Review Questions Chapter 7 PDF

Dr. Moskalev - ECA 111 (The Price System) Chapter 7 Review Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following are factors of production? 1) A) La...

Dr. Moskalev - ECA 111 (The Price System) Chapter 7 Review Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following are factors of production? 1) A) Land, labor, capital, and entrepreneurship. B) Implicit and explicit costs. C) Output in a production function. D) Productivity. 2) A production function shows 2) A) How total costs increase as labor is added. B) How a firm's production changes as quantity of labor and other inputs changes. C) How production changes as its unit costs go up. D) How a firm's costs of production increase as it produces more goods. 3) When a firm produces at a technically efficient output level, it is 3) A) Producing the output at the minimum MC curve. B) Producing the output where the AVC curve is at a minimum. C) Using the fewest resources to produce a good or service. D) Producing the best combination of goods and services. 4) Which of the following statements is not true regarding the production function and the 4) production possibilities curve? A) The production possibilities curve expresses the ability to produce various combinations of goods given the use of all resources. B) Both the production function and the production possibilities curve maximize the amount of output attainable. C) A production function tells us the maximum amount of output attainable from the use of all resources. D) The production function describes the capacity of a single firm, whereas the production function summarizes the output capacity of the entire economy. 1 5) 5) In Figure 21.1, diminishing marginal returns first occur with the A) Second worker. B) Third worker. C) Fifth worker. D) Fourth worker. 6) The change in total output associated with one additional unit of input is the 6) A) Opportunity cost of the output. B) Marginal cost. C) Average productivity. D) Marginal physical product. 7) Ceteris paribus, the law of diminishing returns states that beyond some point, the 7) A) Marginal physical product of a factor of production diminishes as more of that factor is used. B) Addition to total utility diminishes as more units of a good are consumed. C) Returns on stocks and bonds diminish with higher security prices. D) Output of any good increases as more of a variable input is used. 8) As an In and Out Burger restaurant increases the number of employees for a specific 8) restaurant, A) Costs of production will fall. B) The production function will increase. C) Efficiency will suffer as the restaurant becomes too crowded with employees. D) Total production of hamburgers will fall. 2  9) Marginal cost 9) A) Is the change in total cost from producing one additional unit of output. B) Is the change in the total cost when hiring one more factor of production. C) Is the change in total output from hiring one more factor of production. D) Falls when there are diminishing returns. 10) The sum of fixed cost and variable cost at any rate of output is 10) A) Total variable cost. B) Average marginal cost. C) Total cost. D) Average total cost. 11) Which of the following is most likely a fixed cost? 11) A) Property taxes. B) Energy cost. C) Raw materials cost. D) Labor cost. 12) Average total cost is equal to 12) A) The sum of average variable cost and marginal cost. B) Total cost divided by quantity produced. C) Total cost multiplied by quantity. D) Total cost divided by fixed cost. 13) In the long run, which of the following is likely to be a variable cost? 13) A) Wage costs but not costs for equipment. B) Rent, wages, and all other costs are variable in the long run. C) Interest payments on borrowed funds but not utilities. D) Factory rental but not wage costs. 14) The average variable cost curve slopes upward with a higher rate of output in the short 14) run because of A) Diseconomies of scale. B) Implicit but not explicit costs. C) The shape of the average fixed cost curve. D) The effect of diminishing returns. 15) If the marginal cost curve is rising, which of the following must be true? 15) A) The average total cost curve must be below the marginal cost curve. B) The average total cost curve must be rising. C) The average total cost curve must be above the marginal cost curve. D) Total costs must be rising. 3 16) 16) What is the marginal cost of the 120th unit of output in Figure 21.2? A) $208.00. B) $288.00. C) $1.20. D) $200.00. 4 17) 17) What is the total fixed cost in Figure 21.2? A) $29,600. B) $9,600. C) $80. D) $10,000. 