Production and Costs

Question 1

A cost that does not depend on the quantity of output produced is called a:

a. fixed cost.
b. marginal cost.
c. variable cost.
d. average cost.

Answer 1

fixed cost

Question 2

A farm can produce 1,000 bushels of wheat per year with three workers and 1,300 bushels of wheat per year with four workers. The marginal product of the fourth worker is:

a. 100 bushels.
b. 1,300 bushels.
c. 150 bushels.
d. 300 bushels.

Answer 2

300 bushels

Question 3

A firm’s marginal cost is:

a. the ratio of the change in total output to the change in the quantity of labor.
b. the ratio of the change in fixed cost to the change in the quantity of output.
c. the slope of the total cost curve.
d. the slope of the average variable cost curve.

Answer 3

the slope of the total cost curve

Question 4

A fixed input is one:

a. that can never produce more or less in any period.
b. whose quantity cannot be changed in a particular period.
c. that can be used for one thing only.
d. that exists in nature, and there is only so much of it.

Answer 4

whose quantity cannot be changed in a particular period.

Question 5

At 50 units of output, a firm’s average variable cost is $30. Therefore, its:

a. average total cost is greater than $30.
b. marginal cost is $30.
c. average total cost is less than $30.
d. average total cost is $30.

Answer 5

average total cost is greater than $30

Question 6

Buffalo Aircraft doubles the amount of all the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. This means that Buffalo Aircraft has achieved:

a. increasing marginal cost.
b. economies of scale.
c. decreasing average variable cost.
d. increasing average total cost

Answer 6

economies of scale.

Question 7

Buford Bus Manufacturing installs a new assembly line. As a result, the output per worker increases. The marginal cost of output at Buford:

a. will increase (the marginal cost curve will shift left).
b. will be unchanged.
c. will decrease (the marginal cost curve will shift right).
d. is at its maximum.

Answer 7

will decrease (the marginal cost curve will shift right).

Question 8

Diminishing returns to an input set in:

a. when all inputs are fixed.
b. when all inputs are variable.
c. when some inputs are fixed and some are variable.
d. only in the long run.

Answer 8

when some inputs are fixed and some are variable.

Question 9

(Figure and Table: Variable, Fixed, and Total Costs) In the figure, when 96 bushels of wheat are produced, average fixed cost is ________, average variable cost is ________, and average total cost is ________.

Labor: 8, Wheat: 96, VC: 1600, FC: 400, TC: 2000

a. $4.17; $16.67; $20.83 
Richtig
b. $5.33; $13.33; $18.67
c. $133.33; $200; $333.33
d. $7.84; $11.76; $19.60

Answer 9

$4.17; $16.67; $20.83

Question 10

CANNOT SOLVE! utput per period in the region from 0 to A indicates that a firm has:
a. constant returns to scale.
b. decreasing returns to scale.
c. negative costs of production. 
Falsch
d. increasing returns to scale.

Answer 10

increasing returns to scale.

Question 11

CANNOT SOLVE! (Figure: Marginal Product of Labor) Using the marginal product of labor curve in the accompanying figure, the total product of labor for eight workers is:

a. 96 bushels.
b. 35 bushels.
c. 40 bushels.
d. 75 bushels.

Answer 11

96 bushels.

Question 12

If a firm produces 10 units of output and incurs $30 in average variable cost and $5 in average fixed cost, total cost is:

a. $50.
b. $35.
c. $300.
d. $350.

Answer 12

$350.

Question 13

Krista operates a dry-cleaning business in Tampa that incurs $900 per month in fixed costs. Last month her total output equaled 3,000 pounds of clothes. This month her total output fell to 2,700 pounds. This means her average fixed cost ________ by a little more than ________.

a. increased; 3.33 cents
b. increased; 2.5 cents
c. fell; 2.5 cents
d. fell; 3.33 cents

Answer 13

increased; 3.33 cents

Question 14

CANNOT SOLVE! Tonya’s variable:

a. inputs are both land and labor.
b. input is neither land nor labor.
c. input is labor.
d. input is land.

Answer 14

input is labor.

Question 15

CANNOT SOLVE! (Table: Bonnie’s Production Function for Good Z) The costs that vary with Bonnie’s level of production are her:

a. variable costs.
b. rent and insurance.
c. fixed costs.
d. costs that remain the same regardless of what she produces.

Answer 15

variable costs.

Question 16

CANNOT SOLVE! (Table: Cost Data) The table shows some cost data for a firm operating in the short run. What is the value of the total variable cost for this firm when the firm is producing five units of output?

a. $190
b. $50
c. $240
d. $60

Answer 16

$190

Question 17

(Table: Output and Marginal Cost) After graduation you achieve your dream of opening your own art shop that specializes in selling mud statues. After careful study, you determine the information in the table. How many workers should you hire to minimize your average variable costs?

output: 1,2,3,4,5,6
Marginal cost: 15,10,5,8,12,20

a. three 
Falsch
b. two
c. five
d. four

Answer 17

four

Question 18

CANNOT SOLVE (Table: Production of Cabinets) If each cabinetmaker could be hired at no cost, how many workers would your firm employ?

a. two
b. six
c. eight
d. seven

Answer 18

seven

Question 19

The average total cost of producing cell phones in a factory is $20 at the current output level of 100 units per week. If fixed cost is $1,200 per week:

a. average fixed cost is $20.
b. total cost is $3,200.
c. variable cost is $2,000.
d. average variable cost is $8.

Answer 19

average variable cost is $8.

Question 20

The marginal product of labor is the change in:

a. total output divided by the change in the quantity of labor.
b. labor divided by the change in total product.
c. average output divided by the change in the quantity of labor.
d. total costs divided by the change in the quantity of labor.

Answer 20

total output divided by the change in the quantity of labor.

Question 21

The term diminishing returns refers to a:

a. decrease in the extra output due to the use of an additional unit of a variable input, when more and more of the variable input is used and all other things are held constant.
b. reduction in profits caused by increasing output beyond the optimal point.
c. falling interest rate that can be expected as one’s investment in a single asset increases.
d. decrease in total output due to overcrowding, when too much labor is used with too little land or capital.

Answer 21

decrease in the extra output due to the use of an additional unit of a variable input, when more and more of the variable input is used and all other things are held constant.

Question 22

Which of the following cost concepts is correctly defined?

a. ATC = AVC + AFC
c. ATC = VC + FC
d. TC = AVC + AFC

Answer 22

ATC = AVC + AFC

Question 23

You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a fixed input in the production function at your deli?

a. bread
b. employees
c. the dining room
d. tomato sauce

Answer 23

the dining room