Chapter 7: Production Costs (Multiple Choice)

Which of the following is not an explicit cost?
A. Salaries.
B. Utilities, such as gas and electricity.
C. Sales taxes.
D. The firm owner's time.
E. Insurance.

The amount of money that could have been made by renting a piece of land to be uesed for building an office building instead of using the land for employee parking is an:
A. Explicit cost.
B. Pure economic cost.
C. Implicit cost.
D. Accounting cost.

Implicit costs are best thought of as:
A. Accounting costs.
B. Marginal costs.
C. Sunk costs.
D. Variable costs.
E. Opportunity costs.

If a firm has total revenue of $200 million, explicit costs of $190 million, and implicit costs of $30 million, its economic profit is:
A. $200 million.
B. $10 million.
C. $10 million.
D. $70 million.
E. $20 million.

Economic profit is:
A. Always less than zero.
B. Less than accounting profit if implicit costs are zero.
C. Less than accounting profit if implicit costs are greater than zero.
D. Never less than accounting profit.

Economists says that a firm has a normal profit when:
A. Its economic profit is zero.
B. It can pay all its variable costs.
C. It earns a return of at least 10 percent.
D. Its accounting profit is positive.

Which of the following is an example of a fixed input?
A. The acreage of a farmer's land.
B. Machinery.
C. The size of a firm's plant.
D. All of the above.

Variable inputs are defined as any resource that:
A. can be changed as output changes.
B. Varies with the size of the firm's plant.
C. cannot be changed as output changes.
D. can be increased or decreased hourly.

The short run is a period of time:
A. In which production occurs within six months.
B. In which production occurs within one year.
C. In which a firm uses at least one fixed input.
D. That is long enough to permit changes in the firm's plant size.

During the short run, a firm has enough time to adjust:
A. Its technology.
B. Its fixed inputs.
C. Its variable inputs.
D. All of its inputs-both fixed and variable.

The long run is a period of time:
A. That is too short to change the size of a firm's plant.
B. That is long enough to permit changes in all the firm's, both fixed and variable.
C. In which production occurs beyond one year.
D. In which procuction occurs beyond five years.

In the long run, total fixed cost:
A. Does not exist.
B. Falls.
C. Is constant.
D. Rises.

Which of the following statements is true?
A. Economic profit equals accounting profit minus implicit costs.
B. The short run is any period of time in which there is at least one fixed input.
C. A fixed input is any resource for which the quantity cannot change during the period under consideration.
D. In the long run there are no fixed costs
E. All of the above.

A firm can produce 450 gallons of milk per day with 4 worker and 500 gallons per day with 5 workers. The marginal product of the fifth worker expressed in gallons per worker per day, is:
A. 35.
B. 50.
C. 350.
D. 70.

If the units of variable input in a production process are 1, 2, 3, 4, and 5, and the corresponding total outputs are 30, 34, 37, 39, and 40, repectively. The marginal product of the fourth unit is:
A. 1.
B. 37.
C. 39.
D. 2.

Marginal product measures the change in:
A. Product price brought about by changing production by one unit.
B. The firm's output brought about by emplying one additional unity of input.
C. A firm's revenue brought about by changing production by one unit.
D. The firm's profit brought about by employing one more input.
E. Total cost brought about by changing production by one unit.

When a total output curve is falling, its corresponding marginal product curve is:
A. Vertical.
B. Falling.
C. Rising.
D. Horizontal.

The law of diminishing marginal returns implies that, in the short run:
A. The marginal product of the variable input must eventually decrease.
B. Wages of workers must eventually increase.
C. Output must fall beyond a certain point.
D. Price must fall beyond a certain poin.
E. Total cost must fall beyond a certain point.

In order for the law of dimising returns to be present, we must:
A. The price of labor incresing as more workers are hired.
B. Output decreasing as more laborers are hired.
C. Double the output when labor input is doubled.
D. Dimultaneous changes in labor and capital.
E. At least one factor of production to be fixed.

Marginal cost is defined as the increasing in total cost resulting from an increase in:
A. A firm's pland size.
B. One unit of output.
C. One unit of labor.
D. Output of 100 units.

Which of the following is true at the point where dimishing returns set in?
A. Both marginal product and marginal cost are at a maximum.
B. Both marginal product and marginal cost are at a minimum.
C. Marginal product is at a maximum and marginal cost at a minimum.
D. Marginal product is at a minimum and marginal cost at a maximum.

The marginal cost is the:
A. Marginal product is at a minumum and marginal cost at a maximum.
B. Marginal product is at a maximum and marginal cost at a minimum.
C. Change in total cost as the quantity changes by one unit.
D. B and C.

When the cost curves have U-shapes, at the point where marginal cost equals average total cost:
A. Average variable cost is falling.
B. The fixed cost has been fully depreciated.
C. B and C.
D. Marginal cost is rising.
E. Average total cost is at its minimum.

When marginal cost is below average total cost:
A. Total cost is falling.
B. Total variable cost is falling.
C. Average total cost is falling.
D. Average fixed cost is rising.
E. Total costis rising.

Which of the following statements is true?
A. TC = TFC - TVC.
B. TFC = TC - TVC.
C. AVC = TC/Q.
D. MC equals the change in ATC divided by the change in Q.

The total cost curve is the sum of the:
A. Total fixed and total variable cost curves.
B. Total fixed and marginal cost curves.
C. Marginal cost and total variable cost curves.
D. None of the above.

Which of the following statements is true?
A. The law of diminishing returns states that beyond some point the marginal product of a variable resource continues to rise.
B. The marginal product is the change in total output by adding one additional unit of a fixed input.
C. Fixed costs are costs which var with the output level.
D. When marginal droductivity of a variable input is falling then marginal costs of production must be rising.
E. When marginal cost is below average cost, average cost rises; when marginal cost is above average cost, average cost falls.

Longrun economies of scale exist when the longrun average cost curve:
A. Rises.
B. Remains constant.
C. Does not exist.
D. Falls.

Economies of scale are created by greater efficiency of capital and by:
A. Better wages for labor.
B. Smaller plant sizes.
C. Longer chains of command in management.
D. Increased specialization of labor.

Diseconomies of scale exist over the range of output for which the long-run average cost curve is:
A. Constant.
B. Subject to diminishing returns.
C. Rising
D. Falling.

The primary source of scale diseconomies appears to be:
A. A firm's inability to acquire quality resources.
B. Division of labor.
C. Too little demand for the firm's product.
D. The organizational difficulties of managina an ever larger enterprise.
E. Consumers who resist dealing with large firms.