5 18) 18) What is the total cost of 120 units in Figure 21.2? A) $9,600. B) $34,560. C) $24,960. D) $10,560. 6 19) 19) What is the average fixed cost when output is 120 units in Figure 21.2? A) $80.00. B) $0.67. C) $96.00. D) $208.00. 7 20) 20) What is the total variable cost when output is 100 units in Figure 21.2? A) $296. B) $9,600. C) $200. D) $20,000. 8 21) 21) Refer to Figure 21.3. The vertical difference between the total cost curve and the total fixed cost curve represents A) Average variable costs. B) Total variable costs. C) Total marginal costs. D) Average fixed costs. 22) Implicit costs 22) A) Are the sum of actual monetary payments made for resources used to produce a good. B) Include the value of all resources used to produce a good. C) Are the value of resources used to produce a good but for which no monetary payment is made. D) Include only payments to labor. 23) Economic cost 23) A) Decreases as the level of production increases. B) Includes both implicit and explicit costs. C) Includes only implicit costs. D) Is the sum of actual monetary payments made for resources used to produce a good. 9 24) In economics, the long run is considered to be 24) A) The time period when all costs are explicit. B) More than two years. C) The time period when all costs are variable. D) One year. 25) Economies of scale are reductions in average 25) A) Total cost that result from using operations of larger size. B) Total cost that result from declining average fixed costs. C) Fixed cost that result from reducing the firm's scale of operations. D) Fixed cost resulting from improved technology and production efficiency. 26) Diseconomies of scale are reflected in 26) A) The downward-sloping segment of the long-run average total cost curve. B) The downward-sloping segment of the long-run marginal cost curve. C) The upward-sloping segment of the long-run average total cost curve. D) A downward shift of the long-run average total cost curve. 27) 27) If a fifth unit of labor was added to Table 21.1, its MPP would most likely be A) 7. B) Greater than 7. C) Less than 7. D) Zero. 28) 28) Above 10 units of output, the average fixed cost in Table 21.2 A) Remains constant. B) Continues to decline. C) Rises above $2.00. D) Stays below $0.50. 10 29) 29) At 30 units of output in Table 21.2, the total variable cost is A) $40. B) $30. C) $80. D) $50. 30) Complete Table 21.3 below: 30) How many units of output can be produced when three units of labor are employed in Table 21.3? A) 30. B) 96. C) 66. D) 31. 31) 31) At 2 units of output in Table 20.4, the average variable cost is A) $13. B) $12. C) $21. D) $6. 11 32) 32) For the output levels in Table 21.4, the minimum of the average variable cost curve occurs at a production rate of A) 4 units per day. B) 3 units per day. C) Zero units per day. D) 2 units per day. 33) Complete Table 21.5: 33) The total variable cost of 2 units of output in Table 21.5 is A) $15. B) $12. C) $27. D) $8. 12 34) 34) In Figure 21.4, a firm that produces between 600 and 800 units per period should choose a plant with a short-run average total cost function of A) ATC2 or ATC3. B) ATC3 only. C) ATC1 only. D) ATC2 only. 35) Which of the following is least likely to increase productivity? 35) A) higher wage rate. A B) Improved labor skills. C) Technological advances. D) Increased managerial capabilities. 36) Assuming labor is a variable input, an increase in labor productivity will result in 36) A) A downward shift in the MPP curve. B) An upward shift in the ATC curve. C) A downward shift in the MC curve. D) A downward shift in the production function. 37) One In the News article titled "Funeral Giant Moves In on Small Rivals" reports that 37) profit for a Houston-based funeral giant is 31 cents on every dollar versus a profit of 12 cents for the funeral industry in general. Such profits are most likely the result of A) Economies of scale. B) A downward shift in the production function. C) Constant returns to scale. D) Higher minimum average costs. 13 38) TheIn The News article "Ford Pumps $400 Million into Kansas City Plant" says that 38) A) The $400 million investment will be a variable expense. B) The new plant will likely result in diseconomies of scale. C) The $400 million investment is a short-run production decision. D) This investment by Ford is a long-run production decision, and the company plans to enjoy economies of scale. 14 Answer Key Testname: UNTITLED2 1) A 2) B 3) C 4) C 5) B 6) D 7) A 8) C 9) A 10) C 11) A 12) B 13) B 14) D 15) D 16) B 17) B 18) B 19) A 20) D 21) B 22) C 23) B 24) C 25) A 26) C 27) C 28) B 29) A 30) B 31) A 32) D 33) B 34) D 35) A 36) C 37) A 38) D 15