Chapter 6: The Costs of Production

Chapter 6: The Costs of Production

Multiple Choice Questions
THE PRODUCTION UNCTION
!" #hich of the follo$in% are factors of production&
'( Output in a production function" C( )and* la+or* capital* and entrepreneurship"
,( Producti-it." D( 'll of the a+o-e"
'ns$er: C [Link]: Definition Pa%e: !/0
/" ' production function:
'( 1ho$s the cost of producin% an. le-el of output"
,( Is a technolo%ical relationship +et$een factors of production and output"
C( E2presses the least3cost 4ethod of producin% a %i-en le-el of output"
D( E2presses our a+ilit. to produce -arious co4+inations of %oods* usin% all of our resources"
'ns$er: , [Link]: Definition Pa%e: !/0
5" ' production function 4atches a %i-en co4+ination of factor inputs $ith the:
'( )o$est a-era%e cost of producin% the output"
,( Ma2i4u43cost 4ethod for co4+inin% the inputs"
C( )east cost of producin% output"
D( Ma2i4u4 output that can +e technolo%icall. produced fro4 the inputs"
'ns$er: D [Link]: Definition Pa%e: !/0
6" ' production function sho$s the:
'( Mini4u4 a4ount of output that can +e o+tained fro4 alternati-e co4+inations of inputs"
,( Ma2i4u4 7uantities of inputs re7uired to produce a %i-en 7uantit. of output"
C( Ma2i4u4 output $e can produce $ith -[Link]% co4+inations of factor inputs"
D( Output capacit. of the entire econo4."
'ns$er: C [Link]: Definition Pa%e: !/0
0" #hich of the follo$in% state4ents is true a+out the production function&
'( It represents 4a2i4u4 technical efficienc."
,( It represents the 4ost output attaina+le fro4 an. co4+inations of factor inputs"
C( It descri+es the output capacit. of a sin%le fir4"
D( 'll of the a+o-e"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !/0
Pa%e !
Chapter 6: The Costs of Production
6" 1uppose $e can descri+e the production function for the MC 1hoe Co" $ith the e7uation* TP 8 9)
:$here ) 8 the nu4+er of $or;ers(" ,ased on this infor4ation* $hich of the follo$in% state4ents is true&
'( The MC 1hoe Co" $ill ne-er e2perience econo4ies of scale"
,( The la$ of di4inishin% returns does not appl. at the MC 1hoe Co"
C( Di4inishin% returns +e%in after the se-enth $or;er"
D( The 4ar%inal [Link] product cur-e +eco4es ne%ati-e at 9 $or;ers"
'ns$er: , [Link]: Co4ple2 Understandin% Pa%e: !/0
9" <reater la+or producti-it. 4eans:
'( )o$er output per la+or hour" C( )o$er output per $or;er"
,( Hi%her la+or cost per unit of output" D( Hi%her output per $or;er"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !/6
=" Producti-it.:
'( Increases $hen the -alue of output increases relati-e to the cost of inputs"
,( Decreases $hen the -alue of output increases relati-e to the cost of inputs"
C( Increases $hen the ratio of output per unit of input rises"
D( Decreases $hen factors of production cost 4ore"
'ns$er: C [Link]: Definition Pa%e: !/6
>" ' fir4?s producti-it. $ill increase if:
'( There is an increase in production +. the fir4" C( The $or;ers are %i-en additional capital to use"
,( The fir4 hires 4ore $or;ers" D( The cost of resources increases"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !/6
!@" )a+or producti-it. $ill increase in response to:
'( )o$er $a%es"
,( 'n increase in the a4ount of capital per $or;er"
C( Hi%her resource costs"
D( 'll of the a+o-e"
'ns$er: , [Link]: ,asic Understandin% Pa%e: !/6
!!" Technical efficienc. is achie-ed $hen a fir4 produces:
'( 't the a4ount indicated +. the production function"
,( ,elo$ the opportunit. cost for the resources it uses"
C( The 4ini4u4 necessar. output to co-er the opportunit. cost of resources"
D( 'll of the a+o-e"
'ns$er: ' [Link]: Definition Pa%e: !/6
Pa%e /
Chapter 6: The Costs of Production
!/" Technical efficienc.:
'( Re7uires %ettin% 4a2i4u4 output fro4 the resources used in production"
,( Re7uires co-erin% the opportunit. costs of the resources used in production"
C( Re7uires production +[Link] the production function"
D( 'll of the a+o-e"
'ns$er: ' [Link]: Definition Pa%e: !/6
!5" #hen a fir4 produces at a technicall. efficient output le-el* it is:
'( Producin% the output at the 4ini4u4 MC cur-e"
,( Usin% the fe$est resources to produce a %ood or ser-ice"
C( Producin% the output $here the AVC cur-e is at a 4ini4u4"
D( Producin% the +est co4+ination of %oods and ser-ices"
'ns$er: , [Link]: ,asic Understandin% Pa%e: !/6
!6" The 4ost desired %oods and ser-ices that are %i-en up in order to %et 4ore of another %ood is the:
'( '-era%e total cost" ,( Aaria+le cost" C( Mar%inal cost" D( Opportunit. cost"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !/6
!0" Decisions $hich treat at least one factor of production as fi2ed are referred to as:
'( )on%3run decisions" ,( 1hort3run decisions" C( Efficienc. decisions" D( In-est4ent decisions"
'ns$er: , [Link]: Definition Pa%e: !/6
!6" The period in $hich at least one input is fi2ed in 7uantit. is the:
'( )on% run" ,( Production run" C( 1hort run" D( In-est4ent decision"
'ns$er: C [Link]: Definition Pa%e: !/9
M'R<IN') PRODUCTIAITB
!9" Mar%inal [Link] product is:
'( Total output di-ided +. the 7uantit. of input"
,( Input di-ided +. output"
C( The chan%e in total output di-ided +. the chan%e in input 7uantit."
D( The chan%e in producti-it. associated $ith an additional unit of input"
'ns$er: C [Link]: Definition Pa%e: !/=
!=" The chan%e in total output associated $ith one additional unit of input is the:
'( Opportunit. cost of the output" C( Mar%inal [Link] product"
,( '-era%e producti-it." D( Mar%inal cost"
'ns$er: C [Link]: Definition Pa%e: !/=
Pa%e 5
Chapter 6: The Costs of Production
!>" Mar%inal [Link] product is the:
'( Chan%e in total input re7uired to produce one additional unit of output"
,( Chan%e in total output associated $ith one additional unit of the -aria+le input"
C( Nu4+er of units of output o+tained fro4 all units of input [Link]"
D( 'dditional cost of an additional unit of output"
'ns$er: , [Link]: Definition Pa%e: !/=
/@" #hich of the follo$in% is the slope of the production function $ith respect to an input&
'( Mar%inal [Link] product of the input" C( Unit cost of the input"
,( '-era%e product of the input" D( Input price"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !/=
/!" If a fir4 could hire all the $or;ers it $anted at a Cero $a%e :i"e" the $or;ers are -olunteers(* the fir4
should hire:
'( Enou%h $or;ers to produce the output $here di4inishin% returns +e%ins"
,( Enou%h $or;ers to produce the output $here $or;er producti-it. is the hi%hest"
C( Enou%h $or;ers to produce $here the MPP 8 Cero"
D( 'll the $or;ers that can fit into the factor."
