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_________ If the total cost curve gets steeper as output increases, the firm is experiencing
a. increasing marginal product.
b. diseconomies of scale.
c. diminishing marginal product.
d. economies of scale.
Figure 1

_________ Refer to Figure 1. The three average total cost curves on the diagram labeled ATC 1, ATC2, and ATC3 most
likely correspond to three different
a. firms.
b. factory sizes.
c. time horizons.
d. products.
_________ Refer to Figure 1. The firm experiences diseconomies of scale if it changes its level of output from
a. Q2 to Q3.
b. Q3 to Q4.
c. Q1 to Q2.
d. Q4 to Q5.
Scenario 1.
Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants 1 bag
of seeds, he gets 30 watermelons. If he plants 2 bags of seeds, he gets 50 watermelons. If he plants 3 bags of
seeds he gets 60 watermelons. A bag of seeds costs P100, and the costs of seeds are his only costs.
_________ Refer to Scenario 1. Farmer Jack's production function will
a. increase at a decreasing rate.
b. increase at an increasing rate.
c. decrease at a decreasing rate.
d. decrease at an increasing rate.

_________ Refer to Scenario 1. Which of the following statements is (are) true?


(i) Farmer Jack experiences decreasing marginal product.
(ii) Farmer Jack's production function is nonlinear.
(iii) Farmer Jack's total cost curve is linear.
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a. (i) only
b. (i) and (iii) only
c. (i) and (ii) only
d. (ii) only
_________ Refer to Scenario 1. What is the shape of Farmer Jack’s marginal cost curve?
a. first upward sloping, then downward sloping
b. upward sloping
c. constant
d. downward sloping
_________ Refer to Scenario 1. Which of the following statements is(are) true of Farmer Jack's marginal cost?
(i) His marginal cost curve is U-shaped.
(ii) His marginal cost decreases with increased watermelon output.
(iii) His marginal cost reflects diminishing marginal product.

a. (ii) only
b. (i) and (iii) only
c. (i) and (ii) only
d. (iii) only
_________ Charles’s Car Wash has average variable costs of P200 and average total costs of P300 when it produces 100
units of output (car washes). The firm's total variable cost is
a. P30,000
b. P50,000
c. P10,000
d. P20,000
_________ The Wacky Widget company has total fixed costs of P100,000 per year. The firm's average variable cost is P5
for 10,000 widgets. At that level of output, the firm's average total costs equal
a. P150
b. P100
c. P15
d. P10
_________ A firm produces 300 units of output at a total cost of P1,000. If fixed costs are P100,
a. average total cost is P5.
b. average total cost is P4.
c. average variable cost is P3.
d. average fixed cost is P10.

Scenario 2
A certain firm produces and sells staplers. Last year, it produced 7,000 staplers and sold each stapler for P6. In
producing the 7,000 staplers, it incurred variable costs of P28,000 and a total cost of P45,000.
_________ Refer to Scenario 2. In producing the 7,000 staplers, the firm's average fixed cost was
a. P2.43.
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b. P2.21.
c. P1.32.
d. P1.00.
_________ Refer to Scenario 2. In producing the 7,000 staplers, the firm's average variable cost was
a. P2.43.
b. P4.00.
c. P6.00.
d. P6.43.
_________ Refer to Scenario 2. Suppose the owner of the business had an offer to work for another firm that raises his
opportunity cost by P25,000. The firm's accounting profit for the year was
a. P-25,000
b. P17,000.
c. P-3,000.
d. P-28,000.
_________ Refer to Scenario 2. Suppose the owner of the business had an offer to work for another firm that raises his
opportunity cost by P25,000. The firm's economic profit for the year was
a. P17,000.
b. P-25,000
c. P-28,000.
d. P-3,000.
_________ Refer to Scenario 2. In producing the 7,000 staplers, the firm's average total cost was
a. P6.43.
b. P2.43.
c. P6.00.
d. P4.00.
_________ Which of the following can be added to profit to obtain total revenue?
a. total cost
b. operational profit
c. net profit
d. capital profit

