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Chapter 5- practice questions

question
In the mathematical formulation of the short-run production function:
a. the quantity of both labor and capital must be allowed to vary so that output can vary in the short run
b. the quantity of output is usually assumed to be fixed
c. the quantity of capital employed is usually assumed to be fixed
d. the quantity of both labor and capital employed are usually assumed to be fixed
answer
c. the quantity of capital employed is usually assumed to be fixed
question
Marginal product equals 0 when:
a. average product equals zero
b. average product reached its minimum value
c. total product reaches its maximum value
d. total product equal average product
answer
c. total product reaches its maximum value
question
Which of the following is true of the typical relationship between marginal product (MP) and average product (AP)?
a. The MP curve intersects the AP curve at maximum AP.
b. If MP is greater than AP, then AP is falling.
c. If MP is less than AP, then AP is increasing.
d. The AP curve intersects the MP curve at minimum MP.
answer
a. The MP curve intersects the AP curve at maximum AP.
question
The amount of calendar time associated with the long run
a. is greater than one year.
b. is less than five years.
c. varies by industry.
d. is between one and five years.
answer
c. varies by industry.
question
For an economist the short run means a time period
a. during which firms are not allowed to change the amount of imported resources they use.
b. during which the firm is unable to change its plant size.
c. during which new firms are prohibited from entering the industry.
d. that is between one and five years.
answer
b. during which the firm is unable to change its plant size.
question
Which of the following is not a determinant of a firm's cost functions?
a. The price of labor.
b. The production function.
c. The productivity of the firm's capital stock.
d. The price of the firm's output.
answer
d. The price of the firm's output.
question
Marginal cost is defined as:
a. the change in output due to a one unit change in an input.
b. total cost divided by output.
c. the change in total cost due to a one unit change in output.
d. total product divided by the quantity of input.
answer
c. the change in total cost due to a one unit change in output.
question
Assume that after the fifth worker, each additional worker a firm hires is less productive than the previous worker. Based on this information, we can conclude that beyond the fifth worker, the average product of labor will:
a. stay the same.
b. increase.
c. cannot be determined without additional information.
d. decrease.
answer
c. cannot be determined without additional information.
question
Which of the following statements is correct?
a. Auto workers in the United States are less productive than their Japanese counterparts primarily due to the higher wages U.S. workers receive.
b. The increase in productivity Japanese manufacturers experienced in the early 1980s was the result primarily of changes in management focusing on inventory systems and plant layout.
c. Workers employed by General Motors are approximately twice as productive as their Japanese counterparts.
d. Between 1979 and 1998, Chrysler and Ford eliminated the productivity gap between all of their production facilities and their Japanese counterparts.
answer
b. The increase in productivity Japanese manufacturers experienced in the early 1980s was the result primarily of changes in management focusing on inventory systems and plant layout.
question
Which of the following is a long-run adjustment?
a. A restaurant hires a new chef.
b. A bank hires a new CEO.
c. A company hires ten new management trainees.
d. A company builds a new manufacturing plant.
answer
d. A company builds a new manufacturing plant.
question
Data on productivity gains in the 1990s in the United States strongly suggest that a significant share of those gains was attributable to:
a. improvements in education and training.
b. improvements in information technology.
c. increased demand for goods and services.
d. substantial reductions in labor costs.
answer
b. improvements in information technology.
question
A firm's production function is the relationship between:
a. the factors of production and the resulting outputs of the production process.
b. the inputs employed by the firm and the resulting costs of production.
c. the firm's production costs and the amount of revenue it receives from the sale of its output.
d. the demand for a firm's output and the quantity it is able to produce with available resources
answer
a. the factors of production and the resulting outputs of the production process.
question
Diminishing marginal returns occur when:
a. the size of the plant is increased in the long run.
b. the quantity of the fixed input is increased and returns to the variable input fall.
c. units of a variable input are added to a fixed input and total product falls.
d. units of a variable input are added to a fixed input and marginal product falls.
answer
d. units of a variable input are added to a fixed input and marginal product falls.
question
If a farmer seeks to buy one-hundred more acres for her kiwi fruit farm, she is making a
a. short-run decision.
b. long-run decision.
c. variable-input decision.
d. immediate-run decision.
answer
b. long-run decision.
question
Consider the production function for bottled water. All of the following would be considered variable inputs except:
a. the machine used to fill each bottle.
b. the water the bottles are filled with.
c. the plastic bottles.
d. the electricity used to power the machine used to fill the bottles.
answer
a. the machine used to fill each bottle
question
From the manager's perspective:
a. there is no difference between implicit and explicit costs. As such, treating implicit costs as explicit would result in double counting and an overstatement of total costs.
b. implicit costs are simply a theoretical construct and should be ignored in the decision-making process.
c. only explicit costs matter because accounting profit is based on explicit costs.
