Chapter 13

Chapter 13 The Costs of Production
TRUE/FALSE 1. The economic field of industrial organization examines how firms decisions about prices and quantities depend on the market conditions they face. AN ! T "#$! % &'$! 1()* NAT! Analytic +,-! -osts of production T,.! #ndustrial organization / -! #nterpreti0e %. .rofit equals marginal re0enue minus marginal cost. AN ! $ "#$! 1 &'$! 1()1 +,-! -osts of production T,.! .rofit (. .rofit equals total re0enue minus total cost. AN ! T "#$! 1 &'$! +,-! -osts of production T,.! 1. 1()1 .rofit NAT! Analytic / -! "efinitional NAT! Analytic / -! "efinitional
The difference between economic profit and accounting profit is that economic profit is calculated based on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only. AN ! T "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! 'conomic profit 2 Accounting profit / -! #nterpreti0e 3. Accounting profit is greater than or equal to economic profit. AN ! T "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! Accounting profit 2 'conomic profit / -! Analytical 4. 'conomic profit is greater than or equal to accounting profit. AN ! $ "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! Accounting profit 2 'conomic profit / -! Analytical 5. Although economists and accountants treat many costs differently6 they both treat the cost of capital the same. AN ! $ "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! 'conomic profit 2 Accounting profit / -! #nterpreti0e 7. Accountants keep track of the money that flows into and out of firms. AN ! T "#$! 1 &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! Accounting profit / -! #nterpreti0e 8. 9hen economists speak of a firm:s costs6 they are usually excluding the opportunity costs. AN ! $ "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! ,pportunity costs / -! #nterpreti0e 1*. 'conomists and accountants both include forgone income as a cost to a small business owner. AN ! $ "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! ,pportunity costs / -! #nterpreti0e 11. 'conomists and accountants usually disagree on the inclusion of implicit costs into the cost analysis of a firm. AN ! T "#$! 1 &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! #mplicit costs / -! #nterpreti0e
7%
7(
-hapter 1(;The -osts of .roduction
1%. #mplicit costs are costs that do not require an outlay of money by the firm. AN ! T "#$! 1 &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! #mplicit costs / -! "efinitional 1(. Accountants often ignore implicit costs. AN ! T "#$! 1 +,-! -osts of production / -! #nterpreti0e &'$! T,.! 1()1 #mplicit costs NAT! Analytic
11. #n the long run6 a factory is usually considered a fixed input. AN ! $ "#$! % &'$! 1()% +,-! -osts of production T,.! +ong run
NAT! Analytic / -! #nterpreti0e
13. "iminishing marginal producti0ity implies decreasing total product. AN ! $ "#$! % &'$! 1()% NAT! Analytic +,-! -osts of production T,.! "iminishing marginal product / -! #nterpreti0e 14. "iminishing marginal product exists when the total cost cur0e becomes flatter as outputs increases. AN ! $ "#$! % &'$! 1()% NAT! Analytic +,-! -osts of production T,.! "iminishing marginal product / -! #nterpreti0e 15. "iminishing marginal product exists when the production function becomes flatter as inputs increase. AN ! T "#$! % &'$! 1()% NAT! Analytic +,-! -osts of production T,.! "iminishing marginal product / -! #nterpreti0e 17. A second or third worker may ha0e a higher marginal product than the first worker in certain circumstances. AN ! T "#$! % &'$! 1()% NAT! Analytic +,-! -osts of production T,.! /arginal product / -! #nterpreti0e 18. The typical total)cost cur0e is <)shaped. AN ! $ "#$! % +,-! -osts of production / -! #nterpreti0e &'$! T,.! 1()% NAT! Analytic Total)cost cur0e
%*. The a0erage fixed cost cur0e is constant. AN ! $ "#$! % &'$! +,-! -osts of production T,.! / -! #nterpreti0e
1()% NAT! Analytic A0erage fixed cost
%1. #n the short run6 if a firm produces nothing6 total costs are zero. AN ! $ "#$! % &'$! 1()% NAT! Analytic +,-! -osts of production T,.! Total costs 2 $ixed costs / -! #nterpreti0e %%. #f a firm produces nothing6 it still incurs its fixed costs. AN ! T "#$! % &'$! 1()% +,-! -osts of production T,.! $ixed costs NAT! Analytic / -! #nterpreti0e
%(. The shape of the total cost cur0e is unrelated to the shape of the production function. AN ! $ "#$! % &'$! 1()% NAT! Analytic +,-! -osts of production T,.! Total)cost cur0e 2 .roduction function / -! #nterpreti0e

%1. The shape of the total cost cur0e is related to the shape of the production function. AN ! T "#$! % &'$! 1()% NAT! Analytic +,-! -osts of production T,.! Total)cost cur0e 2 .roduction function / -! #nterpreti0e %3. #f the marginal cost of producing the tenth unit of output is =(6 and if the a0erage total cost of producing the tenth unit of output is =%6 then at ten units of output6 a0erage total cost is rising. AN ! T "#$! ( &'$! 1()( NAT! Analytic +,-! -osts of production T,.! /arginal cost 2 A0erage total cost / -! Analytical %4.
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#f the marginal cost of producing the tenth unit of output is =%.3*6 and if the a0erage total cost of producing the tenth unit of output is =(6 then at ten units of output6 a0erage total cost is rising. AN ! $ "#$! ( &'$! 1()( NAT! Analytic +,-! -osts of production T,.! /arginal cost 2 A0erage total cost / -! Analytical %5. #f the marginal cost of producing the fifth unit of output is higher than the marginal cost of producing the fourth unit of output6 then at fi0e units of output6 a0erage total cost must be rising. AN ! $ "#$! ( &'$! 1()( NAT! Analytic +,-! -osts of production T,.! /arginal cost 2 A0erage total cost / -! Analytical %7. /arginal costs are costs that do not 0ary with the quantity of output produced. AN ! $ "#$! 1 &'$! 1()( NAT! Analytic +,-! -osts of production T,.! /arginal cost / -! "efinitional %8. e0eral related measures of cost can be deri0ed from a firm:s total cost. AN ! T "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! -ost cur0es / -! #nterpreti0e (*. >ariable costs usually change as the firm alters the quantity of output produced. AN ! T "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! >ariable costs / -! "efinitional (1. >ariable costs equal fixed costs when nothing is produced. AN ! $ "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! >ariable costs / -! #nterpreti0e (%. The cost of producing an additional unit of a good is not the same as the a0erage cost of the good. AN ! T "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! A0erage total cost / -! #nterpreti0e ((. A0erage 0ariable cost is equal to total 0ariable cost di0ided by quantity of output. AN ! T "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! A0erage 0ariable cost / -! "efinitional (1. The a0erage total cost cur0e is unaffected by diminishing marginal product. AN ! $ "#$! ( &'$! 1()( NAT! Analytic +,-! -osts of production T,.! "iminishing marginal product 2 A0erage total cost / -! #nterpreti0e (3. The a0erage total cost cur0e reflects the shape of both the a0erage fixed cost and a0erage 0ariable cost cur0es. AN ! T "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! A0erage total cost / -! #nterpreti0e
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(4. #f the marginal cost cur0e is rising6 then so is the a0erage total cost cur0e. AN ! $ "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! /arginal cost 2 A0erage total cost / -! #nterpreti0e (5. The marginal cost cur0e intersects the a0erage total cost cur0e at the minimum point of the a0erage total cost cur0e. AN ! T "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! A0erage total cost 2 /arginal cost / -! #nterpreti0e (7. The marginal cost cur0e intersects the a0erage total cost cur0e at the minimum point of the marginal cost cur0e. AN ! $ "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! A0erage total cost 2 /arginal cost / -! #nterpreti0e (8. Assume ?ack recei0ed all A:s in his classes last semester. #f ?ack gets all @:s in his classes this semester6 his A.A may or may not fall. AN ! T "#$! ( &'$! 1()( NAT! Analytic +,-! -osts of production T,.! A0erage total cost / -! #nterpreti0e 1*. A0erage total cost and marginal cost express information that is already contained in a firm:s total cost. AN ! T "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! A0erage total cost / -! #nterpreti0e 11. A0erage total cost re0eals how much total cost will change as the firm alters its le0el of production. AN ! $ "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! A0erage total cost / -! #nterpreti0e 1%. The shape of the marginal cost cur0e tells a producer something about the marginal product of her workers. AN ! T "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! /arginal cost 2 /arginal product / -! #nterpreti0e 1(. 9hen a0erage total cost rises if a producer either increases or decreases production6 then the firm is said to be operating at efficient scale. AN ! T "#$! % &'$! 1()( NAT! Analytic +,-! -osts of production T,.! 'fficient scale / -! #nterpreti0e 11. $ixed costs are those costs that remain fixed no matter how long the time horizon is. AN ! $ "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! $ixed costs / -! #nterpreti0e 13. "iseconomies of scale often arise because higher production le0els allow specialization among workers. AN ! $ "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! "iseconomies of scale / -! #nterpreti0e 14. 'conomies of scale often arise because higher production le0els allow specialization among workers. AN ! T "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! 'conomies of scale / -! #nterpreti0e

15. #f long)run a0erage total cost is rising6 then the firm is experiencing economies of scale. AN ! $ "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! 'conomies of scale 2 "iseconomies of scale / -! "efinitional 17. The fact that many inputs are fixed in the short run but 0ariable in the long run has little impact on the firm:s cost cur0es. AN ! $ "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! +ong run / -! #nterpreti0e 18. #n some cases6 specialization allows larger factories to produce goods at a lower a0erage cost than smaller factories. AN ! T "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! pecialization / -! #nterpreti0e 3*. The use of specialization to achie0e economies of scale is one reason modern societies are as prosperous as they are. AN ! T "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! pecialization / -! #nterpreti0e 31. As a firm mo0es along its long)run a0erage cost cur0e6 it is adBusting the size of its factory to the quantity of production. AN ! T "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! A0erage total cost / -! #nterpreti0e 3%. @ecause of the greater flexibility that firms ha0e in the long run6 all short)run cost cur0es lie on or abo0e the long)run cur0e. AN ! T "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! A0erage total cost / -! #nterpreti0e 3(. There is general agreement among economists that the long)run time period exceeds one year. AN ! $ "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! +ong run / -! #nterpreti0e Table 13-1 +isted in the table are the long)run total costs for three different firms. Quantity $irm A $irm @ $irm 1 1** 1** 1** 2 1** %** (** 3 1** (** 4** ! 1** 3** 163**
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1** 1** 16***
31. Refer to Ta"#e 13$1% $irm A is experiencing economies of scale. AN ! T "#$! ( &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! 'conomies of scale / -! Analytical 33. Adam mith:s example of the pin factory demonstrates that economies of scale result from specialization. AN ! T "#$! % &'$! 1()1 NAT! Analytic +,-! -osts of production T,.! 'conomies of scale / -! #nterpreti0e
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S&'RT A(S)ER 1. 9hat are opportunity costsC Dow do explicit and implicit costs relate to opportunity costsC AN ! The opportunity cost of an item refers to all those things that must be forgone to acquire that item. @oth explicit and implicit costs are included as opportunity costs. "#$! T,.! %. % &'$! ,pportunity costs 1()1 NAT! Analytic / -! "efinitional +,-! -osts of production
A key difference between accountants and economists is their different treatment of the cost of capital. "oes this cause an accountant:s estimate of total costs to be higher or lower than an economist:s estimateC 'xplain.
AN ! An accountant would not include the forgone interest income that the money could ha0e earned elsewhere if it had not been in0ested in the business. Therefore6 an accountant:s estimate of total cost will be less than an economist:s. "#$! T,.! (. % &'$! 1()1 'conomic profit 2 Accounting profit NAT! Analytic +,-! -osts of production / -! Analytical
The production function depicts a relationship between which two 0ariablesC Also6 draw a production function that exhibits diminishing marginal product.
AN ! #t depicts a relationship between output and a gi0en input. The graph should show output increasing6 but at a decreasing rate as inputs increase.
"#$! T,.!
% &'$! .roduction function
1()%
NAT! Analytic / -! Applicati0e
+,-! -osts of production

1. Dow would a production function that exhibits decreasing marginal product affect the shape of the total cost cur0eC 'xplain or draw a graph.
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AN ! The total cost cur0e will increase at an increasing rate6 or in other words6 the total cost cur0e gets steeper as the amount produced rises.
"#$! T,.!
% &'$! 1()( NAT! Analytic "iminishing marginal product 2 Total)cost cur0e
+,-! -osts of production / -! Analytical
3. 9hat effect6 if any6 does diminishing marginal product ha0e on the shape of the marginal cost cur0eC AN ! "iminishing marginal product causes the marginal cost cur0e to rise. "#$! T,.! 4. % &'$! 1()( NAT! Analytic "iminishing marginal product 2 /arginal cost / -! +,-! -osts of production Analytical
@ob 'dwards owns a bagel shop. @ob hires an economist who assesses the shape of the bagel shop:s a0erage total cost EAT-F cur0e as a function of the number of bagels produced. The results indicate a <)shaped a0erage total cost cur0e. @ob:s economist explains that AT- is <)shaped for two reasons. The first is the existence of diminishing marginal product6 which causes it to rise. 9hat would be the second reasonC Assume that the marginal cost cur0e is linear. EDint! The second reason relates to a0erage fixed costF
AN ! A0erage fixed cost always declines as output rises because fixed cost is being spread o0er a larger number of units6 thus causing the a0erage total cost cur0e to fall. "#$! T,.! 5. ( &'$! A0erage total cost 1()( NAT! Analytic / -! Analytical +,-! -osts of production
#f the a0erage total cost cur0e is falling6 what is necessarily true of the marginal cost cur0eC #f the a0erage total cost cur0e is rising6 what is necessarily true of the marginal cost cur0eC
AN ! 9hen a0erage total cost cur0e is falling6 marginal cost is below AT-. #f the a0erage total cost cur0e is rising6 marginal cost is abo0e AT-. "#$! T,.! 7. % &'$! 1()( A0erage total cost 2 /arginal cost NAT! Analytic / -! Analytical +,-! -osts of production
According to the mathematical laws that go0ern the relationship between a0erage total cost and marginal cost6 where must these two cur0es intersectC
AN ! The two cur0es will cross at the minimum point on the a0erage total cost cur0e. "#$! T,.! % &'$! 1()( A0erage total cost 2 /arginal cost NAT! Analytic / -! Analytical +,-! -osts of production
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Sec** $ The Costs of Production

+ULT,PLE C&',CE 1. Analyzing the beha0ior of the firm enhances our understanding of a. what decisions lie behind the market supply cur0e. b. how consumers allocate their income to purchase scarce resources. c. how financial institutions set interest rates. d. whether resources are allocated fairly. 1 &'$! T,.! 1()* upply cur0e NAT! Analytic
AN ! A "#$! +,-! -osts of production / -! Applicati0e %.
9hich field of economics studies how the number of firms affects the prices in a market and the efficiency of market outcomesC a. macro economics b. industrial organization c. labor economics d. monetary economics 1 &'$! T,.! 1()* NAT! Analytic #ndustrial organization
AN ! @ "#$! +,-! -osts of production / -! "efinitional (.
'conomists in the field of industrial organization study how a. central banking policies affect financial markets. b. firms demand for labor and indi0iduals supply of labor affect resource markets. c. firms decisions about prices and quantities depend on market conditions. d. externalities and public goods affect the en0ironment. 1 &'$! T,.! 1()* NAT! Analytic #ndustrial organization
AN ! "#$! +,-! -osts of production / -! "efinitional 1.
#ndustrial organization is the study of how a. labor unions organize workers in industries. b. profitable firms are in organized industries. c. industries organize for political ad0antage. d. firms: decisions regarding prices and quantities depend on the market conditions they face. 1 &'$! T,.! 1()* NAT! Analytic #ndustrial organization
AN ! " "#$! +,-! -osts of production / -! "efinitional 3.
To an economist6 the field of industrial organization answers which of the following questionsC a. 9hy are consumers subBect to the law of demandC b. 9hy do firms experience diminishing marginal products of inputsC c. Dow does the number of firms affect prices and the efficiency of market outcomesC d. 9hy do firms consider production costs when determining product supplyC 1 &'$! T,.! 1()* NAT! Analytic #ndustrial organization
A student might describe information about the costs of production as a. dry and technical. b. boring. c. crucial to understanding firms and market structures. d. All of the abo0e could be correct. 1 &'$! T,.! 1()* upply cur0e NAT! Analytic
AN ! " "#$! +,-! -osts of production / -! #nterpreti0e
8*
Sec*1 $ The Costs of Production $ )hat Are Costs+ULT,PLE C&',CE 1. 'conomists assume that the typical person who starts her own business does so with the intention of a. donating the profits from her business to charity. b. capturing the highest number of sales in her industry. c. maximizing profits. d. minimizing costs. 1 &'$! T,.! 1()1 NAT! Analytic .rofit maximization
AN ! "#$! +,-! -osts of production / -! Applicati0e %. EiF EiiF EiiiF
'conomists normally assume that the goal of a firm is to sell as much of their product as possible. set the price of the product as high as possible. maximize profit. a. b. c. d. EiF and EiiF are true. EiiF and EiiiF are true. EiiiF is true. EiF and EiiiF are true. % &'$! T,.! 1()1 NAT! Analytic .rofit maximization
AN ! "#$! +,-! -osts of production / -! #nterpreti0e (. EiF EiiF EiiiF
'conomists normally assume that the goal of a firm is to earn profits as large as possible6 e0en if it means reducing output. profits as large as possible6 e0en if it means incurring a higher total cost. re0enues as large as possible6 e0en if it reduces profits. a. b. c. d. EiF and EiiF are true. EiF and EiiiF are true. EiiF and EiiiF are true. EiF6 EiiF6 and EiiiF are true. % &'$! T,.! 1()1 NAT! Analytic .rofit maximization
AN ! A "#$! +,-! -osts of production / -! #nterpreti0e 1.
An entrepreneurs moti0ation to start a business arises from a. an innate lo0e for the type of business that he or she starts. b. a desire to earn a profit. c. an altruistic desire to pro0ide the world with a good product. d. All of the abo0e could be correct. % &'$! T,.! 1()1 NAT! Analytic .rofit maximization
AN ! " "#$! +,-! -osts of production / -! #nterpreti0e 3.
'conomists normally assume that the goal of a firm is to a. maximize its total re0enue. b. maximize its profit. c. minimize its explicit costs. d. minimize its total cost. 1 &'$! T,.! 1()1 NAT! Analytic .rofit maximization
AN ! @ "#$! +,-! -osts of production / -! "efinitional
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4.

