Economics For Today 5th Edition Layton Test Bank

Economics for Today 5th Edition
Layton Test Bank

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Chapter 6—Production costs
MULTIPLE CHOICE
1. Explicit costs would include:
A rent.
.
B the interest loss of the business owner on money withdrawn from his/her saving account
. and invested in the business.
C the loss of rent on a building the business owner owns and uses in his/her business.
.
D the opportunity costs of the business owner’s time.
.
ANS: A PTS: 1 DIF: Moderate REF: Costs and profit
2. A young chef is considering opening his own sushi bar. To do so, he would have to quit his current
job, which pays $20 000 a year, and take over a store building that he owns and currently rents to his
brother for $6000 a year. His expenses at the sushi bar would be $50 000 for food and $2000 for gas
and electricity. What are his explicit costs?
A $26 000.
.
B $66 000.
.
C $78 000.
.
D $52 000.
.
ANS: D PTS: 1 DIF: Moderate REF: Costs and profit
3. Implicit costs are best thought of as:

A variable costs.
.
B marginal costs.
.
C accounting costs.
.
D opportunity costs.
.
4. Which of the following are implicit costs for a typical firm?

A Insurance costs.
.
B Electricity costs.
.
C Opportunity costs of capital owned by the firm.
.
D Cost of labour hired by the firm.
.
ANS: C PTS: 1 DIF: Moderate REF: Costs and profit
5. A young chef is considering opening his own sushi bar. To do so, he would have to quit his current
job, which pays $20 000 a year, and take over a store building that he owns and currently rents to his
brother for $6000 a year. His expenses at the sushi bar would be $50 000, for food and $2000 for gas
and electricity. What are his implicit costs?
A $26 000.
.
B $66 000.
.
C $78 000.
.
D $52 000.
.
ANS: A PTS: 1 DIF: Moderate REF: Costs and profit
6. If a firm has total revenue of $200 million, explicit costs of $190 million and implicit costs of $10
million, its economic profit is:
A $200 million.
.
B $70 million.
.
C $10 million.
.
D $0 million.
.
ANS: D PTS: 1 DIF: Easy REF: Economic and accounting
profit
7. Economic profit is:

A always zero.
.
B always less than accounting profit.
.
C always more than accounting profit.
.
D accounting profit less implicit costs.
.
ANS: D PTS: 1 DIF: Moderate REF: Economic and accounting
profit
8. An economist left her $100 000-a-year teaching position to work full-time in her own consulting
business. In the first year, she had total revenue of $200 000 and business expenses of $100 000. She
made a/an:
A economic profit.
.
B economic loss.
.
C implicit profit.
.
D zero economic profit.
.
ANS: D PTS: 1 DIF: Moderate REF: Economic and accounting
profit
9. Economic profit equals total revenue minus:

A total explicit costs.
.
B implicit costs.
.
C total opportunity costs.
.
D variable costs.
.
ANS: C PTS: 1 DIF: Easy REF: Economic and accounting
profit
10. Suppose a firm has total revenue of $500 million, explicit costs of $200 million and implicit costs of
$100 million. This firm’s economic profit is:
A $200 million.
.
B $300 million.
.
C $700 million.
.
D –$200 million.
.
ANS: A PTS: 1 DIF: Moderate REF: Economic and accounting
profit
11. Implicit costs are:

A labour costs to the firm.
.
B the opportunity costs of using someone else’s resources.
.
C payments from owners of a firm for labour.
.
D the opportunity costs of using resources owned by the firm.
.
12. If a firm has total revenue of $300 million, explicit costs of $200 million and implicit costs of $30
million, its accounting profit is:
A $200 million.
.
B $100 million.
.
C $70 million.
.
D –$10 million.
.
ANS: B PTS: 1 DIF: Easy REF: Economic and accounting
profit
13. The short run is a period of time:

A in which a firm uses at least one fixed input.
.
B that is long enough to permit changes in the firm’s plant size.
.
C in which production occurs within one year.
.
D in which production occurs within six months.
.
ANS: A PTS: 1 DIF: Easy REF: Short-run production costs
14. During the course of a week, McDonalds has enough time to hire or lay-off workers, but it does not
have enough time to expand its kitchen or add an additional seating area. In this situation, McDon-
ald’s:
A has no fixed costs.
.
B is in the short run.
.
C suffers an economic loss.
.
D earns a large profit.
.
ANS: B PTS: 1 DIF: Moderate REF: Short-run production costs
15. The long run is a period of time:

A that is too short to change the size of a firm’s plant.
.
B that is long enough to permit changes in all the firm’s inputs, both fixed and variable in-
. puts.
C in which production occurs beyond one year.
.
D in which production occurs beyond five years.
.
ANS: B PTS: 1 DIF: Easy REF: Short-run production costs
16. In the long run, total fixed cost:

A falls.
.
B does not exist.
.
C is constant.
.
D increases.
.
ANS: B PTS: 1 DIF: Difficult REF: Short-run production costs
17. Which of the following statements is true?