d. it is important to treat implicit costs as explicit in order to make sound strategic decisions.
answer
d. it is important to treat implicit costs as explicit in order to make sound strategic decisions
question
The term "fixed input" refers to:
a. inputs to production that do not vary in price.
b. inputs to production that do not vary with respect to quality.
c. inputs to production that yield a constant or "fixed" marginal product.
d. inputs to production, the quantity of which cannot be varied in the short run.
answer
d. inputs to production, the quantity of which cannot be varied in the short run.
question
If a firm can vary all of its factors of production, it is operating in
a. the short run.
b. equilibrium.
c. the immediate run.
d. the long run.
answer
d. the long run
question
If Microsoft is determining whether to build a new plant in Southern California or in New Mexico, it is making a(n) ________ decision.
a. immediate-run
b. long-run
c. short-run
d. variable-input
answer
b. long-run
question
The payment of wages by a firm is an example of:
a. a long-run cost of production.
b. an explicit cost of production.
c. an irreversible cost of production.
d. an implicit cost of production.
answer
b. an explicit cost of production.
question
Fred is considering opening a ski shop in Colorado. Assume Fred will incur the following costs: building rent = $100,000/year, inventory = $250,000/year, energy = $50,000/year, and labor (one clerk) = $10,000/year. In addition, Fred's current income as a computer programmer is $40,000 per year. Assuming Fred would earn $460,000 in revenues, he could expect to earn:
a. an accounting profit of $10,000 per year.
b. an accounting profit of $60,000 per year.
c. an economic profit of $50,000 per year.
d. an economic profit of $10,000 per year.
answer
d. an economic profit of $10,000 per year.
question
Recently Apple Computer developed Apple's new iTunes Music Store, which offers more than 200,000 songs from five major record labels, for use with Apple's iPod and iMac. Apple fans have gone gaga. More than a million songs were downloaded the first week alone! In economic terms, CEO Steve Jobs helped convert capital and labor inputs into products consumers use. Any activity that results in the conversion of resources into products that can be used in consumption is
a. demand.
b. production.
c. not profitable.
d. a start up venture.
answer
b. production.
question
The text lists all of the following as outcomes of McDonald's experimental adoption of remote order taking except:
a. employee dissatisfaction with constant monitoring and the stress of the process.
b. increased speed at the drive through window.
c. a decrease in accuracy in filling orders.
d. an increase in the costs associated with the drive-through portion of McDonald's business.
answer
d. an increase in the costs associated with the drive-through portion of McDonald's business.
question
The average product of a variable input is calculated as:
a. total product divided by the total quantity of the variable input.
b. total product divided by the change in the variable input.
c. total product divided by total output.
d. the change in total product divided by the change in the variable input.
answer
a. total product divided by the total quantity of the variable input.
question
Which of the following statements is false?
a. Accounting profit is equal to total revenue minus implicit costs.
b. Economic profit will always be less than accounting profit if resources owned and used by the firm have any opportunity costs.
c. Economic costs include the opportunity costs of the resources owned by the firm.
d. Accounting costs typically include only explicit costs.
answer
a. Accounting profit is equal to total revenue minus implicit costs.
question
An implicit cost is defined as:
a. the difference between an input's explicit cost and its actual cost.
b. the amount by which the money spent on an input to production exceeds its opportunity cost.
c. the opportunity cost of using a resource that is not explicitly paid out by the firm.
d. the amount by which economic profit exceeds accounting profit.
answer
c. the opportunity cost of using a resource that is not explicitly paid out by the firm.
question
All else constant, an increase in productivity has the effect of causing:
a. the marginal product of labor to increase and the average product of labor to decrease.
b. the average product of labor to increase and no effect on the marginal product of labor.
c. both the marginal and average product of labor to increase.
d. the marginal product of labor to increase and no effect on the average product of labor.
answer
c. both the marginal and average product of labor to increase.
question
Which of the following statements regarding historical costs is correct?
a. Using historical costs can cause true economic profit to be under or over stated.
b. Historical costs are a good indicator of the current opportunity cost of a piece of capital.
c. Historical costs vary depending on the method of depreciation a firm uses.
d. Historical costs represent what the firm paid for an input when it was purchased, adjusted for inflation.
answer
a. Using historical costs can cause true economic profit to be under or over stated.
question
Which of the following inputs is most likely to be "fixed" in the short run?
a. Labor.
b. Raw Material.
c. Energy.
d. Capital.
answer
d. capital
question
Suppose a sole proprietorship is earning total revenues of $100,000 and is incurring explicit costs of $75,000. If the owner could work for another company for $30,000 a year, we would conclude that:
a. the total economic costs are $100,000.
b. implicit costs are $25,000.
c. the individual is earning an economic profit of $25,000.
d. the firm is incurring an economic loss.