'conomists assume that the goal of the firm is to maximize total a. re0enue. b. profits. c. costs. d. satisfaction. 1 &'$! T,.! 1()1 NAT! Analytic .rofit maximization
AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e 5.
9hen a firm is making a profit)maximizing production decision6 which of the following principles of economics is likely to be most important to the firm:s decisionC a. The cost of something is what you gi0e up to get it. b. A country:s standard of li0ing depends on its ability to produce goods and ser0ices. c. .rices rise when the go0ernment prints too much money. d. Ao0ernments can sometimes impro0e market outcomes. % &'$! T,.! 1()1 NAT! Analytic .rofit maximization
The amount of money that a firm recei0es from the sale of its output is called a. total gross profit. b. total net profit. c. total re0enue. d. net re0enue. 1 &'$! T,.! 1()1 Total re0enue NAT! Analytic
Total re0enue equals a. price x quantity. b. price;quantity. c. Eprice x quantityF ) total cost. d. output ) input. 1 &'$! T,.! 1()1 Total re0enue NAT! Analytic
AN ! A "#$! +,-! -osts of production / -! "efinitional 1*.
The amount of money that a firm pays to buy inputs is called a. total cost. b. 0ariable cost. c. marginal cost. d. fixed cost. % &'$! T,.! 1()1 Total cost NAT! Analytic / -! "efinitional
AN ! A "#$! +,-! -osts of production 11.
Total cost is the a. amount a firm recei0es for the sale of its output. b. fixed cost less 0ariable cost. c. market 0alue of the inputs a firm uses in production. d. quantity of output minus the quantity of inputs used to make a good. % &'$! T,.! 1()1 Total cost NAT! Analytic / -! "efinitional
AN ! "#$! +,-! -osts of production 1%.
.rofit is defined as a. net re0enue minus depreciation. b. total re0enue minus total cost. c. a0erage re0enue minus a0erage total cost. d. marginal re0enue minus marginal cost.

AN ! @ "#$! +,-! -osts of production 1(. 1 &'$! T,.! 1()1 .rofit NAT! Analytic / -! "efinitional
8%
.rofit is defined as total re0enue a. plus total cost. b. times total cost. c. minus total cost. d. di0ided by total cost. 1 &'$! T,.! 1()1 .rofit NAT! Analytic / -! "efinitional
AN ! "#$! +,-! -osts of production 11.
9hich of the following can be added to profit to obtain total re0enueC a. net profit b. capital profit c. operational profit d. total cost % &'$! T,.! 1()1 Total re0enue NAT! Analytic
AN ! " "#$! +,-! -osts of production / -! Analytical 13.
#f Gelsey sells (** glasses of lemonade at =*.3* each6 her total re0enues are a. =13*. b. =%88.3*. c. =(**. d. =4**. % &'$! T,.! 1()1 Total re0enue NAT! Analytic
AN ! A "#$! +,-! -osts of production / -! Analytical 14.
#f Amanda sells %** glasses of lemonade at =*.3* each6 her total re0enues are a. =1**. b. =188.3*. c. =%**. d. =1**. % &'$! T,.! 1()1 Total re0enue NAT! Analytic
Girsten sells (** glasses of lemonade at =*.3* each. Der total costs are =1%3. Der profits are a. =%3. b. =1%1.3*. c. =1%3. d. =13*. % &'$! T,.! 1()1 .rofit NAT! Analytic / -! Analytical
Hoe sells %** glasses of lemonade at =*.3* each. Der total costs are =%3. Der profits are a. =%3. b. =53. c. =1**. d. =153. % &'$! T,.! 1()1 .rofit NAT! Analytic / -! Analytical
AN ! @ "#$! +,-! -osts of production
8(
18.

IJH corporation produced (** units of output but sold only %53 of the units it produced. The a0erage cost of production for each unit of output produced was =1**. 'ach of the %53 units sold was sold for a price of =83. Total profit for the IJH corporation would be a. )=(6753. b. =%461%3. c. =%763**. d. =(*6***. % &'$! T,.! 1()1 .rofit NAT! Analytic / -! Applicati0e
AN ! A "#$! +,-! -osts of production %*.
Those things that must be forgone to acquire a good are called a. implicit costs. b. opportunity costs. c. explicit costs. d. accounting costs. 1 &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
AN ! @ "#$! +,-! -osts of production / -! "efinitional %1.
Aordon is a senior maBoring in computer network de0elopment at mart tate <ni0ersity. 9hile he has been attending college6 Aordon started a computer consulting business to help senior citizens set up their network connections and teach them how to use e)mail. Aordon charges =%3 per hour for his consulting ser0ices. Aordon also works 3 hours a week for the 'conomics "epartment to maintain that department:s 9eb page. The 'conomics "epartment pays Aordon =%* per hour. $rom this information we can conclude! a. Aordon should increase the number of hours he works for the 'conomics "epartment to make it comparable to his consulting business income. b. Aordon is ob0iously not maximizing his well)being if he continues to work for the 'conomics "epartment. c. #f Aordon chooses one hour at the beach with his friends rather than spend one more hour with a consulting client6 the forgone income of =%3 is considered a cost of the choice to go to the beach. d. @oth b and c are correct % &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
AN ! "#$! +,-! -osts of production / -! Analytical %%.
A firm:s opportunity costs of production are equal to its a. explicit costs only. b. implicit costs only. c. explicit costs K implicit costs. d. explicit costs K implicit costs K total re0enue. 1 &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
AN ! "#$! +,-! -osts of production / -! "efinitional %(.
usan used to work as a telemarketer6 earning =%36*** per year. he ga0e up that Bob to start a catering business. #n calculating the economic profit of her catering business6 the =%36*** income that she ga0e up is counted as part of the catering firm:s a. total re0enue. b. opportunity costs. c. explicit costs. d. marginal costs. 1 &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e

%1.
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?ohn has decided to start his own lawn)mowing business. To purchase the mowers and the trailer to transport the mowers6 ?ohn withdrew =16*** from his sa0ings account6 which was earning (L interest6 and borrowed an additional =%6*** from the bank at an interest rate of 5L. 9hat is ?ohn:s annual opportunity cost of the financial capital that has been in0ested in the businessC a. =(* b. =11* c. =15* d. =(** ( &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
AN ! "#$! +,-! -osts of production / -! Analytical %3.
Aa0in has decided to start his own snow remo0al business. To purchase the necessary equipment6 Aa0in withdrew =%6*** from his sa0ings account6 which was earning (L interest6 and borrowed an additional =16*** from the bank at an interest rate of 5L. 9hat is Aa0in:s annual opportunity cost of the financial capital that has been in0ested in the businessC a. =4* b. =%7* c. =(1* d. =44* % &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
"ianne has decided to start her own photography studio. To purchase the necessary equipment6 "ianne withdrew =1*6*** from her sa0ings account6 which was earning (L interest6 and borrowed an additional =36*** from the bank at an interest rate of 7L. 9hat is "ianne:s annual opportunity cost of the financial capital that has been in0ested in the businessC a. =(** b. =1** c. =5** d. =1643* % &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
The 0alue of a business owner:s time is an example of a. an opportunity cost. b. a fixed cost. c. an explicit cost. d. total re0enue. 1 &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
AN ! A "#$! +,-! -osts of production / -! #nterpreti0e %7.
An example of an opportunity cost that is also an implicit cost is a. a lease payment. b. the cost of raw materials. c. the 0alue of the business owners time. d. All of the abo0e are correct. 1 &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
AN ! "#$! +,-! -osts of production / -! #nterpreti0e %8.
9hich of the following statements is correctC a. ,pportunity costs equal explicit minus implicit costs. b. 'conomists consider opportunity costs to be included in a firms total re0enues. c. 'conomists consider opportunity costs to be included in a firms costs of production. d. All of the abo0e are correct.
83

% &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
AN ! "#$! +,-! -osts of production / -! #nterpreti0e (*.
'xplicit costs a. require an outlay of money by the firm. b. include all of the firm:s opportunity costs. c. include income that is forgone by the firm:s owners. d. @oth b and c are correct. "#$! 1 &'$! 1()1 T,.! 'xplicit costs
AN ! A / -! "efinitional
(1. 9hich of the following would be an example of an implicit costC EiF forgone in0estment opportunities EiiF wages of workers EiiiF raw materials costs a. b. c. d. EiF only EiiF only EiiF and EiiiF only EiF and EiiiF only % &'$! T,.! 1()1 #mplicit costs NAT! Analytic
AN ! A "#$! +,-! -osts of production / -! #nterpreti0e (%.
#mplicit costs a. do not require an outlay of money by the firm. b. do not enter into the economist:s measurement of a firm:s profit. c. are also known as 0ariable costs. d. are not part of an economists measurement of opportunity cost. % &'$! T,.! 1()1 #mplicit costs NAT! Analytic
AN ! A "#$! +,-! -osts of production / -! #nterpreti0e ((.
An example of an explicit cost of production would be the a. cost of forgone labor earnings for an entrepreneur. b. lost opportunity to in0est in capital markets when the money is in0ested in one:s business. c. lease payments for the land on which a firms factory stands. d. @oth a and c are correct. % &'$! T,.! 1()1 'xplicit costs NAT! Analytic
AN ! "#$! +,-! -osts of production / -! #nterpreti0e
(1. 9hich of the following is an example of an implicit costC EiF the owner of a firm forgoing an opportunity to earn a large salary working for a 9all treet brokerage firm EiiF interest paid on the firm:s debt EiiiF rent paid by the firm to lease office space a. b. c. d. EiiF and EiiiF only EiF and EiiiF only EiF only EiiiF only % &'$! T,.! 1()1 #mplicit costs NAT! Analytic

(3. ?ohn owns a shoe)shine business. Dis accountant most likely includes which of the following costs on his financial statementsC a. wages ?ohn could earn washing windows b. di0idends ?ohn:s money was earning in the stock market before ?ohn sold his stock and bought a shoe)shine booth c. the cost of shoe polish d. @oth b and c are correct. % &'$! T,.! 1()1 'xplicit costs NAT! Analytic
84
AN ! "#$! +,-! -osts of production / -! #nterpreti0e (4.
The amount of money that a wheat farmer could ha0e earned if he had planted barley instead of wheat is a. an explicit cost. b. an accounting cost c. an implicit cost. d. forgone accounting profit. % &'$! T,.! 1()1 #mplicit costs NAT! Analytic
AN ! "#$! +,-! -osts of production / -! #nterpreti0e (5.
'xplicit costs a. do not require an outlay of money by the firm. b. enter into the accountant:s measurement of a firm:s profit. c. enter into the economist:s measurement of a firm:s profit. d. @oth b and c are correct. 1 &'$! T,.! 1()1 'xplicit costs NAT! Analytic
AN ! " "#$! +,-! -osts of production / -! #nterpreti0e (7.
9hich of the following is an example of an implicit costC a. salaries paid to owners who work for the firm b. interest on money borrowed to finance equipment purchases c. cash payments for raw materials d. foregone rent on office space owned and used by the firm 1 &'$! T,.! 1()1 #mplicit costs NAT! Analytic
AN ! " "#$! +,-! -osts of production / -! #nterpreti0e (8.
?ane decides to open her own business and earns =3*6*** in accounting profit the first year. 9hen deciding to open her own business6 she turned down three separate Bob offers with annual salaries of =(*6***6 =1*6***6 and =136***. 9hat is ?ane:s economic profit from running her own businessC a. =)336*** b. =)36*** c. =36*** d. =%*6*** % &'$! T,.! 1()1 NAT! Analytic 'conomic profit
AN ! "#$! +,-! -osts of production / -! Analytical 1*.
@e0 is opening her own court)reporting business. he financed the business by withdrawing money from her personal sa0ings account. 9hen she closed the account6 the bank representati0e mentioned that she would ha0e earned =(** in interest next year. #f @e0 hadnt opened her own business6 she would ha0e earned a salary of =%36***. #n her first year6 @e0s re0enues were =(*6***. 9hich of the following statements is correctC a. @e0s total explicit costs are =%36(**. b. @e0s total implicit costs are =(**. c. @e0s accounting profits exceed her economic profits by =(**. d. @e0s economic profit is =165**.
85

% &'$! T,.! 1()1 NAT! Analytic 'conomic profit 2 Accounting profit
"olores used to work as a high school teacher for =1*6*** per year but quit in order to start her own catering business. To in0est in her factory6 she withdrew =%*6*** from her sa0ings6 which paid ( percent interest6 and borrowed =(*6*** from her uncle6 whom she pays ( percent interest per year. +ast year she paid =%36*** for ingredients and had re0enue of =4*6***. he asked +ouis the accountant and Areg the economist to calculate her profit for her. a. +ouis says her costs are =%368**6 and Areg says her costs are =4463**. b. +ouis says her costs are =%36***6 and Areg says her costs are =436***. c. +ouis says her profit is =4463**6 and Areg says her costs are =4463**. d. +ouis says her profit is =536***6 and Areg says her costs are =1163**. ( &'$! T,.! 1()1 NAT! Analytic 'conomic profit 2 Accounting profit
AN ! A "#$! +,-! -osts of production / -! Applicati0e 1%.
"olores used to work as a high school teacher for =1*6*** per year but quit in order to start her own catering business. To in0est in her factory6 she withdrew =%*6*** from her sa0ings6 which paid ( percent interest6 and borrowed =(*6*** from her uncle6 whom she pays ( percent interest per year. +ast year she paid =%36*** for ingredients and had re0enue of =4*6***. he asked +ouis the accountant and Areg the economist to calculate her profit for her. a. +ouis says her profit is =%368**6 and Areg says her profit is =4463**. b. +ouis says her profit is =(36***6 and Areg says she lost =368**. c. +ouis says her profit is =(161**6 and Areg says she lost =463**. d. +ouis says her profit is =(161**6 and Areg says her profit is =(161**. ( &'$! T,.! 1()1 NAT! Analytic 'conomic profit 2 Accounting profit
AN ! "#$! +,-! -osts of production / -! Applicati0e 1(.
9hich of the following statements is correctC a. Assuming that explicit costs are positi0e6 economic profit is greater than accounting profit. b. Assuming that implicit costs are positi0e6 accounting profit is greater than economic profit. c. Assuming that explicit costs are positi0e6 accounting profit is equal to economic profit. d. Assuming that implicit costs are positi0e6 economic profit is positi0e. % &'$! T,.! 1()1 NAT! Analytic 'conomic profit 2 Accounting profit
A difference between explicit and implicit costs is that a. explicit costs are greater than implicit costs. b. explicit costs do not require a direct monetary outlay by the firm6 whereas implicit costs do. c. implicit costs do not require a direct monetary outlay by the firm6 whereas explicit costs do. d. implicit costs are greater than explicit costs. % &'$! T,.! 1()1 NAT! Analytic 'xplicit costs 2 #mplicit costs
AN ! "#$! +,-! -osts of production / -! #nterpreti0e 13.
Gatherine gi0es piano lessons for =13 per hour. he also grows flowers6 which she arranges and sells at the local farmers market. ,ne day she spends 3 hours planting =3* worth of seeds in her garden. ,nce the seeds ha0e grown into flowers6 she can sell them for =13* at the farmers market. 9hich of the following statements is correct regarding Gatherines profits from selling flowersC a. Gatherines accounting profits are =1**6 and her economic profits are =%3. b. Gatherines accounting profits are =1**6 and her economic profits are =53. c. Gatherines accounting profits are =%36 and her economic profits are =1**. d. Gatherines accounting profits are =536 and her economic profits are =1%3. % &'$! T,.! 1()1 NAT! Analytic 'conomic profit 2 Accounting profit
AN ! A "#$! +,-! -osts of production / -! Analytical

14.
87
Gatherine gi0es piano lessons for =%* per hour. he also grows flowers6 which she arranges and sells at the local farmers market. ,ne day she spends 3 hours planting =3* worth of seeds in her garden. ,nce the seeds ha0e grown into flowers6 she can sell them for =13* at the farmers market. 9hich of the following statements is correct regarding Gatherines profits from selling flowersC a. Gatherines accounting profits are =1**6 and her economic profits are =1**. b. Gatherines accounting profits are =1**6 and her economic profits are =*. c. Gatherines accounting profits are =*6 and her economic profits are =1**. d. Gatherines accounting profits are =*6 and her economic profits are =)1**. % &'$! T,.! 1()1 NAT! Analytic 'conomic profit 2 Accounting profit
AN ! @ "#$! +,-! -osts of production / -! Analytical 15.
A certain firm manufactures and sells computer chips. +ast year it sold % million chips at a price of =1* per chip. $or last year6 the firm:s a. accounting profit amounted to =%* million. b. economic profit amounted to =%* million. c. total re0enue amounted to =%* million. d. explicit costs amounted to =%* million. 1 &'$! T,.! 1()1 Total re0enue NAT! Analytic
AN ! "#$! +,-! -osts of production / -! Applicati0e 17.
'conomic profit is equal to a. total re0enue minus the explicit cost of producing goods and ser0ices. b. total re0enue minus the opportunity cost of producing goods and ser0ices. c. total re0enue minus the accounting cost of producing goods and ser0ices. d. a0erage re0enue minus the a0erage cost of producing the last unit of a good or ser0ice. 1 &'$! T,.! 1()1 NAT! Analytic 'conomic profit
AN ! @ "#$! +,-! -osts of production / -! "efinitional 18.
Accounting profit is equal to a. marginal re0enue minus marginal cost. b. total re0enue minus the explicit cost of producing goods and ser0ices. c. total re0enue minus the opportunity cost of producing goods and ser0ices. d. a0erage re0enue minus the a0erage cost of producing the last unit of a good or ser0ice. 1 &'$! T,.! 1()1 NAT! Analytic Accounting profit
AN ! @ "#$! +,-! -osts of production / -! "efinitional 3*.
'conomic profit a. will ne0er exceed accounting profit. b. is most often equal to accounting profit. c. is always at least as large as accounting profit. d. is a less complete measure of profitability than accounting profit. % &'$! T,.! 1()1 NAT! Analytic 'conomic profit
9hich of the following expressions is correctC a. accounting profit M total re0enue ) explicit costs b. economic profit M total re0enue ) implicit costs c. economic profit M total re0enue ) explicit costs d. @oth a and b are correct. % &'$! T,.! 1()1 NAT! Analytic Accounting profit
AN ! A "#$! +,-! -osts of production / -! #nterpreti0e
88
3%.

