Question 1

The following is cost information for the Creamy Crisp Donut Company.Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Creamy Crisp Donut Company

Accepted Answer

A)  has lower explicit costs, than implicit costs.
B)  is earning a normal profit but not an economic profit.
C)  is earning an economic profit.
D)  is suffering an economic loss, when implicit costs are considered.E) None of the above
F) A) and B)

Question 2

Economic profits are usually larger than accounting profits.

Accepted Answer

A) True 
 B)False

Question 3

The following is cost information for the Creamy Crisp Donut Company.Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Creamy Crisp's total economic costs are

Accepted Answer

A)  $286,000.
B)  $150,000.
C)  $94,000.
D)  $156,000.E) C) and D)
F) B) and C)

Question 4

The vertical distance between the total cost and the total variable cost curves differs by an amount that

Accepted Answer

A)  initially increases, but then decreases, as output increases.
B)  is constant as output changes.
C)  decreases as output increases.
D)  increases as output increases.E) B) and D)
F) B) and C)

Question 5

When a firm does more of something, it gets better at it. This learning-by-doing is

Accepted Answer

A)  a source of diseconomies of scale.
B)  a source of economies of scale.
C)  called the principle of natural progression.
D)  called "spreading the overhead."E) A) and B)
F) C) and D)

Question 6

A fast-food company spends millions of dollars to develop and promote a new hamburger on their menu only to find that consumers won't buy it because they don't like the taste. From an economic perspective, the company should

Accepted Answer

A)  keep the hamburger on the menu because they've spent so much money and time developing and promoting the product.
B)  spend more money to develop a more efficient way to cook the hamburger so it cooks in a shorter time.
C)  pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost.
D)  keep trying to sell the hamburger so that people who developed and promote it have a job with the company.E) A) and B)
F) None of the above

Question 7

If a more efficient technology was discovered by a firm, there would be

Accepted Answer

A)  an upward shift in the AVC curve.
B)  an upward shift in the AFC curve.
C)  a downward shift in the AFC curve.
D)  a downward shift in the MC curve.E) A) and B)
F) A) and C)

Question 8

Round Things, Inc.'s production process exhibits economies of scale. Currently their long-run average cost is $12/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be

Accepted Answer

A)  $12/unit.
B)  less than $12/unit.
C)  greater than $24/unit.
D)  greater than $12/unit but less than $24/unit.E) None of the above
F) A) and D)

Question 9

The amount of calendar time associated with the long run

Accepted Answer

A)  is less than that associated with the immediate market period.
B)  varies from industry to industry.
C)  is the same for all firms.
D)  is, by definition, any length of time greater than one year.E) A) and B)
F) B) and C)

Question 10

In comparing the changes in TVC and TC associated with an additional unit of output, we find that

Accepted Answer

A)  no generalization about the changes in TC and TVC can be made.
B)  the changes in TC and TVC are equal.
C)  the change in TC is greater than the change in TVC.
D)  the change in TVC is greater than the change in TC.E) A) and C)
F) A) and B)

Question 11

Round Things, Inc.'s production process exhibits economies of scale. Currently their long-run average cost is $12/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be

Accepted Answer

A)  $12/unit.
B)  less than $12/unit.
C)  greater than $24/unit.
D)  greater than $12/unit but less than $24/unit.E) None of the above
F) A) and D)

Question 12

Refer to the provided graph. At which point is marginal product (MP) at its maximum?

Accepted Answer

A)  point A
B)  point B
C)  point C
D)  point DE) A) and B)
F) C) and D)

Question 13

The basic characteristic of the short run is that

Accepted Answer

A)  barriers to entry prevent new firms from entering the industry.
B)  the firm does not have sufficient time to change the size of its plant.
C)  the firm does not have sufficient time to cut its rate of output to zero.
D)  a firm does not have sufficient time to change the amounts of any of the resources it employs.E) All of the above
F) B) and C)

Question 14

Diseconomies of scale are caused by the law of diminishing marginal returns.

Accepted Answer

A) True 
 B)False

Question 15

Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.The explicit costs of Harvey's firm in the first year were

Accepted Answer

A)  $220,000.
B)  $605,000.
C)  $105,000.
D)  $825,000.E) None of the above
F) B) and C)

Question 16

Refer to the diagram. At output level Q, total cost is

Accepted Answer

A)  0 BEQ.
B)  BCDE.
C)  0 BEQ + BCDE.
D)  0 AFQ + BCDE.E) B) and C)
F) B) and D)

Question 17

Refer to the provided table. When output increases from 28 to 35 units, the marginal cost of the product is

Accepted Answer

A)  $4.44.
B)  $5.71.
C)  $6.00.
D)  $6.67.E) B) and C)
F) A) and D)

Question 18

Assume that in the short run a firm is producing 200 units of output, has average total costs of $250, and has average variable costs of $150. The firm's total variable costs are.