A Economic profit equals accounting profit plus implicit costs.
.
B The short run is any period of time in which there is at least one fixed input.
.
C A fixed input is any resource for which the quantity can change during the period under
. consideration.
D In the long run there are no implicit costs.
.
18. A firm can produce 450 litres of milk per day with four workers and 500 litres per day with five
workers. The marginal product of the fifth worker expressed in gallons per worker per day, is:
A 35.
.
B 50.
.
C 70.
.
D 350.
.
19. A farm can produce 10 000 bushels of wheat per year with five workers and 12 000 bushels with six
workers. The marginal product of the sixth worker for this farm is:
A 10 000 bushels.
.
B 2000 bushels.
.
C 500 bushels.
.
D 23 000 bushels.
.
20. Marginal product measures the change in:

A total cost brought about by changing production by one unit.
.
B product price brought about by changing production by one unit.
.
C a firm’s revenue brought about by changing production by one unit.
.
D the firm’s additional output brought about by employing one additional unit of input.
.
ANS: D PTS: 1 DIF: Moderate REF: Short-run production costs
21. The marginal product curve reflects the change in:

A output because the productivity is constant.
.
B price because an introduction of competition leads to reduction in prices.
.
C wages of workers that are increasing over time.
.
D the total output curve because marginal product is the slope of the total output curve.
.
ANS: D PTS: 1 DIF: Difficult REF: Short-run production costs
22. Marginal product can be:

A positive, zero or negative.
.
B only positive.
.
C only negative.
.
D positive or zero.
.
ANS: A PTS: 1 DIF: Moderate REF: Short-run production costs
23. The law of diminishing returns applies to which of the following segments of the marginal product of
labour curve?
A The entire curve.
.
B The downward-sloping segment only.
.
C The upward-sloping segment only.
.
D The point where labour input is zero.
.
24. The situation in which the marginal product of labour is greater than zero and declining as more labour
is hired is called the law of:
A negative returns to scale.
.
B diminishing returns.
.
C inverse return to labour.
.
D demand.
.
25. The _____ is the situation in which the marginal product of labour is greater than zero and declining as
more labour is hired.
A law of demand
.
B law of diminishing supply
.
C law of diminishing returns
.
D law of returns to scale
.
ANS: C PTS: 1 DIF: Easy REF: Short-run production costs
26. The short-run production function is based on the assumption that:

A employees have different skills.
.
B employees are paid different wage rates.
.
C all factors of production can be changed.
.
D technology is constant.
.
27. The main reason why the slope of the production function decreases is because of:
A increasing returns to the variable factor.
.
B constant returns to an increasing factor.
.
C diminishing returns to the variable factor of production.
.
D diseconomies of scale.
.
E the fact that all factors are variable.
.
ANS: C PTS: 1 DIF: Moderate REF: Short-run production costs
28. One season is a short run as long as:

A production occurs within one short season.
.
B a firm’s plant size can be changed.
.
C a firm uses at least one fixed input.
.
D one season is less than three seasons.
.
ANS: C PTS: 1 DIF: Easy REF: Short-run production costs
29. A fixed input is any resource for which the quantity can:
A change any time.
.
B change during a specific time.
.
C not change at all.
.
D not change during a specific time.
.
ANS: D PTS: 1 DIF: Easy REF: Short-run production costs

A Due to fixed resources, an additional unit of labour always adds more to production.
.
B The marginal product of labour always increases when an additional unit of labour is
. employed.
C Diminishing returns is a rare situation that occurs only when all inputs are not fixed.
.
D The law of diminishing returns indicates that addition of an extra unit of a variable factor
. will decrease the marginal product.
ANS: D PTS: 1 DIF: Difficult REF: Short-run production costs
Narrbegin Exhibit 6.1: The production function
Narrend
31. In Exhibit 6.1, total output increases from A to C because:

A workers receive higher wages.
.
B of technological progress in industries.
.
C the law of diminishing marginal returns sets in.
.
D of specialisation and therefore the increasing returns.
.
NAR: Exhibit 6.1: The production function
32. In Exhibit 6.1, the marginal product of labour is equal to zero at point:
A A.
.
B B.
.
C C.
.
D D.
.
ANS: C PTS: 1 DIF: Difficult REF: Short-run production costs
NAR: Exhibit 6.1: The production function
Narrbegin Exhibit 6.2 Production of pizza data
Workers Pizzas
0 0
1 4
2 10
3 15
4 18
5 19
Narrend
33. Exhibit 6.2 shows the change in the production of pizzas as more workers are hired. The marginal
product of the second employee equals:
A 4.
.
B 10.
.
C 14.
.
D 6.
.
NAR Exhibit 6.2 Production of pizza data
product of the labour input begins to fall with the employment of the _____ worker.
A first
.
B second
.
C third
.
D fourth
.
ANS: C PTS: 1 DIF: Difficult REF: Short-run production costs
product of the fifth worker is.
A 0
.
B 1
.
C 4
.
D 6
.
Narrbegin Exhibit 6.3 A marginal product curve
Narrend
36. As shown in Exhibit 6.3, the law of diminishing returns applies where there are:
A more than five workers per day.
.
B more than four workers per day.
.
C more than three workers per day.
.
D between zero and five workers per day.
.
NAR: Exhibit 6.3 A marginal product curve
37. As shown in Exhibit 6.3, the marginal product of labour when five additional workers are employed
per day is (points from B to C):
A 50.
.
B 100.
.
C 150.
.
D 175.
.
38. As shown in Exhibit 6.3, what was the marginal product of labour when only one worker was hired?
A 50.
.
B 100.
.
C 150.
.
D 175.
.
39. As shown in Exhibit 6.3, what was the marginal product of labour when the second worker was hired?
A 50.
.
B 100.
.
C 150.
.
D 175.
.
Narrbegin Exhibit 6.4 Workers and output data
Total
Labourers product
0 0
1 8
2 20
3 25
4 28
5 29
Narrend
40. In Exhibit 6.4, the marginal returns are largest when the _____ worker is hired.
A first
.
B second
.
C third
.
D fourth
.
NAR: Exhibit 6.4 Workers and output data
41. In Exhibit 6.4, the marginal product of the third worker is:
A 0.
.
B 5.
.
C 10.
.
D 12.
.
NAR: Exhibit 6.4 Workers and output data
42. Which of the following is considered to be a fixed cost of operating a hairdressing salon?
A Wages.
.
B Insurance.
.
C Cost of receipt books.
.
D Cost of shampoos.
.
ANS: B PTS: 1 DIF: Moderate REF: Short-run cost formulas
43. Suppose the cost to produce an additional unit of output is $20. What is the change in total variable
cost?
A $10.
.
B $20.
.
C $30.
.
D $40.
.
ANS: B PTS: 1 DIF: Easy REF: Short-run cost formulas
44. Marginal cost is defined as the increase in total cost resulting from an increase in:
A one unit of output.
.
B output of 100 units.
.
C a firm’s plant size.
.
D one unit of labour.
.
ANS: A PTS: 1 DIF: Easy REF: Short-run cost formulas
45. The marginal cost curve cuts to the:

A maximum point on the total cost curve.
.
B minimum point on the total cost curve.
.
C minimum point on the average variable cost curve.
.
D midpoint of the total cost curve.
.
ANS: C PTS: 1 DIF: Moderate REF: Short-run cost formulas
46. The marginal cost is the change in:

A average variable cost as the quantity changes by two units.
.
B total cost as the quantity changes by a number of units.
.
C total variable cost as the quantity changes by one unit.
.
D total fixed cost as the quantity changes by one unit.
.
ANS: C PTS: 1 DIF: Easy REF: Short-run cost formulas
47. When the cost curves have U-shapes, at the point where marginal cost equals average total cost:
A average variable cost is constant.
.
B fixed cost is declining.
.
C average total cost is at its maximum and the marginal cost is falling.
.
D average total cost is at its minimum and the marginal cost is rising.
.
ANS: D PTS: 1 DIF: Difficult REF: Short-run cost formulas