9hich of the following expressions is correctC a. accounting profit M economic profit K implicit costs b. accounting profit M total re0enue ) implicit costs c. economic profit M accounting profit K explicit costs d. economic profit M total re0enue ) implicit costs % &'$! T,.! 1()1 NAT! Analytic Accounting profit
AN ! A "#$! +,-! -osts of production / -! Analytical 3(.
9hen calculating a firm:s profit6 an economist will subtract only a. explicit costs from total re0enue since these are the only costs that can be measured explicitly. b. implicit costs from total re0enue since these include both the costs that can be directly measured as well as the costs that can be indirectly measured. c. the opportunity costs from total re0enue since these include both the implicit and explicit costs of the firm. d. the marginal cost since the cost of the next unit is the only rele0ant cost. % &'$! T,.! 1()1 NAT! Analytic 'conomic profit
uppose that for a particular business there are no implicit opportunity costs. Then a. accounting profit will be greater than economic profit. b. accounting profit will be the same as economic profit. c. accounting profit will be less than economic profit. d. the relationship between accounting profit and economic profit cannot be determined without more information. % &'$! T,.! 1()1 NAT! Analytic Accounting profit 2 'conomic profit
Total re0enue minus both explicit and implicit costs is called a. accounting profit. b. economic profit. c. a0erage total cost. d. None of the abo0e is correct. 1 &'$! T,.! 1()1 NAT! Analytic 'conomic profit
Total re0enue minus only explicit costs is called a. accounting profit. b. economic profit. c. a0erage total cost. d. None of the abo0e is correct. 1 &'$! T,.! 1()1 NAT! Analytic 'conomic profit
AN ! A "#$! +,-! -osts of production / -! "efinitional 35.
Total re0enue minus only implicit costs is called a. accounting profit. b. economic profit. c. opportunity cost. d. None of the abo0e is correct. 1 &'$! T,.! 1()1 NAT! Analytic 'conomic profit
AN ! " "#$! +,-! -osts of production / -! "efinitional

37.
1**
Ge0in quit his =436*** a year corporate lawyer Bob to open up his own law practice. #n Ge0in:s first year in business his total re0enue equaled =13*6***. Ge0in:s explicit cost during the year totaled =736***. <sing the information from Ge0in:s first year in business6 what is his economic profitC a. =* b. =%*6*** c. =436*** d. =736*** % &'$! T,.! 1()1 NAT! Analytic 'conomic profit
AN ! A "#$! +,-! -osts of production / -! Applicati0e 38.
The difference between accounting profit and economic profit relates to a. the manner in which re0enues are defined. b. how total re0enue is calculated. c. the manner in which costs are defined. d. the price of the good in the market. % &'$! T,.! 1()1 NAT! Analytic 'conomic profit
AN ! "#$! +,-! -osts of production / -! "efinitional
Scenario 13-1 ?oe wants to start his own business6 which will require that he purchase a factory that costs =1**6***. ?oe currently has =3**6*** in the bank earning ( percent interest per year. 4*. Refer to Scenario 13$1. #f ?oe purchases the factory with his own money6 what is the annual implicit opportunity cost of purchasing the factoryC a. =* b. =(6*** c. =1%6*** d. =136*** % &'$! T,.! 1()1 #mplicit costs NAT! Analytic
Refer to Scenario 13$1. uppose ?oe purchases the factory using =%**6*** of his own money and =%**6*** borrowed from a bank at an interest rate of 4 percent. 9hat is ?oes annual opportunity cost of purchasing the factoryC a. =(6*** b. =46*** c. =136*** d. =176*** % &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
AN ! " "#$! +,-! -osts of production / -! Applicati0e
Scenario 13-2 Hach withdrew =1**6*** out of his personal sa0ings account and used it to start his new cookie business. The bank account pays ( percent interest per year. "uring the first year of his business6 Hach sold 46*** boxes of cookies for =%.3* per box. Also during the first year6 the cookie business made monetary outlays of =86***. Jou may assume that there is no opportunity cost to Hachs time. 4%. Refer to Scenario 13$2% Hach:s accounting profit for the year was a. =)1816***. b. =)46***. c. =46***. d. =1%6***. % &'$! T,.! 1()1 NAT! Analytic Accounting profit
AN ! "#$! +,-! -osts of production / -! Applicati0e
1*1
4(.

Refer to Scenario 13$2. Hach:s economic profit for the year was a. =)3*46***. b. =)46***. c. =(6***. d. =46***. % &'$! T,.! 1()1 NAT! Analytic 'conomic profit
AN ! @ "#$! +,-! -osts of production / -! Applicati0e
Scenario 13-3 Tony is a wheat farmer6 but he also spends part of his day teaching guitar lessons. "ue to the popularity of his local country western band6 $armer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. $armer Tony charges =%3 an hour for his guitar lessons. ,ne spring day6 he spends 1* hours in his fields planting =1(* worth of seeds on his farm. De expects that the seeds he planted will yield =(** worth of wheat. 41. Refer to Scenario 13$3. 9hat is the total opportunity cost of the day that $armer Tony incurred for his spring day in the field planting wheatC a. =1(* b. =%3* c. =(** d. =(7* % &'$! T,.! 1()1 NAT! Analytic ,pportunity cost
Refer to Scenario 13$3. Tony:s accountant would most likely figure the total cost of his wheat planting to equal a. =%3. b. =1(*. c. =(**. d. =(7*. % &'$! T,.! 1()1 'xplicit costs NAT! Analytic
Refer to Scenario 13$3. Tony:s accounting profit equals a. =)7*. b. =1(*. c. =15*. d. =%4*. % &'$! T,.! 1()1 NAT! Analytic Accounting profit
Refer to Scenario 13$3. Tony:s economic profit equals a. =)1(*. b. =)7*. c. =1(*. d. =15*. % &'$! T,.! 1()1 NAT! Analytic 'conomic profit
1*%
Scenario 13-4 9anda owns a lemonade stand. he produces lemonade using fi0e inputs! water6 sugar6 lemons6 paper cups6 and labor. Der costs per glass are as follows! =*.*1 for water6 =*.*% for sugar6 =*.*( for lemons6 =*.*% for cups6 and =*.1* for the opportunity cost of her labor. he can sell (** glasses for =*.3* each. 47. Refer to Scenario 13$ % 9hat are 9andas explicit costs per glassC a. =*.17 b. =*.1* c. =*.*7 d. =*.*% % &'$! T,.! 1()1 'xplicit costs NAT! Analytic
AN ! "#$! +,-! -osts of production / -! Analytical 48.
Refer to Scenario 13$ % 9hat are 9andas implicit costs per glassC a. =*.17 b. =*.1* c. =*.*7 d. =*.*% % &'$! T,.! 1()1 #mplicit costs NAT! Analytic
AN ! @ "#$! +,-! -osts of production / -! Analytical 5*.
Refer to Scenario 13$ % 9hat are 9andas total costs per glassC a. =*.17 b. =*.1* c. =*.*7 d. =*.*% % &'$! T,.! 1()1 Total cost NAT! Analytic / -! Analytical
Refer to Scenario 13$ % 9hat are 9andas total accounting profitsC a. =13* b. =1%4 c. =84 d. =%1 % &'$! T,.! 1()1 NAT! Analytic 'conomic profit
AN ! @ "#$! +,-! -osts of production / -! Analytical 5%.
Refer to Scenario 13$ % 9hat are 9andas total economic profitsC a. =13* b. =1%4 c. =84 d. =31 % &'$! T,.! 1()1 NAT! Analytic 'conomic profit
AN ! "#$! +,-! -osts of production / -! Analytical
Scenario 13-5 amantha has been working for a law firm and earning an annual salary of =7*6***. he decides to open her own practice. Der annual expenses will include =136*** for office rent6 =(6*** for equipment rental6 =16*** for supplies6 =16%** for utilities6 and a =(36*** salary for a secretary;bookkeeper. amantha will co0er her start)up expenses by cashing in a =%*6*** certificate of deposit on which she was earning annual interest of =3**. 5(. Refer to Scenario 13$!% a. =336%**. b. =536%**. c. =7*63**. d. =14365**. amantha:s annual implicit costs will equal
1*(

% &'$! T,.! 1()1 #mplicit costs NAT! Analytic
AN ! "#$! +,-! -osts of production / -! Analytical 51. Refer to Scenario 13$!% a. =336%**. b. =536%**. c. =7*63**. d. =14365**.
amantha:s annual accounting costs will equal
AN ! A "#$! +,-! -osts of production / -! Analytical 53. Refer to Scenario 13$!% a. =336%**. b. =536%**. c. =7*63**. d. =1(365**.
&'$! T,.!
1()1 'xplicit costs
NAT! Analytic
amantha:s annual economic costs will equal
&'$! T,.!
1()1 NAT! Analytic 'xplicit costs 2 #mplicit costs
Refer to Scenario 13$!% According to amanthas accountant6 which of the following re0enue totals will yield her business =3*6*** in profitsC a. =336%**. b. =1*36%**. c. =1(%63**. d. =17365**. ( &'$! T,.! 1()1 NAT! Analytic Accounting profit
Refer to Scenario 13$!% According to an economist6 which of the following re0enue totals will yield her business =3*6*** in economic profitsC a. =336%**. b. =1**6%**. c. =1(%63**. d. =17365**. ( &'$! T,.! 1()1 NAT! Analytic 'conomic profit
AN ! " "#$! +,-! -osts of production / -! Analytical
Sec*2 $ The Costs of Production $ Production and Cost

+ULT,PLE C&',CE 1. A production function describes a. how a firm maximizes profits. b. how a firm turns inputs into output. c. the minimal cost of producing a gi0en le0el of output. d. the relationship between cost and output. 1 &'$! T,.! 1()% NAT! Analytic .roduction function
AN ! @ "#$! +,-! -osts of production / -! "efinitional %.
A production function is a relationship between inputs and a. quantity of output. b. re0enue. c. costs. d. profit.

AN ! A "#$! +,-! -osts of production / -! "efinitional (. 1 &'$! T,.! 1()% NAT! Analytic .roduction function
1*1
9hich of the following statements about a production function is correct for a firm that uses labor to produce outputC a. The production function depicts the relationship between the quantity of labor and the quantity of output. b. The slope of the production function measures marginal cost. c. The quantity of output determines the maximum amount of labor the firm will hire. d. All of the abo0e are correct. % &'$! T,.! 1()% NAT! Analytic .roduction function
$or a firm6 the production function represents the relationship between a. implicit costs and explicit costs. b. quantity of inputs and total cost. c. quantity of inputs and quantity of output. d. quantity of output and total cost. 1 &'$! T,.! 1()% NAT! Analytic .roduction function
$or a firm6 the relationship between the quantity of inputs and quantity of output is called the a. profit function. b. production function. c. total)cost function. d. quantity function. 1 &'$! T,.! 1()% NAT! Analytic .roduction function
Table 13-1 Alysons Pet Sitting Service Number of ,utput Enumber of 9orkers pet 0isitsF * * 1 %* % 13 ( 4* 1 5* 4. Refer to Ta"#e 13$1% 9hat is the marginal product of the second workerC a. 13 b. %* c. %%.3 d. %3 % &'$! T,.! 1()% NAT! Analytic /arginal product
Refer to Ta"#e 13$1% 9hat is the marginal product of the third workerC a. 13 b. %* c. (3 d. 4*
1*3

% &'$! T,.! 1()% NAT! Analytic /arginal product
Refer to Ta"#e 13$1% Alysons pet sitting ser0ice experiences diminishing marginal producti0ity with the addition of the a. first worker. b. second worker. c. third worker. d. fourth worker. ( &'$! T,.! 1()% NAT! Analytic "iminishing marginal product
Refer to Ta"#e 13$1% uppose that Alysons pet sitting ser0ice has a fixed cost of =3* per month for her cell phone. 'ach worker costs Alyson =4* per day. 9hat is the shape of Alysons total cost cur0e as output increases from * and 13C a. Total cost increases but gets flatter. b. Total cost increases and gets steeper. c. Total cost decreases and gets flatter. d. Total cost decreases but gets steeper. ( &'$! T,.! 1()% NAT! Analytic Total)cost cur0e
AN ! A "#$! +,-! -osts of production / -! #nterpreti0e 1*.
Refer to Ta"#e 13$1% uppose that Alysons pet sitting ser0ice has a fixed cost of =3* per month for her cell phone. 'ach worker costs Alyson =4* per day. 9hat is the shape of Alysons total cost cur0e as output increases from 13 to 5*C a. Total cost increases but gets flatter. b. Total cost increases and gets steeper. c. Total cost decreases and gets flatter. d. Total cost decreases but gets steeper. ( &'$! T,.! 1()% NAT! Analytic Total)cost cur0e

Figure 13-1 uppose the production function shifts from T.1 to T.%.
1*4
11.
Refer to Fi.ure 13$1. #n this diagram6 the shift in the total product cur0e represents an increase in the firm:s a. costs of production. b. producti0ity. c. diseconomies. d. market share. % &'$! T,.! 1()% NAT! Analytic .roduction function
AN ! @ "#$! +,-! -osts of production / -! Analytical 1%.
Refer to Fi.ure 13$1. 9hich of the following could explain why the total product cur0e shifted in this diagramC a. A reduction in capital equipment a0ailable to the firm. b. +abor skills ha0e become rusty and outdated in the firm. c. The firm has de0eloped new technology in its production facility. d. The firm is now recei0ing a higher price for its product. % &'$! T,.! 1()% NAT! Analytic .roduction function
AN ! "#$! +,-! -osts of production / -! #nterpreti0e 1(.
9hich of these assumptions is often realistic for a firm in the short runC a. The firm can 0ary both the size of its factory and the number of workers it employs. b. The firm can 0ary the size of its factory but not the number of workers it employs. c. The firm can 0ary the number of workers it employs but not the size of its factory. d. The firm can 0ary neither the size of its factory nor the number of workers it employs. 1 &'$! T,.! 1()% NAT! Analytic .roduction function 2 hort run
Assume a certain firm regards the number of workers it employs as 0ariable but regards the size of its factory as fixed. This assumption is often realistic a. in the short run but not in the long run. b. in the long run but not in the short run. c. both in the short run and in the long run. d. neither in the short run nor in the long run. 1 &'$! T,.! 1()% NAT! Analytic .roduction function 2 hort run
1*5
13.

+ois is a self)employed pet sitter. he can make %* NhousecallsO per day. he is considering hiring her sister "ora to work for her. @oth she and "ora can 0isit (3 houses per day. 9hat is "oras marginal productC a. 33 b. (3 c. %%.3 d. 13 % &'$! T,.! 1()% NAT! Analytic /arginal product
+ois is a self)employed pet sitter. he can make %* NhousecallsO per day. he is considering hiring her sister "ora to work for her. "ora can 0isit 17 houses per day. 9hat would be the total output of +oiss firm if she hired her sisterC a. 17 b. 18 c. %* d. (7 % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! " "#$! +,-! -osts of production / -! Analytical Figure 13-2

1** 8* 7* 5* 4* 3* 1* (* %* 1* 1 % ( 1 3 4 5 Output
W orkers
15.
Refer to Fi.ure 13$2% The graph illustrates a typical a. total)cost cur0e. b. production function. c. production possibilities frontier. d. marginal product of labor cur0e. % &'$! T,.! 1()% NAT! Analytic .roduction function
Refer to Fi.ure 13$2. As the number of workers increases6 a. total output increases but at a decreasing rate. b. marginal product increases but at a decreasing rate. c. marginal product increases at an increasing rate. d. total output decreases. % &'$! T,.! 1()% NAT! Analytic .roduction function

18. Refer to Fi.ure 13$2. As the number of workers increases6 a. marginal product decreases. b. total output decreases. c. marginal product increases but at a decreasing rate. d. @oth a and b are correct. ( &'$! T,.! 1()% NAT! Analytic .roduction function
1*7
AN ! A "#$! +,-! -osts of production / -! Analytical %*.
Refer to Fi.ure 13$2. 9ith regard to cookie production6 the figure implies a. diminishing marginal product of workers. b. diminishing marginal cost of cookie production. c. decreasing cost of cookie production. d. increasing marginal product of workers. % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! A "#$! +,-! -osts of production / -! Analytical %1.
Refer to Fi.ure 13$2% The graph illustrates a typical production function. @ased on its shape6 what does the corresponding total cost cur0e look likeC a. an upward)sloping cur0e that increases at an increasing rate b. an upward)sloping cur0e that increases at a decreasing rate c. a downward)sloping cur0e d. a horizontal straight line ( &'$! T,.! 1()% NAT! Analytic .roduction function 2 Total)cost cur0e
AN ! A "#$! +,-! -osts of production / -! #nterpreti0e %%.
The marginal product of labor is equal to the a. incremental cost associated with a one unit increase in labor. b. incremental profit associated with a one unit increase in labor. c. increase in labor necessary to generate a one unit increase in output. d. increase in output obtained from a one unit increase in labor. % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! " "#$! +,-! -osts of production / -! "efinitional %(.
The marginal product of labor can be defined as a. change in profit;change in labor. b. change in output;change in labor. c. change in labor;change in output. d. change in labor;change in total cost. % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! @ "#$! +,-! -osts of production / -! "efinitional %1.
The marginal product of an input in the production process is the increase in a. total re0enue obtained from an additional unit of that input. b. profit obtained from an additional unit of that input. c. total re0enue obtained from an additional unit of that input. d. quantity of output obtained from an additional unit of that input. % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! " "#$! +,-! -osts of production / -! "efinitional
1*8
%3.

