Microeconomics 14Th Canadian Edition by Ragan – Test Bank

Microeconomics 14Th Canadian Edition by Ragan – Test Bank

Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When
answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.
Labour per unit of time Total output
0 0
1 25
2 75
3 175
4 250
5 305
TABLE 7-4
1) Refer to Table 7-4. The total fixed cost of producing 305 units of output is 1) A) $100. B) $125. C) $225 D) $112.50. E) $305. Answer: A
Explanation: A) B) C) D) E) 2)
Suppose a firm with the usual U-shaped cost curves is producing a level of output such that its
short-run costs are as follows:
ATC = $0.37 per unit
AVC = $0.32 per unit
AFC = $0.05 per unit
MC = $0.43 per unit
Given these short-run costs, as the firm increases its output, which of the following statements is
true? 2) A) Average product of the variable factor must be increasing. B) Marginal product of the variable factor is at its minimum point. C) Marginal product of the variable factor must be increasing. D) Marginal product of the variable factor must be decreasing. E) The point of diminishing average product of the variable factor has not yet been reached. Answer: D
Explanation: A) B) C) D) E) 1
3) Consider a firm in the short run. If AP = MP and both are positive, then total product 3) A) is decreasing as extra units of the variable factor are employed. B) is increasing as extra units of the variable factor are employed. C) is at a maximum. D) is at its minimum. E) may be either increasing or decreasing as extra units of the variable factor are employed. Answer: B
Explanation: A) B) C) D) E) 4)
The relationship between factors of production used in the production process and the resulting
output is called a(n) 4) A) production boundary. B) production function. C) economic function. D) cost function. E) consumption possibilities boundary. Answer: B
Explanation: A) B) C) D) E)
The table below provides the annual revenues and costs for a family-owned firm producing catered meals.
Total Revenues ($) 500 000
Total Costs ($)
– wages and salaries 200 000
– risk-free return of 6% on owners’ capital of 250 000 15 000
– rent 105 000
– depreciation of capital equipment 25 000
– risk premium of 8% on owners’ capital of 250 000 20 000
– intermediate inputs 150 000
– forgone wages of owners in alternative employment 80 000
– interest on bank loan 10 000
TABLE 7-1
5) Refer to Table 7-1. The implicit costs for this family-owned firm are 5) A) $115 000. B) $35 000. C) $100 000. D) $80 000. E) $490 000. Answer: A
Explanation: A) B) C) D) E) 2
6) In the short run, the firm’s product curves show 6) A) TP is at its maximum when MP = O. B) AP is at its minimum when MP = AP.
C) when MP > AP, AP is decreasing. D) TP begins to decrease when AP begins to decrease. E) when the MP curve cuts the AP curve from below, the AP curve begins to fall. Answer: A
Explanation: A) B) C) D) E) 7)
Which of the following is the best example of an input to production that is an intermediate
product? 7) A) a sewing machine B) the skills and training of a web designer C) 40 acres of farmland D) a textile factory E) computer circuit boards Answer: E
Explanation: A) B) C) D) E) 3
FIGURE 7-1
8) Refer to Figure 7-1. Total product is increasing at an increasing rate 8) A) from 0 to 32 units of output. B) from 0 to 140 units of output. C) between 140 to 200 units of output. D) between 200 to 250 units of output. E) over the whole production range. Answer: B
Explanation: A) B) C) D) E) 4
9) Which of the following is most likely a long-run decision for a firm? 9) A) The number of workers to hire. B) The hours a store should stay open. C) How many warehouses to build. D) The price at which to sell the product. E) The amount of inventory to stock. Answer: C
Explanation: A) B) C) D) E) 10) Churches, the YMCA, the Salvation Army, and the Nature Conservancy are examples of 10) A) corporations. B) non-profit organizations. C) partnership. D) single proprietorship. E) limited partnership. Answer: B
Explanation: A) B) C) D) E) 11) A firm’s short-run marginal cost curve is decreasing when 11) A) average fixed cost is increasing. B) total fixed cost is decreasing. C) marginal product is decreasing. D) capacity is reached. E) marginal product is increasing. Answer: E
Explanation: A) B) C) D) E) 12) In economics, the term “fixed costs” means 12) A) implicit costs. B) costs incurred in the past that involve no implicit costs. C) costs that are never accounted for. D) costs that do not vary with the level of output produced. E) opportunity costs. Answer: D
Explanation: A) B) C) D) E) 5
The table below provides information on output per month and short-run costs for a firm producing outdoor wooden lounge chairs.
