Acctg 1102 (Manecon) Midterms - ProjAssist PDF

CHAPTER 4: EXTENT (HOW MUCH) DECISIONS 1. Managers undertake an investment only if a. Marginal benefits of the investment are greater than zero b. Marginal costs of the investment are less than marginal benefits of the investment c. Marginal benefits are grea...

CHAPTER 4: EXTENT (HOW MUCH) DECISIONS 1. Managers undertake an investment only if a. Marginal benefits of the investment are greater than zero b. Marginal costs of the investment are less than marginal benefits of the investment c. Marginal benefits are greater than marginal costs d. Investment decisions do not depend on marginal analysis ANS: C. When MR>MC, only then will managers undertake the investment because there will be profits. When MRMC, then do more of it b. An incentive compensation scheme that increases MR will increase effort c. Fixed fees have no effect on effort d. Average cost is relevant to an extent decision ANS: D. Average cost is not relevant to an extent decision. The fixed cost portion of AC is irrelevant to an extent decision. 10. At the current level of production, if the firm’s marginal costs exceeds marginal benefits, then a. The company should produce more  b. The company is maximizing profit at this output c. The company is producing too much d. Not possible to determine ANS: C. Since MRMC, the company should sell more of that product. 12. A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly and they costs $10 for every unit produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall costs breakdown? a. total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250 b. b. total variable cost is $12,000; total fixed cost is $7,250; total cost is $19,250 c. c. total variable cost is $5,000; total fixed cost is $14,250; total cost is $19.250 d. d. total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250 ANS: A Variable Costs RM (10 x 500) 500 Wages (20 x 40 x 15) 12,000 17,000 Fixed Cost (Rent) 2,250 Total Costs 19,250 13. If a firm produces 10 units, TC=$100. When the firm increase its output to 15 units, TC= $150. The firm’s variable costs equal to a. $25 b. $0 c. $50 d. $100 ANS: C. (150-100 = 50) This $50 increase is due solely to variable costs, as fixed costs don't change with output. 14. If AVC=$15 and AFC=$10, then ATC= a. $10 b. $5 c. $15 d. $25 ANS: D. (15+10) 15. A firm produces 1000 units per week. It hires 10 full-time workers (40 hours/week) at an hourly wage of $20. Raw materials are ordered weekly and they costs $5 for every unit produced. The weekly cost of the rent payment for the factory is $1,500. How do the overall costs break down for the week? a. total variable cost is $5,000; total fixed cost is $1,500; total cost is $6,500 b. total variable cost is $5,000; total fixed cost is $9,500; total cost is $14,500 c. total variable cost is $13,000; total fixed cost is $1,500; total cost is $14,500 d. total variable cost is $13,000; total fixed cost is $9,500; total cost is $22,500 ANS: C  Variable Costs RM (5 x 1,000) 5,000 Wages (10 x 40 x 20) 8,000 13,000 Fixed Cost (Rent) 1,500 Total Costs 14,500 16. Total costs increase from $1500 to $1800 when a firm increases output from 40 to 50 units. Which of the following are true? a. FC = $100 b. MC=300 c. MC=30 d. FC = $400 ANS: C. (1800 - 1,500) / (50 - 40) = 30 17. With fixed costs of $200, a firm has average total costs of $5 and average variable costs of $3. Its output is: a. 100 units. b. 40 units. c. 66.67 units. d. Need more information ANS: A. 200 / (5-3) = 100 18. Jim’ burger produces 500 burgers per week. Each burger is priced at $3. What is the marginal revenue of selling the 50th burger? a. $3 b. $150 c. $147  d. It cannot be determined with the information given ANS: A. The marginal revenue is the selling price of one burger. 19. A firm is thinking of hiring an additional worker to their organization who they believe can increase total productivity by 100 units a week. The cost of hiring him or her is $1500 per week. If the price of each unit is $12, a. the MR of hiring the worker is $1500 b. The MC of hiring the worker is $1200 c. The firm should not hire the worker since MB