9hen a firm:s only 0ariable input is labor6 then the slope of the production function measures the a. quantity of labor. b. quantity of output. c. total cost. d. marginal product of labor. % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! " "#$! +,-! -osts of production / -! Applicati0e %4.
+et + represent the number of workers hired by a firm and let P represent that firm:s quantity of output. Assume two points on the firm:s production function are EL M 1%6 Q M 1%%F and EL M 1(6 Q M 1(%F. Then the marginal product of the 1(th worker is a. 7 units of output. b. 1* units of output. c. 1%% units of output. d. 1(% units of output. % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! @ "#$! +,-! -osts of production / -! Applicati0e %5.
+et + represent the number of workers hired by a firm and let P represent that firm:s quantity of output. Assume two points on the firm:s production function are EL M 36 Q M 1%3F and EL M 46 Q M 14%F. Then the marginal product of the 4th worker is a. %3 units of output. b. %5 units of output. c. (5 units of output. d. 14% units of output. % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! "#$! +,-! -osts of production / -! Applicati0e %7.
uppose a certain firm is able to produce 143 units of output per day when 13 workers are hired. The firm is able to produce 154 units of output per day when 14 workers are hired Eholding other inputs fixedF. Then the marginal product of the 14th worker is a. 1* units of output. b. 11 units of output. c. 14 units of output. d. 154 units of output. 1 &'$! T,.! 1()% NAT! Analytic /arginal product
The marginal product of any input is the a. increase in total cost associated with a one)unit increase in production. b. change in total output associated with a =1.** increase in total cost. c. increase in total cost resulting from the hiring of an additional worker. d. increase in total output obtained from one additional unit of that input. 1 &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! " "#$! +,-! -osts of production / -! "efinitional (*.
9hen adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding pre0ious units of labor6 the firm is experiencing a. diminishing labor. b. diminishing output. c. diminishing marginal product. d. negati0e marginal product.

AN ! "#$! +,-! -osts of production / -! Applicati0e (1. % &'$! T,.! 1()% NAT! Analytic "iminishing marginal product
11*
,n a 1**)acre farm6 a farmer is able to produce (6*** bushels of wheat when he hires % workers. De is able to produce 161** bushels of wheat when he hires ( workers. 9hich of the following possibilities is consistent with the property of diminishing marginal productC a. The farmer is able to produce 364** bushels of wheat when he hires 1 workers. b. The farmer is able to produce 367** bushels of wheat when he hires 1 workers. c. The farmer is able to produce 46*** bushels of wheat when he hires 1 workers. d. Any of the abo0e could be correct. % &'$! T,.! 1()% NAT! Analytic "iminishing marginal product
AN ! A "#$! +,-! -osts of production / -! Analytical (%.
,n a 1**)acre farm6 a farmer is able to produce (6*** bushels of wheat when he hires % workers. De is able to produce 161** bushels of wheat when he hires ( workers. 9hich of the following possibilities is consistent with the property of diminishing marginal productC a. The farmer is able to produce 364** bushels of wheat when he hires 1 workers. b. The farmer is able to produce 361** bushels of wheat when he hires 1 workers. c. The farmer is able to produce 36%** bushels of wheat when he hires 1 workers. d. Any of the abo0e could be correct. % &'$! T,.! 1()% NAT! Analytic "iminishing marginal product
AN ! " "#$! +,-! -osts of production / -! Analytical ((.
9hen the marginal product of an input declines as the quantity of that input increases6 the production function exhibits a. increasing marginal product. b. diminishing marginal product. c. diminishing total product. d. @oth b and c are correct. % &'$! T,.! 1()% NAT! Analytic "iminishing marginal product
AN ! @ "#$! +,-! -osts of production / -! "efinitional (1.
As Al:s &adiator -ompany adds workers while keeping the same amount of machinery6 some workers may be underutilized because they ha0e little work to do while waiting in line to use the machinery. 9hen this occurs6 Al:s &adiator -ompany encounters a. economies of scale. b. diseconomies of scale. c. increasing marginal returns. d. diminishing marginal returns. % &'$! T,.! 1()% NAT! Analytic "iminishing marginal product
AN ! " "#$! +,-! -osts of production / -! #nterpreti0e Table 13-2 Number of 9orkers * 1 % ( 1 ,utput * 8* 15* %(* %1*
$ixed -ost =3* =3* =3* =3* =3*
>ariable -ost =* =%* =1* =4* =7*
Total -ost =3* =5* =8* =11* =1(*
111
(3.

Refer to Ta"#e 13$2% The marginal product of the second worker is a. 8* units. b. 73 units. c. 7* units. d. %* units. % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! "#$! +,-! -osts of production / -! Analytical (4.
Refer to Ta"#e 13$2% The marginal product of the third worker is a. %(* units. b. 1** units. c. 55 units. d. 4* units. % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! " "#$! +,-! -osts of production / -! Analytical (5.
Refer to Ta"#e 13$2. The marginal product of the fourth worker is a. 1* units. b. 4* units. c. %(* units. d. %1* units. % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! A "#$! +,-! -osts of production / -! Analytical (7.
Refer to Ta"#e 13$2. At which number of workers does diminishing marginal product beginC a. 1 b. % c. ( d. 1 1 &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! @ "#$! +,-! -osts of production / -! Analytical (8.
Refer to Ta"#e 13$2% #f the firm can sell its output for =1 per unit6 what is the profit)maximizing le0el of outputC a. %1* units b. %(* units c. 18* units d. 15* units % &'$! T,.! 1()% .rofit NAT! Analytic / -! Analytical +ar.ina# Product )) (* 1* 3* 1* (*
AN ! @ "#$! +,-! -osts of production Table 13-3 (u/"er of )or0ers * 1 % ( 1 3
Tota# 'utput *

1*. Refer to Ta"#e 13$3. 9hat is total output when 1 worker is hiredC a. (* b. 1* c. 1%* d. 14* % &'$! T,.! 1()% NAT! Analytic /arginal product
11%
Refer to Ta"#e 13$3. 9hat is total output when % workers are hiredC a. (* b. 1* c. 5* d. 1%* % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! "#$! +,-! -osts of production / -! Analytical 1%.
Refer to Ta"#e 13$3. 9hat is total output when ( workers are hiredC a. (* b. 1* c. 5* d. 1%* % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! " "#$! +,-! -osts of production / -! Analytical 1(.
Refer to Ta"#e 13$3. 9hat is total output when 1 workers are hiredC a. 1* b. 5* c. 1%* d. 14* % &'$! T,.! 1()% NAT! Analytic /arginal product
Refer to Ta"#e 13$3. 9hat is total output when 3 workers are hiredC a. 5* b. 1%* c. 14* d. 18* % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! " "#$! +,-! -osts of production / -! Analytical Table 13-4 Gallo Cork Factory (u/"er of )or0ers 1 % ( 1 3 4 5 (u/"er of +achines % % % % % % %
'utput 1cor0s produced per hour2 3 1* %* (3 33 5* 7*
+ar.ina# Product of La"or
Cost of )or0ers
Cost of +achines
Tota# Cost
11(
13.

Refer to Ta"#e 13$ . 'ach worker at Aallo:s cork factory costs =1% per hour. The cost of each machine is =%* per day regardless of the number of corks produced. #f Aallo:s produces at a rate of 5* corks per hour and operates 7 hours per day6 what is Aallos total labor cost per dayC a. =5% b. =11% c. =354 d. =414 % &'$! T,.! 1()% NAT! Analytic >ariable costs
Refer to Ta"#e 13$ . 'ach worker at Aallo:s cork factory costs =1% per hour. The cost of each machine is =%* per day regardless of the number of corks produced. 9hat is the total daily cost of producing at a rate of 33 units per hour if Aallos operates 7 hours per dayC a. =17* b. =354 c. =3%* d. =414 % &'$! T,.! 1()% Total cost NAT! Analytic / -! Applicati0e
Refer to Ta"#e 13$ . 'ach worker at Aallo:s cork factory costs =1% per hour. The cost of each machine is =%* per day regardless of the number of corks produced. Assume the number of machines does not change. #f Aallo:s produces at a rate of 57 corks per hour6 what is the total machine cost per dayC a. =%* b. =1* c. =%1* d. 9e are unable to determine total machine costs from the information gi0en. % &'$! T,.! 1()% $ixed costs NAT! Analytic / -! Applicati0e
AN ! @ "#$! +,-! -osts of production 17.
Refer to Ta"#e 13$ . 'ach worker at Aallo:s cork factory costs =1% per hour. The cost of each machine is =%* per day regardless of the number of corks produced. #f Aallo:s produces at a rate of (3 corks per hour6 what is the total labor cost per hourC a. =1* b. =17 c. =(71 d. =1%1 % &'$! T,.! 1()% NAT! Analytic >ariable costs
AN ! @ "#$! +,-! -osts of production / -! Applicati0e 18.
Refer to Ta"#e 13$ . Assume Aallo:s currently employs 3 workers. 9hat is the marginal product of labor when Aallo:s adds a 4th workerC a. 3 corks per hour b. 13 corks per hour c. %3 corks per hour d. 5* corks per hour % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! @ "#$! +,-! -osts of production / -! Applicati0e 3*.
Refer to Ta"#e 13$ . Assume Aallo:s currently employs % workers. 9hat is the marginal product of labor when Aallo:s adds a (rd workerC a. 3 corks per hour b. 1* corks per hour c. %* corks per hour d. %3 corks per hour

AN ! @ "#$! +,-! -osts of production / -! Applicati0e 31. % &'$! T,.! 1()% NAT! Analytic /arginal product
111
Refer to Ta"#e 13$ . Aallo:s cork factory experiences diminishing marginal product of labor with the addition of which workerC a. the third worker b. the fourth worker c. the fifth worker d. the sixth worker % &'$! T,.! 1()% NAT! Analytic /arginal product
AN ! " "#$! +,-! -osts of production / -! Applicati0e Figure 13-3

1** 8* 7* 5* 4* 3* 1* (* %* 1* % 1 4 7 1* 1% Cost
11
14
Quantity
3%.
Refer to Fi.ure 13$3% The graph illustrates a typical a. total)cost cur0e. b. production function. c. production possibilities frontier. d. fixed)cost cur0e. % &'$! T,.! 1()% NAT! Analytic Total)cost cur0e
AN ! A "#$! +,-! -osts of production / -! #nterpreti0e 3(.
Refer to Fi.ure 13$3% The graph illustrates a typical total cost cur0e. @ased on its shape6 what does the corresponding production function look likeC a. an upward)sloping cur0e that increases at an increasing rate b. an upward)sloping cur0e that increases at a decreasing rate c. a downward)sloping cur0e d. a horizontal straight line % &'$! T,.! 1()% NAT! Analytic Total)cost cur0e 2 .roduction function
Refer to Fi.ure 13$3% 9hich of the following is true of the production function Enot picturedF that underlies this total cost functionC EiF Total output increases as the quantity of inputs increases but at a decreasing rate. EiiF /arginal product is diminishing for all le0els of input usage. EiiiF The slope of the production function decreases as the quantity of inputs increases.
113
a. b. c. d.

EiF only EiiF and EiiiF only EiF and EiiiF only EiF6 EiiF6 and EiiiF ( &'$! T,.! 1()% NAT! Analytic .roduction function
Refer to Fi.ure 13$3. The changing slope of the total cost cur0e reflects a. decreasing a0erage 0ariable cost. b. decreasing a0erage total cost. c. decreasing marginal product. d. increasing fixed cost. % &'$! T,.! 1()% NAT! Analytic /arginal product
Refer to Fi.ure 13$3. 9hich of the following statements best captures the nature of the underlying production functionC a. ,utput increases at a decreasing rate with additional units of input. b. ,utput increases at an increasing rate with additional units of input. c. ,utput decreases at a decreasing rate with additional units of input. d. ,utput decreases at an increasing rate with additional units of input. % &'$! T,.! 1()% NAT! Analytic .roduction function
Refer to Fi.ure 13$3. Assuming that the firm depicted produces cookies6 which of the statements below is most consistent with the shape of the total cost cur0eC a. .roducing an additional cookie is always more costly than producing the pre0ious cookie. b. Total production of cookies decreases with additional units of input. c. .roducing additional cookies is equally costly6 regardless of how many cookies are already being produced. d. .roducing additional cookies becomes increasingly costly only when the number of cookies already being produced is large. % &'$! T,.! 1()% NAT! Analytic .roduction function
A total)cost cur0e shows the relationship between the a. quantity of an input used and the total cost of production. b. quantity of output produced and the total cost of production. c. total cost of production and profit. d. total cost of production and total re0enue. 1 &'$! T,.! 1()% NAT! Analytic Total)cost cur0e
#f the total cost cur0e gets steeper as output increases6 the firm is experiencing a. diseconomies of scale. b. economies of scale. c. diminishing marginal product. d. increasing marginal product. % &'$! T,.! 1()% NAT! Analytic Total)cost cur0e

4*. "a0ids firm experiences diminishing marginal product for all ranges of inputs. The total cost cur0e associated with "a0ids firm a. gets flatter as output increases. b. gets steeper as output increases. c. is constant for all ranges of output. d. is unrelated to the production function. % &'$! T,.! 1()% NAT! Analytic Total)cost cur0e
114
9hich of the following statements about a production function is correct for a firm that uses labor to produce outputC a. The production function depicts the relationship between the quantity of labor and the quantity of output. b. The slope of the production function measures marginal product. c. The slopes of the production function and the total cost cur0e are in0ersely relatedQ if one is increasing6 the other is decreasing. d. All of the abo0e are correct. ( &'$! T,.! 1()% NAT! Analytic .roduction function 2 Total)cost cur0e
AN ! " "#$! +,-! -osts of production / -! #nterpreti0e
Sec*3 $ The Costs of Production $ The 3arious +easures of Cost

+ULT,PLE C&',CE 1. Total cost can be di0ided into two types of costs! a. fixed costs and 0ariable costs. b. fixed costs and marginal costs. c. 0ariable costs and marginal costs. d. a0erage costs and marginal costs. 1 &'$! T,.! 1()( NAT! Analytic $ixed costs 2 >ariable costs
AN ! A "#$! +,-! -osts of production / -! "efinitional %.
ome costs do not 0ary with the quantity of output produced. Those costs are called a. marginal costs. b. a0erage costs. c. fixed costs. d. incurred costs. 1 &'$! T,.! 1()( $ixed costs NAT! Analytic / -! "efinitional
AN ! "#$! +,-! -osts of production (.
9hich of the following costs do not 0ary with the amount of output a firm producesC a. a0erage fixed costs b. fixed costs and a0erage fixed costs c. marginal costs and a0erage fixed costs d. fixed costs % &'$! T,.! 1()( $ixed costs NAT! Analytic / -! "efinitional
AN ! " "#$! +,-! -osts of production 1.
$ixed costs can be defined as costs that a. 0ary in0ersely with production. b. 0ary in proportion with production. c. are incurred only when production is large enough. d. are incurred e0en if nothing is produced. 1 &'$! T,.! 1()( $ixed costs NAT! Analytic / -! #nterpreti0e
AN ! " "#$! +,-! -osts of production
115
3.

#n the short run6 a firm incurs fixed costs a. only if it incurs 0ariable costs. b. only if it produces no output. c. only if it produces a positi0e quantity of output. d. whether it produces output or not. 1 &'$! T,.! 1()( $ixed costs NAT! Analytic / -! #nterpreti0e
$or a construction company that builds houses6 which of the following costs would be a fixed costC a. the =3*6*** per year salary paid to a construction foreman b. the =(*6*** per year salary paid to the company:s bookkeeper c. the =1*6*** per year premium paid to an insurance company d. All of the abo0e are correct. % &'$! T,.! 1()( $ixed costs NAT! Analytic / -! #nterpreti0e
$or a construction company that builds houses6 which of the following costs would be a fixed costC a. the =%* per hour wage paid to a construction foreman b. the =(*6*** per year salary paid to the company:s bookkeeper c. the =% per worker)hour paid to the state go0ernment for workers compensation insurance d. All of the abo0e are correct. % &'$! T,.! 1()( $ixed costs NAT! Analytic / -! #nterpreti0e
9hich of the following costs of publishing a book is a fixed costC a. author royalties of 3L per book b. the costs of paper and binding c. shipping and postage expenses d. composition6 typesetting6 and Backet design for the book % &'$! T,.! 1()( $ixed costs NAT! Analytic / -! #nterpreti0e
uppose that for a particular firm the only 0ariable input into the production process is labor and that output equals zero when no workers are hired. #n addition6 suppose that when the firm hires % workers6 the total cost of production is =1**. 9hen the firm hires ( workers6 the total cost of production is =1%*. #n addition6 assume that the 0ariable cost per unit of labor is the same regardless of the number of units of labor that are hired. 9hat is the firm:s fixed costC a. =1* b. =4* c. =7* d. =1** ( &'$! T,.! 1()( $ixed costs NAT! Analytic / -! Analytical
AN ! @ "#$! +,-! -osts of production 1*.
Darry:s Dotdogs is a small street 0endor business owned by Darry Duggins. Darry is trying to get a better understanding of his costs by categorizing them as fixed or 0ariable. 9hich of the following costs are most likely to be considered fixed costsC a. the cost of mustard b. the cost of hotdog buns c. wages paid to workers who sell hot dogs d. the cost of bookkeeping ser0ices % &'$! T,.! 1()( $ixed costs NAT! Analytic / -! #nterpreti0e
AN ! " "#$! +,-! -osts of production

11.
117
uppose ?an started up a small lemonade stand business last month. >ariable costs for ?an:s lemonade stand now include the cost of a. building the lemonade stand. b. hiring an artist to design a logo for her sign. c. lemons and sugar. d. All of the abo0e are correct. % &'$! T,.! 1()( NAT! Analytic >ariable costs
AN ! "#$! +,-! -osts of production / -! #nterpreti0e 1%.
uppose ?an started up a small lemonade stand business last month. >ariable costs for ?an:s lemonade stand now include the cost of a. lemons and sugar. b. paper cups. c. the wages paid to her hourly workers. d. All of the abo0e are correct. % &'$! T,.! 1()( NAT! Analytic >ariable costs
AN ! " "#$! +,-! -osts of production / -! #nterpreti0e 1(.
#f a firm produces nothing6 which of the following costs will be zeroC a. total cost b. fixed cost c. opportunity cost d. 0ariable cost % &'$! T,.! 1()( NAT! Analytic >ariable costs
$or a large firm that produces and sells automobiles6 which of the following costs would be a 0ariable costC a. the =%* million payment that the firm pays each year for accounting ser0ices b. the cost of the steel that is used in producing automobiles c. the rent that the firm pays for office space in a suburb of t. +ouis d. All of the abo0e are correct. % &'$! T,.! 1()( NAT! Analytic >ariable costs
$or a large firm that produces and sells automobiles6 which of the following costs would be a 0ariable costC a. the unemployment insurance premium that the firm pays to the state of /issouri that is calculated based on the number of worker)hours that the firm uses b. the cost of the steel that is used in producing automobiles c. the cost of the electricity of running the machines on the factory floor d. All of the abo0e are correct. % &'$! T,.! 1()( NAT! Analytic >ariable costs
9hen a firm is able to put idle equipment to use by hiring another worker6 a. 0ariable costs will rise. b. 0ariable costs will fall. c. fixed costs will fall. d. fixed costs and 0ariable costs will rise. % &'$! T,.! 1()( NAT! Analytic >ariable costs
118
15.