Q TFC TVC TC
5 200 200 400
10 200 220 420
15 200 240 440
20 200 260 460
25 200 350 550
30 200 810 1010
TABLE 7-5
13)
Refer to Table 7-5. Given the information in the table about short-run costs, this firm would
minimize the average variable cost of production when producing 13) A) 10 chairs. B) 15 chairs. C) 20 chairs. D) 25 chairs. E) 30 chairs. Answer: C
Explanation: A) B) C) D) E)
The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When
answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.
Labour per unit of time Total output
0 0
1 25
2 75
3 175
4 250
5 305
TABLE 7-4
14) Refer to Table 7-4. Average fixed costs for 305 units of output is approximately 14) A) 45 cents. B) 74 cents. C) 82 cents. D) 33 cents. E) 41 cents. Answer: D
Explanation: A) B) C) D) E) 6
The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.
Assume that the wage per unit of labour is $10 and the cost of the capital is $50.
Labour per period Total output per period
0 0
1 10
2 30
3 90
4 132
5 150
TABLE 7-3
15)
Refer to Table 7-3. The marginal product of labour is at its maximum when the firm changes the
amount of labour hired from 15) A) 0 to 1 unit. B) 1 to 2 units. C) 2 to 3 units. D) 3 to 4 units. E) 4 to 5 units. Answer: C
Explanation: A) B) C) D) E) 16) Diminishing marginal product of labour is said to exist when there is 16) A) an increase in the division and specialization of labour. B) a reduction in the level of labour input that causes output to increase. C) a successively smaller increase in output with each successive unit increase in labour input. D) an increase in the amount of capital available for each unit of labour. E) technological advancement. Answer: C
Explanation: A) B) C) D) E) 7
17)
If a firm uses factor inputs that are personally owned by the firm’s owner, then economists refer to
the opportunity cost of these inputs as 17) A) implicit costs. B) inverted costs. C) accounting costs. D) direct production costs. E) sunk costs. Answer: A
Explanation: A) B) C) D) E)
The table below provides the total revenues and costs for a small landscaping company in a recent year.
Total Revenues ($) 250 000
Total Costs ($)
– wages and salaries 150 000
– risk-free return of 2% on owner’s capital of $20 000 400
– interest on bank loan 1500
– cost of supplies 27 000
– depreciation of capital equipment 8000
– additional wages the owner could have earned in next
best alternative 30 000
– risk premium of 4% on owner’s capital of $20 000 800
TABLE 7-2
18) Refer to Table 7-2. The implicit costs for this firm are 18) A) $400. B) $31 200. C) $30 400. D) $30 800. E) $800. Answer: B
Explanation: A) B) C) D) E) 8
The diagram below shows some short-run cost curves for a firm.
FIGURE 7-2
9
19)
Refer to Figure 7-2. Which of the following choices correctly identifies the cost curves in part (ii) of
the figure? 19) A)
Curve 4 is the marginal cost curve.
Curve 5 is the average fixed cost curve.
Curve 6 is the average variable cost curve.
Curve 7 is the average total cost curve. B)
Curve 4 is the average fixed cost curve.
Curve 5 is the average total cost curve.
Curve 6 is the marginal cost curve.
Curve 7 is the average variable cost curve. C)
Curve 4 is the marginal cost curve.
Curve 5 is the average variable cost curve.
Curve 6 is the average fixed cost curve.
Curve 7 is the average total cost curve. D)
Curve 4 is the marginal cost curve.
Curve 5 is the average total cost curve.
Curve 6 is the average variable cost curve.
Curve 7 is the average fixed cost curve. E)
Curve 4 is the average total cost curve.
Curve 5 is the marginal cost curve.
Curve 6 is the average variable cost curve.
Curve 7 is the average fixed cost curve. Answer: D
Explanation: A) B) C) D) E) 20) The opportunity cost of money that a firm’s owner has invested in the firm is an example of 20) A) direct production costs. B) explicit costs. C) accounting costs. D) sunk costs. E) implicit costs. Answer: E
Explanation: A) B) C) D) E) 10
The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When
answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.
Labour per unit of time Total output
0 0
1 25
2 75
3 175
4 250
5 305
TABLE 7-4
21)
Refer to Table 7-4. Marginal product of labour begins decreasing with the ________ unit of labour
hired. Average product of labour begins decreasing with the ________ unit of labour hired. 21) A) 3rd; 2nd B) 2nd; 3rd C) 4th; 5th D) 3rd; 4th E) 4th; 3rd Answer: C
Explanation: A) B) C) D) E) 22)
When a plant is operating at the level of output where its short-run average total cost is at its
minimum, 22) A) marginal cost is at a minimum. B) average fixed cost is at a minimum. C) the plant is operating at its capacity. D) more of the variable factor of production should be employed. E) average variable cost is at a minimum. Answer: C
Explanation: A) B) C) D) E) 11
The table below provides the annual revenues and costs for a family-owned firm producing catered meals.
