Chapter 4

Question 1

Which of the following is an output?

Answer 1

a CD being sold at popular music stores

Question 2

The operation of all businesses and industries typically fall into these three sectors of production:

Answer 2

the cultivation of nature resources, the processing and fabrication of goods, and the provision of services

Question 3

A labour-intensive process of production employs:

Answer 3

more labour and less capital than other possible production processes

Question 4

Businesses choose from several production processes by:

Answer 4

producing a given level of output with a process that minimizes costs

Question 5

Consider the following table: If the price of capital is $1 per unit and the price of labour is $2 per unit, the method that maximizes Simply Cotton’s productive efficiency is:

Answer 5

E

Question 6

An explicit cost is:

Answer 6

a payment made for resources not owned by the business itself

Question 7

Implicit and explicit costs are different in that:

Answer 7

implicit costs refer to nonexpenditure costs and explicit costs to out-of-pocket costs

Question 8

Which of the following is an implicit cost to the Johnston Manufacturing Company?

Answer 8

returns that the shareholders could have received if they had not bought shares in the Johnson Manufacturing Company

Question 9

Which of the following definitions is correct?

Answer 9

Economic profit = accounting profit - implicit costs

Question 10

Suppose that a business had implicit costs of $500 000 and had explicit costs of $5 million in a specific year. If in that year the firm sold 100 000 units of its output at $50 per unit, its accounting:

Answer 10

profits were zero and its economic losses were $500 000

Question 11

To economists, the main difference between “the short run” and “the long run” is that:

Answer 11

in the long run, all resources are variable while in the short run, at least one resource is fixed

Question 12

Which of the following is a variable input?

Answer 12

labour

Question 13

If, in the production of boxer shorts, labour is the variable input and sewing machinery is the fixed input, total product can be found by determining output:

Answer 13

at each level of labour employment holding capital employment constant

Question 14

The average product for the fifth worker hired is:

Answer 14

33 units of output

Question 15

The marginal product of the sixth worker is:

Answer 15

9 units of output

Question 16

The law of diminishing marginal returns becomes evident with the addition of the:

Answer 16

third worker

Question 17

Marginal product is the:

Answer 17

increase in total output attributable to the employment of one more worker

Question 18

Which of the following statements best expresses the law of diminishing marginal returns?

Answer 18

As successive amounts of one resource (labour) are added to fixed amounts of other resources, beyond some point the resulting extra output will decline.

Question 19

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. On the basis of this information, we can say that:

Answer 19

the marginal product of the third worker is 9

Question 20

Marginal product:

Answer 20

may initially increase, then diminishes, and ultimately becomes negative