9hich of the following is the best example of a 0ariable costC a. monthly wage payments for hired labor b. annual property tax payments for a building c. monthly rent payments for a warehouse d. annual insurance payments for a warehouse % &'$! T,.! 1()( NAT! Analytic >ariable costs
The cost of producing the typical unit of output is the firm:s a. a0erage total cost. b. opportunity cost. c. 0ariable cost. d. marginal cost. % &'$! T,.! 1()( NAT! Analytic A0erage total cost
A0erage total cost is equal to a. output;total cost. b. total cost ) total quantity of output. c. a0erage 0ariable cost K total fixed cost. d. total cost;output. 1 &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! " "#$! +,-! -osts of production / -! "efinitional %*.
A0erage total cost equals a. change in total costs di0ided by quantity produced. b. change in total costs di0ided by change in quantity produced. c. Efixed costs K 0ariable costsF di0ided by quantity produced. d. Efixed costs K 0ariable costsF di0ided by change in quantity produced. % &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! "#$! +,-! -osts of production / -! "efinitional %1.
A0erage total cost tells us the a. total cost of the first unit of output6 if total cost is di0ided e0enly o0er all the units produced. b. cost of a typical unit of output6 if total cost is di0ided e0enly o0er all the units produced. c. cost of the last unit of output6 if total cost does not include a fixed cost component. d. 0ariable cost of a firm that is producing at least one unit of output. % &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e %%.
9hich of the following expressions is correctC a. marginal cost M Echange in quantity of outputF;Echange in total costF b. a0erage total cost M Etotal costF;Equantity of outputF c. total cost M 0ariable cost K marginal cost d. a0erage 0ariable cost M Equantity of outputF;Etotal 0ariable costF % &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e %(.
A0erage total cost EAT-F is calculated as follows! a. AT- M Echange in total costF;Echange in quantity of outputF. b. AT- M Echange in total costF;Echange in quantity of inputF. c. AT- M Etotal costF;Equantity of outputF. d. AT- M Etotal costF;Equantity of inputF.

AN ! "#$! +,-! -osts of production / -! "efinitional %1. 1 &'$! T,.! 1()( NAT! Analytic A0erage total cost
1%*
9hich of the following measures of cost is best described as Rthe cost of a typical unit of output if total cost is di0ided e0enly o0er all the units producedCR a. a0erage fixed cost b. a0erage 0ariable cost c. a0erage total cost d. marginal cost 1 &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! "#$! +,-! -osts of production / -! "efinitional %3.
+arry:s +unchcart is a small street 0endor business. #f +arry makes 13 pretzels in his first hour of business and incurs a total cost of =14.3*6 his a0erage total cost per pretzel is a. =1.1*. b. =4.3*. c. =13.**. d. =14.3*. % &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! A "#$! +,-! -osts of production / -! Applicati0e %4.
At @ert:s @ootery6 the total cost of producing twenty pairs of boots is =1**. The marginal cost of producing the twenty)first pair of boots is =7(. 9e can conclude that the a. a0erage 0ariable cost of %1 pairs of boots is =%(. b. a0erage total cost of %1 pairs of boots is =%(. c. a0erage total cost of %1 pairs of boots is =13.*8. d. marginal cost of the %*th pair of boots is =%*. ( &'$! T,.! 1()( NAT! Analytic A0erage total cost
uppose that for a particular firm the only 0ariable input into the production process is labor and that output equals zero when no workers are hired. #n addition6 suppose that marginal cost of the third worker hired is =1*6 and the a0erage total cost when three workers are hired is =3*. 9hat is the total cost of production when three workers are hiredC a. =3* b. =8* c. =1%* d. =13* % &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! " "#$! +,-! -osts of production / -! Analytical %7.
uppose that for a particular firm the only 0ariable input into the production process is labor and that output equals zero when no workers are hired. #n addition6 suppose that when the firm hires 1 workers6 the firm produces 3* units of output. #f the fixed cost of production is =16 the 0ariable cost per unit of labor is =%*6 and the marginal product of labor for the fifth unit of labor is %6 what is the a0erage total cost of production when the firm hires 3 workersC a. =%.** b. =%*.** c. =%*.7* d. =%%.7* ( &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! A "#$! +,-! -osts of production / -! Applicati0e
1%1
%8.

Toms Tent -ompany has total fixed costs of =(**6*** per year. The firm:s a0erage 0ariable cost is =7* for 1*6*** tents. At that le0el of output6 the firm:s a0erage total costs equal a. =7* b. =8* c. =1** d. =11* % &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! " "#$! +,-! -osts of production / -! Applicati0e (*.
The 9acky 9idget company has total fixed costs of =1**6*** per year. The firm:s a0erage 0ariable cost is =3 for 1*6*** widgets. At that le0el of output6 the firm:s a0erage total costs equal a. =1* b. =13 c. =1** d. =13* % &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! @ "#$! +,-! -osts of production / -! Applicati0e (1.
uppose that for a particular firm the only 0ariable input into the production process is labor and that output equals zero when no workers are hired. #n addition6 suppose that the a0erage total cost when 3 units of output are produced is =(*6 and the marginal cost of the sixth unit of output is =4*. 9hat is the a0erage total cost when six units are producedC a. =1* b. =%3 c. =(* d. =(3 ( &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! " "#$! +,-! -osts of production / -! Analytical (%.
-harless -ar 9ash has a0erage 0ariable costs of =% and a0erage fixed costs of =( when it produces 1** units of output Ecar washesF. The firm:s total cost is a. =1**. b. =%**. c. =(**. d. =3**. % &'$! T,.! 1()( NAT! Analytic A0erage total cost
AN ! " "#$! +,-! -osts of production / -! Applicati0e ((.
mith Technologies has a0erage 0ariable costs of =1 and a0erage total costs of =( when it produces 3** units of output. The firm:s total fixed costs equal a. =%. b. =1. c. =16***. d. =%6***. % &'$! T,.! 1()( NAT! Analytic A0erage fixed cost
AN ! "#$! +,-! -osts of production / -! Applicati0e (1.
9hich of the following statements is not correctC a. $ixed costs are constant. b. >ariable costs change as output changes. c. A0erage fixed costs are constant. d. A0erage total costs are typically <)shaped.

AN ! "#$! +,-! -osts of production / -! Applicati0e (3. % &'$! T,.! 1()( NAT! Analytic A0erage fixed cost
1%%
uppose that for a particular firm the only 0ariable input into the production process is labor and that output equals zero when no workers are hired. #n addition6 suppose that when four units of output are produced6 the total cost is =1536 and the a0erage 0ariable cost is =((.53. 9hat would the a0erage fixed cost be if ten units were producedC a. =1 b. =1* c. =1* d. =1(3 ( &'$! T,.! 1()( NAT! Analytic A0erage fixed cost
A firm produces (** units of output at a total cost of =16***. #f fixed costs are =1**6 a. a0erage fixed cost is =1*. b. a0erage 0ariable cost is =(. c. a0erage total cost is =1. d. a0erage total cost is =3. % &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
>ariable cost di0ided by quantity produced is a. a0erage total cost. b. marginal cost. c. profit. d. None of the abo0e is correct. % &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
AN ! " "#$! +,-! -osts of production / -! "efinitional (7.
>ariable cost di0ided by the change in quantity produced is a. a0erage 0ariable cost. b. marginal cost. c. a0erage total cost. d. None of the abo0e is correct. % &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
AN ! " "#$! +,-! -osts of production / -! "efinitional (8.
-harless -ar 9ash has a0erage 0ariable costs of =% and a0erage total costs of =( when it produces 1** units of output Ecar washesF. The firm:s total 0ariable cost is a. =1**. b. =%**. c. =(**. d. =3**. % &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
AN ! @ "#$! +,-! -osts of production / -! Applicati0e 1*. /arginal cost is equal to a. T-;P. b. AT-;P. c. T-;P. d. P;T-.
1%(

1 &'$! T,.! 1()( /arginal cost NAT! Analytic
The amount by which total cost rises when the firm produces one additional unit of output is called a. a0erage cost. b. marginal cost. c. fixed cost. d. 0ariable cost. 1 &'$! T,.! 1()( /arginal cost NAT! Analytic
AN ! @ "#$! +,-! -osts of production / -! "efinitional 1%.
The cost of producing an additional unit of output is the firm:s a. marginal cost. b. producti0ity offset. c. 0ariable cost. d. a0erage 0ariable cost. 1 &'$! T,.! 1()( /arginal cost NAT! Analytic
AN ! A "#$! +,-! -osts of production / -! "efinitional
1(. /arginal cost equals EiF change in total cost di0ided by change in quantity produced. EiiF change in 0ariable cost di0ided by change in quantity produced. EiiiF the a0erage fixed cost of the current unit. a. b. c. d. EiF and EiiF only EiiF and EiiiF only EiF only EiF6 EiiF6 and EiiiF % &'$! T,.! 1()( /arginal cost NAT! Analytic
/arginal cost equals a. total cost di0ided by quantity of output produced. b. total output di0ided by the change in total cost. c. the slope of the total cost cur0e. d. the slope of the line drawn from the origin to the total cost cur0e. % &'$! T,.! 1()( /arginal cost NAT! Analytic
/arginal cost tells us the a. 0alue of all resources used in a production process. b. marginal increment to profitability when price is constant. c. amount by which total cost rises when output is increased by one unit. d. amount by which output rises when labor is increased by one unit. % &'$! T,.! 1()( /arginal cost NAT! Analytic
9hich of the following measures of cost is best described as Rthe increase in total cost that arises from an extra unit of productionCR a. 0ariable cost b. a0erage 0ariable cost c. a0erage total cost d. marginal cost

AN ! " "#$! +,-! -osts of production / -! "efinitional 15. 1 &'$! T,.! 1()( /arginal cost NAT! Analytic
1%1
A firm has a fixed cost of =3** in its first year of operation. 9hen the firm produces 1** units of output6 its total costs are =(63**. 9hen it produces 1*1 units of output6 its total costs are =(653*. 9hat is the marginal cost of producing the 1*1st unit of outputC a. =%3* b. =%53 c. =(1*.81 d. =(3* % &'$! T,.! 1()( /arginal cost NAT! Analytic
A firm has a fixed cost of =3** in its first year of operation. 9hen the firm produces 1** units of output6 its total costs are =163**. The marginal cost of producing the 1*1st unit of output is =(**. 9hat is the total cost of producing 1*1 unitsC a. =14.3( b. =7** c. =167** d. =36(** % &'$! T,.! 1()( /arginal cost NAT! Analytic
A firm has a fixed cost of =5** in its first year of operation. 9hen the firm produces 88 units of output6 its total costs are =16***. The marginal cost of producing the 1**th unit of output is =%**. 9hat is the total cost of producing 1** unitsC a. =1% b. =8** c. =16%** d. =168** % &'$! T,.! 1()( /arginal cost NAT! Analytic
AN ! "#$! +,-! -osts of production / -! Analytical 3*.
A firm has a fixed cost of =%** in its first year of operation. 9hen the firm produces 88 units of output6 its total costs are =16***. The marginal cost of producing the 1**th unit of output is =5**. 9hat is the total cost of producing 1** unitsC a. =8** b. =16%** c. =165** d. =168** % &'$! T,.! 1()( /arginal cost NAT! Analytic
Table 13-5 T e Flying !lvis Co"ter #i$es Puantity Total -ost $ixed -ost >ariable -ost * 1 % ( =3* =13* A / =3* A D N =* @ # ,
/arginal -ost )) =1%* .
A0erage A0erage $ixed -ost >ariable -ost )) )) " ' ? G P =1%*
A0erage Total -ost )) $ + &
1%3
31.

Refer to Ta"#e 13$!% 9hat is the 0alue of AC a. =%3 b. =3* c. =1** d. =%** 1 &'$! T,.! 1()( $ixed costs NAT! Analytic / -! Analytical
AN ! @ "#$! +,-! -osts of production 3%.
Refer to Ta"#e 13$!% 9hat is the 0alue of @C a. =%3 b. =3* c. =1** d. =%** 1 &'$! T,.! 1()( NAT! Analytic >ariable costs
AN ! "#$! +,-! -osts of production / -! Analytical 3(.
Refer to Ta"#e 13$!% 9hat is the 0alue of -C a. =%3 b. =3* c. =1** d. =%** % &'$! T,.! 1()( /arginal cost NAT! Analytic
Refer to Ta"#e 13$!% 9hat is the 0alue of AC a. =(* b. =1%* c. =%%* d. =%5* ( &'$! T,.! 1()( NAT! Analytic Total cost 2 /arginal cost
Refer to Ta"#e 13$!% 9hat is the 0alue of +C a. =4* b. =1(3 c. =%1* d. =%5* ( &'$! T,.! 1()( NAT! Analytic A0erage total cost 2 /arginal cost
Refer to Ta"#e 13$!% 9hat is the 0alue of ,C a. =1* b. =11* c. =(4* d. =11* ( &'$! T,.! 1()( NAT! Analytic >ariable costs

Table 13-% Quantity of 'utput * 1 % ( 1 3 4 35. Fi4ed Cost =%* =%* =%* =%* =%* =%* =%* 3aria"#e Cost =* =1* =1* =7* =1(* =%** =(**
1%4
Refer to Ta"#e 13$5% 9hat is the a0erage fixed cost of producing 3 units of outputC a. =1 b. =3 c. =1* d. =11 % &'$! T,.! 1()( NAT! Analytic A0erage fixed cost
Refer to Ta"#e 13$5% 9hat is the a0erage 0ariable cost of producing 3 units of outputC a. =1 b. =3 c. =1* d. =11 % &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
Refer to Ta"#e 13$5% 9hat is the marginal cost of producing the fifth unit of outputC a. =1 b. =1* c. =3* d. =5* % &'$! T,.! 1()( /arginal cost NAT! Analytic
AN ! " "#$! +,-! -osts of production / -! Analytical 4*.
Refer to Ta"#e 13$5% 9hat is the shape of the marginal cost cur0e for this firmC a. constant b. upward)sloping c. downward)sloping d. <)shaped ( &'$! T,.! 1()( /arginal cost NAT! Analytic
AN ! @ "#$! +,-! -osts of production / -! Analytical Table 13-&
+easures of Cost for A6C ,nc% )id.et Factory Quantity 3aria"#e Tota# of )id.ets Costs Costs * 1 =1 % =( =1( ( =4 =14 1 =1* 3 =%3 4 =%1
Fi4ed Costs =1*
=1*
1%5
41.

Refer to Ta"#e 13$7. The a0erage fixed cost of producing fi0e widgets is a. =1.**. b. =%.**. c. =(.**. d. =3.**. % &'$! T,.! 1()( NAT! Analytic A0erage fixed cost
AN ! @ "#$! +,-! -osts of production / -! Applicati0e 4%.
Refer to Ta"#e 13$7. The a0erage 0ariable cost of producing four widgets is a. =%.**. b. =%.3*. c. =(.((. d. =3.**. % &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
AN ! @ "#$! +,-! -osts of production / -! Applicati0e 4(.
Refer to Ta"#e 13$7. The a0erage total cost of producing one widget is a. =1.**. b. =1*.**. c. =11.**. d. =%%.**. % &'$! T,.! 1()( NAT! Analytic A0erage total cost
Refer to Ta"#e 13$7. The marginal cost of producing the sixth widget is a. =1.**. b. =(.3*. c. =3.**. d. =4.**. % &'$! T,.! 1()( /arginal cost NAT! Analytic
AN ! " "#$! +,-! -osts of production / -! Applicati0e 43.
Refer to Ta"#e 13$7. 9hat is the 0ariable cost of producing zero widgetsC a. =*.** b. =1.** c. =1*.** d. =1*.** % &'$! T,.! 1()( NAT! Analytic >ariable costs
Refer to Ta"#e 13$7. 9hat is the marginal cost of producing the first widgetC a. =1.** b. =1*.** c. =11.** d. #t can:t be determined from the information gi0en. % &'$! T,.! 1()( /arginal cost NAT! Analytic
Refer to Ta"#e 13$7. 9hat is the 0ariable cost of producing fi0e widgetsC a. =1(.** b. =11.** c. =13.** d. #t can:t be determined from the information gi0en.