Figure 2
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Cost
100

90

80

70

60

50

40

30

20

10

2 4 6 8 10 12 14 16 Quantity

_________ Refer to Figure 2. Which of the following statements best captures the nature of the underlying production
function?
a. Output decreases at a decreasing rate with additional units of input.
b. Output increases at an increasing rate with additional units of input.
c. Output increases at a decreasing rate with additional units of input.
d. Output decreases at an increasing rate with additional units of input.
_________ Refer to Figure 2. Assuming that the firm depicted produces cookies, which of the statements below is most
consistent with the shape of the total cost curve?
a. Producing an additional cookie is always more costly than producing the previous cookie.
b. Total production of cookies decreases with additional units of input.
c. Producing additional cookies is equally costly, regardless of how many cookies are already
being produced.
d. Producing additional cookies becomes increasingly costly only when the number of
cookies already being produced is large.
_________ Refer to Figure 2. The changing slope of the total cost curve reflects
a. increasing fixed cost.
b. decreasing average variable cost.
c. decreasing marginal product.
d. decreasing average total cost.
_________ Refer to Figure 2. Which of the following is true of the production function (not pictured) that underlies this
total cost function?
(i) Total output increases as the quantity of inputs increases but at a decreasing rate.
(ii) Marginal product is diminishing for all levels of input usage.
(iii) The slope of the production function decreases as the quantity of inputs increases.

a. (ii) and (iii) only


b. (i), (ii), and (iii)
c. (i) only
d. (i) and (iii) only

_________ If a firm wants to capitalize on economies of scale, it may be able to do so by


a. employing a smaller number of workers.
b. producing a smaller quantity of output.
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c. producing an output level higher than the efficient scale.


d. assigning limited tasks to its employees, so they can master those tasks.
_________ When a firm is making a profit-maximizing production decision, which of the following principles of
economics is likely to be most important to the firm's decision?
a. A country's standard of living depends on its ability to produce goods and services.
b. The cost of something is what you give up to get it.
c. Governments can sometimes improve market outcomes.
d. Prices rise when the government prints too much money.
_________ Explicit 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. Both b and c are correct.
Scenario 3.
Joe wants to start his own business, which will require that he purchase a factory that costs P400,000. Joe
currently has P500,000 in the bank earning 3 percent interest per year.
_________ Refer to Scenario 3. If Joe purchases the factory with his own money, what is the annual implicit opportunity
cost of purchasing the factory?
a. P12,000
b. P3,000
c. P15,000
d. P0
_________ Refer to Scenario 3. Suppose Joe purchases the factory using P200,000 of his own money and P200,000
borrowed from a bank at an interest rate of 6 percent. What is Joe’s annual opportunity cost of purchasing the
factory?
a. P18,000
b. P6,000
c. P15,000
d. P3,000
_________ Total revenue minus only implicit costs is called
a. opportunity cost.
b. accounting profit.
c. economic profit.
d. None of the above is correct.
_________ For a firm, the relationship between the quantity of inputs and quantity of output is called the
a. production function.
b. total-cost function.
c. quantity function.
d. profit function.

_________ Some costs do not vary with the quantity of output produced. Those costs are called
a. average costs.
b. incurred costs.
c. marginal costs.
d. fixed costs.
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Table
MYKE’s Cork Factory