A TC = TFC – TVC.
.
B AVC = TC/Q.
.
C TFC = TC – TVC.
.
D MC equals the change in ATC divided by the change in Q.
.
49. Which of the following is true if the total variable cost curve is rising?
A Average fixed cost is increasing.
.
B Marginal cost is decreasing.
.
C Marginal cost is increasing.
.
D Average fixed cost is constant.
.
ANS: C PTS: 1 DIF: Difficult REF: Short-run cost formulas
50. Total variable cost:

A is added to the total fixed cost.
.
B consists of costs that are never zero.
.
C only relates to the costs of variable inputs.
.
D does not change.
.
ANS: A PTS: 1 DIF: Moderate REF: Short-run cost formulas
51. As output increases:

A ATC rises at first and then falls.
.
B AFC falls at first and then rises.
.
C AVC cuts ATC when MC is at its minimum.
.
D AFC declines and the gap between ATC and AVC declines.
.
ANS: D PTS: 1 DIF: Moderate REF: Short-run cost formulas
52. If ATC = $10, AVC = $8, AFC = $2 and MC = $12, for a given level of output Q, then:
A the firm must be operating on the downward-sloping section of its ATC curve.
.
B the firm must be operating on the upward-sloping section of its AFC curve.
.
C the firm must be operating on the upward-sloping section of its ATC curve.
.
D it is uncertain from the figures given where the firm is operating.
.
53. If ATC = $10, AVC = $6, AFC = $3 and MC = $5; then if output increased by one unit:
A MC will increase.
.
B MC will decrease.
.
C ATC will increase.
.
D MC may be increasing or decreasing.
.
54. ATC can be calculated as follows:

A AFC*AVC or TC*Q
.
B AFC-AVC or TC/Q
.
C AFC+AVC or TC*Q
.
D AFC+AVC or TC/Q
.
55. Total fixed costs:

A vary as output varies.
.
B are zero when the output is zero.
.
C are the costs that do not vary with the output.
.
D are the costs that increase with output.
.
56. As a firm expands its output from zero:

A marginal wage of labour increases.
.
B it suffers from the diseconomies of scale.
.
C it has to pay wages, rent and electricity to cover the variable costs.
.
D no change in the cost is occurring.
.
57. Marginal cost is:

A change in total cost divided by change in quantity.
.
B change in total fixed cost divided by change in quantity.
.
C change in average variable cost divided by change in quantity.
.
D change in average fixed cost divided by change in quantity.
.
ANS: A PTS: 1 DIF: Moderate REF: Short-run cost formulas
58. Average total cost is:

A average fixed cost added to average total cost.
.
B total fixed cost divided by wages.
.
C total variable cost divided by quantity.
.
D average fixed cost added to average variable cost.
.
59. The shape of the total cost curve is:

A completely following the shape of TFC.
.
B always upwards sloping.
.
C intersecting the TVC at its minimum.
.
D mimicing the shape of the TVC.
.
60. The vertical distance between the TC and TVC is:

A AVC.
.
B MC.
.
C TFC.
.
D ATC.
.
E TMC.
.
61. Which of the following statements is not true?

A TC = TFC * Q.
.
B AVC = TVC/Q.
.
C TFC = AFC * Q.
.
D MC =ATC /Q.
.
ANS: D PTS: 1 DIF: Easy REF: Short-run cost formulas
Narrbegin Exhibit 6.5 Cost schedule for a firm
Quantity Total cost ($) Marginal cost ($)

0 200
1 900
2 900
Narrend
3 3000
Narrend
62. In Exhibit 6.5, by filling in the blanks it can be determined that the fixed costs for the second unit are
A $0.
.
B $200.
.
C $900.
.
D $1000.
.
NAR: Exhibit 6.5 Cost schedule for a firm
63. In Exhibit 6.5, by filling in the blanks it can be determined that the marginal cost of the first unit of
output is:
A $200.
.
B $700.
.
C $900.
.
D $1000.
.
64. In Exhibit 6.5, by filling in the blanks it can be determined that the total cost of the second unit of
output is:
A $0.
.
B $700.
.
C $1000.
.
D $1800.
.
65. In Exhibit 6.5, by filling in the blanks it can be determined that the marginal cost of the third unit of
output is:
A $0.
.
B $200.
.
C $700.
.
D $1200.
.
66. In Exhibit 6.5, by filling in the blanks it can be determined the variable costs for the first unit are:
A $0.
.
B $200.
.
C $700.
.
D $1000.
.
Narrbegin Exhibit 6.6 Cost schedule for firm X
Output Total fixed Total variable

