Chapter 13 The Costs of Production

Test A
1

Total revenue necessarily equals a. total output multiplied by the average cost of output. b. total output multiplied by sales price of output. c. (total output multiplied by sales price) inventory surplus. d. (total output multiplied by the average cost of output) inventory shortage. ANS !"# b. total output multiplied by sales price of output. T$%!# & '!$1#( S!)T*+N#1 +,-!)T*.!# 1 "AN(+&#$
/

An e0ample of an implicit cost of production 1ould be the a. cost of ra1 materials for a printing company to print boo2s. b. income an entrepreneur could have earned 1or2ing else1here. c. cost of a delivery truc2 in a business that rarely ma2es deliveries. d. All of the above are correct. ANS !"# b. income an entrepreneur could have earned 1or2ing else1here. T$%!# & '!$1#( S!)T*+N#1 +,-!)T*.!# 1 "AN(+&#$
3

*n economics4 the field of industrial organi5ation ans1ers 1hich of the follo1ing questions6 a. hy are consumers sub7ect to the la1 of demand6 b. hy do firms e0perience falling marginal product of labor6 c. hy do firms consider production costs 1hen determining product supply6 d. 8o1 does the difference in the number of firms affect prices and efficiency of mar2et outcomes6 ANS !"# d. 8o1 does the difference in the number of firms affect prices and efficiency of mar2et outcomes6 T$%!# & '!$1#( S!)T*+N#1 +,-!)T*.!# 1 "AN(+&#$ &iranda 1ants to start her o1n business. The business she 1ants to start 1ill require that she purchase a factory that costs 9:;;4;;;. She is planning to use 93;;4;;; of her o1n money4 and borro1 an additional 91;;4;;; to finance the factory purchase. Assume the relevant interest rate is 1; percent.
:

According to this scenario4 1hat is the e0plicit cost of purchasing the factory for the first year of operation6 a. 91;4;;; b. 9/;4;;; c. 93;4;;; d. 9:;4;;; ANS !"# a. 91;4;;; T$%!# & '!$1#( S!)T*+N#1 +,-!)T*.!# 1 "AN(+&# N *NST"<)T*+N#1
=

According to this scenario4 1hat is the opportunity cost of purchasing the factory for the first year of operation6 a. 91;4;;; b. 9/;4;;; c. 93;4;;; d. 9:;4;;; ANS !"# d. 9:;4;;; T$%!# & '!$1#( S!)T*+N#1 +,-!)T*.!# 1 "AN(+&# N *NST"<)T*+N#1

)opyright > 8arcourt4 *nc.

13?

1:; )hapter 13@The )osts of %roduction The marginal product of labor can be defined as (1here denotes BchangeC) a. profit@labor. b. output@labor. c. labor@total cost. d. labor@output. ANS !"# b. output@labor. T$%!# & '!$1#! S!)T*+N#/ +,-!)T*.!# / "AN(+&#$
A

(iminishing marginal product of labor 1ould arise 1hen a. 1or2ers are discouraged about the lac2 of help from other 1or2ers. b. only ne1 1or2ers are trained in using the most productive capital. c. cro1ded office space reduces the productivity of ne1 1or2ers. d. union 1or2ers are told to reduce their 1or2 effort in preparation for a ne1 round of collective bargaining tal2s. ANS !"# c. cro1ded office space reduces the productivity of ne1 1or2ers. T$%!# & '!$1#( S!)T*+N#/ +,-!)T*.!# / "AN(+&#$
E

The slope of the total product curve reveals information about the a. marginal product of 1or2ers. b. average product of 1or2ers. c. ma0imum product of 1or2ers. d. total product of 1or2ers. ANS !"# a. marginal product of 1or2ers. T$%!# & '!$1#( S!)T*+N#/ +,-!)T*.!# / "AN(+&#$ The figure depicts a total cost function for a firm that produces coffee mugs.

According to the figure4 1hich of the statements belo1 best captures information about the underlying production function6 a. +utput increases at an increasing rate 1ith additional units of input. b. +utput decreases at an increasing rate 1ith additional units of input. c. +utput increases at a decreasing rate 1ith additional units of input. d. +utput decreases at a decreasing rate 1ith additional units of input. ANS !"# c. +utput increases at a decreasing rate 1ith additional units of input. T$%!# & '!$1#F S!)T*+N# / +,-!)T*.!# / "AN(+&# N F"A%8# 1

)opyright > 8arcourt4 *nc.