AN ! "#$! +,-! -osts of production / -! Applicati0e % &'$! T,.! 1()( NAT! Analytic >ariable costs
1%7
Table 13-' 'ileens 'legant 'arrings produces pairs of earrings for its mail order catalogue business. 'ach pair is shipped in a separate box. he rents a small room for =13* a week in the downtown business district that ser0es as her factory. he can hire workers for =%53 a week. There are no implicit costs. 6o4es of Earrin.s Produced per )ee0 * 4(* 13* 78* 83* 4* 1* =7%3 =16(53 =167** =853
(u/"er of )or0ers * 1 % ( 1 3 4 47.
+ar.ina# Product of La"or ((*
Cost of Factory =13*
Cost of )or0ers =%53
Tota# Cost of ,nputs =1%3
Refer to Ta"#e 13$8. 9hat is the marginal product of the second workerC a. 11* b. %** c. %4* d. (** % &'$! T,.! 1()( NAT! Analytic /arginal product
Refer to Ta"#e 13$8. 9hat is the total cost associated with making 78* boxes of earrings per weekC a. =16%3* b. =16(%3 c. =161** d. =16353 % &'$! T,.! 1()( Total cost NAT! Analytic / -! Applicati0e
AN ! A "#$! +,-! -osts of production 5*.
Refer to Ta"#e 13$8. "uring the week of ?uly 1th6 'ileen doesn:t produce any earrings. 9hat are her costs during the weekC a. =* b. =13* c. =%53 d. =1%3 % &'$! T,.! 1()( $ixed costs NAT! Analytic / -! Applicati0e
Refer to Ta"#e 13$8. ,ne week6 'ileen earns a profit of =1%3. #f her re0enue for the week is =11**6 how many boxes of earrings did she produceC a. 11* b. ((* c. 57* d. 83* % &'$! T,.! 1()( NAT! Analytic Accounting profit
AN ! "#$! +,-! -osts of production / -! Applicati0e
1%8
5%.

Refer to Ta"#e 13$8. 'ileen has recei0ed an order for (6*** boxes of earrings for next week. #f she expects that the trend in the marginal product of labor will continue in the same direction6 it is most likely that her best decision will be to a. not commit to meeting the order until she can mo0e to a larger room and hire more workers to produce the earrings. b. close her business until she is able to hire more producti0e workers. c. hire about 1% new workers and hope she can satisfy the order. d. commit to meeting the order and then take three weeks to complete the Bob. % &'$! T,.! 1()( NAT! Analytic /arginal product
Table 13-( Teacher:s Delper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents se0eral small rooms in an office building in the suburbs for =4** a month and has leased computer equipment that costs =17* a month.
'utput 1,nstructiona# +odu#es per +onth2 A9era.e Fi4ed Cost A9era.e 3aria"#e Cost A9era.e Tota# Cost
Fi4ed Costs
3aria"#e Costs
Tota# Cost
+ar.ina# Cost
* 1 % ( 1 3 4 5 7 8 1* 5(.
=16*7* =16*7*
= 1** =16(3* =168** =%63** =161** =361** =56(**
=1617* =843 =%61(* =153 =%14 =16%7* =1(3 =1*677* =87*
=1** =13*
=5**
Refer to Ta"#e 13$:. 9hat is the marginal cost of creating the tenth instructional module in a gi0en monthC a. =8** b. =16%3* c. =%63** d. =(6*4* % &'$! T,.! 1()( /arginal cost NAT! Analytic
Refer to Ta"#e 13$:. 9hat is the a0erage 0ariable cost for the month if 4 instructional modules are producedC a. =17*.** b. =3((.(( c. =5**.** d. =51(.(( % &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
Refer to Ta"#e 13$:. 9hat is the a0erage fixed cost for the month if 8 instructional modules are producedC a. =1*7.** b. =1%*.** c. =13*.** d. =711.11

AN ! @ "#$! +,-! -osts of production / -! Applicati0e 54. % &'$! T,.! 1()( NAT! Analytic A0erage fixed cost
1(*
Refer to Ta"#e 13$:. Dow many instructional modules are produced when marginal cost is =16(**C a. 1 b. 3 c. 5 d. 7 % &'$! T,.! 1()( /arginal cost NAT! Analytic
Refer to Ta"#e 13$:. ,ne month6 Teacher:s Delper produced 17 instructional modules. 9hat was the a0erage fixed cost for that monthC a. =4* b. =1*7 c. =711 d. #t can:t be determined from the information gi0en. % &'$! T,.! 1()( NAT! Analytic A0erage fixed cost
AN ! A "#$! +,-! -osts of production / -! Applicati0e
Table 13-1) *i++ys Giga"lots Factory Quantity of Fi4ed 3aria"#e .i.ap#ots Cost Cost 1 =1( % =%7 ( 1 =41 3 4 =1*7 5 =1(( 7 57.
Tota# Cost =(7 =5* =11*
A9era.e Fi4ed Cost
A9era.e 3aria"#e Cost
A9era.e Tota# Cost
+ar.ina# Cost
=173
Refer to Ta"#e 13$1*% 9hat is the fixed cost of production at ?immy:s Aigaplot factoryC a. =1% b. =%* c. =%3 d. =31 % &'$! T,.! 1()( $ixed costs NAT! Analytic / -! Applicati0e
Refer to Ta"#e 13$1*% 9hat is the 0ariable cost of producing 3 gigaplots at ?immy:s Aigaplot factoryC a. =41 b. =73 c. =8* d. =1** % &'$! T,.! 1()( NAT! Analytic >ariable costs
1(1
7*.

Refer to Ta"#e 13$1*% 9hat is the 0ariable cost of producing 7 gigaplots at ?immy:s Aigaplot factoryC a. =1%* b. =11* c. =133 d. =14* % &'$! T,.! 1()( NAT! Analytic >ariable costs
Refer to Ta"#e 13$1*% 9hat is the total cost of producing 5 gigaplots at ?immy:s Aigaplot factoryC a. =11* b. =13* c. =13( d. =137 % &'$! T,.! 1()( Total cost NAT! Analytic / -! Applicati0e
AN ! " "#$! +,-! -osts of production 7%.
Refer to Ta"#e 13$1*% 9hat is the total cost of producing % gigaplots at ?immy:s Aigaplot factoryC a. =17 b. =3( c. =37 d. =4% % &'$! T,.! 1()( Total cost NAT! Analytic / -! Applicati0e
AN ! @ "#$! +,-! -osts of production 7(.
Refer to Ta"#e 13$1*% 9hat is the a0erage 0ariable cost of producing ( gigaplots at ?immy:s Aigaplot factoryC a. =11 b. =13 c. =14 d. =15 % &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
Refer to Ta"#e 13$1*% 9hat is the a0erage 0ariable cost of producing 4 gigaplots at ?immy:s Aigaplot factoryC a. =14 b. =15 c. =17 d. =18 % &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
Refer to Ta"#e 13$1*% 9hat is the a0erage fixed cost of producing 7 gigaplots at ?immy:s Aigaplot factoryC a. =%.1% b. =(.1( c. =%*.** d. =%1.(5 % &'$! T,.! 1()( NAT! Analytic A0erage fixed cost
Refer to Ta"#e 13$1*% 9hat is the a0erage fixed cost of producing ( gigaplots at ?immy:s Aigaplot factoryC a. =1.45 b. =%.45 c. =3.(( d. =7.((

AN ! " "#$! +,-! -osts of production / -! Applicati0e 75. % &'$! T,.! 1()( NAT! Analytic A0erage fixed cost
1(%
Refer to Ta"#e 13$1*% 9hat is the a0erage total cost of producing 4 gigaplots at ?immy:s Aigaplot factoryC a. =14.(1 b. =%%.** c. =%%.15 d. =%%.35 ( &'$! T,.! 1()( NAT! Analytic A0erage total cost
Refer to Ta"#e 13$1*% 9hat is the a0erage total cost of producing % gigaplots at ?immy:s Aigaplot factoryC a. =11.** b. =17.3* c. =%%.3* d. =%4.3* ( &'$! T,.! 1()( NAT! Analytic A0erage total cost
Refer to Ta"#e 13$1*% 9hat is the marginal cost of the 1th gigaplot at ?immy:s Aigaplot factoryC a. =1( b. =13 c. =18 d. =41 % &'$! T,.! 1()( /arginal cost NAT! Analytic
AN ! "#$! +,-! -osts of production / -! Applicati0e 8*.
Refer to Ta"#e 13$1*% 9hat is the marginal cost of the 7th gigaplot at ?immy:s Aigaplot factoryC a. =%* b. =%5 c. =14* d. =173 % &'$! T,.! 1()( /arginal cost NAT! Analytic
Refer to Ta"#e 13$1*% 9hat is the marginal cost of the %nd gigaplot at ?immy:s Aigaplot factoryC a. =11 b. =13 c. =%7 d. =(1 % &'$! T,.! 1()( /arginal cost NAT! Analytic
AN ! @ "#$! +,-! -osts of production / -! Applicati0e Table 13-11 'utput * 1* %* (* 1* 3*
Tota# Cost =1* =4* =8* =1(* =17* =%1*
1((
8%.

Refer to Ta"#e 13$11. 9hat is the total fixed cost for this firmC a. =%* b. =(* c. =1* d. =3* % &'$! T,.! 1()( $ixed costs NAT! Analytic / -! Analytical
AN ! "#$! +,-! -osts of production 8(.
Refer to Ta"#e 13$11. 9hat is a0erage fixed cost when output is 1* unitsC a. =1.** b. =(.(% c. =3.** d. =7.** ( &'$! T,.! 1()( NAT! Analytic A0erage fixed cost
Refer to Ta"#e 13$11. 9hat is a0erage 0ariable cost when output is 3* unitsC a. =(.4* b. =1.** c. =1.1* d. =1.7* ( &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
Refer to Ta"#e 13$11. 9hat is 0ariable cost when output equals (* unitsC a. =1 b. =1* c. =8* d. =1(* % &'$! T,.! 1()( NAT! Analytic >ariable costs
Scenario 13-% A certain firm produces and sells staplers. +ast year6 it produced 56*** staplers and sold each stapler for =4. #n producing the 56*** staplers6 it incurred 0ariable costs of =%76*** and a total cost of =136***. 84. Refer to Scenario 13$5. The firm:s fixed costs amounted to a. =56***. b. =156***. c. =%76***. d. =1%6***. 1 &'$! T,.! 1()( $ixed costs NAT! Analytic / -! Applicati0e
Refer to Scenario 13$5. #n producing the 56*** staplers6 the firm:s a0erage fixed cost was a. =1.**. b. =1.(%. c. =%.%1. d. =%.1(. % &'$! T,.! 1()( NAT! Analytic A0erage fixed cost

87. Refer to Scenario 13$5. #n producing the 56*** staplers6 the firm:s a0erage 0ariable cost was a. =%.1(. b. =1.**. c. =4.**. d. =4.1(. 1 &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
1(1
Refer to Scenario 13$5. #n producing the 56*** staplers6 the firm:s a0erage total cost was a. =%.1(. b. =1.**. c. =4.**. d. =4.1(. 1 &'$! T,.! 1()( NAT! Analytic A0erage total cost
1**. Refer to Scenario 13$5. uppose the owner of the business had an offer to work for another firm that raises his opportunity cost by =%36***. The firm:s accounting profit for the year was a. =)%76***. b. =)%36*** c. =)(6***. d. =156***. AN ! "#$! +,-! -osts of production / -! Applicati0e % &'$! T,.! 1()( NAT! Analytic Accounting profit
1*1. Refer to Scenario 13$5. uppose the owner of the business had an offer to work for another firm that raises his opportunity cost by =%36***. The firm:s economic profit for the year was a. =)%76***. b. =)%36*** c. =)(6***. d. =156***. AN ! A "#$! +,-! -osts of production / -! Applicati0e % &'$! T,.! 1()( NAT! Analytic 'conomic profit
Scenario 13-& $armer ?ack is a watermelon farmer. #f ?ack plants no seeds on his farm6 he gets no har0est. #f he plants 1 bag of seeds6 he gets (* watermelons. #f he plants % bags of seeds6 he gets 3* watermelons. #f he plants ( bags of seeds he gets 4* watermelons. A bag of seeds costs =1**6 and the costs of seeds are his only costs. 1*%. Refer to Scenario 13$7. 9hich of the following statements is EareF trueC EiF $armer ?ack experiences decreasing marginal product. EiiF $armer ?ack:s production function is nonlinear. EiiiF $armer ?ack:s total cost cur0e is linear. a. b. c. d. EiF only EiF and EiiF only EiiF only EiF and EiiiF only % &'$! T,.! 1()( NAT! Analytic .roduction function
AN ! @ "#$! +,-! -osts of production / -! Analytical
1*(. Refer to Scenario 13$7. 9hich of the following statements isEareF true of $armer ?ack:s marginal costC EiF Dis marginal cost cur0e is <)shaped. EiiF Dis marginal cost decreases with increased watermelon output. EiiiF Dis marginal cost reflects diminishing marginal product.
1(3
a. b. c. d.

EiiF only EiiiF only EiF and EiiiF only EiF and EiiF only % &'$! T,.! 1()( /arginal cost NAT! Analytic
1*1. Refer to Scenario 13$7. $armer ?ack:s production function will a. decrease at a decreasing rate. b. decrease at an increasing rate. c. increase at a decreasing rate. d. increase at an increasing rate. AN ! "#$! +,-! -osts of production / -! Analytical % &'$! T,.! 1()( NAT! Analytic .roduction function 2 /arginal cost
1*3. Refer to Scenario 13$7. 9hat is the shape of $armer ?acks marginal cost cur0eC a. upward sloping b. downward sloping c. first upward sloping6 then downward sloping d. constant AN ! A "#$! +,-! -osts of production / -! Analytical % &'$! T,.! 1()( /arginal cost NAT! Analytic
1*4. 9hich of the following factors is most likely to shift #@/:s total cost and marginal cost cur0es downwardC a. a technological ad0ance resulting in increased producti0ity b. higher property taxes charged by the municipal go0ernment c. increased wages to attract additional computer operators d. a reduction in subsidies from the state go0ernment AN ! A "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! Analytical
1*5. Thirsty Thelma owns and operates a small lemonade stand. 9hen Thelma is producing a low quantity of lemonade she has few workers and her equipment is not being fully utilized. @ecause she can easily put her idle resources to use6 a. the marginal cost of an extra worker is large. b. the marginal cost of one more glass of lemonade is smaller than if output were high. c. the marginal product of an extra worker is small. d. her lemonade stand is likely to be crowded with workers. AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( /arginal cost NAT! Analytic
1*7. ?ohnny is a sophomore in college and has a 1.3 cumulati0e grade point a0erage EA.AF. ?ohnny:s cumulati0e A.A will fall e0en further next semester if he performs worse than EiF his cumulati0e A.A. EiiF he e0er performed before. EiiiF he did last semester. a. b. c. d. EiF and EiiF only EiF and EiiiF only EiiF and EiiiF only EiF6 EiiF6 and EiiiF ( &'$! T,.! 1()( NAT! Analytic A0erage total cost
1(4
1*8. ?ohnny is a sophomore in college and has a 1.3 cumulati0e grade point a0erage EA.AF. ?ohnny:s cumulati0e A.A will be better next semester if he EiF performs better than he did last semester. EiiF performs better than his cumulati0e A.A. EiiiF gi0es an a0erage performance. a. b. c. d. EiiF only EiiiF only EiF and EiiF EiiF and EiiiF ( &'$! T,.! 1()( NAT! Analytic A0erage total cost
11*. &andy is a minor)league baseball player. Dis current cumulati0e batting a0erage is *.%5*. &andy belie0es that if he can raise his cumulati0e batting a0erage to *.(**6 he will ha0e a chance to play in the maBor leagues. 9hich of the following statements is correctC a. #f &andy gets between %5 and (* hits out of his next 1** at bats6 he will be able to raise his cumulati0e batting a0erage to *.(**. b. #f &andy gets (* hits out of his next 1** at bats6 he will be able to raise his cumulati0e batting a0erage to *.(**. c. &andy must get more than (* hits out of his next 1** at bats in order to raise his cumulati0e batting a0erage to *.(**. d. 'ither b or c could be correct. AN ! "#$! +,-! -osts of production / -! Analytical ( &'$! T,.! 1()( NAT! Analytic /arginal cost 2 A0erage total cost
111. ?ennifer is a Bunior in college. Der current cumulati0e grade point a0erage EA.AF is (.3 out of a 1.* scale. ?ennifer is hoping that by the time she graduates6 she can raise her cumulati0e A.A to a (.5. 9hich of the following statements is correctC a. #f ?ennifer earns between a (.3 and a (.5 A.A in her senior year6 she will be able to raise her cumulati0e A.A to a (.5. b. #f ?ennifer earns a (.5 A.A in her senior year6 she will be able to raise her cumulati0e A.A to a (.5. c. ?ennifer must earn abo0e a (.5 A.A in her senior year in order to raise her cumulati0e A.A to a (.5. d. 'ither b or c could be correct. AN ! "#$! +,-! -osts of production / -! Analytical ( &'$! T,.! 1()( NAT! Analytic /arginal cost 2 A0erage total cost
11%. -onsider the following information about baseball production at @ob:s @aseball $actory! )or0er 1 % ( 1 3 4 5 +ar.ina# Product ( 3 7 1* 5 1 %
@ob pays all his workers the same wage6 and labor is his only 0ariable cost. $rom this information we can conclude that @ob:s a0erage 0ariable cost decreases a. as output rises from * to 1*6 but rises after that. b. as output rises from * to %46 but rises after that. c. as output rises from * to ((6 but increases after that. d. continually as output rises.
1(5

