Last Activity: Production and Costs & Market Structure

Name: Kim James R. Aguinaldo Course & Section: BSA 1-1

Directions: Each of the questions or incomplete statements below is followed by five suggested
answers or completions. Select the one that is best in each case and write the correct letter of
your anwer in the space provided for.

A 1. Total revenue equals the quantity of output the firm produces times the price at which it
sells its output
A. True B. False C. Either A or B D. Neither A nor B E. Incomplete information

B 2. Average total costs are total costs divided by marginal costs

A. True B. False C. Either A or B D. Neither A nor B E. Incomplete information

A 3. If there are implicit costs of production, accounting profits will exceed economic profits
A. True B. False C. Either A or B D. Neither A nor B E. Incomplete information

A 4. The efficient scale of production is the quantity of output that minimizes

A. Average total cost
B. Marginal cost
C. Average fixed cost
D. Average variable cost
E. Total Cost

A 5. If total revenue is $100, explicit costs are $50, and implicit costs are $30, then accounting
profit equals $50
A. True B. False C. Either A or B D. Neither A nor B E. Incomplete information

C 6. Economic profit is equal to total revenue minus

A. Implicit costs
B. Explicit costs
C. The sum of the implicit and explicit costs
D. Marginal costs
E. Variable costs

A 7. Fixed cost plus variable costs equal total costs

A. True B. False C. Either A or B D. Neither A nor B E. Incomplete information

B 8. Wages and salaries paid to workers are an example of implicit costs of production
A. True B. False C. Either A or B D. Neither A nor B E. Incomplete information

B 9. Accounting profit is equal to total revenue minus

A. Implicit costs
B. Explicit costs
C. The sum of implicit and explicit costs
D. Marginal costs
E. Variable costs

A 10. Costs that do not change when the quanity of output produced changes?
A.Fixed Costs B.Variable Costs C.Explicit Costs D. Implicit Costs E. None of the above

C 11. Additional cost associated by producing one additional unit of product.

A.Fixed Costs B.Average Costs C.Marginal Costs D.Implicit Costs E. None of the above

B 12. The amount a firm receives for the sale of its output. P x Q = _____
A.Profit B. Total Revenue C. Marginal Revenue D. Average Profit E. None of the above

C 13.Input costs that may not have a direct outlay of money.Value of the opportunity cost.
A. Fixed Cost B. Variable Cost C. Implicit Cost D. Explicit Cost E. None of the above

A 14. Revenue generated by producing one additional unit of product.

A. Marginal Revenue B. Marginal Profit C. Total Revenue
D. Average Revenue E. None of the above

A 15. Fixed Cost divided by the quantity of output.

A. Average Fixed Cost B. Average Variable Cost C. Marginal Cost
E. Marginal Fixed Cost E. None of the above

B 16. The relationship between the quantity of inputs used to make a good and the quantity of
output produced.
A. Diminishing Marginal Utility B. Production Function C. Conjunction Junction
D. Economies of Scale E. None of the above

A 17. What is a production process?

A. Technical relationship between physical inputs and physical output.
B. Relationship between fixed factors of production and variable factors of production.
C. Relationship between a factor of production and the utility created by it.
D. Relationship between quantity of output produced and time taken to produce the output.
E. None of the above

A 18. The law of diminishing returns applies to :

A. The short run, but not the long run.
B. The long run, but not the short rim.
C. Both the short run and the long run.
D. Neither the short run nor the long run
E. None of the above

D 19. In describing a given production technology, the short run is best described as lasting:
A. Up to six months from now.
B. Up to five years from now.
C. As long as all inputs are fixed.
D. As long as at least one input is fixed
E. None of the above

C 20. To economists, the main difference between the short run and the long run is that :
A. In the short run all inputs are fixed, while in the long run all inputs are variable.
B. In the short run the firm varies all of its inputs to find the least-cost combination of inputs.
C. In the short run, at least one of the firm's input levels is fixed.
D. In the long run, the firm is making a constrained decision about how to use existing plant and
equipment efficiently.
E. None of the above