Accepted Answer

A)  $30,000.
B)  $50,000.
C)  $100.
D)  $20,000.E) A) and D)
F) A) and C)

Question 19

Refer to the diagram. At output level Q,

Accepted Answer

A)  marginal product is falling.
B)  marginal product is rising.
C)  marginal product is negative.
D)  one cannot determine whether marginal product is falling or rising.E) B) and C)
F) B) and D)

Question 20

The law of diminishing returns explains diseconomies of scale.

Accepted Answer

A) True 
 B)False

Exam 9: Businesses and the Costs of Production

Correct Answer
verified

The law of diminishing returns explains diseconomies of scale.

Correct Answer
verified

The vertical distance between the total cost and the total variable cost curves differs by an amount that

Correct Answer
verified

Diseconomies of scale are caused by the law of diminishing marginal returns.

Correct Answer
verified

The basic characteristic of the short run is that

Correct Answer
verified

Round Things, Inc.'s production process exhibits economies of scale. Currently their long-run average cost is $12/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be

Correct Answer
verified

Assume that in the short run a firm is producing 200 units of output, has average total costs of $250, and has average variable costs of $150. The firm's total variable costs are.

Correct Answer
verified

Round Things, Inc.'s production process exhibits economies of scale. Currently their long-run average cost is $12/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be

Correct Answer
verified

The amount of calendar time associated with the long run

Correct Answer
verified

In comparing the changes in TVC and TC associated with an additional unit of output, we find that

Correct Answer
verified

Economic profits are usually larger than accounting profits.

Correct Answer
verified

Refer to the diagram. At output level Q,

Correct Answer
verified

When a firm does more of something, it gets better at it. This learning-by-doing is

Correct Answer
verified

Refer to the diagram. At output level Q, total cost is

Correct Answer
verified

If a more efficient technology was discovered by a firm, there would be

Correct Answer
verified

A fast-food company spends millions of dollars to develop and promote a new hamburger on their menu only to find that consumers won't buy it because they don't like the taste. From an economic perspective, the company should

Correct Answer
verified

Refer to the provided table. When output increases from 28 to 35 units, the marginal cost of the product is

Correct Answer
verified

Refer to the provided graph. At which point is marginal product (MP) at its maximum?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exam 9: Businesses and the Costs of Production

Correct AnswerverifiedShow Answer

The law of diminishing returns explains diseconomies of scale.

Correct AnswerverifiedShow Answer

The vertical distance between the total cost and the total variable cost curves differs by an amount that

Correct AnswerverifiedShow Answer

Diseconomies of scale are caused by the law of diminishing marginal returns.

Correct AnswerverifiedShow Answer

The basic characteristic of the short run is that

Correct AnswerverifiedShow Answer

Round Things, Inc.'s production process exhibits economies of scale. Currently their long-run average cost is $12/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be

Correct AnswerverifiedShow Answer

Assume that in the short run a firm is producing 200 units of output, has average total costs of $250, and has average variable costs of $150. The firm's total variable costs are.

Correct AnswerverifiedShow Answer

Round Things, Inc.'s production process exhibits economies of scale. Currently their long-run average cost is $12/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be

Correct AnswerverifiedShow Answer

The amount of calendar time associated with the long run

Correct AnswerverifiedShow Answer

In comparing the changes in TVC and TC associated with an additional unit of output, we find that

Correct AnswerverifiedShow Answer

Economic profits are usually larger than accounting profits.

Correct AnswerverifiedShow Answer

Refer to the diagram. At output level Q,

Correct AnswerverifiedShow Answer

When a firm does more of something, it gets better at it. This learning-by-doing is

Correct AnswerverifiedShow Answer

Refer to the diagram. At output level Q, total cost is

Correct AnswerverifiedShow Answer

If a more efficient technology was discovered by a firm, there would be

Correct AnswerverifiedShow Answer

A fast-food company spends millions of dollars to develop and promote a new hamburger on their menu only to find that consumers won't buy it because they don't like the taste. From an economic perspective, the company should

Correct AnswerverifiedShow Answer

Refer to the provided table. When output increases from 28 to 35 units, the marginal cost of the product is

Correct AnswerverifiedShow Answer

Refer to the provided graph. At which point is marginal product (MP) at its maximum?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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