unit of input which is 14.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #86
Topic: Capacity Constraints: The Production Function
87.
What is the marginal physical product of the second unit of labor in Table 5.1?
A. 12
B. 14
C. 16
D. 30
Since total physical product is equal to the sums of the marginal physical products then the marginal
physical product of the second unit would be the total physical product minus the marginal physical
product of the first unit.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #87
Topic: Capacity Constraints: The Production Function
88.
What is the marginal physical product of the fourth unit of labor in Table 5.1?
A. 51
B. 42
C. 12
D. 9
Since total physical product is equal to the sums of the marginal physical products then the marginal
physical product of the forth unit would be total physical product minus the marginal physical
products of the first three units.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #88
Topic: Capacity Constraints: The Production Function
89.
With which unit of labor do diminishing marginal returns first appear in Table 5.1?
A. First
B. Second
C. Third
D. Fourth
Prior to the third unit, marginal physical product is increasing.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-02
Schiller - Chapter 05 #89
Topic: Capacity Constraints: The Production Function
90.
What is the marginal cost of the 15th pair of jeans in Table 5.2?
A. $8.17
B. $20.00
C. $1.33
D. $4.00
The change in cost from the 10th to the 15th units is $20 and the change in units is five so the
marginal cost would be the change in cost divided by the change in output.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #90
Topic: Costs Of Production
91.
What is the marginal cost of the 30th pair of jeans in Table 5.2?
A. $4.50
B. $45.00
C. $6.00
D. $1.50
The change in cost from the 20th to the 30th units is $45 and the change in units is ten so the marginal
cost would be the change in cost divided by the change in output.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #91
Topic: Costs Of Production
92.
What is the marginal cost of the 40th pair of jeans in Table 5.2?
A. $7.25
B. $11.00
C. $110.00
D. $2.75
The change in cost from the 30th to the 40th units is $110 and the change in units is ten so the
marginal cost would be the change in cost divided by the change in output.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #92
Topic: Costs Of Production
93.
If the firm in Table 5.2 receives $7.00 for each pair of jeans, in the short run it should:
A. Produce 30 pairs of jeans.
B. Produce 40 pairs of jeans.
C. Produce 20 pairs of jeans.
D. Only produce jeans if the price is greater than average total cost.
Since the marginal cost of producing at a rate of 30 pairs of jeans in $4.50 the firm would make a
profit of $2.50 per pair of jeans whereas at a rate of 40 pairs of jeans the firm would lose $4.00 per
pair of jeans.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #93
Topic: Costs Of Production
94.
If the firm in Table 5.2 can sell jeans for $7.00 per pair, the total profit from producing 30 pair is:
A. $13.
B. $3.
C. $30.
D. $210.
The profit would be calculated by subtracting the total costs of $180 from the total revenue ($7.00 X
30 = $210 - $180).
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #94
Topic: Costs Of Production
95.
If the firm in Table 5.2 can sell jeans for $7.00 per pair, the total profit from producing 40 pair is:
A. $-10.
B. $10.
C. $290.
D. $280.
The profit is calculated by subtracting the total costs of $290 from the total revenue ($7.00 X 40 =
$280 - $290).
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #95
Topic: Costs Of Production
Schiller - Chapter 05
96.
The production rate in Table 5.3 at which the lowest possible average total cost for yearbooks is
achieved would be:
A. 200 yearbooks per year.
B. 300 yearbooks per year.
C. 400 yearbooks per year.
D. 500 yearbooks per year.
The average total cost would be $2,200 divided by 400 yearbooks.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #96
Topic: Costs Of Production
97.
In Table 5.3, marginal cost per yearbook, between 100 and 200 yearbooks is equal to:
A. $400.
B. $4.
C. $16.
D. $12.
The change in costs is $400 and the change in quantity is 100 so the marginal cost would be $4.00
($400 divided by 100).
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #97
Topic: Costs Of Production
98.
This table shows total costs at different output levels for a given plant.
Schiller - Chapter 05
99.
100.
101.
102.
In Table 5.4, the lowest average total cost occurs at a production rate of:
A. 10 units per day.
B. 20 units per day.
C. 30 units per day.
D. 40 units per day.
The lowest average total cost occurs at the point where marginal cost is less then or equal to average
total cost which would occur at 30 units.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #102
Topic: Costs Of Production
Schiller - Chapter 05
103.
In Table 5.5, the marginal cost of the first unit of output is:
A. $19.
B. $10.
C. $9.
D. $3.
Total cost at zero level of output is $10 and at one unit of output it is $19 so the change is $9.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #103
Topic: Costs Of Production
104.
105.
106.
In Table 5.5, the total variable cost of the first unit is:
A. $9.
B. $10.
C. $19.
D. $29.
Since the fixed cost is $10 and the total cost at the first unit is $19 the variable cost is $9.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #106
Topic: Costs Of Production
Table 5.6
Complete the following table, and use the information in the table to answer the question(s) below.
Schiller - Chapter 05
107.
108.