( &'$! T,.! 1()( NAT! Analytic A0erage 0ariable cost
11(. #f marginal cost is equal to a0erage total cost6 then a. marginal cost is minimized. b. a0erage total cost is minimized. c. a0erage 0ariable cost is minimized. d. marginal cost is zero. AN ! @ "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! #nterpreti0e
111. 9hich of the following statements is correctC a. #f marginal cost is rising6 then a0erage total cost is rising. b. #f marginal cost is rising6 then a0erage 0ariable cost is rising. c. #f a0erage 0ariable cost is rising6 then marginal cost is minimized. d. #f a0erage total cost is rising6 then marginal cost is greater than a0erage total cost. AN ! " "#$! +,-! -osts of production ( &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! #nterpreti0e
113. #f $ranco:s .izza .arlor knows that the marginal cost of the 3**th pizza is =(.3* and that the a0erage total cost of making 188 pizzas is =(.(*6 then a. a0erage total costs are rising at P M 3**. b. a0erage total costs are falling at P M 3**. c. total costs are falling at P M 3**. d. a0erage 0ariable costs must be falling. AN ! A "#$! +,-! -osts of production / -! Analytical ( &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage total cost 2 /arginal cost
114. The a0erage fixed cost cur0e a. always declines with increased le0els of output. b. always rises with increased le0els of output. c. declines as long as it is abo0e marginal cost. d. declines as long as it is below marginal cost. AN ! A "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage fixed cost
115. A0erage total cost is 0ery high when a small amount of output is produced because a. a0erage 0ariable cost is high. b. a0erage fixed cost is high. c. marginal cost is high. d. marginal product is high. AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage total cost
117. 9hen marginal cost is less than a0erage total cost6 a. marginal cost must be falling. b. a0erage 0ariable cost must be falling. c. a0erage total cost is falling. d. a0erage total cost is rising. AN ! "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! #nterpreti0e

118. 9hen marginal cost exceeds a0erage total cost6 a. a0erage fixed cost must be rising. b. a0erage total cost must be rising. c. a0erage total cost must be falling. d. marginal cost must be falling. AN ! @ "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! #nterpreti0e
1(7
1%*. A0erage total cost is increasing whene0er a. total cost is increasing. b. marginal cost is increasing. c. marginal cost is less than a0erage total cost. d. marginal cost is greater than a0erage total cost. AN ! " "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! #nterpreti0e
1%1. /arginal cost is equal to a0erage total cost when a. a0erage 0ariable cost is falling. b. a0erage fixed cost is rising. c. marginal cost is at its minimum. d. a0erage total cost is at its minimum. AN ! " "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! #nterpreti0e
1%%. #f marginal cost is below a0erage total cost6 then a0erage total cost a. is constant. b. is falling. c. is rising. d. may rise or fall depending on the size of fixed costs. AN ! @ "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! #nterpreti0e
1%(. At all le0els of production higher than the point where the marginal cost cur0e crosses the a0erage 0ariable cost cur0e6 a0erage 0ariable cost a. rises. b. remains unaffected. c. falls. d. All of the abo0e are possible depending on the shape of the marginal cost cur0e. AN ! A "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! #nterpreti0e
1%1. 9hich of the following statements about costs is correctC a. 9hen marginal cost is less than a0erage total cost6 a0erage total cost is rising. b. The total cost cur0e is <)shaped. c. As the quantity of output increases6 marginal cost e0entually rises. d. All of the abo0e are correct. AN ! "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 /arginal cost
1%3. 9hene0er marginal cost is greater than a0erage total cost6 a. a0erage total cost is rising. b. marginal cost is falling. c. a0erage total cost is falling. d. @oth b and c are correct. AN ! " "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage total cost
1(8
1%4. At what le0el of output will a0erage 0ariable cost equal a0erage total costC a. when marginal cost equals a0erage total cost b. for all le0els of output in which a0erage 0ariable cost is falling c. when marginal cost equals a0erage 0ariable cost d. There is no le0el of output where this occurs6 as long as fixed costs are positi0e. AN ! " "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage total cost
1%5. 9hich of the following must always be true as the quantity of output increasesC a. /arginal cost must rise. b. A0erage total cost must rise. c. A0erage 0ariable cost must rise. d. A0erage fixed cost must fall. AN ! " "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage fixed cost
1%7. 9hich of the following statements is not correctC a. The marginal cost of the fifth unit of output equals the total cost of fi0e units minus the total cost of four units. b. The total 0ariable cost of se0en units equals the a0erage 0ariable cost of se0en units times se0en. c. #f marginal cost is rising6 then a0erage 0ariable cost must be rising. d. The marginal cost of the fifth unit of output equals the total 0ariable cost of fi0e units minus the total 0ariable cost of four units. AN ! "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage 0ariable cost
1%8. 9hen marginal cost is rising6 a0erage 0ariable cost a. must be rising. b. must be falling. c. must be constant. d. could be rising or falling. AN ! " "#$! +,-! -osts of production ( &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! #nterpreti0e
1(*. 9hen marginal cost is greater than a0erage cost6 a0erage cost is a. rising. b. falling. c. constant. d. either rising or falling depending on the economies of scale. AN ! A "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! Applicati0e
1(1. 9hen a0erage cost is greater than marginal cost6 marginal cost must be a. rising. b. falling. c. constant. d. The direction of change in marginal cost cannot be determined from this information. AN ! " "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! Analytical
1(%. 9hich of the following is not a property of a firm:s cost cur0esC a. /arginal cost must e0entually rise as a result of diminishing marginal product. b. A0erage total cost is <)shaped. c. 'conomies of scale will exist when a0erage total cost falls as output rises. d. A0erage total cost will cross marginal cost at the minimum of marginal cost.

AN ! " "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! "efinitional
11*
1((. #f marginal cost is greater than a0erage total cost6 then a. profits are increasing. b. economies of scale are becoming greater. c. a0erage total cost remains constant. d. a0erage total cost is increasing. AN ! " "#$! +,-! -osts of production 1 &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! #nterpreti0e
1(1. The minimum points of the a0erage 0ariable cost and a0erage total cost cur0es occur where a. the marginal cost cur0e lies below the a0erage 0ariable cost and a0erage total cost cur0es. b. the marginal cost cur0e intersects those cur0es. c. the a0erage 0ariable cost and a0erage total cost cur0es intersect. d. the slope of total cost is the smallest. AN ! @ "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! #nterpreti0e
Scenario 13-' uppose that a gi0en firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output le0el. 1(3. Refer to Scenario 13$8% A0erage total cost will be a. rising at all points. b. falling at all points. c. constant. d. <)shaped. AN ! " "#$! +,-! -osts of production / -! Analytical % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage total cost
1(4. Refer to Scenario 13$8. A0erage fixed cost will be a. rising at all points. b. falling at all points. c. <)shaped. d. constant. AN ! @ "#$! +,-! -osts of production / -! Analytical % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage fixed cost
1(5. Refer to Scenario 13$8. A0erage 0ariable cost will be a. rising at all points. b. falling at all points. c. <)shaped. d. constant. AN ! A "#$! +,-! -osts of production / -! Analytical % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage 0ariable cost
1(7. Refer to Scenario 13$8. /arginal cost will be a. rising at all points. b. falling at all points. c. <)shaped. d. constant. AN ! A "#$! +,-! -osts of production / -! Analytical % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 /arginal cost
111

Cost
Figure 13-4
11 1* 8 7 5 4 3 1 ( % 1 1 % ( 1 3 4 5 7 8
" @
A
1* 11 1% Quantity
1(8. Refer to Fi.ure 13$ % -ur0e A represents which type of cost cur0eC a. marginal cost b. a0erage total cost c. a0erage 0ariable cost d. a0erage fixed cost AN ! " "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage fixed cost
11*. Refer to Fi.ure 13$ % 9hich of the cur0es is most likely to represent a0erage fixed costC a. A b. @ c. d. " AN ! A "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage fixed cost
111. Refer to Fi.ure 13$ % -ur0e - represents which type of cost cur0eC a. marginal cost b. a0erage total cost c. a0erage 0ariable cost d. a0erage fixed cost AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage total cost
11%. Refer to Fi.ure 13$ % 9hich cur0e is most likely to represent a0erage total costC a. A b. @ c. d. " AN ! "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage total cost

11(. Refer to Fi.ure 13$ % -ur0e " represents which type of cost cur0eC a. marginal cost b. a0erage total cost c. a0erage 0ariable cost d. a0erage fixed cost AN ! A "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 /arginal cost
11%
111. Refer to Fi.ure 13$ % 9hich cur0e is most likely to represent marginal costC a. A b. @ c. d. " AN ! " "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 /arginal cost
113. Refer to Fi.ure 13$ . -ur0e " is increasing because of a. diminishing marginal product. b. increasing marginal product. c. the fact that increasing marginal product follows decreasing marginal product. d. the fact that decreasing marginal product follows increasing marginal product. AN ! A "#$! +,-! -osts of production / -! Analytical ( &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 /arginal cost
114. Refer to Fi.ure 13$ . -ur0e A is always declining because of a. diminishing marginal product. b. di0iding fixed costs by higher and higher le0els of output. c. the fact that increasing marginal product follows decreasing marginal product. d. the fact that decreasing marginal product follows increasing marginal product. AN ! @ "#$! +,-! -osts of production / -! Analytical ( &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage fixed cost
115. Refer to Fi.ure 13$ . -ur0e " intersects cur0e a. where the firm maximizes profit. b. at the minimum of a0erage fixed cost. c. at the efficient scale. d. where fixed costs equal 0ariable costs. AN ! "#$! +,-! -osts of production / -! Analytical ( &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 'fficient scale
11(
Figure 13-5
117. Refer to Fi.ure 13$!. 9hich of the following can be inferred from the figure abo0eC EiF /arginal cost is increasing at all le0els of output. EiiF /arginal product is increasing at low le0els of output. EiiiF /arginal product is decreasing at high le0els of output. a. b. c. d. EiF and EiiF only EiiF and EiiiF only EiF and EiiiF only EiiF only ( &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 /arginal cost
118. Refer to Fi.ure 13$!. 9hy doesnt the total cost cur0e begin at the origin Ethe point *6*FC a. because 0ariable costs are positi0e when output is zero b. because fixed costs are positi0e when output is zero c. because the firm is producing at the efficient scale d. because the firm is maximizing profits AN ! @ "#$! +,-! -osts of production / -! Analytical ( &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 $ixed costs

Figure 13-%
111
13*. Refer to Fi.ure 13$5. 9hich of the figures represents the total cost cur0e for a firmC a. $igure 1 b. $igure % c. $igure ( d. $igure 1 AN ! @ "#$! +,-! -osts of production % &'$! T,.! 1()( -ost cur0es NAT! Analytic / -! Analytical
131. Refer to Fi.ure 13$5. 9hich of the figures represents the marginal cost cur0e for a firmC a. $igure 1 b. $igure % c. $igure ( d. $igure 1 AN ! A "#$! +,-! -osts of production / -! Analytical % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 /arginal cost
13%. Refer to Fi.ure 13$5. 9hich of the figures represents the production function for a firmC a. $igure 1 b. $igure % c. $igure ( d. $igure 1 AN ! " "#$! +,-! -osts of production / -! Analytical % &'$! T,.! 1()( NAT! Analytic .roduction function
13(. The marginal cost cur0e crosses the a0erage total cost cur0e at a. the efficient scale. b. the minimum point on the a0erage total cost cur0e. c. a point where the marginal cost cur0e is rising. d. All of the abo0e are correct. AN ! " "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 'fficient scale
113

Cost
Figure 13-&
/AT A>-
"
Quantity
131. Refer to Fi.ure 13$7% The efficient scale of production occurs at which quantityC a. A b. @ c. d. " AN ! "#$! +,-! -osts of production / -! Analytical % &'$! T,.! 1()( NAT! Analytic 'fficient scale
133. Refer to Fi.ure 13$7% Puantity - represents the output le0el where the firm a. maximizes profits. b. minimizes total costs. c. produces at the efficient scale. d. minimizes marginal costs. AN ! "#$! +,-! -osts of production / -! Analytical % &'$! T,.! 1()( NAT! Analytic 'fficient scale
134. Refer to Fi.ure 13$7% Puantity @ represents the output le0el where the firm a. maximizes profits. b. minimizes a0erage 0ariable costs. c. produces at the efficient scale. d. minimizes marginal costs. AN ! @ "#$! +,-! -osts of production / -! Analytical % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 A0erage 0ariable cost
135. The efficient scale of the firm is the quantity of output that a. maximizes marginal product. b. maximizes profit. c. minimizes a0erage total cost. d. minimizes a0erage 0ariable cost. AN ! "#$! +,-! -osts of production / -! "efinitional 1 &'$! T,.! 1()( NAT! Analytic 'fficient scale
137. The firm:s efficient scale is the quantity of output that minimizes a. a0erage total cost. b. a0erage fixed cost. c. a0erage 0ariable cost. d. marginal cost.

AN ! A "#$! +,-! -osts of production / -! "efinitional 1 &'$! T,.! 1()( NAT! Analytic 'fficient scale
114
138. 9hen a firm is operating at an efficient scale6 a. a0erage 0ariable cost is minimized. b. a0erage fixed cost is minimized. c. a0erage total cost is minimized. d. marginal cost is minimized. AN ! "#$! +,-! -osts of production / -! #nterpreti0e Figure 13-'
MC @ " A
&'$! T,.!
1()( NAT! Analytic 'fficient scale
"
@ Output
14*. Refer to Fi.ure 13$8. 9hich of the abo0e marginal cost cur0es reflects diminishing marginal productC a. A b. @ c. d. " AN ! A "#$! +,-! -osts of production / -! Analytical ( &'$! T,.! 1()( NAT! Analytic /arginal cost 2 "iminishing marginal product
141. /arginal cost increases as the quantity of output increases. This reflects the property of a. increasing total cost. b. diminishing total cost. c. increasing marginal product. d. diminishing marginal product. AN ! " "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic /arginal cost 2 "iminishing marginal product
14%. #f marginal cost is rising6 a. a0erage 0ariable cost must be falling. b. a0erage fixed cost must be rising. c. marginal product must be falling. d. marginal product must be rising. AN ! "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic /arginal cost 2 "iminishing marginal product
115
14(. "iminishing marginal product suggests that the marginal a. cost of an extra worker is unchanged. b. cost of an extra worker is less than the pre0ious worker:s marginal cost. c. product of an extra worker is less than the pre0ious worker:s marginal product. d. product of an extra worker is greater than the pre0ious worker:s marginal product. AN ! "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic /arginal cost 2 "iminishing marginal product
141. "iminishing marginal product suggests that a. additional units of output become less costly as more output is produced. b. marginal cost is upward sloping. c. the firm is at full capacity. d. adding additional workers will lower total cost. AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic /arginal cost 2 "iminishing marginal product
143. The fundamental reason that marginal cost e0entually rises as output increases is because of a. economies of scale. b. diseconomies of scale. c. diminishing marginal product. d. rising a0erage fixed cost. AN ! "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic /arginal cost 2 "iminishing marginal product
144. -onsider the following information about bread production at @eth:s @akery! )or0er 1 % ( 1 3 4 5 +ar.ina# Product 3 5 1* 11 7 4 1
@eth pays all her workers the same wage6 and labor is her only 0ariable cost. $rom this information we can conclude that @eth:s marginal cost a. declines as output increases from * to ((6 but increases after that. b. declines as output increases from * to 116 but increases after that. c. increases as output increases from * to 116 but declines after that. d. is constant. AN ! A "#$! +,-! -osts of production / -! Applicati0e ( &'$! T,.! 1()( /arginal cost NAT! Analytic
145. ,ne of the most important properties of cost cur0es is that a. for most producers6 the a0erage total cost cur0e ne0er crosses the marginal cost cur0e. b. the a0erage fixed cost cur0e must e0entually rise. c. the a0erage total cost cur0e first rises6 then falls with increased output. d. the marginal cost cur0e e0entually rises with the quantity of output. AN ! " "#$! +,-! -osts of production / -! #nterpreti0e % &'$! T,.! 1()( NAT! Analytic -ost cur0es 2 /arginal cost
117
Sec* $ The Costs of Production $ Costs in the Short Run and in the Lon. Run
+ULT,PLE C&',CE 1. The nature of a firms cost Efixed or 0ariableF depends on the a. firms re0enues. b. time horizon under consideration. c. price the firm charges for output. d. explicit but not implicit costs. 1 &'$! T,.! 1()1 NAT! Analytic hort run 2 +ong run
AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e %.
,ne assumption that distinguishes short)run cost analysis from long)run cost analysis for a profit)maximizing firm is that in the short run6 a. output is not 0ariable. b. the number of workers used to produce the firm:s product is fixed. c. the size of the factory is fixed. d. there are no fixed costs. 1 &'$! T,.! 1()1 hort run NAT! Analytic / -! #nterpreti0e
AN ! "#$! +,-! -osts of production (.
9hen a factory is operating in the short run6 a. it cannot alter 0ariable costs. b. total cost and 0ariable cost are usually the same. c. a0erage fixed cost rises as output increases. d. it cannot adBust the quantity of fixed inputs. % &'$! T,.! 1()1 hort run NAT! Analytic / -! #nterpreti0e
The length of the short run a. is different for different types of firms. b. can ne0er exceed ( years. c. can ne0er exceed 1 year. d. is always less than 4 months. 1 &'$! T,.! 1()1 hort run NAT! Analytic / -! #nterpreti0e
Dow long does it take a firm to go from the short run to the long runC a. six months b. one year c. two years d. #t depends on the nature of the firm. 1 &'$! T,.! 1()1 hort run NAT! Analytic / -! #nterpreti0e
A local potato chip company plans to operate out of its current factory6 which is estimated to last %3 years. All cost decisions it makes during the %3)year period a. are short)run decisions. b. are long)run decisions. c. in0ol0e only maintenance of the factory. d. are zero6 since the cost decisions were made at the beginning of the business. 1 &'$! T,.! 1()1 hort run NAT! Analytic / -! #nterpreti0e
#n the short run6 a firm that produces and sells computers can adBust a. how many workers to hire. b. the size of its factories. c. where to produce along its long)run a0erage)total)cost cur0e. d. All of the abo0e are correct.
118

% &'$! T,.! 1()1 hort run NAT! Analytic / -! #nterpreti0e
#n the long run6 a firm that produces and sells computers gets to choose a. how many workers to hire. b. the size of its factories. c. which short)run a0erage)total)cost cur0e to use. d. All of the abo0e are correct. % &'$! T,.! 1()1 +ong run NAT! Analytic / -! #nterpreti0e
#n the long run6 a. inputs that were fixed in the short run remain fixed. b. inputs that were fixed in the short run become 0ariable. c. inputs that were 0ariable in the short run become fixed. d. 0ariable inputs are rarely used. % &'$! T,.! 1()1 +ong run NAT! Analytic / -! #nterpreti0e
AN ! @ "#$! +,-! -osts of production 1*.
The total cost to the firm of producing zero units of output is a. zero in both the short run and the long run. b. its fixed cost in the short run and zero in the long run. c. its fixed cost in both the short run and the long run. d. its 0ariable cost in both the short run and the long run. % &'$! T,.! 1()1 NAT! Analytic hort run 2 +ong run
The long)run a0erage total cost cur0e is always a. flatter than the short)run a0erage total cost cur0e6 but not necessarily horizontal. b. horizontal. c. falling as output increases. d. rising as output increases. % &'$! T,.! 1()1 NAT! Analytic A0erage total cost
AN ! A "#$! +,-! -osts of production / -! #nterpreti0e 1%.
9hen comparing short)run a0erage total cost with long)run a0erage total cost at a gi0en le0el of output6 a. short)run a0erage total cost is typically abo0e long)run a0erage total cost. b. short)run a0erage total cost is typically the same as long)run a0erage total cost. c. short)run a0erage total cost is typically below long)run a0erage total cost. d. the relationship between short)run and long)run a0erage total cost follows no clear pattern. % &'$! T,.! 1()1 NAT! Analytic A0erage total cost
9hich of the following explains why long)run a0erage cost at first decreases as output increasesC a. diseconomies of scale b. less)efficient use of inputs c. fixed costs becoming spread out o0er more units of output d. gains from specialization of inputs % &'$! T,.! 1()1 NAT! Analytic A0erage total cost
The most likely explanation for economies of scale is a. coordination problems. b. specialization of labor. c. increasing marginal cost. d. decreasing marginal cost.