Output
Number Number (corks Marginal
of of produced Product of Cost of Cost of Total
Workers Machines per hour) Labor Workers Machines Cost
1 2 5
2 2 10
3 2 20
4 2 35
5 2 55
6 2 70
7 2 80
_________ Refer to Table 1. MYKE's cork factory experiences diminishing marginal product of labor with the addition
of which worker?
a. the fifth worker
b. the fourth worker
c. the third worker
d. the sixth worker
_________ Refer to Table 1. Each worker at MYKE's cork factory costs P12 per hour. The cost of each machine is P20
per day regardless of the number of corks produced. If MYKE's produces at a rate of 35 corks per hour, what
is the total labor cost per hour?
a. P48
b. P40
c. P424
d. P384
_________ Refer to Table 1. Each worker at MYKE's cork factory costs P12 per hour. The cost of each machine is P20
per day regardless of the number of corks produced. If MYKE's produces at a rate of 70 corks per hour and
operates 8 hours per day, what is MYKE’s total labor cost per day?
a. P616
b. P576
c. P72
d. P112
_________ Refer to Table 1. Assume MYKE's currently employs 2 workers. What is the marginal product of labor when
MYKE's adds a 3rd worker?
a. 20 corks per hour
b. 5 corks per hour
c. 10 corks per hour
d. 25 corks per hour
_________ Refer to Table 1. Each worker at MYKE's cork factory costs P12 per hour. The cost of each machine is P20
per day regardless of the number of corks produced. What is the total daily cost of producing at a rate of 55
units per hour if MYKE’s operates 8 hours per day?
a. P480
b. P616
c. P520
d. P576
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_________ The analysis of competitive firms sheds light on the decisions that lie behind the
a. way firms make pricing decisions in the not-for-profit sector of the economy.
b. supply curve.
c. demand curve.
d. way financial markets set interest rates.
_________ Which field of economics studies how the number of firms affects the prices in a market and the efficiency of
market outcomes?
a. macro economics
b. industrial organization
c. monetary economics
d. labor economics
_________ When marginal cost is greater than average cost, average cost is
a. either rising or falling depending on the economies of scale.
b. falling.
c. rising.
d. constant.
_________ The amount of money that a firm receives from the sale of its output is called
a. total gross profit.
b. net revenue.
c. total revenue.
d. total net profit.
_________ A monopolistically competitive market has characteristics that are similar to
a. neither a monopoly nor a competitive firm.
b. a competitive firm only.
c. both a monopoly and a competitive firm.
d. a monopoly only.
_________ An example of an explicit cost of production would be the
a. cost of forgone labor earnings for an entrepreneur.
b. lost opportunity to invest in capital markets when the money is invested in one's business.
c. lease payments for the land on which a firm’s factory stands.
d. Both a and c are correct.

Figure 3
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Cost
D
11
C
10
B
9

1
A
1 2 3 4 5 6 7 8 9 10 11 12 Quantity

_________ Refer to Figure 3. Curve D represents which type of cost curve?


a. average variable cost
b. average fixed cost
c. average total cost
d. marginal cost
_________ Refer to Figure 3. Which curve is most likely to represent marginal cost?
a. B
b. D
c. A
d. C
_________ Refer to Figure 3. Curve A represents which type of cost curve?
a. average variable cost
b. marginal cost
c. average total cost
d. average fixed cost
_________ Refer to Figure 3. Which curve is most likely to represent average total cost?
a. D
b. C
c. A
d. B
_________ Refer to Figure 3. Curve D intersects curve C
a. where the firm maximizes profit.
b. where fixed costs equal variable costs.
c. at the efficient scale.
d. at the minimum of average fixed cost.
_________ Refer to Figure 3. Curve A is always declining because of
a. dividing fixed costs by higher and higher levels of output.
b. diminishing marginal product.
c. the fact that increasing marginal product follows decreasing marginal product.
d. the fact that decreasing marginal product follows increasing marginal product.
Figure 4
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Suppose the production function shifts from TP1 to TP2.


Output

TP2

TP1

Inputs

_________ Refer to Figure 4. In this diagram, the shift in the total product curve represents an increase in the firm's
a. productivity.
b. costs of production.
c. market share.
d. diseconomies.
_________ Average total cost (ATC) is calculated as follows:
a. ATC = (total cost)/(quantity of input).
b. ATC = (change in total cost)/(change in quantity of input).
c. ATC = (change in total cost)/(change in quantity of output).
d. ATC = (total cost)/(quantity of output).
Table 2
The Flying Elvis Copter Rides
Quantity Total Fixed Variable Marginal Average Average Average
Cost Cost Cost Cost Fixed Variable Total
Cost Cost Cost
0 P50 P50 P0 -- -- -- --
1 P150 A B C D E F
2 G H I P120 J K L
3 M N O P Q P120 R
_________ Refer to Table 2. What is the value of C?
a. P50
b. P25
c. P100
d. P200

_________ Refer to Table 2. What is the value of B?


a. P100
b. P50
c. P25
d. P200
_________ Refer to Table 2. What is the value of G?
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a. P270
b. P220
c. P30
d. P120
_________ Refer to Table 2. What is the value of O?
a. P360
b. P40
c. P140
d. P410
_________ Refer to Table 2. What is the value of L?
a. P270
b. P240
c. P60
d. P135
Figure 5