)hapter 13@The )osts of %roduction 1:1

1;

According to the figure4 1hich of the statements belo1 concerning production is most consistent 1ith the shape of the total cost curve6 a. %roducing an additional coffee mug al1ays has a higher cost than producing the previous coffee mug. b. %roducing an additional coffee mug is al1ays less costly than producing the previous coffee mug. c. %roducing an additional coffee mug al1ays has the same cost as producing the previous coffee mug. d. None of the above is correct for all quantities. ANS !"# a. %roducing an additional coffee mug al1ays has a higher cost than producing the previous coffee mug. T$%!# & '!$1#F S!)T*+N#/ +,-!)T*.!# / "AN(+&# N F"A%8# 1
11

hich of the follo1ing costs 1ill be 5ero if a firm produces 5ero6 average cost variable cost opportunity cost All of the above are correct. ANS !"# b. variable cost T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$ a. b. c. d.
1/

The cost to produce an additional unit of output is the firmGs a. average variable cost. b. marginal cost. c. average opportunity cost. d. total productivity cost. ANS !"# b. marginal cost. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$
13

Average total cost equals a. (fi0ed costs H variable costs)@quantity produced. b. (fi0ed costs H variable costs)@change in quantity produced. c. change in total costs@quantity produced. d. change in total costs@change in quantity produced. ANS !"# a. (fi0ed costs H variable costs)@quantity produced. T$%!# & '!$1#! S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$
1:

*f 1e assume that marginal product of labor is al1ays decreasing4 average total cost a. and average fi0ed cost are al1ays falling. b. and average fi0ed cost are al1ays <Ishaped. c. and average fi0ed cost are al1ays rising. d. is <Ishaped and average fi0ed cost is al1ays falling. ANS !"# d. is <Ishaped and average fi0ed cost is al1ays falling. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$
1=

*f marginal cost is rising a. average total cost must be falling. b. average fi0ed cost must be rising. c. marginal product must be rising. d. marginal product must be falling. ANS !"# d. marginal product must be falling. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$

)opyright > 8arcourt4 *nc.

1:/ )hapter 13@The )osts of %roduction

1A

Average total cost is very high 1hen a small amount of output is produced because a. average fi0ed cost is large. b. of diminishing marginal product. c. variable costs are spread over only a fe1 units of output. d. All of the above are correct. ANS !"# a. average fi0ed cost is large. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$
1D

At all levels of production beyond the point 1here the marginal cost curve crosses the average variable cost curve4 average variable cost a. falls. b. rises. c. does not change. d. All of the above are possible4 it depends on the shape of the marginal cost curve. ANS !"# b. rises. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$ The figure reflects information about the cost structure of a firm.

1E

According to the figure4 1hich of the lines is most li2ely to represent average total cost6 a. A b. , c. ) d. ( ANS !"# c. ) T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# : "AN(+&#N F"A%8#/
1?

According to the figure4 1hich of the lines is most li2ely to represent marginal cost6 a. A b. , c. ) d. ( ANS !"# d. ( T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# : "AN(+&#N F"A%8#/
/;

According to the figure4 this particular firm is necessarily e0periencing increasing marginal product 1hen line a. , is falling. b. ) is falling. c. ( is falling. d. None of the above is correct. ANS !"# c. ( is falling. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# : "AN(+&#N F"A%8#/

)opyright > 8arcourt4 *nc.

)hapter 13@The )osts of %roduction 1:3

/1

According to the figure4 line ( is necessarily <Ishaped because of a. the fact that decreasing marginal product follo1s increasing marginal product. b. the fact that increasing marginal product follo1s decreasing marginal product. c. diminishing marginal product. d. increasing marginal product. ANS !"# a. the fact that decreasing marginal product follo1s increasing marginal product. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# : "AN(+&#N F"A%8# /
//

hen a factory is operating in the short run4 it cannot alter variable costs. total cost and variable cost are usually the same. average fi0ed cost rises as output increases. it cannot ad7ust the quantity of some inputs. ANS !"# d. it cannot ad7ust the quantity of some inputs. T$%!# & '!$1#( S!)T*+N#: +,-!)T*.!# = "AN(+&#$ a. b. c. d. The figure depicts average total cost functions for a firm that produces automobiles.

/3

According to the figure4 suppose the firm currently operates on the minimum of AT),. *f it increases production4 but not all the 1ay to N4 then shortIrun average total cost a. and longIrun average total cost increase. b. and longIrun average total cost decrease. c. rises and longIrun average total cost is unchanged. d. is unchanged and longIrun average total cost increases. ANS !"# c. rises and longIrun average total cost is unchanged. T$%!# & '!$1#( S!)T*+N#: +,-!)T*.!# = "AN(+&# N F"A%8#3

)opyright > 8arcourt4 *nc.