AN ! @ "#$! +,-! -osts of production / -! Applicati0e 13. 1 &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
13*
9hen a firm is experiencing economies of scale6 a. long)run a0erage total cost is minimized. b. long)run a0erage total cost is greater than long)run marginal cost. c. long)run a0erage total cost is less than long)run marginal cost. d. long)run marginal cost is minimized. ( &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
'conomies of scale occur when a firms a. marginal costs are constant as output increases. b. long)run a0erage total costs are decreasing as output increases. c. long)run a0erage total costs are increasing as output increases. d. marginal costs are equal to a0erage total costs for all le0els of output. 1 &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
'conomies of scale occur when a. long)run a0erage total costs rise as output increases. b. long)run a0erage total costs fall as output increases. c. a0erage fixed costs are falling. d. a0erage fixed costs are constant. % &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
#f a firm wants to capitalize on economies of scale6 it may be able to do so by a. assigning limited tasks to its employees6 so they can master those tasks. b. employing a smaller number of workers. c. producing a smaller quantity of output. d. producing an output le0el higher than the efficient scale. % &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
'conomies of scale arise when a. an economy is self)sufficient in production. b. indi0iduals in a society are self)sufficient. c. fixed costs are large relati0e to 0ariable costs. d. workers are able to specialize in a particular task. % &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
AN ! " "#$! +,-! -osts of production / -! #nterpreti0e %*.
#f long)run a0erage total cost decreases as the quantity of output increases6 the firm is experiencing a. economies of scale. b. diseconomies of scale. c. coordination problems arising from the large size of the firm. d. fixed costs greatly exceeding 0ariable costs. 1 &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
131
%1.

#n the long run $irm A incurs total costs of =16*3* when output is (* units and =16%** when output is 1* units. $irm A exhibits a. diseconomies of scale because total cost is rising as output rises. b. diseconomies of scale because a0erage total cost is rising as output rises. c. economies of scale because total cost is rising as output rises. d. economies of scale because a0erage total cost is falling as output rises. % &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
AN ! " "#$! +,-! -osts of production / -! Analytical %%.
#n the long run $irm A incurs total costs of =16%** when output is (* units and =161** when output is 1* units. $irm A exhibits a. diseconomies of scale because total cost is rising as output rises. b. diseconomies of scale because a0erage total cost is rising as output rises. c. economies of scale because total cost is rising as output rises. d. economies of scale because a0erage total cost is falling as output rises. % &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
AN ! " "#$! +,-! -osts of production / -! Analytical %(.
ince the 187*s6 9al)/art stores ha0e appeared in almost e0ery community in America. 9al)/art buys its goods in large quantities and6 therefore6 at cheaper prices. 9al)/art also locates its stores where land prices are low6 usually outside of the community business district. /any customers shop at 9al)/art because of low prices. +ocal retailers6 like the neighborhood drug store6 often go out of business because they lose customers. This story demonstrates that a. consumers do not react to changing prices. b. there are diseconomies of scale in retail sales. c. there are economies of scale in retail sales. d. there are diminishing returns to producing and selling retail goods. % &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
AN ! "#$! +,-! -osts of production / -! #nterpreti0e %1.
9hen a firm experiences constant returns to scale6 a. long)run a0erage total cost is unchanged6 e0en when output increases. b. long)run marginal cost is greater than long)run a0erage total cost. c. long)run marginal cost is less than long)run a0erage total cost. d. the firm is likely to experience coordination problems. 1 &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale
AN ! A "#$! +,-! -osts of production / -! "efinitional %3.
-onstant returns to scale occur when a firms a. marginal costs are constant as output increases. b. long)run a0erage total costs are decreasing as output increases. c. long)run a0erage total costs are increasing as output increases. d. long)run a0erage total costs do not 0ary as output increases. 1 &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale
AN ! " "#$! +,-! -osts of production / -! "efinitional %4.
-onstant returns to scale occur when the firms a. long)run total costs are constant as output increases. b. long)run a0erage total costs are constant as output increases. c. long)run a0erage cost cur0e is falling as output increases. d. long)run a0erage cost cur0e is rising as output increases. % &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale

%5. #f a firm experiences constant returns to scale at all output le0els6 then its long)run a0erage total cost cur0e would a. slope downward. b. be horizontal. c. slope upward. d. slope downward for low output le0els and upward for high output le0els. % &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale
13%
AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e %7.
9hen a firms long)run a0erage total costs do not 0ary as output increases6 the firm exhibits a. economies of scale. b. constant returns to scale. c. diseconomies of scale. d. the only output le0el associated with an efficient use of resources. % &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale
AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e %8.
#n the long run $irm A incurs total costs of =16%** when output is (* units and =164** when output is 1* units. $irm A exhibits a. diseconomies of scale because total cost is rising as output rises. b. constant returns to scale because a0erage total cost is constant as output rises. c. diseconomies of scale because a0erage total cost is rising as output rises. d. economies of scale because a0erage total cost is falling as output rises. % &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale
AN ! @ "#$! +,-! -osts of production / -! Analytical (*.
#n the long run $irm A incurs total costs of =8** when output is (* units and =16%** when output is 1* units. $irm A exhibits a. diseconomies of scale because total cost is rising as output rises. b. constant returns to scale because a0erage total cost is constant as output rises. c. diseconomies of scale because a0erage total cost is rising as output rises. d. economies of scale because a0erage total cost is falling as output rises. % &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale
9hen a firm experiences diseconomies of scale6 a. short)run a0erage total cost is minimized. b. long)run a0erage total cost is minimized. c. long)run a0erage total cost increases as output increases. d. long)run a0erage total cost decreases as output increases. 1 &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale
AN ! "#$! +,-! -osts of production / -! "efinitional (%.
9hen a firm is experiencing diseconomies of scale6 a. long)run a0erage total cost is minimized. b. long)run a0erage total cost is greater than long)run marginal cost. c. long)run a0erage total cost is less than long)run marginal cost. d. long)run marginal cost is minimized. ( &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale
13(
((.

"iseconomies of scale occur when a firms a. marginal costs are constant as output increases. b. long)run a0erage total costs are decreasing as output increases. c. long)run a0erage total costs are increasing as output increases. d. marginal costs are equal to a0erage total costs for all le0els of output. 1 &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale
AN ! "#$! +,-! -osts of production / -! "efinitional (1.
"iseconomies of scale occur when a. a0erage fixed costs are falling. b. a0erage fixed costs are constant. c. long)run a0erage total costs rise as output increases. d. long)run a0erage total costs fall as output increases. % &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale
AN ! "#$! +,-! -osts of production / -! "efinitional (3.
#n the long run6 when marginal cost is abo0e a0erage total cost6 the a0erage total cost cur0e exhibits a. economies of scale. b. diseconomies of scale. c. constant returns to scale. d. efficient scale. % &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale
AN ! @ "#$! +,-! -osts of production / -! Applicati0e (4.
#n the long run $irm A incurs total costs of =16%** when output is (* units and =1643* when output is 1* units. $irm A exhibits a. diseconomies of scale because total cost is rising as output rises. b. diseconomies of scale because a0erage total cost is rising as output rises. c. economies of scale because total cost is rising as output rises. d. economies of scale because a0erage total cost is falling as output rises. % &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale
ome reasons that firms may experience diseconomies of scale include that a. the firm is too small to take ad0antage of specialization. b. large management structures may be bureaucratic and inefficient. c. if there are too few employees6 managers do not ha0e enough to do. d. a0erage fixed costs begin to rise again. % &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale

Figure 13-( The figure below depicts a0erage total cost functions for a firm that produces automobiles.
131
(7.
Refer to Fi.ure 13$:. 9hich of the cur0es is most likely to characterize the short)run a0erage total cost cur0e of the smallest factoryC a. AT-A b. AT-@ c. AT-d. AT-" 1 &'$! T,.! 1()1 NAT! Analytic A0erage total cost
Refer to Fi.ure 13$:. 9hich cur0e represents the long)run a0erage total costC a. AT-A b. AT-@ c. AT-d. AT-" 1 &'$! T,.! 1()1 NAT! Analytic A0erage total cost
Refer to Fi.ure 13$:. #n the long run6 the firm can operate on which of the following a0erage total cost cur0esC a. AT-A b. AT-@ c. AT-d. All of the abo0e are correct. 1 &'$! T,.! 1()1 NAT! Analytic A0erage total cost
Refer to Fi.ure 13$:. The firm experiences economies of scale at which output le0elsC a. output le0els less than / b. output le0els between / and N c. output le0els greater than N d. All of the abo0e are correct as long as the firm is operating in the long run. % &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
133
1%.

Refer to Fi.ure 13$:. At le0els of output less than /6 the firm experiences a. economies of scale. b. diseconomies of scale. c. constant returns to scale. d. both diminishing marginal producti0ity and coordination problems. % &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
Refer to Fi.ure 13$:. The firm experiences constant returns to scale at which output le0elsC a. output le0els less than / b. output le0els between / and N c. output le0els greater than N d. All of the abo0e are correct as long as the firm is operating in the long run. % &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale
Refer to Fi.ure 13$:. At le0els of output between / and N6 the firm experiences a. economies of scale. b. diseconomies of scale. c. constant returns to scale. d. both the benefits of specialization and diminishing marginal producti0ity. % &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale
Refer to Fi.ure 13$:. This firm experiences diseconomies of scale at what output le0elsC a. output le0els greater than N b. output le0els between / and N c. output le0els less than / d. All of the abo0e are correct as long as the firm is operating in the long run. % &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale
Refer to Fi.ure 13$:. At output le0els greater than N6 the firm experiences a. economies of scale. b. constant returns to scale. c. diseconomies of scale. d. minimum efficient scale. % &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale

Figure 13-1)
134
15.
Refer to Fi.ure 13$1*. The three a0erage total cost cur0es on the diagram labeled AT-16 AT-%6 and AT-( most likely correspond to three different a. time horizons. b. products. c. firms. d. factory sizes. % &'$! T,.! 1()1 NAT! Analytic A0erage total cost
Refer to Fi.ure 13$1*. The firm experiences economies of scale if it changes its le0el of output from a. Q1 to Q%. b. Q% to Q(. c. Q( to P1. d. Q1 to Q3. % &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
Refer to Fi.ure 13$1*. The firm experiences diseconomies of scale if it changes its le0el of output from a. Q1 to Q%. b. Q% to Q(. c. Q( to Q1. d. Q1 to Q3. % &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale
Refer to Fi.ure 13$1*. The firm experiences constant returns to scale if it changes its le0el of output from a. Q1 to Q%. b. Q% to Q1. c. Q1 to Q(. d. Q1 to Q3. % &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale
135
Table 13-12 +isted in the table are the long)run total costs for three different firms. Quantity $irm A $irm @ $irm 31. 1 1** 1** 1** 2 1** %** (** 3 1** (** 4** ! 1** 3** 163**
1** 1** 16***
Refer to Ta"#e 13$12% 9hich firm is experiencing diseconomies of scaleC a. $irm A only b. $irm @ only c. $irm - only d. $irm A and $irm @ only ( &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale
AN ! "#$! +,-! -osts of production / -! Analytical 3%.
Refer to Ta"#e 13$12% 9hich firm is experiencing constant returns to scaleC a. $irm A only b. $irm @ only c. $irm - only d. $irm A and $irm @ only ( &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale
Table 13-13 -onsider the following table of long)run total cost for four different firms! Quantity $irm 1 $irm % $irm ( $irm 1 3(. 1 =%1* =17* =1%* =13* 2 =(1* =(3* =%3* =(** 3 =18* =31* =(8* =13* ! =73* =7** =5** =53* 5 =16*4* =8(* =75* =8** 7 =16%8* =16*3* =16*3* =16*3*
=44* =44* =31* =4**
Refer to Ta"#e 13$13. 9hich firm has constant returns to scale o0er the entire range of outputC a. $irm 1 b. $irm % c. $irm ( d. $irm 1 % &'$! T,.! 1()1 NAT! Analytic -onstant returns to scale
Refer to Ta"#e 13$13. 9hich firm has diseconomies of scale o0er the entire range of outputC a. $irm 1 b. $irm % c. $irm ( d. $irm 1 ( &'$! T,.! 1()1 NAT! Analytic "iseconomies of scale
Refer to Ta"#e 13$13. 9hich firm has economies of scale o0er the entire range of outputC a. $irm 1 b. $irm % c. $irm ( d. $irm 1

AN ! @ "#$! +,-! -osts of production / -! Applicati0e 34. ( &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
137
Refer to Ta"#e 13$13. 9hich firm has economies of scale and then diseconomies of scale as output increases from 1 to 5C a. $irm 1 b. $irm % c. $irm ( d. $irm 1 ( &'$! T,.! 1()1 NAT! Analytic 'conomies of scale
Refer to Ta"#e 13$13. 9hich firm:s long)run marginal cost decreases as output increasesC a. $irm 1 b. $irm % c. $irm ( d. $irm 1 ( &'$! T,.! 1()1 /arginal cost NAT! Analytic
Refer to Ta"#e 13$13. $irm 1:s efficient scale occurs at what quantityC a. % b. ( c. 1 d. 3 ( &'$! T,.! 1()1 NAT! Analytic 'fficient scale
9hich of the following statements is not correctC a. #n the long run6 there are no fixed costs. b. /arginal cost is independent of fixed costs. c. 'conomies of scale is a short)run concept. d. "iminishing marginal product explains increasing marginal cost. "#$! % &'$! 1()1 T,.! 'conomies of scale
AN ! / -! #nterpreti0e
Sec*! $ The Costs of Production $ Conc#usion

+ULT,PLE C&',CE 1. #n setting the production le0el6 a firm:s cost cur0es a. by themsel0es do not tell us what decisions the firm will make. b. dictate what decisions the firm will make. c. ha0e no bearing on what decisions the firm will make. d. None of the abo0e is correct. % &'$! T,.! 1()3 -ost cur0es NAT! Analytic / -! #nterpreti0e
AN ! A "#$! +,-! -osts of production

Chapter 13

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Chapter 13

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Chapter 13 The Costs of Production

-hapter 1(;The -osts of .roduction

NAT! Analytic / -! #nterpreti0e

1()% NAT! Analytic A0erage fixed cost

-hapter 1(;The -osts of .roduction

-hapter 1(;The -osts of .roduction

-hapter 1(;The -osts of .roduction

1** 1** 16***

-hapter 1(;The -osts of .roduction

% &'$! .roduction function

NAT! Analytic / -! Applicati0e

+,-! -osts of production

-hapter 1(;The -osts of .roduction

% &'$! 1()( NAT! Analytic "iminishing marginal product 2 Total)cost cur0e

+,-! -osts of production / -! Analytical

-hapter 1(;The -osts of .roduction

Sec** $ The Costs of Production

AN ! A "#$! +,-! -osts of production / -! Applicati0e %.

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AN ! "#$! +,-! -osts of production / -! "efinitional 4.

AN ! " "#$! +,-! -osts of production / -! #nterpreti0e

-hapter 1(;The -osts of .roduction

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AN ! "#$! +,-! -osts of production / -! #nterpreti0e (. EiF EiiF EiiiF

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AN ! @ "#$! +,-! -osts of production / -! "efinitional

-hapter 1(;The -osts of .roduction

AN ! @ "#$! +,-! -osts of production / -! #nterpreti0e 5.

AN ! A "#$! +,-! -osts of production / -! #nterpreti0e 7.

AN ! "#$! +,-! -osts of production / -! "efinitional 8.

AN ! A "#$! +,-! -osts of production / -! "efinitional 1*.

AN ! A "#$! +,-! -osts of production 11.

AN ! "#$! +,-! -osts of production 1%.

-hapter 1(;The -osts of .roduction

AN ! "#$! +,-! -osts of production 11.

AN ! " "#$! +,-! -osts of production / -! Analytical 13.

AN ! A "#$! +,-! -osts of production / -! Analytical 14.

AN ! A "#$! +,-! -osts of production / -! Analytical 15.

AN ! A "#$! +,-! -osts of production 17.

AN ! @ "#$! +,-! -osts of production

-hapter 1(;The -osts of .roduction

AN ! A "#$! +,-! -osts of production %*.

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AN ! "#$! +,-! -osts of production / -! Analytical %%.

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-hapter 1(;The -osts of .roduction

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-hapter 1(;The -osts of .roduction

AN ! "#$! +,-! -osts of production / -! #nterpreti0e (4.

1 1 16***