In Table 5.6, the marginal cost of the third unit of output is:
A. $3.
B. $5.
C. $6.
D. $15.
Since the marginal cost of the second unit of output is $4 then the total cost of two units of output is
$27. Then the total cost of three units of output is the sum of the fixed cost and variable cost or $30 so
the marginal cost of the third unit is $3.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #108
Topic: Costs Of Production
109.
110.
111.
112.
113.
Figure 5.1
Schiller - Chapter 05
114.
In Figure 5.1, the marginal physical product of the third unit of labor is:
A. 8.
B. 12.
C. 28.
D. 40.
The total product of 2 units is 28 and the total product of 3 units is 40 so the change is 12.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #114
Topic: Costs Of Production
115.
In Figure 5.1, the marginal physical product of the fourth unit of labor is:
A. 6.
B. 12.
C. 40.
D. 46.
The total product of 3 units is 40 and the total product of 4 units is 46 so the change is 6.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #115
Topic: Costs Of Production
116.
Figure 5.2
Schiller - Chapter 05
117.
In Figure 5.2, what is the marginal cost of the 12th unit of output?
A. $6.00
B. $20.00
C. $52.00
D. $72.00
The marginal cost of the 12th unit is $72 and occurs at the intersection with the average total cost
curve, which also equals $72 at an output level of 12.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #117
Topic: Costs Of Production
118.
119.
120.
In Figure 5.2, what is the total variable cost when output is 10 units?
A. $500.00
B. $520.00
C. $720.00
D. $740.00
At 10 units of output the average variable cost would be $50 so the variable cost would be 10 times
$50 or $500.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #120
Topic: Costs Of Production
121.
In Figure 5.2, what is the total variable cost when output is 12 units?
A. $500.00
B. $624.00
C. $720.00
D. $864.00
The average variable cost at 12 units would be $52 and so the variable cost would be 12 X $52 or
$624.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #121
Topic: Costs Of Production
122.
The production function indicates how much output producers will actually produce.
FALSE
The production function indicates the potential output producers can produce.
AACSB: Analytic
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01
Schiller - Chapter 05 #122
Topic: Capacity Constraints: The Production Function
123.
A production function shows the maximum amount of a particular good or service that can be
produced with different combinations of resources.
TRUE
The production function is a schedule that gives the different amounts of output that can be produced
with various combinations of inputs.
AACSB: Analytic
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01
Schiller - Chapter 05 #123
Topic: Capacity Constraints: The Production Function
124.
Actual output will always equal the limit described by the production function.
FALSE
Actual output may be less then potential output.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-01
Schiller - Chapter 05 #124
Topic: Capacity Constraints: The Production Function
125.
Marginal physical product is the change in total output associated with an additional unit of input.
TRUE
Marginal physical product is the additional output produced when one additional unit of a resource is
employed.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Easy
Learning Objective: 05-02
Schiller - Chapter 05 #125
Topic: Capacity Constraints: The Production Function
126.
Total output may continue to rise even though marginal physical product is decreasing.
TRUE
Although marginal physical product may be decreasing, it can still be adding to total physical product
at a decreasing rate.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #126
Topic: Capacity Constraints: The Production Function
127.
If the marginal physical product of an input is decreasing, output will also be decreasing.
FALSE
Although marginal physical product may be decreasing, it can still be adding to total physical product
at a decreasing rate.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-02
Schiller - Chapter 05 #127
Topic: Capacity Constraints: The Production Function
128.
According to the law of diminishing returns, the marginal physical product of a variable input declines
as more of it is employed with a given quantity of other inputs.
TRUE
Since all of the other factors are fixed the variable input will yield less and less output.
AACSB: Analytic
Blooms: Understand
Difficulty: Easy
Learning Objective: 05-02
Schiller - Chapter 05 #128
Topic: Capacity Constraints: The Production Function
129.
The short run implies that all factor inputs are fixed.
FALSE
The short run assumes that at least one factor is fixed while at least one other is variable. In the short
run capital is usually fixed while labor is variable.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04
Schiller - Chapter 05 #129
Topic: Capacity Constraints: The Production Function
130.
131.
132.
Fixed costs are the same as total costs at a production rate of zero units in the short run.
TRUE
Fixed costs exist and are the same at all levels of production and so at zero units of output would equal
total costs.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Easy
Learning Objective: 05-03
Schiller - Chapter 05 #132
Topic: Costs Of Production
133.
134.
In the short run, when output is zero, total costs are zero.
FALSE
Fixed costs exist at all levels of production and when output is zero fixed cost equal total costs.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #134
Topic: Costs Of Production
135.
Marginal cost is equal to the change in variable costs divided by the change in output.
TRUE
Marginal cost is equal to the change in total costs divided by the change in output and since in the
short run fixed costs are constant marginal cost is equal to variable cost changes divided by change in
output.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #135
Topic: Costs Of Production
136.
In the short run, if marginal cost is less than price for the last unit produced, the firm should expand
output.
TRUE
If the price is greater than the additional cost then the firm's profit will rise if it expands output.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04
Schiller - Chapter 05 #136
Topic: Supply Horizons
137.
