Question 1

If a firm decides to produce no output in the short run,its costs will be:

Accepted Answer

A)   its marginal costs.
B)   its fixed plus its variable costs.
C)   its fixed costs.
D)   zero.

Question 2

The above diagram shows the short-run average total cost curves for five different plant sizes of a firm.The position of these five curves in relation to one another reflects:

Accepted Answer

A)   economies and diseconomies of scale.
B)   the effect of fixed costs on ATC as output increases.
C)   the law of constant costs.
D)   the law of diminishing returns.

Question 3

The real opportunity cost of producing product X is the amounts of products Y,Z,and so forth,that might have been produced if resources had not been used to produce X.

Accepted Answer

A) True 
 B)False

Question 4

The total output of a firm will be at a maximum where:

Accepted Answer

A)   MP is at a maximum.
B)   AP is at a minimum.
C)   MP is zero.
D)   AP is at a maximum.

Question 5

3 units of labor. B)  Q2 units of labor. C)  Q1 units of labor. D)  some point that cannot be determined with the above information." class="answers-bank-image d-inline" rel="preload" > In the above diagram,total product will be at a maximum at:

Accepted Answer

A)   Q3 units of labor.
B)   Q2 units of labor.
C)   Q1 units of labor.
D)   some point that cannot be determined with the above information.

Question 6

Refer to the above diagram.At output level Q total fixed cost is:

Accepted Answer

A)   0BEQ.
B)   BCDE.
C)   0BEQ - 0AFQ.
D)   0CDQ.

Question 7

Refer to the above information.Average total cost is:

Accepted Answer

A)    .
B)    .
C)    .
D)    .

Question 8

Refer to the above diagram.At output level Q total cost is:

Accepted Answer

A)   0BEQ.
B)   BCDE.
C)   0BEQ plus BCDE.
D)   0AFQ plus BCDE.

Question 9

The most effective form of business organization for raising money to finance the expansion of its facilities and capabilities is a:

Accepted Answer

A)   partnership.
B)   corporation.
C)   conglomerate.
D)   sole proprietorship.

Question 10

A group of three plants that is owned and operated by a single firm and that consists of a farm growing wheat,a flour-milling plant,and a plant that bakes and sells bread would best be an example of a:

Accepted Answer

A)   multiplant firm.
B)   vertically integrated firm.
C)   partnership.
D)   conglomerate.

Question 11

Which of the following is most likely to be a fixed cost?

Accepted Answer

A)   Shipping charges
B)   Property insurance premiums
C)   Wages for unskilled labor
D)   Expenditures for raw materials

Question 12

Average fixed costs diminish continuously as output increases.

Accepted Answer

A) True 
 B)False

Question 13

The law of diminishing returns describes the:

Accepted Answer

A)   relationship between total costs and total revenues.
B)   profit-maximizing position of a firm.
C)   relationship between resource inputs and product outputs in the short run.
D)   positive relationship between resource inputs and product outputs in the long run.

Question 14

Total fixed cost (TFC) :

Accepted Answer

A)   falls as the firm expands output from zero,but eventually rises.
B)   falls continuously as total output expands.
C)   varies directly with total output.
D)   does not change as total output increases or decreases.

Question 15

The above diagram shows the short-run average total cost curves for five different plant sizes of a firm.In the long run the firm should produce output 0x with a plant of size:

Accepted Answer

A)   #4.
B)   #3.
C)   #2.
D)   #1.

Question 16

If you operated a small bakery,which of the following would be a variable cost in the short run?

Accepted Answer

A)   Baking ovens
B)   Interest on business loans
C)   Annual lease payment for use of the building
D)   Baking supplies (flour,salt,etc. )

Question 17

Refer to the above diagram.This firm's average fixed costs are:

Accepted Answer

A)   not shown.
B)   the vertical distance between AVC and MC.
C)   the vertical distance between AVC and ATC.
D)   equal to the per unit change in MC.

Question 18

Which of the following definitions is correct?

Accepted Answer

A)   Accounting profit + Economic profit = Normal profit.
B)   Economic profit - Accounting profit = Explicit costs.
C)   Economic profit = Accounting profit - Implicit costs.
D)   Economic profit - Implicit costs = Accounting profits.

Question 19

In economics,a firm earns a normal profit when its total revenue equals its total economic costs.

Accepted Answer

A) True 
 B)False

Question 20

The principal-agent problem in corporations arises from:

Accepted Answer

A)   the fact that the principal objective of most corporations is to make profits and not to contribute to charity.
B)   a conflict of interest between corporate executives who manage the firm and stockholders who own the firm.
C)   the view that workers are agents who are not considered to be the principal asset of the corporations for which they work.
D)   a perspective that corporations are agents that represent the principal source of power for government and the national economy.

Exam 6: Businesses and Their Costs

If you operated a small bakery,which of the following would be a variable cost in the short run?

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Total fixed cost (TFC) :

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Refer to the above diagram.This firm's average fixed costs are:

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In the above diagram,total product will be at a maximum at:

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The above diagram shows the short-run average total cost curves for five different plant sizes of a firm.The position of these five curves in relation to one another reflects:

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The most effective form of business organization for raising money to finance the expansion of its facilities and capabilities is a:

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The principal-agent problem in corporations arises from:

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Refer to the above diagram.At output level Q total fixed cost is:

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The law of diminishing returns describes the:

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A group of three plants that is owned and operated by a single firm and that consists of a farm growing wheat,a flour-milling plant,and a plant that bakes and sells bread would best be an example of a:

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Refer to the above information.Average total cost is:

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The total output of a firm will be at a maximum where:

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In economics,a firm earns a normal profit when its total revenue equals its total economic costs.

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Refer to the above diagram.At output level Q total cost is:

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The real opportunity cost of producing product X is the amounts of products Y,Z,and so forth,that might have been produced if resources had not been used to produce X.

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If a firm decides to produce no output in the short run,its costs will be:

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Which of the following definitions is correct?

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The above diagram shows the short-run average total cost curves for five different plant sizes of a firm.In the long run the firm should produce output 0x with a plant of size:

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Average fixed costs diminish continuously as output increases.

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Which of the following is most likely to be a fixed cost?

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