quantity cost ($) cost ($)
0 100 0
1 100 50
2 100 84
3 100 108
4 100 127
5 100 150
Narrend
67. As shown in Exhibit 6.6, the total cost of producing four units is:
A $0.
.
B $227.
.
C $250.
.
D $100.
.
NAR: Exhibit 6.6 Cost schedule for firm X
68. As shown in Exhibit 6.6, the total cost of producing five units is:
A $0.
.
B $227.
.
C $250.
.
D $100.
.
69. As shown in Exhibit 6.6, the average fixed cost of producing the fifth unit is:
A $0.
.
B $20.
.
C $25.
.
D $100.
.
70. As shown in Exhibit 6.6, the marginal cost of producing the fourth unit is:
A $0.
.
B $19.
.
C $27.
.
D $100.
.
71. As shown in Exhibit 6.6, the average total cost of producing five units is:
A $0.
.
B $27.
.
C $50.
.
D $100.
.
Narrbegin Exhibit 6.7 Short-run cost curves schedule for a pizzeria’s hourly production
Total Total Total

pizzas variable cost ($) cost ($)
0 0 20
10 50 70
20 80 100
30 130 150
40 230 250
Narrend
72. In Exhibit 6.7, the pizzeria’s fixed cost is equal to:

A $0.
.
B $20.
.
C $50.
.
D $70.
.
NAR: Exhibit 6.7 Short-run cost curves schedule for a pizzeria’s hourly production
Narrbegin Exhibit 6.8 Cost schedule for producing pizzas
Fixed Variable Total

Pizzas cost ($) cost ($) cost ($)
0
1 48
2 17
3 27
4 78
5 40
6 64
7 80
Narrend
73. By filling in the blanks in Exhibit 6.8, the AFC of four pizzas is shown to be equal to:
A $9.50.
.
B $10.00.
.
C $19.50.
.
D $40.00.
.
NAR: Exhibit 6.8 Cost schedule for producing pizzas
74. By filling in the blanks in Exhibit 6.8, the ATC of four pizzas is shown to be equal to:
A $9.50.
.
B $10.00.
.
C $19.50.
.
D $40.00.
.
75. By filling in the blanks in Exhibit 6.8, the AVC of four pizzas is shown to be equal to:
A $9.50.
.
B $10.00.
.
C $19.50.
.
D $40.00.
.
ANS: A PTS: 1 DIF: Difficult REF: Short-run cost formulas
76. By filling in the blanks in Exhibit 6.8, the AFC of three pizzas is shown to be equal to:
A $9.00.
.
B $10.00.
.
C $13.33.
.
D $22.33.
.
77. By filling in the blanks in Exhibit 6.8, the ATC of three pizzas is shown to be equal to:
A $9.00.
.
B $10.00.
.
C $13.33.
.
D $22.33.
.
78. By filling in the blanks in Exhibit 6.8, the AVC of three pizzas is shown to be equal to:
A $9.00.
.
B $10.00.
.
C $13.33.
.
D $22.33.
.
ANS: A PTS: 1 DIF: Difficult REF: Short-run cost formulas

A The law of diminishing returns states that beyond some point the marginal product of a
. variable resource continues to rise.
B The marginal product is the change in total output by adding one additional unit of a
. fixed input.
C Fixed costs are costs which vary with the output level.
.
D When marginal productivity of a variable input is falling, then marginal costs of produc-
. tion must be rising.
ANS: D PTS: 1 DIF: Difficult REF: Marginal cost relationships
80. 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.
.
ANS: C PTS: 1 DIF: Difficult REF: Marginal cost relationships
81. The marginal cost:

A rises as the marginal product of a variable input rises if the wage rate is constant.
.
B declines as the marginal product of a variable input rises if the wage rate is constant.
.
C declines as the marginal product of a variable input rises if the wage rate is increasing.
.
D declines as the marginal product of a variable input rises if the wage rate is decreasing.
.
ANS: C PTS: 1 DIF: Moderate REF: Marginal cost relationships
82. Which of the following statements is possible?