_________ Refer to Figure 5. Which of the figures represents the production function for a firm?
a. Figure 2
b. Figure 1
c. Figure 4
d. Figure 3
_________ Refer to Figure 5. Which of the figures represents the total cost curve for a firm?
a. Figure 4
b. Figure 1
c. Figure 3
d. Figure 2
_________ Refer to Figure 5. Which of the figures represents the marginal cost curve for a firm?
a. Figure 3
b. Figure 2
c. Figure 1
d. Figure 4
_________ Total revenue minus only explicit costs is called
a. average total cost.
b. economic profit.
c. accounting profit.
d. None of the above is correct.
_________ Which of the following measures of cost is best described as "the cost of a typical unit of output if total cost is
divided evenly over all the units produced?"
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a. average variable cost


b. average fixed cost
c. average total cost
d. marginal cost
_________ When average cost is greater than marginal cost, marginal cost must be
a. rising.
b. The direction of change in marginal cost cannot be determined from this information.
c. constant.
d. falling.
_________ A perfectly competitive market
a. may not be in the best interests of society, whereas a monopoly market promotes general
economic well-being
b. promotes general economic well-being, whereas a monopoly market may not be in the
best interests of society.
c. is less likely to promote general economic well-being than a monopoly market.
d. and a monopoly market are equally likely to promote general economic well-being.
_________ The value of a business owner's time is an example of
a. total revenue.
b. an explicit cost.
c. a fixed cost.
d. an opportunity cost.
_________ Total cost can be divided into two types of costs:
a. fixed costs and variable costs.
b. variable costs and marginal costs.
c. average costs and marginal costs.
d. fixed costs and marginal costs.
_________ Which of the following is a characteristic of monopolistic competition?
a. free entry
b. identical product
c. patents
d. ownership of a key resource by a single firm
_________ Profit is defined as total revenue
a. plus total cost.
b. divided by total cost.
c. times total cost.
d. minus total cost.

_________ The difference between accounting profit and economic profit relates to
a. how total revenue is calculated.
b. the price of the good in the market.
c. the manner in which costs are defined.
d. the manner in which revenues are defined.
_________ Average total cost is equal to
a. total cost/output.
b. output/total cost.
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c. average variable cost + total fixed cost.


d. total cost - total quantity of output.
_________ Which of the following expressions is correct?
a. economic profit = total revenue - implicit costs
b. accounting profit = economic profit + implicit costs
c. accounting profit = total revenue - implicit costs
d. economic profit = accounting profit + explicit costs
_________ Total revenue minus both explicit and implicit costs is called
a. accounting profit.
b. average total cost.
c. economic profit.
d. None of the above is correct.
_________ Explicit 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. Both b and c are correct.
_________ Profit is defined as
a. total revenue minus total cost.
b. net revenue minus depreciation.
c. average revenue minus average total cost.
d. marginal revenue minus marginal cost.
_________ A firm has market power if it can
a. maximize profits.
b. hire as many workers as it needs at the prevailing wage rate.
c. minimize costs.
d. influence the market price of the good it sells.
_________ The marginal product of labor is equal to the
a. incremental profit associated with a one unit increase in labor.
b. increase in labor necessary to generate a one unit increase in output.
c. incremental cost associated with a one unit increase in labor.
d. increase in output obtained from a one unit increase in labor.
_________ Monopolistic competition is a type of
a. oligopoly.
b. price discrimination.
c. advertising strategy.
d. market structure.
_________ Marginal cost is equal to
a. TC/Q.
b. TC/Q.
c. ATC/Q.
d. Q/TC.

_________ The amount by which total cost rises when the firm produces one additional unit of output is called
a. marginal cost.
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b. average cost.
c. fixed cost.
d. variable cost.
_________Which of the following statements is correct?
a. Opportunity costs equal explicit minus implicit costs.
b. Economists consider opportunity costs to be included in a firm’s costs of production.
c. Economists consider opportunity costs to be included in a firm’s total revenues.
d. All of the above are correct.