'ns$er: C [Link]: Co4ple2 Understandin% Pa%e: !/=
//" The la$ of di4inishin% returns indicates that 4ar%inal [Link] product of a factor declines as:
'( More output is produced $ith the 4ost efficient co4+ination of factors"
,( More of the factor is used* holdin% output constant"
C( More of the factor is used* holdin% other inputs constant"
D( 'll of the a+o-e"
'ns$er: C [Link]: Definition Pa%e: !/>
/5" The la$ of di4inishin% returns states that +[Link] so4e point* ceteris paribus:
'( The returns on stoc;s and +onds di4inish $ith hi%her securit. prices"
,( The addition to total utilit. di4inishes as 4ore units of a %ood are consu4ed"
C( The 4ar%inal [Link] product of a factor of production di4inishes as 4ore of that factor is used"
D( The output of an. %ood increases as 4ore of a -aria+le input is used"
'ns$er: C [Link]: Definition Pa%e: !/>
/6" The la$ of di4inishin% returns occurs $ith each additional unit of a -aria+le input $hen:
'( Total output +e%ins to decline" C( Total output +e%ins to rise"
,( Mar%inal [Link] product +eco4es ne%ati-e" D( Mar%inal [Link] product +e%ins to decline"
'ns$er: D [Link]: Definition Pa%e: !/>
Pa%e 6
Chapter 6: The Costs of Production
/0" In the short run* the la$ of di4inishin% returns:
'( Occurs for onl. a fe$ econo4ies"
,( Can +e o+ser-ed in e-er. production process"
C( Does not occur in co44and econo4ies"
D( Can +e o-erco4e +. usin% 4ore -aria+le inputs"
'ns$er: , [Link]: ,asic Understandin% Pa%e: !/>
/6" The la$ of di4inishin% returns indicates that at so4e rate of output:
'( Total output $ill fall in the lon% run"
,( Mar%inal [Link] product $ill decline in the lon% run"
C( Mar%inal [Link] product $ill decline in the short run"
D( 'll of the a+o-e"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !/>
/9" Di4inishin% returns occur +ecause of:
'( Inefficienc. in the production process"
,( The use of inferior factors of production"
C( ' risin% ratio of -aria+le input to fi2ed input"
D( )o$er opportunit. costs of the factors of production"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !/>
/=" #hich of the follo$in% is the +est e2planation of $h. the la$ of di4inishin% returns does not appl. in the
lon% run&
'( In the lon% run* fir4s can increase the a-aila+ilit. of space and e7uip4ent to ;eep up $ith the increase
in -aria+le inputs"
,( The MPP does not chan%e in the lon% run"
C( In the lon% run* fir4s ha-e 4ore ti4e to find +etter 7ualified $or;ers"
D( 'll factors of production are fi2ed in the lon% run"
'ns$er: ' [Link]: Co4ple2 Understandin% Pa%e: !/>
RE1OURCE CO1T1
/>" Profit is:
'( The difference +et$een total cost and -aria+le cost"
,( The difference +et$een total re-enue and total cost"
C( Earned at all points alon% the production function"
D( Onl. possi+le $ith technical efficienc."
'ns$er: , [Link]: Definition Pa%e: !5@
5@" The difference +et$een total re-enue and total cost is:
'( Mar%inal cost" ,( '-era%e -aria+le cost" C( i2ed cost" D( Profit"
'ns$er: D [Link]: Definition Pa%e: !5@
Pa%e 0
Chapter 6: The Costs of Production
5!" The 4ost desira+le rate of output for a fir4 is the output that:
'( Mini4iCes total costs" C( Mini4iCes 4ar%inal costs"
,( Ma2i4iCes total profit" D( Ma2i4iCes total re-enue"
'ns$er: , [Link]: ,asic Understandin% Pa%e: !5@
5/" The shape of the 4ar%inal cost cur-e reflects:
'( The la$ of di4inishin% returns" C( The la$ of di4inishin% 4ar%inal utilit."
,( The co4petiti-eness of the fir4" D( The la$ of de4and"
'ns$er: ' [Link]: Co4ple2 Understandin% Pa%e: !5@
55" Mar%inal cost:
'( Is the chan%e in total output fro4 hirin% one 4ore factor of production"
,( Is the chan%e in total cost fro4 producin% one additional unit of output"
C( alls $hen there are di4inishin% returns"
D( Is the chan%e in the total cost $hen hirin% one 4ore factor of production"
'ns$er: , [Link]: Definition Pa%e: !5@
56" The increase in total cost associated $ith a !3unit increase in production is:
'( Mar%inal [Link] product" ,( Mar%inal cost" C( Mar%inal re-enue" D( Profit"
'ns$er: , [Link]: Definition Pa%e: !5@
50" Mar%inal cost is e7ual to:
'( Total cost D output" C( Chan%e in total cost D chan%e in input"
,( Chan%e in total cost D chan%e in total output" D( Total cost D input cost"
'ns$er: , [Link]: Definition Pa%e: !5!
56" If an additional unit of la+or costs E!0 and has a MPP of 0@ units of output* the 4ar%inal cost is:
'( E@"5@" ,( E@"0@" C( E9"0@" D( E90@"@@"
'ns$er: ' [Link]: '[Link] Pa%e: !5!
59" If an additional unit of la+or costs E/@ and has a MPP of 0@ units of output* the 4ar%inal cost is:
'( E@"0@" ,( E@"6@" C( E/@"@@" D( E!*@@@"@@"
'ns$er: , [Link]: '[Link] Pa%e: !5!
Pa%e 6
Chapter 6: The Costs of Production
5=" Mar%inal cost:
'( Increases as a direct result of di4inishin% returns"
,( Rises $hene-er 4ar%inal [Link] product decreases"
C( Rises in the short run +ecause so4e resources are fi2ed"
D( 'll of the a+o-e"
'ns$er: D [Link]: Definition Pa%e: !5!
5>" Risin% 4ar%inal costs result fro4:
'( Risin% prices of fi2ed inputs" C( allin% 4ar%inal [Link] product"
,( Risin% prices of -aria+le inputs" D( 'll of the a+o-e"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !5!
6@" Risin% 4ar%inal costs are the result of:
'( The la$ of di4inishin% returns"
,( Decreasin% MPP"
C( 'ddin% 4ore -aria+le factors of production to a fi2ed 7uantit. of other factors of production"
D( 'll of the a+o-e"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !5!
6!" <i-en a constant price per unit for the -aria+le input* 4ar%inal cost $ill increase $ith %reater output if:
'( Mar%inal [Link] product is declinin%" C( Total -aria+le cost is decreasin%"
,( Mar%inal [Link] product is increasin%" D( Total fi2ed cost is increasin%"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !5!
6/" #hene-er di4inishin% returns appear $ith %reater output:
'( Mar%inal cost $ill +e risin%" C( MPP $ill rise"
,( There are disecono4ies of scale" D( 'll of the a+o-e"
'ns$er: ' [Link]: '[Link] Pa%e: !5!