answer
d. the firm is incurring an economic loss
1 of 30
question
In the mathematical formulation of the short-run production function:
a. the quantity of both labor and capital must be allowed to vary so that output can vary in the short run
b. the quantity of output is usually assumed to be fixed
c. the quantity of capital employed is usually assumed to be fixed
d. the quantity of both labor and capital employed are usually assumed to be fixed
answer
c. the quantity of capital employed is usually assumed to be fixed
question
Marginal product equals 0 when:
a. average product equals zero
b. average product reached its minimum value
c. total product reaches its maximum value
d. total product equal average product
answer
c. total product reaches its maximum value
question
Which of the following is true of the typical relationship between marginal product (MP) and average product (AP)?
a. The MP curve intersects the AP curve at maximum AP.
b. If MP is greater than AP, then AP is falling.
c. If MP is less than AP, then AP is increasing.
d. The AP curve intersects the MP curve at minimum MP.
answer
a. The MP curve intersects the AP curve at maximum AP.
question
The amount of calendar time associated with the long run
a. is greater than one year.
b. is less than five years.
c. varies by industry.
d. is between one and five years.
answer
c. varies by industry.
question
For an economist the short run means a time period
a. during which firms are not allowed to change the amount of imported resources they use.
b. during which the firm is unable to change its plant size.
c. during which new firms are prohibited from entering the industry.
d. that is between one and five years.
answer
b. during which the firm is unable to change its plant size.
question
Which of the following is not a determinant of a firm's cost functions?
a. The price of labor.
b. The production function.
c. The productivity of the firm's capital stock.
d. The price of the firm's output.
answer
d. The price of the firm's output.
question
Marginal cost is defined as:
a. the change in output due to a one unit change in an input.
b. total cost divided by output.
c. the change in total cost due to a one unit change in output.
d. total product divided by the quantity of input.
answer
c. the change in total cost due to a one unit change in output.
question
Assume that after the fifth worker, each additional worker a firm hires is less productive than the previous worker. Based on this information, we can conclude that beyond the fifth worker, the average product of labor will:
a. stay the same.
b. increase.
c. cannot be determined without additional information.
d. decrease.
answer
c. cannot be determined without additional information.
question
Which of the following statements is correct?
a. Auto workers in the United States are less productive than their Japanese counterparts primarily due to the higher wages U.S. workers receive.
b. The increase in productivity Japanese manufacturers experienced in the early 1980s was the result primarily of changes in management focusing on inventory systems and plant layout.
c. Workers employed by General Motors are approximately twice as productive as their Japanese counterparts.
d. Between 1979 and 1998, Chrysler and Ford eliminated the productivity gap between all of their production facilities and their Japanese counterparts.
answer
b. The increase in productivity Japanese manufacturers experienced in the early 1980s was the result primarily of changes in management focusing on inventory systems and plant layout.
question
Which of the following is a long-run adjustment?
a. A restaurant hires a new chef.
b. A bank hires a new CEO.
c. A company hires ten new management trainees.
d. A company builds a new manufacturing plant.
answer
d. A company builds a new manufacturing plant.
question
Data on productivity gains in the 1990s in the United States strongly suggest that a significant share of those gains was attributable to:
a. improvements in education and training.
b. improvements in information technology.
c. increased demand for goods and services.
d. substantial reductions in labor costs.
answer
b. improvements in information technology.
question
A firm's production function is the relationship between:
a. the factors of production and the resulting outputs of the production process.
b. the inputs employed by the firm and the resulting costs of production.
c. the firm's production costs and the amount of revenue it receives from the sale of its output.
d. the demand for a firm's output and the quantity it is able to produce with available resources
answer
a. the factors of production and the resulting outputs of the production process.
question
Diminishing marginal returns occur when:
a. the size of the plant is increased in the long run.
b. the quantity of the fixed input is increased and returns to the variable input fall.
c. units of a variable input are added to a fixed input and total product falls.
d. units of a variable input are added to a fixed input and marginal product falls.
answer
d. units of a variable input are added to a fixed input and marginal product falls.
question
If a farmer seeks to buy one-hundred more acres for her kiwi fruit farm, she is making a
a. short-run decision.
b. long-run decision.
c. variable-input decision.
d. immediate-run decision.
answer
b. long-run decision.
question
Consider the production function for bottled water. All of the following would be considered variable inputs except:
a. the machine used to fill each bottle.
b. the water the bottles are filled with.
c. the plastic bottles.
d. the electricity used to power the machine used to fill the bottles.
answer
a. the machine used to fill each bottle
question
From the manager's perspective:
a. there is no difference between implicit and explicit costs. As such, treating implicit costs as explicit would result in double counting and an overstatement of total costs.
b. implicit costs are simply a theoretical construct and should be ignored in the decision-making process.
c. only explicit costs matter because accounting profit is based on explicit costs.