A AVC can be falling when ATC is rising.
.
B ATC can be falling when AVC is rising.
.
C ATC cuts AVC at its minimum.
.
D AVC falls when ATC falls, and rises when ATC rises.
.
ANS: B PTS: 1 DIF: Difficult REF: Marginal cost relationships
83. The maximum marginal product corresponds with:

A minimum average total cost.
.
B minimum average variable cost.
.
C minimum marginal cost.
.
D maximum marginal cost.
.
84. If MC is less than ATC, we know that:

A ATC must be rising.
.
B AVC must be falling.
.
C ATC must be falling.
.
D ATC could be rising or falling.
.
ANS: C PTS: 1 DIF: Easy REF: Marginal cost relationships
85. If MC is greater than ATC, we know that:

A ATC must be rising.
.
B AVC must be falling.
.
C ATC must be falling.
.
D ATC could be rising or falling.
.
ANS: A PTS: 1 DIF: Easy REF: Marginal cost relationships
86. When marginal product is rising, marginal cost will be:

A falling.
.
B rising.
.
C rising or falling.
.
D constant.
.
ANS: A PTS: 1 DIF: Easy REF: Marginal cost relationships
87. The law of diminishing returns explains why:

A when marginal product falls, marginal cost rises.
.
B economies of scale exist.
.
C marginal product and marginal cost are directly related.
.
D AFC declines over the entire range of output in the long run.
.
ANS: A PTS: 1 DIF: Moderate REF: Marginal cost relationships
88. The law of diminishing marginal returns explains:

A the rising part of average variable costs.
.
B the economies of scale and the increasing wages.
.
C the shape of the average fixed cost and its correspondence with the total costs.
.
D the declining part of the marginal product curve that corresponds to the rising part of the
. marginal cost curve.
ANS: D PTS: 1 DIF: Moderate REF: Marginal cost relationships
89. Marginal cost initially decreases because:

A marginal product is decreasing.
.
B additional workers add to the complexity of production.
.
C the extra cost of producing one more unit of output increases.
.
D of the specialisation of workers.
.
ANS: D PTS: 1 DIF: Moderate REF: Marginal cost relationships
90. The marginal cost:

A always rises in the short run.
.
B always falls in the long run.
.
C rises when the law of diminishing returns is being experienced.
.
D falls when the law of diminishing returns is being experienced.
.
91. When marginal product equals 0, marginal cost equals (provided that there is only one means of
production, say labour unit with a fixed wage rate):
A 0.
.
B 1.
.
C the wage rate for one worker.
.
D infinity.
.
92. Marginal-average rule states that:

A when marginal cost is above average cost, average cost will fall.
.
B when marginal cost is above average cost, average cost will remain constant.
.
C when marginal cost is below average cost, average cost will fall.
.
D when marginal cost is below average cost, average cost will rise.
.
ANS: C PTS: 1 DIF: Difficult REF: Marginal cost relationships
93. If the wage rate is constant:

A the marginal cost rises as the marginal product of a variable input rises.
.
B the marginal cost is constant as the marginal product of a variable input rises.
.
C the marginal cost follows the shape of the marginal product curve.
.
D the minimum of the marginal cost curve corresponds to the maximum of the marginal
. product curve.
94. In the long run, total fixed cost will:

A remain constant.
.
B increase.
.
C decrease.
.
D not exist by definition.
.
ANS: D PTS: 1 DIF: Moderate REF: Long-run average cost
curves
95. For a typical firm, the long-run average total cost curve:
A is a tangent to the minimum point of each possible short-run average total cost curve.
.
B is a tangent to each possible short-run average total cost curve at one point.
.
C intersects each possible short-run average total cost curve at two points.
.
D passes through the minimum points of all possible short-run average total cost curves.
.
ANS: B PTS: 1 DIF: Moderate REF: Long-run average cost
curves
96. When the curve that envelops the series of possible short-run average total cost curves is horizontal,
this means that there are:
A economies of scale.
.
B diseconomies of scale.
.
C constant returns to scale.
.
D diminishing returns.
.
ANS: C PTS: 1 DIF: Moderate REF: Long-run average cost
curves
97. If the minimum points of all the possible short-run average total cost curves become successively
lower as quantity of output increases, then:
A the firm should try to produce less output.
.
B total fixed costs are constant along the LRAC curve.
.
C there are economies of scale.
.
D the firm is probably having significant management problems.
.
ANS: C PTS: 1 DIF: Difficult REF: Long-run average cost
curves
Narrbegin Exhibit 6.9 Cost curves
Narrend
98. In Exhibit 6.9, economies of scale only exist for output levels up to:
A 1000.
.
B 2000.
.
C 3000.
.
D 4000.
.
ANS: B PTS: 1 DIF: Moderate REF: Different scales of produc-
tion
NAR: Exhibit 6.9 Cost curves
99. In Exhibit 6.9, constant returns to scale only exist for output levels between:
A 0 and 1000.
.
B 1000 and 2000.
.
C 2000 and 3000.
.
D 3000 and 4000.
.
ANS: C PTS: 1 DIF: Moderate REF: Different scales of produc-
tion
100. In Exhibit 6.9, a firm finds that it is experiencing numerous managerial and information problems. The
position of its short-run and long-run average total cost curves suggest that it is operating at a produc-
tion level:
A between 0 and 1000.
.
B between 1000 and 2000.
.
C between 2000 and 3000.
.
D between 3000 and 4000.
.
ANS: D PTS: 1 DIF: Difficult REF: Different scales of produc-
tion
101. In Exhibit 6.9, the U-shaped LRAC curve indicates which of the following as quantity increases from
0 to 4000?
A Diseconomies of scale; constant returns to scale; economies of scale.
.
B Constant returns to scale; economies of scale; diseconomies of scale.
.
C Economies of scale; constant returns to scale; diseconomies of scale.
.
D Diseconomies of scale; economies of scale; constant returns to scale.
.
tion
Narrbegin Exhibit 6.10 Long-run average cost