DO))'R CO1T1
65" The su4 of fi2ed cost and -aria+le cost at an. rate of output is:
'( Total -aria+le cost" ,( Total cost" C( '-era%e total cost" D( '-era%e 4ar%inal cost"
'ns$er: , [Link]: Definition Pa%e: !5/
66" The 4ar;et -alue of all resources used in producin% a %ood or ser-ice is e2pressed +.:
'( Total costs" ,( I4plicit costs" C( i2ed costs" D( Aaria+le costs"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !5/
Pa%e 9
Chapter 6: The Costs of Production
60" 'n increase in production in the short run al$a.s results in an increase in:
'( '-era%e total costs" ,( Mar%inal costs" C( Total costs" D( '-era%e fi2ed costs"
'ns$er: C [Link]: Co4ple2 Understandin% Pa%e: !5/
66" The a4ount of fi2ed cost is:
'( The difference +et$een a-era%e -aria+le cost and a-era%e total cost in the short run"
,( Total cost at an output of Cero"
C( The difference +et$een total cost and 4ar%inal cost in the lon% run"
D( Represented +. a cur-e that slopes do$n$ard as output increases"
'ns$er: , [Link]: Definition Pa%e: !5/
69" In the short run* $hen a fir4 produces Cero output* total cost e7uals:
'( Fero" ,( Aaria+le costs" C( i2ed costs" D( Mar%inal costs"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !5/
6=" #hich of the follo$in% costs do not chan%e $hen output chan%es in the short run&
'( '-era%e -aria+le costs" ,( Aaria+le costs" C( '-era%e fi2ed costs" D( i2ed costs"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !5/
6>" Costs of production that do not chan%e $ith the rate of output are:
'( None2istent" ,( Aaria+le costs" C( i2ed costs" D( Mar%inal costs"
'ns$er: C [Link]: Definition Pa%e: !5/
0@" #hich of the follo$in% costs re4ains constant at all le-els of output&
'( Total costs" ,( Aaria+le costs" C( i2ed costs" D( Mar%inal costs"
'ns$er: C [Link]: Definition Pa%e: !5/
0!" #hich of the follo$in% is 4ost li;el. a fi2ed cost&
'( Ra$ 4aterials cost" ,( )a+or cost" C( Ener%. cost" D( Propert. ta2es"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !5/
0/" #hich of the follo$in% $ould 4ost li;el. +e a fi2ed cost&
'( The cost of propert. insurance"
,( The cost of $ater used in the production process"
C( The cost of la+or used in the production process"
D( The cost of electricit. used in the production process"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !5/
Pa%e =
Chapter 6: The Costs of Production
05" 't an. %i-en rate of output* the difference +et$een total cost and fi2ed cost is:
'( Mar%inal cost" ,( '-era%e -aria+le cost" C( Fero in the short run" D( Aaria+le cost"
'ns$er: D [Link]: Definition Pa%e: !5/
06" Costs of production that chan%e $ith the rate of output are:
'( 1un; costs" ,( Aaria+le costs" C( Opportunit. costs" D( i2ed costs"
'ns$er: , [Link]: Definition Pa%e: !5/
00" Chan%es in short3run total costs result fro4 chan%es in onl.:
'( Aaria+le costs" ,( i2ed costs" C( Profit" D( The price elasticit. of de4and"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !5/
06" Chan%es in 4ar%inal costs result fro4 chan%es in:
'( Aaria+le costs" ,( i2ed costs" C( Profit" D( The price elasticit. of de4and"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !5/
09" In the short run* $hich of the follo$in% is 4ost li;el. a -aria+le cost&
'( Contractual lease pa.4ents" C( Propert. ta2es"
,( )a+or and ra$ 4aterials costs" D( Interest pa.4ents on +orro$ed funds"
'ns$er: , [Link]: ,asic Understandin% Pa%e: !5/
0=" In the lon% run* $hich of the follo$in% is li;el. to +e a -aria+le cost&
'( actor. rental" C( Interest pa.4ents on +orro$ed funds"
,( #a%e costs" D( 'll of the a+o-e are -aria+le costs"
'ns$er: D [Link]: Co4ple2 Understandin% Pa%e: !5/
0>" In the short run* $hen a fir4 produces Cero output* -aria+le cost e7uals:
'( Fero" ,( Total cost" C( i2ed cost" D( Mar%inal cost"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !5/
6@" In the lon% run* chan%es in total costs are caused +. chan%es in:
'( i2ed costs" ,( Aaria+le costs" C( Profits" D( 1un; costs"
'ns$er: , [Link]: ,asic Understandin% Pa%e: !5/
Pa%e >
Chapter 6: The Costs of Production
6!" #hich of the follo$in% is true as output increases&
'( i2ed costs decline +ecause the costs are spread o-er %reater production"
,( Mar%inal costs re4ain fi2ed"
C( Aaria+le costs rise"
D( '-era%e total costs decline +ecause of di4inishin% returns"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !5/
6/" #hich of the follo$in% costs al$a.s increases $hen output increases +. one unit&
'( Total costs" ,( '-era%e total costs" C( Mar%inal costs" D( i2ed costs"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !5/
65" #hich of the follo$in% is e7ui-alent to ATC&
'( FC G VC"
,( AFC G AVC"
C( Chan%e in output di-ided +. chan%e in total cost"
D( Total cost ti4es the 7uantit. produced"
'ns$er: , [Link]: Definition Pa%e: !55
66" #hich of the follo$in% is e7ui-alent to ATC&
'( FC G VC"
,( FC G MC.
C( Chan%e in total cost di-ided +. chan%e in output"
D( :FC G VC( D Q"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !55
60" #hich of the follo$in% contri+utes to the [Link] U3shape of the ATC cur-e&
'( The initial do4inance of di4inishin% returns"
,( The e-entual do4inance of the risin% MC cur-e"
C( The stead. i4pact of a risin% AFC cur-e"
D( 'll of the a+o-e"
'ns$er: , [Link]: ,asic Understandin% Pa%e: !55
66" #hich of the follo$in% 4ust al$a.s +e do$n$ard3slopin%&
'( The 4ar%inal cost cur-e $hen it is +elo$ the a-era%e total cost cur-e"
,( The 4ar%inal cost cur-e $hen it is a+o-e the a-era%e total cost cur-e"
C( The a-era%e total cost cur-e $hen it is +elo$ the 4ar%inal cost cur-e"
D( The a-era%e total cost cur-e $hen it is a+o-e the 4ar%inal cost cur-e"
'ns$er: D [Link]: Co4ple2 Understandin% Pa%e: !56
Pa%e !@
Chapter 6: The Costs of Production
69" #hich one of the follo$in% cur-es 4ust +e fallin% as output increases $hen the 4ar%inal cost is
+elo$ it&
'( The a-era%e -aria+le cost cur-e" C( The a-era%e fi2ed cost cur-e"
,( The a-era%e total cost cur-e" D( 'll of the a+o-e"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !56
6=" The a-era%e fi2ed cost cur-e:
'( Is U3shaped as a result of di4inishin% returns"
,( Declines as lon% as output increases"
C( Is intersected at its 4ini4u4 point +. 4ar%inal cost"
D( Intersects the 4ar%inal cost cur-e at its 4ini4u4 point"
'ns$er: , [Link]: ,asic Understandin% Pa%e: !56
6>" 's the production rate is increased* a-era%e fi2ed costs:
'( 're constant" ,( irst fall* then rise :in a U3shaped cur-e(" C( Decline" D( Increase"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !56
9@" or $hich of the follo$in% costs does the a-era%e cost cur-e fall continuousl.&
'( i2ed costs" ,( Aaria+le costs" C( Total costs" D( 'll of the a+o-e"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !56
9!" The a-era%e -aria+le cost cur-e slopes up$ard $ith a hi%her rate of output in the short run +ecause of:
'( The effect of di4inishin% returns" C( Disecono4ies of scale"
,( The shape of the a-era%e fi2ed cost cur-e" D( 'll of the a+o-e"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !56
9/" In the short run* a-era%e costs 4a. rise as a fir4 increases the rate of production +ecause:
'( Inflation causes the prices of resources to increase"
,( The suppl. cur-e for the product shifts"
C( 1o4e inputs* such as plant and e7uip4ent* cannot +e chan%ed"
D( 'll of the a+o-e"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !56
95" ' U3shaped a-era%e total cost cur-e i4plies:
'( irst* di4inishin% returns* and then* increasin% returns"
,( irst* 4ar%inal cost +elo$ a-era%e total cost* and then 4ar%inal cost a+o-e a-era%e total cost"
C( That total costs are at a 4ini4u4 at the 4ini4u4 of the a-era%e cost cur-e"
D( ' linear total cost cur-e"
'ns$er: , [Link]: Co4ple2 Understandin% Pa%e: !50
Pa%e !!