d. it is important to treat implicit costs as explicit in order to make sound strategic decisions.
answer
d. it is important to treat implicit costs as explicit in order to make sound strategic decisions
question
The term "fixed input" refers to:
a. inputs to production that do not vary in price.
b. inputs to production that do not vary with respect to quality.
c. inputs to production that yield a constant or "fixed" marginal product.
d. inputs to production, the quantity of which cannot be varied in the short run.
answer
d. inputs to production, the quantity of which cannot be varied in the short run.
question
If a firm can vary all of its factors of production, it is operating in
a. the short run.
b. equilibrium.
c. the immediate run.
d. the long run.
answer
d. the long run
question
If Microsoft is determining whether to build a new plant in Southern California or in New Mexico, it is making a(n) ________ decision.
a. immediate-run
b. long-run
c. short-run
d. variable-input
answer
b. long-run
question
The payment of wages by a firm is an example of:
a. a long-run cost of production.
b. an explicit cost of production.
c. an irreversible cost of production.
d. an implicit cost of production.
answer
b. an explicit cost of production.
question
Fred is considering opening a ski shop in Colorado. Assume Fred will incur the following costs: building rent = $100,000/year, inventory = $250,000/year, energy = $50,000/year, and labor (one clerk) = $10,000/year. In addition, Fred's current income as a computer programmer is $40,000 per year. Assuming Fred would earn $460,000 in revenues, he could expect to earn:
a. an accounting profit of $10,000 per year.
b. an accounting profit of $60,000 per year.
c. an economic profit of $50,000 per year.
d. an economic profit of $10,000 per year.
answer
d. an economic profit of $10,000 per year.
question
Recently Apple Computer developed Apple's new iTunes Music Store, which offers more than 200,000 songs from five major record labels, for use with Apple's iPod and iMac. Apple fans have gone gaga. More than a million songs were downloaded the first week alone! In economic terms, CEO Steve Jobs helped convert capital and labor inputs into products consumers use. Any activity that results in the conversion of resources into products that can be used in consumption is
a. demand.
b. production.
c. not profitable.
d. a start up venture.
answer
b. production.
question
The text lists all of the following as outcomes of McDonald's experimental adoption of remote order taking except:
a. employee dissatisfaction with constant monitoring and the stress of the process.
b. increased speed at the drive through window.
c. a decrease in accuracy in filling orders.
d. an increase in the costs associated with the drive-through portion of McDonald's business.
answer
d. an increase in the costs associated with the drive-through portion of McDonald's business.
question
The average product of a variable input is calculated as:
a. total product divided by the total quantity of the variable input.
b. total product divided by the change in the variable input.
c. total product divided by total output.
d. the change in total product divided by the change in the variable input.
answer
a. total product divided by the total quantity of the variable input.
question
Which of the following statements is false?
a. Accounting profit is equal to total revenue minus implicit costs.
b. Economic profit will always be less than accounting profit if resources owned and used by the firm have any opportunity costs.
c. Economic costs include the opportunity costs of the resources owned by the firm.
d. Accounting costs typically include only explicit costs.
answer
a. Accounting profit is equal to total revenue minus implicit costs.
question
An implicit cost is defined as:
a. the difference between an input's explicit cost and its actual cost.
b. the amount by which the money spent on an input to production exceeds its opportunity cost.
c. the opportunity cost of using a resource that is not explicitly paid out by the firm.
d. the amount by which economic profit exceeds accounting profit.
answer
c. the opportunity cost of using a resource that is not explicitly paid out by the firm.
question
All else constant, an increase in productivity has the effect of causing:
a. the marginal product of labor to increase and the average product of labor to decrease.
b. the average product of labor to increase and no effect on the marginal product of labor.
c. both the marginal and average product of labor to increase.
d. the marginal product of labor to increase and no effect on the average product of labor.
answer
c. both the marginal and average product of labor to increase.
question
Which of the following statements regarding historical costs is correct?
a. Using historical costs can cause true economic profit to be under or over stated.
b. Historical costs are a good indicator of the current opportunity cost of a piece of capital.
c. Historical costs vary depending on the method of depreciation a firm uses.
d. Historical costs represent what the firm paid for an input when it was purchased, adjusted for inflation.
answer
a. Using historical costs can cause true economic profit to be under or over stated.
question
Which of the following inputs is most likely to be "fixed" in the short run?
a. Labor.
b. Raw Material.
c. Energy.
d. Capital.
answer
d. capital
question
Suppose a sole proprietorship is earning total revenues of $100,000 and is incurring explicit costs of $75,000. If the owner could work for another company for $30,000 a year, we would conclude that:
a. the total economic costs are $100,000.
b. implicit costs are $25,000.
c. the individual is earning an economic profit of $25,000.
d. the firm is incurring an economic loss.
answer
d. the firm is incurring an economic loss
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