How intensively to use existing plant and equipment is a long-run investment decision.
FALSE
The more intensively existing plant and equipment is used is a related to the amount of variable inputs
used and is therefore a short-run decision.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04
Schiller - Chapter 05 #137
Topic: Supply Horizons
138.
139.
140.
Economic costs are the value of all resources used to produce a good or service.
TRUE
Economic costs include monetary payments for resources and use of the firm's own resources (nonmonetary) that must be made to produce a good or service.
AACSB: Analytic
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-05
Schiller - Chapter 05 #140
Topic: Economic Versus Accounting Costs
141.
142.
Economic costs include only the explicit payments made for a factor of production.
FALSE
Economic costs include both implicit and explicit payments made for a factor of production.
AACSB: Analytic
Blooms: Understand
Difficulty: Easy
Learning Objective: 05-05
Schiller - Chapter 05 #142
Topic: Economic Versus Accounting Costs
143.
When implicit costs exist, economic profit will be less than accounting profit.
TRUE
Implicit costs payments are not counted in accounting costs or accounting profit.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-05
Schiller - Chapter 05 #143
Topic: Economic Versus Accounting Costs
144.
School subsidies and capital investment tax incentives are examples of government policy designed to
increase productivity.
TRUE
Spending on human capital increases productivity.
AACSB: Analytic
Blooms: Understand
Difficulty: Easy
Learning Objective: 05-01
Schiller - Chapter 05 #144
Topic: Policy Perspectives
145.
146.
When the marginal physical product curve shifts upward because of technological advances, the
marginal cost curve shifts downward.
TRUE
If marginal physical product increases then marginal cost will decrease.
AACSB: Analytic
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-01
Schiller - Chapter 05 #146
Topic: Policy Perspectives
147.
Why in the short-run does marginal physical product increase but beyond some point start to decrease
and eventually become negative?
At first when the fixed inputs are relatively plentiful, more intensive utilization of fixed inputs by
variable inputs may increase the marginal physical product, however beyond some point each variable
input has on average fewer units of the fixed input with which to work and the increase in intensity
of use of the fixed input yields progressively less and less additional returns. Eventually as variable
inputs are added returns can become negative.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Hard
Learning Objective: 05-02
Schiller - Chapter 05 #147
Topic: Costs Of Production
148.
Explain how the firm's total cost curve would change if the wage rate paid to the labors increases
verses the effect when the firm's property taxes are doubled? What would happen to the firm's profits
assuming the revenue does not change? What might the firm do in the long-run verses the short-run?
a) In the short-run a wage increase would affect variable costs where as an increase in property taxes
would affect fixed costs. A change in a variable cost would reduce output because the marginal cost
would increase at each level of output and so to maximize profits a firm would cut back output so
as to reduce marginal cost at or below the market price. A change in a fixed cost would not affect
marginal costs and so the firm would keep the same production level.
b) Both changes would reduce profit but a change in variable costs would also reduce output.
c) In the long-run if a firm's ATC curve was still downward sloping it might want to increase fixed
cost by using more efficient fixed inputs thereby increasing the efficiency of the variable inputs. If
economic profits are less than zero the firm might want to exit the market.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Hard
Learning Objective: 05-03
Schiller - Chapter 05 #148
Topic: Costs Of Production
149.
What is the relationship between increasing returns to scale and decreasing long run average total
costs?
In the long-run when adding an additional unit of a capital increases the output per unit of labor input
then the same unit of output will cost less to produce since the additional cost of the input is spread
over more of the output and so the average total cost, which includes average variable costs, will
decline.
AACSB: Reflective Thinking
Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-03
Schiller - Chapter 05 #149
Topic: Costs Of Production
150.
151.
Distinguish between explicit and implicit costs and give an example of each. Why would accounting
profit be greater than or equal to economic profit?
a) Explicit costs are a monetary payment that a firm must to obtain a resource whereas implicit cost
is the monetary income that a firm sacrifices when it uses a resource it owns rather than selling the
resource on the open market.
b) Accounting profit only includes explicit costs whereas economic profit includes implicit cost and so
economic profit will always be less than or equal to accounting profit.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-05
Schiller - Chapter 05 #151
Topic: Economic Versus Accounting Costs
ch5 Summary
Category
AACSB: Analytic
AACSB: Reflective Thinking
Blooms: Analyze
Blooms: Apply
Blooms: Remember
Blooms: Understand
Difficulty: Easy
Difficulty: Hard
Difficulty: Medium
Learning Objective: 05-01
Learning Objective: 05-02
Learning Objective: 05-03
Learning Objective: 05-04
Learning Objective: 05-05
Schiller - Chapter 05
Topic: Capacity Constraints: The Production Function
Topic: Costs Of Production
Topic: Economic Versus Accounting Costs
Topic: Policy Perspectives
Topic: Supply Horizons
# of Questions
64
87
44
40
23
44
30
44
77
22
25
65
22
17
160
39
69
17
11
15