Narrend
102. In Exhibit 6.10, short-run average total cost, short-run marginal cost and long-run average cost are all
equal at which level of output per week?
A 500 units.
.
B 1000 units.
.
C 1500 units.
.
D 2000 units.
.
tion
NAR: Exhibit 6.10 Long-run average cost
103. If the firm represented in Exhibit 6.10 is operating with a plant whose size corresponds to short-run
average total cost curve A, the level of output that would minimise its short-run average total cost is:
A 500 units per week.
.
B 1000 units per week.
.
C 1500 units per week.
.
D 2000 units per week.
.
ANS: A PTS: 1 DIF: Difficult REF: Different scales of produc-
tion
NAR: Exhibit 6.10 Long-run average cost
104. Long-run economies of scale exists when the long-run average cost curve:
A rises.
.
B remains constant.
.
C falls.
.
D does not exist.
.
tion
105. Economies of scale are created by greater efficiency of capital and by:
A longer chains of command in management.
.
B better wages for labour.
.
C smaller plant sizes.
.
D increased specialisation of labour.
.
ANS: D PTS: 1 DIF: Moderate REF: Different scales of produc-
tion
106. The decreasing portion of a firm’s long-run average cost curve is attributable to:
A diminishing returns to scale.
.
B increasing marginal cost.
.
C economies of scale.
.
D diseconomies of scale.
.
ANS: C PTS: 1 DIF: Difficult REF: Different scales of produc-
tion
107. Which of the following is not a source of economies of scale?

A Division and specialisation of labour.
.
B Increase in output.
.
C More efficient use of capital.
.
D All of these.
.
ANS: D PTS: 1 DIF: Moderate REF: Different scales of produc-
tion
108. The primary source of scale diseconomies appears to be:

A a firm’s inability to adopt cost saving innovation.
.
B too little demand for the firm’s product.
.
C consumers who resist dealing with large firms.
.
D division of labour.
.
ANS: A PTS: 1 DIF: Moderate REF: Different scales of produc-
tion
Narrbegin Exhibit 6.11 Long-run average cost curves
Narrend
109. In Exhibit 6.11, which firm’s long-run average cost curve experiences constant returns to scale?
A Firm A.
.
B Firm B.
.
C Firm C.
.
D Firms A and C.
.
tion
NAR: Exhibit 6.11 Long-run average cost curves
110. Which firm in Exhibit 6.11 displays a long-run average cost curve with diseconomies of scale
beginning at 2000 units of output per week?
A Firm A.
.
B Firm B.
.
C Firm C.
.
D Firms A and C.
.
ANS: A PTS: 1 DIF: Moderate REF: Different scales of produc-
tion
111. Which firm in Exhibit 6.11 displays a long-run average cost curve with economies of scale throughout
the range of output shown?
A Firm A.
.
B Firm B.
.
C Firm C.
.
D Firms A and B.
.
tion
TRUE/FALSE
1. Suppose a firm earns an accounting profit. This means the firm also earns a positive economic profit.
ANS: F PTS: 1 DIF: Easy REF: Economic and accounting