Chapter 6: The Costs of Production
96" The 4ar%inal cost cur-e intersects the 4ini4u4 of the cur-e representin%:
'( TC. ,( ATC. C( AFC. D( 'll of the a+o-e"
'ns$er: , [Link]: ,asic Understandin% Pa%e: !50
90" If the 4ar%inal cost cur-e is risin%* then $hich of the follo$in% 4ust +e true&
'( The a-era%e total cost cur-e 4ust +e risin%"
,( The a-era%e total cost cur-e 4ust +e +elo$ the 4ar%inal cost cur-e"
C( The a-era%e total cost cur-e 4ust +e a+o-e the 4ar%inal cost cur-e"
D( Total costs 4ust +e risin%"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !50
96" The tendenc. for total costs to rise 4ore slo$l. at first and then to increase 4ore 7uic;l. results in:
'( irst* di4inishin% returns* and then* increasin% returns"
,( irst* fallin% 4ar%inal costs* and then* risin% 4ar%inal costs"
C( irst* ne%ati-e 4ar%inal costs* and then* positi-e 4ar%inal costs"
D( irst* risin% a-era%e costs* and then* fallin% a-era%e costs"
'ns$er: , [Link]: ,asic Understandin% Pa%e: !50
99" #hen the a-era%e total cost cur-e is risin%* then the 4ar%inal cost cur-e $ill +e:
'( ,elo$ the a-era%e fi2ed cost cur-e" C( '+o-e the a-era%e total cost cur-e"
,( allin% $ith %reater output" D( ,elo$ the a-era%e total cost cur-e"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !50
9=" #hich of the follo$in% contri+utes to an up$ard3slopin% lon%3run a-era%e total cost cur-e&
'( )on%3run 4ar%inal cost a+o-e lon%3run a-era%e total cost la$ of di4inishin% returns"
,( )on%3run 4ar%inal cost +elo$ lon%3run a-era%e total cost"
C( Econo4ies of scale"
D( The la$ of di4inishin% returns"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !50
ECONOMIC A1" 'CCOUNTIN< CO1T1
9>" E2plicit costs:
'( Include onl. pa.4ents to la+or"
,( 're the su4 of actual 4onetar. pa.4ents 4ade for resources used to produce a %ood"
C( Include the 4ar;et -alue of all resources used to produce a %ood"
D( 're the total -alue of resources used to produce a %ood +ut for $hich no 4onetar. pa.4ent is actuall.
4ade"
'ns$er: , [Link]: Definition Pa%e: !6@
Pa%e !/
Chapter 6: The Costs of Production
=@" I4plicit costs:
'( Include onl. pa.4ents to la+or"
,( 're the su4 of actual 4onetar. pa.4ents 4ade for resources used to produce a %ood"
C( Include the -alue of all resources used to produce a %ood"
D( 're the -alue of resources used to produce a %ood +ut for $hich no 4onetar. pa.4ent is actuall.
4ade"
'ns$er: D [Link]: Definition Pa%e: !6@
=!" Econo4ic cost:
'( Includes onl. i4plicit costs"
,( Is onl. the su4 of actual 4onetar. pa.4ents 4ade for resources used to produce a %ood"
C( Includes the 4ar;et -alue of all resources used to produce a %ood"
D( Is onl. the -alue of resources used to produce a %ood for $hich no 4onetar. pa.4ent is actuall. 4ade"
'ns$er: C [Link]: Definition Pa%e: !6@
=/" Econo4ic cost:
'( Includes +oth i4plicit and e2plicit costs"
,( Is the su4 of actual 4onetar. pa.4ents 4ade for resources used to produce a %ood"
C( Includes onl. i4plicit costs"
D( Decreases as the le-el of production increases"
'ns$er: ' [Link]: Definition Pa%e: !6@
=5" The difference +et$een the accountant?s and the econo4ist?s 4easure4ent of costs e7uals:
'( E2plicit cost" C( Total re-enue 4inus cost"
,( The opportunit. cost of unpaid resources" D( Mar%inal cost"
'ns$er: , [Link]: Definition Pa%e: !6@
=6" Econo4ic and accountin% costs $ill differ $hene-er:
'( There is 4ore than one factor of production"
,( The fir4 fails to 4a2i4iCe its profits"
C( 'n. factor of production is not paid an e2plicit factor pa.4ent"
D( ir4s operate as proprietorships or partnerships instead of as corporations"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !6@
=0" 'ccountin% costs and econo4ic costs 4a. differ +ecause:
'( The e2plicit cost for at least one factor is less than the factor?s opportunit. cost"
,( 'ccountin% costs include i4plicit costs and econo4ic costs do not"
C( E2plicit costs are positi-e"
D( 'll of the a+o-e"
'ns$er: ' [Link]: Co4ple2 Understandin% Pa%e: !6@
Pa%e !5
Chapter 6: The Costs of Production
=6" #hich of the follo$in% state4ents a+out the relationship +et$een econo4ic costs and accountin%
costs is true&
'( 'ccountin% costs are al$a.s less than or e7ual to econo4ic costs"
,( 'ccountin% costs 4ust e7ual econo4ic costs :+. definition("
C( 'ccountin% costs are al$a.s %reater than econo4ic costs"
D( 'ccountin% costs are e7ual to or %reater than econo4ic costs"
'ns$er: ' [Link]: Co4ple2 Understandin% Pa%e: !6@
)ON<3RUN CO1T1
=9" In econo4ics* the lon% run is considered to +e:
'( ' -aria+le ti4e dependin% on the nature of +usiness"
,( 1i2 to nine 4onths"
C( One .ear"
D( More than t$o .ears"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !6@
==" The situation in $hich all factors of production as -aria+le are referred to as:
'( The lon% run" ,( The short run" C( The efficienc. decision" D( Econo4ies of scale"
'ns$er: ' [Link]: Definition Pa%e: !6@
=>" The period in $hich there are no fi2ed costs is the:
'( Production run" ,( )on% run" C( 1hort run" D( I4plicit run"
'ns$er: , [Link]: Definition Pa%e: !6@
>@" The lon%3run a-era%e total cost cur-e is constructed fro4 the:
'( Mini4u4 points of the short3run 4ar%inal cost cur-es"
,( Mini4u4 points of the short3run a-era%e -aria+le cost cur-es"
C( )o$est a-era%e total cost for producin% each le-el of output"
D( Mini4u4 points of the lon%3run 4ar%inal cost cur-es"
'ns$er: C [Link]: Co4ple2 Understandin% Pa%e: !6!
>!" The lon%3run 4ar%inal cost cur-e:
'( Is the su4 of the short3run 4ar%inal cost cur-es"
,( Declines as lon% as output increases"
C( Is intersected at its 4ini4u4 point +. lon%3run a-era%e total cost"
D( Intersects the lon%3run a-era%e total cost cur-e at its 4ini4u4 point"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !6/
Pa%e !6
Chapter 6: The Costs of Production
ECONOMIE1 O 1C')E
>/" Econo4ies of scale are reductions in a-era%e:
'( Total cost that result fro4 declinin% a-era%e fi2ed costs"
,( i2ed cost that result fro4 reducin% the fir4?s scale of operations"
C( Total cost that result fro4 usin% operations of lar%er siCe"
D( i2ed cost resultin% fro4 i4pro-ed technolo%. and production efficienc."
