ECON 231
Chapter 9 Study Quiz


1.
Which of the following is correct?
A.
When total product is rising, both average product and marginal product must also be rising.
B.
When marginal product is falling, total product must be falling.
C.
When marginal product is falling, average product must also be falling.
D.
Marginal product rises faster than average product and also falls faster than average product.


2.
Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are:
A.
$5,000.
B.
$500.
C.
$.50.
D.
$50.


3.
In comparing the changes in TC and TVC associated with an additional unit of output, we find that:
A.
the change in TVC is equal to MC, while the change in TC is equal to TFC.
B.
the change in TC exceeds the change in TVC.
C.
the change in TVC exceeds the change in TC.
D.
both are equal to MC.


Reference: F22166

4.
Refer to the above diagram. For output level Q, per unit costs of C are:
A.
unobtainable and imply the inefficient use of resources.
B.
unobtainable, given resource prices and the current state of technology.
C.
obtainable, but imply the inefficient use of resources.
D.
obtainable and imply that resources are being combined efficiently.


Answer the next question(s) on the basis of the following information:
TFC = total fixed cost
Q = quantity of output
MC = marginal cost
P = product price
TVC = total variable cost
Reference: REF22086

5.
Refer to the above information. Average fixed cost is:
A.
TVC - MC
B.
MC
Q
C.
TFC
Q
D.
TVC
Q


6.
Fixed costs are associated with:
A.
highly adjustable inputs such as labor.
B.
both the short run and the long run.
C.
the short run only.
D.
the long run only.


7.
If a firm decides to produce no output in the short run, its costs will be:
A.
its marginal costs.
B.
its fixed plus its variable costs.
C.
its fixed costs.
D.
zero.


Use the following cost information for the Creamy Crisp Donut Company to answer questions 16-23:

Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Entrepreneur's potential economic profit from the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Reference: REF22016

8.
Refer to the above data. Creamy Crisp's explicit costs are:
A.
$286,000.
B.
$150,000.
C.
$94,000.
D.
$156,000.


Answer the next question(s) on the basis of the following cost data:

Reference: REF22121

9.
Refer to the above data. If the firm decided to increase its output from 6 to 7 units, its total costs would rise by:
A.
$87.14.
B.
$80.00.
C.
$6.67.
D.
$120.00.


Answer the next question(s) on the basis of the following cost data:

Reference: REF22121

10.
Refer to the above data. The total cost of four units of output is:
A.
$260.
B.
$77.50.
C.
$310.
D.
$215.


Reference: F22108

11.
Refer to the above short-run production and cost data. The curves of Figures A and B suggest that:
A.
marginal product and marginal cost reach their maximum points at the same output.
B.
marginal cost reaches a minimum where marginal product is at its maximum.
C.
marginal cost and marginal product reach their minimum points at the same output.
D.
AVC cuts MC at the latter's minimum point.


12.
Average fixed cost:
A.
equals marginal cost when average total cost is at its minimum.
B.
may be found for any output by adding average variable cost and average total cost.
C.
graphs as a U-shaped curve.
D.
declines continually as output increases.


13.
A fixed cost is:
A.
associated with any productive resource whose price is fixed.
B.
any cost which increases proportionately with output.
C.
any cost which a firm would incur even if output was zero.
D.
associated with all inputs whose short-run supply is perfectly inelastic.


Reference: F22173

14.
Refer to the above diagram. Minimum efficient scale:
A.
occurs at some output greater than Q3.
B.
is achieved at Q1.
C.
is achieved at Q3.
D.
cannot be identified in this diagram.


15.



In the above figure, curves 1, 2, 3, and 4 represent the:
A.
ATC, MC, AFC, and AVC curves respectively.
B.
AFC, MC, AVC, and ATC curves respectively.
C.
MC, ATC, AVC, and AFC curves respectively.
D.
ATC, AVC, AFC, and MC curves respectively.


16.
Economic profit is found by subtracting accounting costs from total revenue.
A. True
B. False


17.
The law of diminishing returns explains why the long-run average total cost curve is U-shaped.
A. True
B. False


Reference: F22108

18.
Refer to the above short-run production and cost data. The curves of Figures A and B suggest that:
A.
average product and average variable cost reach their maximum points at the same output.
B.
AVC cuts MC at the latter's maximum point.
C.
AVC reaches a minimum where AP is at its maximum.
D.
AFC declines so long as output increases.


19.
The relationship between marginal cost and average fixed cost is such that:
A.
declines in MC cause AFC to decline as output increases.
B.
increases in MC cause AFC to increase as output increases.
C.
MC intersects AFC at that output where AFC is at a minimum.
D.
MC may either rise or fall as AFC declines.


20.
In the short run:
A.
TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.
B.
TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate.
C.
TVC will increase by the same absolute amount for each additional unit of output produced.
D.
one cannot generalize concerning the behavior of TVC as output increases.


21.
Costs to an economist:
A.
consist only of explicit costs.
B.
may or may not involve monetary outlays.
C.
never reflect monetary outlays.
D.
always reflect monetary outlays.


22.
In the short run which of the following statements is correct?
A.
The marginal cost curve intersects the average variable and average fixed cost curves at their minimum points.
B.
Average variable cost declines continuously as total output is expanded.
C.
Total cost will exceed variable cost.
D.
If the inputs of all resources are increased by equal amounts, total output will expand by diminishing amounts.


The Sunshine Corporation finds that its costs are $40 when it produces no output. Its total variable costs (TVC) change with output as shown in the accompanying table. Use this information to answer the following
question(s).

Reference: REF22138

23.
Refer to the above information. The average total cost of 3 units of output is:
A.
$65.
B.
$21.67.
C.
$40.
D.
$35.


24.
Assume a firm closes down in the short run and produces no output. Under these conditions:
A.
TVC is positive, but TFC and TC are zero.
B.
TFC is positive, but TVC and TC are zero.
C.
TFC and TC are positive, but TVC is zero.
D.
TFC, TVC, and TC will all be positive.


25.
If a technological advance reduces the amount of variable resources needed to produce any level of output, then the:
A.
AVC curve will shift upward.
B.
MC curve will shift downward.
C.
ATC curve will shift upward.
D.
AFC curve will shift downward.


Reference: F22173

26.
Refer to the above diagram. Diseconomies of scale:
A.
begin at output Q1.
B.
occur over the Q1Q3 range of output.
C.
begin at output Q3.
D.
are in evidence at all output levels.


27.
(Last Word) Which of the following sayings relates most closely to the idea of sunk costs:
A.
Don't cry over spilt milk.
B.
A bird in the hand is worth two in the bush.
C.
He who hesitates is lost.
D.
Show me the money.


Answer the next question(s) on the basis of the following cost data:

Reference: REF22121

28.
Refer to the above data. If the firm closed down and produced zero units of output, its total cost would be:
A.
zero.
B.
$50.
C.
$150.
D.
$100.


29.
What do wages paid to blue-collar workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?
A.
None are either implicit or explicit costs.
B.
All are opportunity costs.
C.
All are implicit costs.
D.
All are explicit costs.


Answer the next question(s) on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed.

Reference: REF22036

30.
Refer to the above data. Diminishing marginal returns become evident with the addition of the:
A.
sixth worker.
B.
fourth worker.
C.
third worker.
D.
second worker.


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