Name: Kim James R. Aguinaldo Course & Section: BSA 1-1

A. Use the following data to compute for average product and marginal product.

Number of Marginal Product Average Product

Total Product
Workers (Minus yung mga total) (Total/Workers)

0 0 0 0

1 5 5 5

2 15 10 7.5

3 30 15 10

4 45 15 11.25

5 55 10 11

6 60 5 10

7 60 0 8.57

8 55 -5 6.88

70

60

50
Number of Workers

40

30

20

10

0
0 1 2 3 4 5 6 7 8 9

-10

TP, MP, AP
TP MP AP

B. Plot the total, average and marginal product and identify the stages of production.
Name: Kim James R. Aguinaldo Course & Section: BSA 1-1

1. Suppose the Perez Enterprises has the following cost schedule. Its TFC is P1,000
per month and its variable cost are in column 3. Complete the table below and graph
TFC, TVC and TC and the AFC, AVC, ATC and MC curves in another graph.

Output TFC TVC TC AFC AVC ATC MC

0 1,000 0 1,000 0 0 0 1,000

1 1,000 500 1,500 1,000 500 1,500 500

2 1,000 1,000 2,000 500 500 1,000 500

3 1,000 2,000 3,000 333.33 666.67 1,000 1,000

4 1,000 3,500 4,500 250 875 1,125 1,500

5 1,000 5,500 6,500 200 1,100 1,300 2,000

7,000

6,000

5,000

4,000
Output

3,000

2,000

1,000

0
0 1 2 3 4 5 6 7
TFC, TVC, TC
TFC TVC
TC
 1,600

1,400

1,200

1,000

800
OUTPUT

600

400

200

0
0 1 2 3 4 5 6 7

AFC, AVC, ATC, MC

AFC AVC ATC MC

Name: Kim James R. Aguinaldo Course & Section: BSA 1-1

IDENTIFICATION

Marginal Cost 1. The additional cost from an additional unit of output produced.

Production Function 2. It shows the relationship between the level of inputs and output.

Average Fixed Cost 3. The difference between ATC and AVC in the short-run period.

Fixed Cost 4. Cost that exists only in the very short run or immediate period.

Variable Cost 5. Cost that decreases with the increases in the output produced.

Explicit Cost 6. A monetary expenditure made to outsiders who supply the inputs.

Fixed Inputs 7. Inputs that do not vary with the level of output.

Average Variable Cost 8. Variable cost per unit of output.

Law of Diminishing Marginal Products 9. It states that as you combine the fixed inputs to the
variable inputs, the total product increases at an increasing rate continuously increase at a
decreasing rate and at a certain point it declines.

Implicit Cost10. Cost of self-owned or self-employed resources.

Total Product 11. The total output produced per unit of a resourced employed.

Long Run 12. Production period where all factors of production used are variable inputs.

Stage Two 13. The rational stage of production.

Stage Three 14. A production stage where the firm is over utilizing its fixed input.

Marginal Cost 15. It is J shaped curve.

TRUE OR FALSE
 True 1. Land and managerial talent are fixed inputs in the short-run.
False 2. Rent, depreciation and salary of the managers are variable costs in the short-run.
True 3. Implicit cost of a resource is counted as economic cost due to the opportunity cost of the
said resource.
False 4. When TP is maximum, MP is negative.
True 5. In the short-run period, TC=TFC at zero output.
False 6. In the long-run, ATC = AVC.
True 7. From the economist’s point of view, the real importance of cost lies in the fact they
represent constraints to production.
False 8. For the firm to reduce its fixed cost, it has to produce more output.
True 9. Normal profit is part of the firm’s implicit cost.
True 10. In the short-run, the firm’s plant capacity or size of the plant is fixed.