'ns$er: C [Link]: Definition Pa%e: !65
>5" If a %i-en a4ount of output can +e produced +. se-eral s4all plants or one 4uch lar%er plant $ith identical
4ini4u4 per3unit costs* this lon%3run situation reflects the e2istence of:
'( Econo4ies of scale" C( Constant returns to scale"
,( Disecono4ies of scale" D( Di4inishin% returns"
'ns$er: C [Link]: Co4ple2 Understandin% Pa%e: !65
>6" #hen the siCe of a factor. :and all its associated inputs( dou+les and* as a result* output 4ore than dou+les:
'( The la$ of di4inishin% returns 4ust not appl. in the s4aller factor."
,( Econo4ies of scale 4ust e2ist"
C( The short3run ATC cur-e 4ust +e declinin%"
D( Mar%inal costs 4ust +e declinin%"
'ns$er: , [Link]: Co4ple2 Understandin% Pa%e: !65
>0" Econo4ies of scale:
'( E2ist in +oth the short run and the lon% run"
,( E2plain $h. a-era%e -aria+le and a-era%e total costs decline in the short run"
C( E2plain $h. a-era%e total costs decline as output increases in the lon% run"
D( E2plain $h. a-era%e total costs increase as output increases in the lon% run"
'ns$er: C [Link]: Definition Pa%e: !65
>6" Econo4ies of scale are reductions in:
'( '-era%e total costs that result fro4 declinin% a-era%e fi2ed costs"
,( i2ed costs that result fro4 reducin% the fir4?s scale of operations"
C( Mar%inal costs resultin% fro4 i4pro-ed technolo%. and production efficienc."
D( Mini4u4 a-era%e total costs that result fro4 usin% operations of lar%er siCe"
'ns$er: D [Link]: Definition Pa%e: !65
>9" Disecono4ies of scale are reflected in:
'( The do$n$ard3slopin% se%4ent of the lon%3run a-era%e total cost cur-e"
,( The do$n$ard3slopin% se%4ent of the lon%3run 4ar%inal cost cur-e"
C( ' do$n$ard shift of the lon%3run a-era%e total cost cur-e"
D( The up$ard3slopin% se%4ent of the lon%3run a-era%e total cost cur-e"
'ns$er: D [Link]: Co4ple2 Understandin% Pa%e: !65
Pa%e !0
Chapter 6: The Costs of Production
>=" Disecono4ies of scale are reflected in:
'( The risin% se%4ent of the lon%3run a-era%e total cost cur-e"
,( The risin% se%4ent of the short3run 4ar%inal cost cur-e"
C( <reater efficienc. that results fro4 specialiCation"
D( Do$n$ard shifts of the a-era%e total cost cur-e"
'ns$er: ' [Link]: Co4ple2 Understandin% Pa%e: !66
>>" #hich of the follo$in% is a lon%3run concept&
'( Di4inishin% 4ar%inal producti-it." C( Disecono4ies of scale"
,( Di4inishin% returns" D( 'll of the a+o-e"
'ns$er: C [Link]: '[Link] Pa%e: !66
THE ECONOMB TOMORRO#
!@@" HUnit la+or costH is the sa4e thin% as:
'( The $a%e rate"
,( The $a%e rate D MPP.
C( The chan%e in la+or cost di-ided +. the chan%e in output"
D( MC.
'ns$er: , [Link]: Definition Pa%e: !60
!@!" #hen the $a%e rate is E9 per hour and the MPP of a $or;er is 50 units per hour* the unit la+or cost is:
'( E@"/@ per unit" ,( E9"@@ per hour" C( E/60 per unit" D( E/60 per hour"
'ns$er: ' [Link]: '[Link] Pa%e: !60
!@/" #hich of the follo$in% $ill increase producti-it.&
'( Technolo%ical ad-ances" C( Increased la+or s;ills"
,( Increased 4ana%erial capa+ilities" D( 'll of the a+o-e"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !60
!@5" #hich of the follo$in% $ould cause a fir4?s production function to shift up$ard&
'( 'n increase in production +. the fir4" C( Increased trainin% for the fir4?s $or;ers"
,( Hirin% 4ore $or;ers" D( 'n increase in factor costs"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !60
!@6" 'ssu4in% la+or is a -aria+le input* an increase in la+or producti-it. $ould result in:
'( 'n up$ard shift in the MPP cur-e" C( ' do$n$ard shift in the ATC cur-e"
,( ' do$n$ard shift in the MC cur-e" D( 'll of the a+o-e"
'ns$er: D [Link]: Co4ple2 Understandin% Pa%e: !60
Pa%e !6
Chapter 6: The Costs of Production
!@0" Technolo%ical chan%es that increase producti-it. shift the:
'( Production function do$n$ard"
,( '-era%e total cost cur-e do$n$ard"
C( Mar%inal cost cur-e up$ard as output increases"
D( 'll of the a+o-e"
'ns$er: , [Link]: Co4ple2 Understandin% Pa%e: !60
!@6" Hi%her education le-els and +etter 4ana%e4ent should:
'( Cause MPP to slope do$n$ard"
,( 1hift the lon%3run a-era%e total cost cur-e do$n$ard"
C( )ead to %reater disecono4ies of scale"
D( 'll of the a+o-e"
'ns$er: , [Link]: '[Link] Pa%e: !60
!@9" #hen the production function shifts up$ard:
'( MC shifts do$n$ard" ,( AVC shifts do$n$ard" C( ATC shifts do$n$ard" D( 'll of the a+o-e"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !60
!@=" #hen the production function shifts do$n$ard the:
'( MC shifts up$ard" ,( AVC shifts do$n$ard" C( ATC shifts do$n$ard" D( 'll of the a+o-e"
'ns$er: ' [Link]: ,asic Understandin% Pa%e: !60
!@>" The creation of the #orld #ide #e+ has:
'( Reduced infor4ation costs" C( Increased producti-it."
,( Reduced transaction costs" D( 'll of the a+o-e"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !69
Use the follo$in% to ans$er 7uestions !!@3!!6:
Ta+le 6"!
U n i t s o f l a b o r U n i t s o f o u t p u t
@ @
! ! 0
/ 5 0
5 6 0
6 0 /

Pa%e !9
Chapter 6: The Costs of Production
!!@" #hat is the 4ar%inal [Link] product of the first unit of la+or in Ta+le 6"!&
'( @" ,( 50" C( !9" D( !0"
'ns$er: D [Link]: '[Link] Pa%e: !/=
!!!" #hat is the 4ar%inal [Link] product of the second unit of la+or in Ta+le 6"!&
'( /@" ,( !9" C( 50" D( 0"
'ns$er: ' [Link]: '[Link] Pa%e: !/=
!!/" #ith $hich unit of la+or do di4inishin% 4ar%inal returns first appear in Ta+le 6"!&
'( The first" ,( The second" C( The third" D( The fourth"
'ns$er: C [Link]: '[Link] Pa%e: !6=
!!5" 't $hat output le-el in Ta+le 6"! is la+or producti-it. the hi%hest&
'( !" ,( /" C( 5" D( 6"
'ns$er: , [Link]: ,asic Understandin% Pa%e: !6=
!!6" If a fifth unit of la+or $as added to Ta+le 6"!* its MPP $ould 4ost li;el. +e:
'( Fero" ,( 9" C( )ess than 9" D( <reater than 9"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !6=
!!0" #hat is the la+or cost per unit of output in Ta+le 6"! $hen output is increased fro4 !0 to 50 units of
output&
'( /@ units of la+or" ,( @"65 units of la+or" C( @"@0 units of la+or" D( ! unit of la+or"
'ns$er: C [Link]: '[Link] Pa%e: !6=
!!6" #hat is the la+or cost per unit of output in Ta+le 6"! $hen output is increased fro4 50 to 60 units of
output&
'( !@ units of la+or" ,( @"9= units of la+or" C( @"!@ units of la+or" D( ! unit of la+or"
'ns$er: C [Link]: '[Link] Pa%e: !5!