profit
2. A zero economic profit is the same as a zero accounting profit.
ANS: F PTS: 1 DIF: Easy REF: Economic and accounting

profit
3. If the total variable cost of producing five units of output is $10 and the total variable cost of
producing six units is $15, the marginal cost of producing the sixth unit is $5.
ANS: T PTS: 1 DIF: Moderate REF: Short-run cost formulas
4. Total cost is equal to total fixed costs plus total variable cost.
ANS: T PTS: 1 DIF: Easy REF: Short-run cost formulas
5. Costs that do not vary as output varies and that must be paid even if output is zero are called total fixed
costs.
ANS: T PTS: 1 DIF: Moderate REF: Short-run cost formulas
6. The marginal curve determines the L-shape of the AVC curve.
ANS: F PTS: 1 DIF: Moderate REF: Short-run production costs
7. The law of diminishing marginal returns causes a firm’s short-run marginal cost curve to be U-shaped.
ANS: T PTS: 1 DIF: Difficult REF: Short-run production costs
8. The shape of the MC curve is inversely related to the shape of the marginal product curve.
ANS: T PTS: 1 DIF: Moderate REF: Short-run production costs

9. In the long run, all costs are considered variable.
ANS: T PTS: 1 DIF: Easy REF: Long-run average cost

curves
10. The long-run average cost curve traces the lowest points of the AVC and ATC for all firms.
ANS: F PTS: 1 DIF: Difficult REF: Long-run average cost

curves
11. Economies of scale exist over all ranges of output for which short-run average total cost exceeds
long-run average cost.
ANS: F PTS: 1 DIF: Moderate REF: Different scales of produc-

tion
12. If a firm increases output and its average total cost declines, then the firm is experiencing economies
of scale.
ANS: T PTS: 1 DIF: Moderate REF: Different scales of produc-

tion

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Economics for Today 5th Edition

Layton Test Bank

3. Implicit costs are best thought of as:

4. Which of the following are implicit costs for a typical firm?

7. Economic profit is:

9. Economic profit equals total revenue minus:

11. Implicit costs are:

13. The short run is a period of time:

15. The long run is a period of time:

16. In the long run, total fixed cost:

17. Which of the following statements is true?

20. Marginal product measures the change in:

21. The marginal product curve reflects the change in:

22. Marginal product can be:

26. The short-run production function is based on the assumption that:

28. One season is a short run as long as:

30. Which of the following statements is true?

Narrbegin Exhibit 6.1: The production function

31. In Exhibit 6.1, total output increases from A to C because:

Narrbegin Exhibit 6.2 Production of pizza data

Narrbegin Exhibit 6.3 A marginal product curve

Narrbegin Exhibit 6.4 Workers and output data

45. The marginal cost curve cuts to the:

46. The marginal cost is the change in:

48. Which of the following statements is true?

50. Total variable cost:

51. As output increases:

54. ATC can be calculated as follows:

55. Total fixed costs:

56. As a firm expands its output from zero:

57. Marginal cost is:

58. Average total cost is:

59. The shape of the total cost curve is:

60. The vertical distance between the TC and TVC is:

61. Which of the following statements is not true?

Narrbegin Exhibit 6.5 Cost schedule for a firm

Quantity Total cost ($) Marginal cost ($)

Narrbegin Exhibit 6.6 Cost schedule for firm X

Output Total fixed Total variable

Total Total Total

72. In Exhibit 6.7, the pizzeria’s fixed cost is equal to:

Narrbegin Exhibit 6.8 Cost schedule for producing pizzas

Fixed Variable Total

79. Which of the following statements is true?

81. The marginal cost:

82. Which of the following statements is possible?

ANS: B PTS: 1 DIF: Difficult REF: Marginal cost relationships

83. The maximum marginal product corresponds with:

84. If MC is less than ATC, we know that:

85. If MC is greater than ATC, we know that:

86. When marginal product is rising, marginal cost will be:

87. The law of diminishing returns explains why:

88. The law of diminishing marginal returns explains:

89. Marginal cost initially decreases because:

90. The marginal cost:

ANS: D PTS: 1 DIF: Difficult REF: Marginal cost relationships

92. Marginal-average rule states that:

93. If the wage rate is constant:

94. In the long run, total fixed cost will:

Narrbegin Exhibit 6.9 Cost curves

Narrbegin Exhibit 6.10 Long-run average cost

107. Which of the following is not a source of economies of scale?