1:: )hapter 13@The )osts of %roduction

/:

According to the figure4 this firm e0periences diseconomies of scale at 1hat output levels6 a. output levels above N b. output levels bet1een & and N c. output levels belo1 & d. None of the above is correct. ANS !"# a. output levels above N T$%!# & '!$1#( S!)T*+N#: +,-!)T*.!# = "AN(+&#N F"A%8#3
/=

!conomies of scale arise 1hen a. an economy is selfIsufficient in production. b. individuals in a society are selfIsufficient. c. 1or2ers are able to speciali5e in a particular tas2. d. fi0ed costs are large relative to variable costs. ANS !"# c. 1or2ers are able to speciali5e in a particular tas2. T$%!# & '!$1#( S!)T*+N#: +,-!)T*.!# = "AN(+&#$

)opyright > 8arcourt4 *nc.

ANS !"# b. total output multiplied by sales price of output. T$%!# & '!$1#( S!)T*+N#1 +,-!)T*.!# 1 "AN(+&#$
/

ANS !"# b. income an entrepreneur could have earned 1or2ing else1here. T$%!# & '!$1#( S!)T*+N#1 +,-!)T*.!# 1 "AN(+&#$
3

ANS !"# d. 8o1 does the difference in the number of firms affect prices and efficiency of mar2et outcomes6 T$%!# & '!$1#( S!)T*+N#1 +,-!)T*.!# 1 "AN(+&#$
:

ANS !"# a. 91;4;;; T$%!# & '!$1#( S!)T*+N#1 +,-!)T*.!# 1 "AN(+&# N *NST"<)T*+N#1
=

ANS !"# d. 9:;4;;; T$%!# & '!$1#( S!)T*+N#1 +,-!)T*.!# 1 "AN(+&# N *NST"<)T*+N#1
A

ANS !"# b. (output@(labor. T$%!# & '!$1#! S!)T*+N#/ +,-!)T*.!# / "AN(+&#$

D

ANS !"# c. cro1ded office space reduces the productivity of ne1 1or2ers. T$%!# & '!$1#( S!)T*+N#/ +,-!)T*.!# / "AN(+&#$
E

ANS !"# a. marginal product of 1or2ers. T$%!# & '!$1#( S!)T*+N#/ +,-!)T*.!# / "AN(+&#$
?

ANS !"# c. +utput increases at a decreasing rate 1ith additional units of input. T$%!# & '!$1#F S!)T*+N# / +,-!)T*.!# / "AN(+&# N F"A%8# 1
1;

ANS !"# a. %roducing an additional coffee mug al1ays has a higher cost than producing the previous coffee mug. T$%!# & '!$1#F S!)T*+N#/ +,-!)T*.!# / "AN(+&# N F"A%8# 1
11

ANS !"# b. variable cost T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$
1/

ANS !"# b. marginal cost. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$
13

ANS !"# a. (fi0ed costs H variable costs)@quantity produced. T$%!# & '!$1#! S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$
1:

ANS !"# d. is <Ishaped and average fi0ed cost is al1ays falling. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$

1=

ANS !"# d. marginal product must be falling. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$
1A

ANS !"# a. average fi0ed cost is large. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$
1D

ANS !"# b.rises. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# 3 "AN(+&#$

1E

ANS !"# c. ) T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# : "AN(+&#N F"A%8#/

1?

ANS !"# d. ( T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# : "AN(+&#N F"A%8#/

/;

ANS !"# c. ( is falling. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# : "AN(+&#N F"A%8#/
/1

ANS !"# a. the fact that decreasing marginal product follo1s increasing marginal product. T$%!# & '!$1#( S!)T*+N#3 +,-!)T*.!# : "AN(+&#N F"A%8# /
//

ANS !"# d. it cannot ad7ust the quantity of some inputs. T$%!# & '!$1#( S!)T*+N#: +,-!)T*.!# = "AN(+&#$
/3

ANS !"# c. rises and long run average total cost is unchanged. T$%!# & '!$1#( S!)T*+N#: +,-!)T*.!# = "AN(+&# N F"A%8#3
/:

ANS !"# a. output levels above N T$%!# & '!$1#( S!)T*+N#: +,-!)T*.!# = "AN(+&#N F"A%8#3
/=

ANS !"# c. 1or2ers are able to speciali5e in a particular tas2. T$%!# & '!$1#( S!)T*+N#: +,-!)T*.!# = "AN(+&#$