Use the follo$in% to ans$er 7uestions !!93!/5:
Ta+le 6"/
O u t p u t s ( u n i t s p e r d a y ) @ ! @ / @ 5 @
T o t a l c o s t ( d o l l a r s p e r d a y ) 6 @ 0 6 6 / = @

Pa%e !=
Chapter 6: The Costs of Production
!!9" '-era%e fi2ed cost at /@ units of output in Ta+le 6"/ is:
'( E!"@@" ,( E/"@@" C( E/"0@" D( E6"@@"
'ns$er: , [Link]: '[Link] Pa%e: !50
!!=" The 4ar%inal cost +et$een /@ and 5@ units of output in Ta+le 6"/ is:
'( E!"6@" ,( E6"@@" C( E!"=@" D( E!="@@"
'ns$er: C [Link]: '[Link] Pa%e: !56
!!>" '+o-e !@ units of output* the a-era%e fi2ed cost in Ta+le 6"/:
'( Rises a+o-e E/"@@" ,( Re4ains constant" C( 1ta.s +elo$ E@"0@" D( Continues to decline"
'ns$er: D [Link]: '[Link] Pa%e: !56
!/@" 't /@ units of output in Ta+le 6"/ the a-era%e -aria+le cost is:
'( E!"!@ per unit" ,( E!"90 per unit" C( E/"@@ per unit" D( E5"!@ per unit"
'ns$er: ' [Link]: '[Link] Pa%e: !50
!/!" or the output le-els in Ta+le 6"/* the 4ini4u4 of the a-era%e -aria+le cost cur-e occurs at a production
rate of:
'( Fero units per da." ,( !@ units per da." C( /@ units per da." D( 5@ units per da."
'ns$er: C [Link]: '[Link] Pa%e: !50
!//" 't !@ units of output in Ta+le 6"/* the total fi2ed costs are:
'( E66" ,( E!6" C( E6@" D( E06"
'ns$er: C [Link]: '[Link] Pa%e: !5/
!/5" 't 5@ units of output in Ta+le 6"/* the total -aria+le costs are:
'( E5@" ,( E6@" C( E0@" D( E=@"
'ns$er: , [Link]: '[Link] Pa%e: !5/
Use the follo$in% to ans$er 7uestions !/63!/>:
Co4plete Ta+le 6"5" Then use the infor4ation in the ta+le to ans$er the indicated 7uestions"
Ta+le 6"5
Q T F C T V C T C A V C C
@ I I I I I I I I ! 0
! I I I I I I I I / 5 I I I I I I I I
/ I I I I I I I I I I I I I I I I 6
5 I I I I ! 0 I I I I I I I I I I I I

Pa%e !>
Chapter 6: The Costs of Production
!/6" Total fi2ed costs in Ta+le 6"5 are e7ual to:
'( E@ +ecause the pro+le4 in-ol-es the lon% run" ,( E!0" C( E5@" D( E6@"
'ns$er: , [Link]: '[Link] Pa%e: !5/
!/0" The 4ar%inal cost of the first unit of output in Ta+le 6"5 is:
'( E5" ,( E6" C( E=" D( E!0"
'ns$er: C [Link]: '[Link] Pa%e: !56
!/6" The total cost of / units of output in Ta+le 6"5 is:
'( E!0" ,( E/9" C( E/5" D( E60"
'ns$er: , [Link]: '[Link] Pa%e: !5/
!/9" The total -aria+le cost of ! units of output in Ta+le 6"5 is:
'( E!0" ,( E!/" C( E5@" D( E="
'ns$er: D [Link]: '[Link] Pa%e: !5/
!/=" The 4ar%inal cost of the third unit of output in Ta+le 6"5 is:
'( E5" ,( E6" C( E=" D( E!0"
'ns$er: ' [Link]: '[Link] Pa%e: !56
!/>" The a-era%e -aria+le cost of the second unit of output in Ta+le 6"5 is:
'( E!0" ,( E0" C( E=" D( E6"
'ns$er: D [Link]: '[Link] Pa%e: !56
Pa%e /@
Chapter 6: The Costs of Production
Use the follo$in% to ans$er 7uestions !5@3!55:
i%ure 6"!
!5@" The 4ar%inal [Link] product of the third unit of la+or in i%ure 6"! is:
'( /"@" ,( 6"@" C( 6"69" D( /@"@"
'ns$er: , [Link]: '[Link] Pa%e: !/=
!5!" The 4ar%inal [Link] product of the fifth unit of la+or in i%ure 6"! is:
'( !" ,( 0" C( /@" D( /0"
'ns$er: ' [Link]: '[Link] Pa%e: !/=
!5/" The 4ar%inal [Link] product of la+or in i%ure 6"! is ne%ati-e for the:
'( Third $or;er" ,( ourth $or;er" C( ifth $or;er" D( 1i2th $or;er"
'ns$er: D [Link]: '[Link] Pa%e: !/=
!55" In i%ure 6"! di4inishin% 4ar%inal returns first occur $ith the:
'( ifth $or;er" ,( ourth $or;er" C( Third $or;er" D( 1econd $or;er"
'ns$er: C [Link]: '[Link] Pa%e: !/>
Pa%e /!
Chapter 6: The Costs of Production
Use the follo$in% to ans$er 7uestions !563!59:
i%ure 6"/
! / 5 6 0 6 9 = >
a
b
c
d
e
f
g
h
i
j
M P P
! @
) a + o r I n p u t : $ o r ; e r s p e r p e r i o d (
/
6
6
=
! @
!56" In i%ure 6"/* if 5 units of la+or are used* 4ar%inal costs are:
'( Increasin%" ,( Decreasin%" C( Fero" D( Ne%ati-e"
'ns$er: , [Link]: '[Link] Pa%e: !5!
!50" In i%ure 6"/* if 0 units of la+or are used* 4ar%inal costs are:
'( Increasin%" ,( Constant" C( Decreasin%" D( Fero"
'ns$er: ' [Link]: '[Link] Pa%e: !5!
!56" In i%ure 6"/* at $hich le-el of la+or input is 4ar%inal cost 4ini4iCed&
'( !" ,( 6" C( >" D( !@"
'ns$er: , [Link]: '[Link] Pa%e: !5!
!59" In i%ure 6"/* if 6 units of la+or are used* 4ar%inal costs are:
'( Increasin%" ,( Constant" C( Decreasin%" D( Fero"
'ns$er: ' [Link]: '[Link] Pa%e: !5!
Pa%e //
Chapter 6: The Costs of Production
Use the follo$in% to ans$er 7uestion !5=:
i%ure 6"5
@
!
/
5
6
0
!
a
+
c d
e
f
%
h
i
J
;
/ 5 6 0 6 9 = > ! @ ! !
