Practice
Quiz
Production Costs
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1. Explicit costs are payments to
a. hourly employees.
b. insurance
companies.
c. utility companies.
d. all of the above.
2. Implicit costs are the opportunity costs of using the resources of
a. outsiders.
b. owners.
c. banks.
d. retained earnings.
3. Which of the following equalities is true?
a. Economic profit
= total revenue - accounting profit
b. Economic profit = total revenue - explicit costs - accounting profit
c. Economic profit = total revenue - implicit costs - explicit costs
d. Economic profit = opportunity cost - accounting cost
4. Fixed inputs are factors of production that
a. are determined
by a firm's plant size.
b. can be
increased or decreased quickly as output changes.
c. cannot
be increased or decreased as output changes.
d. are none of the above.
5. An example of a variable input is
a. raw materials.
b. energy.
c. hourly labor.
d. all of the above.
6. Suppose a car wash has 2 washing stations and 5 workers and is able to wash 100 cars per day. When it adds a third station, but no more workers, it is able to wash 150 cars per day. The marginal product of the third washing station is
a. 100 cars per
day.
b. 150 cars per day.
c. 5 cars per day.
d. 50 cars per day.
7. If the units of variable input in a production process are 1, 2, 3, 4, and 5 and the corresponding total outputs are 10, 22, 33, 42, and 48, respectively, the marginal product of the fourth unit is
a. 2.
b. 6.
c. 9.
d. 42.
8. The total fixed cost curve is
a. upward-sloping.
b. downward-sloping.
c. upward-sloping and then downward-sloping.
d. unchanged with the level of output.
9. Assuming the marginal cost curve is a smooth U-shaped curve, the corresponding total cost curve has a (an)
a. linear shape.
b. S-shape.
c. U-shape.
d. reverse-S-shape.
10. If both the marginal cost and the average variable cost curves are U-shaped, at the point of minimum average variable cost, the marginal cost must be
a. greater than
the average variable cost.
b. less than the average variable cost.
c. equal to the average variable cost.
d. at its minimum.
11. Which of the following is true at the point where diminishing 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.
12. As shown in Exhibit 10, total fixed cost for the firm is
a. zero.
b. $250.
c. $500.
d. $750.
e. $1,000.
13. As shown in Exhibit 10, the total cost of producing 100 units of output per day is
a. zero.
b. $250.
c. $500.
d. $750.
e. $1,000.
14. In Exhibit 10, if the total cost of producing 99 units of output per day is $475, the marginal cost of producing the 100th unit of output per day is approximately
a. zero.
b. $25.
c. $475.
d. $500.
15. Each potential short-run average total cost curve is tangent to the long-run average cost curve at
a. the level of
output that minimizes short-run average total cost.
b. the minimum point of the average total cost curve.
c. the minimum point of the long-run average cost curve.
d. a single point on the short-run average total cost curve.
16. Suppose a typical firm is producing X units of output per day. Using any other plant size, the long-run average cost would increase. The firm is operating at a point at which
a. its long-run
average cost curve is at a minimum.
b. its short-run average total cost curve is at a minimum.
c. both a and b are true.
d. neither a nor b is true.
17. The downward-sloping segment of the long-run average cost curve corresponds to
a. diseconomies
of scale.
b. both economies and diseconomies of scale.
c. the decrease in average variable costs.
d. economies of scale.
18. Long-run diseconomies of scale exist when the
a. short-run average
total cost curve falls.
b. long-run marginal cost curve rises.
c. long-run average total cost curve falls.
d. short-run average variable cost curve rises.
e. long-run average cost curve rises.
19. Long-run constant returns to scale exist when the
a. short-run average
total cost curve is constant.
b. long-run
average cost curve rises.
c. long-run average cost curve is flat.
d. long-run average cost curve falls.