) ' , O R I N P U T
M P P
K
K
K
K K
K
K
K
K
K
K
!5=" Refer to i%ure 6"5" Ma2i4u4 production occurs at a le-el of la+or input e7ual to:
'( / $or;ers" ,( 6 $or;ers" C( = $or;ers" D( !@ $or;ers"
'ns$er: D [Link]: Co4ple2 Understandin% Pa%e: !/9
Use the follo$in% to ans$er 7uestions !5>3!65:
i%ure 6"6
Pa%e /5
Chapter 6: The Costs of Production
!5>" #hat is the 4ar%inal cost of the !/@th unit of output in i%ure 6"6&
'( E/0" ,( E!@@" C( E!@6" D( E!66"
'ns$er: D [Link]: '[Link] Pa%e: !56
!6@" #hat is the total fi2ed cost in i%ure 6"6&
'( E6=" ,( E!@*@@@" C( E6*=@@" D( E!6*=@@"
'ns$er: C [Link]: '[Link] Pa%e: !56
!6!" #hat is the total cost of !/@ units in i%ure 6"6&
'( E!@*@@@" ,( E!6*=@@" C( E!9*/=@" D( E!9*96@"
'ns$er: C [Link]: '[Link] Pa%e: !56
!6/" #hat is the a-era%e fi2ed cost $hen output is !/@ units in i%ure 6"6&
'( E!@" ,( E6@" C( E6=" D( E6*=@@"
'ns$er: , [Link]: '[Link] Pa%e: !56
!65" #hat is the total -aria+le cost $hen output is !@@ units in i%ure 6"6&
'( E!/*6=@" ,( E!@6" C( E!@@" D( E!/*@@@"
'ns$er: ' [Link]: '[Link] Pa%e: !56
Use the follo$in% to ans$er 7uestions !663!6=:
i%ure 6"0

O U T P U T
A F C
A V C
A T C
C
!
Q
"
Q
#
Q
$
Q
%
P
&
O
'
U
C
T
(
O
)

C
O
*
T
*

(
+
)
Pa%e /6
Chapter 6: The Costs of Production
!66" Refer to i%ure 6"0" Di4inishin% returns +e%in at an output of:
'( Q
!
" ,( Q
/
" C( Q
5
" D( Q
6
"
'ns$er: ' [Link]: Co4ple2 Understandin% Pa%e: !5@
!60" Refer to i%ure 6"0" The -ertical distance +et$een the AVC and the ATC cur-es represents:
'( Mar%inal costs" C( '-era%e fi2ed costs"
,( Total fi2ed costs" D( The increasin% efficienc. of $or;ers"
'ns$er: C [Link]: Co4ple2 Understandin% Pa%e: !56
!66" Refer to i%ure 6"0" The -ertical distance +et$een the ATC and AVC cur-es 4ultiplied +. the nu4+er of
units produced e7uals:
'( Mar%inal costs" ,( Total fi2ed costs" C( Total -aria+le cost" D( Total cost"
'ns$er: , [Link]: '[Link] Pa%e: !56
!69" Refer to i%ure 6"0 at an output of Q
6
" The ATC at Q
6
4ultiplied ti4es Q
6
e7uals:
'( Mar%inal costs" ,( Total profit" C( Total re-enue" D( Total cost"
'ns$er: D [Link]: '[Link] Pa%e: !56
!6=" In i%ure 6"0* at $hat output does this fir4 4a2i4iCe technical efficienc.&
'( Q
!
" ,( Q
/
" C( Q
5
" D( Q
6
"
'ns$er: D [Link]: '[Link] Pa%e: !/6
Use the follo$in% to ans$er 7uestions !6>3!0@:
i%ure 6"6




O U T P U T
T o t a l i 2 e d C o s t
T o t a l C o s t
P
R
O
D
U
C
T
I
O
N

C
O
1
T
1

:
E
(
@ ! @ / @ 5 @ 6 @ 0 @
Pa%e /0
Chapter 6: The Costs of Production
!6>" Refer to i%ure 6"6" The -ertical difference +et$een the total cost cur-e and the total fi2ed cost cur-e
represents:
'( Total -aria+le costs" C( '-era%e fi2ed costs"
,( Total 4ar%inal costs" D( '-era%e -aria+le costs"
'ns$er: ' [Link]: Co4ple2 Understandin% Pa%e: !55
!0@" Refer to i%ure 6"6" The +est esti4ate of $here di4inishin% returns +e%ins is at an output of:
'( !@" ,( /@" C( 5@" D( 6@"
'ns$er: , [Link]: Co4ple2 Understandin% Pa%e: !55
Use the follo$in% to ans$er 7uestions !0!3!05:
i%ure 6"9
)on%3run a-era%e total cost cur-e
!0!" In i%ure 6"9* a fir4 that produces o-er 6@@ units of output should choose a plant $ith $hich short3run
a-era%e total cost function&
'( ATC
!
. ,( ATC
/
. C( ATC
5
. D( Either ATC
/
or ATC
5
"
'ns$er: C [Link]: ,asic Understandin% Pa%e: !6!
!0/" In i%ure 6"9* disecono4ies of scale occur at output rates:
'( Up to /@@ units per period" C( ,et$een 6@@ and 0@@ units per period"
,( ,et$een /@@ and 5@@ units per period" D( <reater than 0@@ units per period"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !6!
Pa%e /6
Chapter 6: The Costs of Production
!05" In i%ure 6"9* the lon%3run a-era%e total cost cur-e is %i-en +. the cur-ed line se%4ent:
'( ACE" ,( ABFDGE" C( ABF onl." D( BFD.
'ns$er: , [Link]: ,asic Understandin% Pa%e: !6!
Use the follo$in% to ans$er 7uestions !063!00:
i%ure 6"=



O U T P U T
L !
L / L 5
L 6
L 0
'
A
E
R
'
<
E

C
O
1
T
1

:
E
(
@
!06" Refer to i%ure 6"=" Econo4ies of scale occur in the follo$in% ran%e of factor. siCes:
'( L! to L/" ,( L! to L5" C( L5 onl." D( 'll of the factories e2hi+it econo4ies of scale"
'ns$er: , [Link]: Co4ple2 Understandin% Pa%e: !65
!00" Refer to i%ure 6"=" Disecono4ies of scale +e%in:
'( 't the 4ini4u4 points on all fi-e 'TC cur-es"
,( 'fter the third factor."
C( 'fter the fifth factor."
D( None of the factories e2hi+it disecono4ies of scale"
'ns$er: , [Link]: Co4ple2 Understandin% Pa%e: !65
The follo$in% 4ultiple3choice 7uestions re7uire critical thin;in% a+out n the !e"s and #or$d Vie" articles that
appeared in the te2t"
!06" 'n n the !e"s article tal;s a+out a Joint -enture +et$een <eneral Motors and IsuCu to +uild a ne$ factor.
outside [Link]* Ohio" #hich of the follo$in% state4ents is true a+out the costs of this factor.&
'( In the plannin% sta%e* all construction costs are -aria+le"
,( Once the factor. is +uilt* there are fi2ed costs"
C( Once the factor. is +uilt* the ATC and AVC cur-es are separate"
D( 'll of the a+o-e"
'ns$er: D [Link]: ,asic Understandin% Pa%e: !6!
Pa%e /9
Chapter 6: The Costs of Production
!09" One n the !e"s article reports profit for a Houston3+ased funeral %iant is 5! cents on e-er. dollar
-s" a profit of !/ cents for the funeral industr. in %eneral" 1uch profits are 4ost li;el. the result of:
'( Constant return to scale" C( Hi%her 4ini4u4 a-era%e costs"
,( Econo4ies of scale" D( ' do$n$ard shift in the production function"
'ns$er: , [Link]: Co4ple2 Understandin% Pa%e: !65
!0=" One n the !e"s article reports profit for a Houston3+ased funeral %iant is 5! cents on e-er. dollar -s" a
profit of !/ cents for the funeral industr. in %eneral" 1uch profits are 4ost li;el. the result of:
'( Econo4ies of scale"
,( Reductions in 4ini4u4 a-era%e costs +ecause of siCe"
C( ' lo$er ATC cur-e"
D( 'll of the a+o-e"
'ns$er: D [Link]: Co4ple2 Understandin% Pa%e: !65
!0>" One #or$d Vie" article titled HUnited 1tates <ains Cost 'd-anta%e"H Durin% the !>>@s* unit la+or costs in
the United 1tates declined:
'( 'nd the U"1" $as less co4petiti-e in $orld 4ar;ets"
,( ,ecause producti-it. ad-ances $ere s4all and $a%e increases $ere hi%h"
C( ,ecause producti-it. ad-ances $ere %reater than $a%e increases"
D( 'nd cost cur-es shifted up$ard"
'ns$er: C [Link]: Co4ple2 Understandin% Pa%e: !66
!6@" 'n n the !e"s article has the headline HUnited 1tates <ains Cost 'd-anta%e"H One reason for the increase
in %lo+al co4petiti-eness could +e:
'( The la$ of de4and" C( Discono4ies of scale"
,( The la$ of di4inishin% returns" D( )o$er unit la+or costs"
'ns$er: D [Link]: Co4ple2 Understandin% Pa%e: !66
!6!" 'n n the !e"s article sa.s producti-it. ad-ances ha-e contri+uted to U"1" co4petiti-eness in $orld
4ar;ets" #hen i4pro-e4ents in producti-it. reduce costs the production function shifts:
'( Up$ard and cost cur-es shift up$ard" C( Do$n$ard and cost cur-es shift up$ard"
,( Up$ard and cost cur-es shift do$n$ard" D( Do$n$ard and cost cur-es shift do$n$ard"
'ns$er: , [Link]: Co4ple2 Understandin% Pa%e: !66
TrueMalse Questions
THE PRODUCTION UNCTION
T !6/" The production function sho$s the 4a2i4u4 a4ount of a particular %ood or ser-ice that can +e
produced $ith %i-en co4+inations of resources"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !/0
Pa%e /=
Chapter 6: The Costs of Production
T !65" The production function sho$s the 4ini4u4 output that $ould e7ual the opportunit. cost of the
resources used to produce the output"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !/0
T !66" The producti-it. of an. input is independent and is not affected +. the other resources that are
used"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !/0
T !60" #hen a fir4 is a+le to achie-e the output indicated +. a production function* it is producin% $ith
technical efficienc."
'ns$er: True [Link]: ,asic Understandin% Pa%e: !/6
T !66" 1hort3run choices i4pl. that at least one factor of production is fi2ed"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !/9
M'R<IN') PRODUCTIAITB
T !69" Total output 4a. continue to rise e-en thou%h 4ar%inal [Link] product is declinin%"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !/=
T !6=" Total output 4a. continue to rise e-en thou%h 4ar%inal [Link] product is ne%ati-e"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !/=
T !6>" The 4ar%inal [Link] product of a -aria+le input e-entuall. declines as 4ore of it is [Link]
$ith a %i-en 7uantit. of other :fi2ed( inputs"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !/=
T !9@" The la$ of di4inishin% returns indicates that the 4ar%inal [Link] product of a -aria+le input
declines as 4ore of it is [Link]* ceteris paribus"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !/>
T !9!" The la$ of di4inishin% returns is reflected in the do$n$ard slopin% portion of the short3run
4ar%inal cost cur-e"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !/>
Pa%e />
Chapter 6: The Costs of Production
RE1OURCE CO1T1
T !9/" The difference +et$een total re-enue and total cost is profit"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !5@
T !95" Mar%inal cost al$a.s reflects the cost of -aria+le factors"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !5@
T !96" #hene-er MPP is increasin% $ith output* the 4ar%inal cost of producin% a %ood 4ust +e fallin%"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !5@
T !90" If MPP declines $ith %reater output* then MC 4ust increase"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !5@
DO))'R CO1T1
T !96" Total cost refers to the 4ar;et -alue of all resources used in producin% a %ood or ser-ice"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !5/
T !99" The total cost at a Cero le-el of output is al$a.s e7ual to the -aria+le cost"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !5/
T !9=" ATC 8 AFC G AVC.
'ns$er: True [Link]: ,asic Understandin% Pa%e: !56
T !9>" #hen 4ar%inal cost is +elo$ a-era%e total cost* a-era%e -aria+le cost $ill al$a.s fall"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !56
T !=@" #hen the 4ar%inal cost cur-e is +elo$ the a-era%e total cost cur-e* the a-era%e total cost cur-e
4ust +e fallin%"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !56
Pa%e 5@
Chapter 6: The Costs of Production
T !=!" The 4ar%inal cost cur-e intersects the 4ini4u4 of the a-era%e total cost cur-e and also the
4ini4u4 of the a-era%e -aria+le cost cur-e"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !56
ECONOMIC A1" 'CCOUNTIN< CO1T1
T !=/" The difference +et$een the accountant?s and the econo4ist?s 4easure4ent of cost e7uals i4plicit
costs"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !6@
T !=5" Econo4ic and accountin% costs $ill di-er%e $hene-er an. factor of production is not paid an
e2plicit $a%e"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !6@
T !=6" 'ccountin% costs and econo4ic costs differ +. the a4ount of e2plicit costs"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !6@
)ON<3RUN CO1T1
T !=0" )on%3run choices i4pl. that all factors 4ust +e -aria+le"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !6@
T !=6" There are still so4e fi2ed costs in the lon% run* such as rent"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !6@
T !=9" The lon%3run cost cur-e is si4pl. a su44ar. of the +est short3run fi2ed cost cur-es"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !6/
ECONOMIE1 O 1C')E
T !==" If a lar%er plant reduces 4ini4u4 a-era%e costs* there are econo4ies of scale"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !65
Pa%e 5!
Chapter 6: The Costs of Production
T !=>" If a fir4 has constant returns to scale* the lon%3run cost cur-e $ill +e do$n$ard
slopin%"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !66
T !>@" Disecono4ies of scale i4pl. that the a-era%e total cost cur-e is do$n$ard3slopin% in the lon% run"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !66
THE ECONOMB TOMORRO#
T !>!" More education and +etter technolo%. contri+ute to an increase in producti-it.* ceteris paribus"
'ns$er: True [Link]: ,asic Understandin% Pa%e: !60
T !>/" Unit la+or cost represents the increase in output +ecause of an additional $or;er is hired"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !60
T !>5" ,etter 4ana%e4ent shifts the production function do$n$ard and the total cost cur-e up$ard"
'ns$er: alse [Link]: ,asic Understandin% Pa%e: !60
Pa%e 5/
Chapter 6: The Costs of Production
'ns$ers to Ta+le
Ta+le 6"5 'ns$er
Q TFC TVC TC AVC C
@ !0 @ !0
! !0 = /5 = =
/ !0 !/ /9 6 6
5 !0 !0 5@ 9"0 5
Pa%e 55