Total Revenues ($) 500 000
Total Costs ($)
– wages and salaries 200 000
– risk-free return of 6% on owners’ capital of 250 000 15 000
– rent 105 000
– depreciation of capital equipment 25 000
– risk premium of 8% on owners’ capital of 250 000 20 000
– intermediate inputs 150 000
– forgone wages of owners in alternative employment 80 000
– interest on bank loan 10 000
TABLE 7-1
23)
Refer to Table 7-1. To an accountant, this family-owned catering company is earning ________.To
an economist, the same firm is earning ________. 23) A) zero profit; normal profits B) positive profits; economic losses C) economic profits; economic profits D) economic profits; economic losses E) zero profit; economic losses Answer: B
Explanation: A) B) C) D) E) 24) A firm’s short-run cost curves, as conventionally drawn, show that 24) A) AFC increases as output increases. B) ATC decreases and then increases as output increases. C) AVC decreases as long as MC > AVC.
D) the MC curve intersects the AVC and ATC curves at their maximum points. E) ATC = TFC + TVC. Answer: B
Explanation: A) B) C) D) E) 12
25) Short-run cost curves for a firm are eventually upward-sloping because of the effects of 25) A) diminishing marginal product. B) increasing fixed costs. C) decreasing total product. D) increasing marginal productivity of the variable inputs. E) the increasing price of variable inputs. Answer: A
Explanation: A) B) C) D) E) 26) A firm that is maximizing its profits by producing a certain level of output must also be 26) A) minimizing its cost of producing that output. B) maximizing its revenue. C) minimizing its variable costs. D) maximizing its sales. E) maximizing its output. Answer: A
Explanation: A) B) C) D) E) 27) The vertical distance between the total cost curve and the total variable cost curve is 27) A) average variable cost. B) total fixed cost. C) average total cost. D) average fixed cost. E) marginal cost. Answer: B
Explanation: A) B) C) D) E) 13
28)
Consider a basket-producing firm with fixed capital. If the firm can produce 36 baskets per day
with 3 workers and then increases productivity to 44 baskets per day with 4 workers, then which of
the following statements is true? 28) A) The marginal product of the fourth worker is 11. B) The firm has passed the point of diminishing average productivity. C) With 4 workers, the firm’s average product of labour is 13. D) The firm has not yet reached the point of diminishing marginal productivity. E) The marginal product is above the average product. Answer: B
Explanation: A) B) C) D) E) 29) A firm can raise financial capital without incurring debt by 29) A) issuing bonds. B) investing in new capital equipment. C) making extra dividend payments. D) issuing new shares. E) increasing its bank loans. Answer: D
Explanation: A) B) C) D) E) 30)
Jodi recently went into business producing widgets. Which of the following would be a fixed cost
for her firm?
1. labour costs of $1000 per month
2. raw material costs of $5000 per month
3. a one-year lease on a building of $12 000 30) A) 1 only B) 2 only C) 3 only D) 1 and 2 E) 2 and 3 Answer: C
Explanation: A) B) C) D) E) 14
31) When a corporation issues a bond 31) A) it is called equity capital. B) the purchaser of the bond assumes ownership rights in the corporation. C) it is making a promise to pay interest each year but not repay the principal. D) it is called financing through the stock market. E)
it is making a promise to pay interest each year and to repay the principal at a stated time in
the future. Answer: E
Explanation: A) B) C) D) E) 32) The opportunity cost to a firm of using an asset is zero if 32) A) the asset has zero sunk costs associated with it. B) the asset is already owned by the firm. C) the asset has no alternative uses. D) the asset was given to the firm for free. E) no money was spent to acquire the asset. Answer: C
Explanation: A) B) C) D) E) 33)
Suppose a firm is producing 250 units of output. At this level of output, average fixed costs are $20
per unit and average variable costs are $80 per unit. It can be concluded that total cost is 33) A) $40 per unit. B) $0.40 per unit. C) $2500. D) $100. E) $ 25 000. Answer: E
Explanation: A) B) C) D) E) 15
The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital. When
answering the questions, you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.
Labour per unit of time Total output
0 0
1 25
2 75
3 175
4 250
5 305
TABLE 7-4
34) Refer to Table 7-4. The average total cost of producing 75 units of output is 34) A) $0.80. B) $1. C) $2. D) $1.33. E) $0.67. Answer: C
Explanation: A) B) C) D) E) 35) Economists use the notation Q = f(L,K) to describe 35) A)
the arithmetic relationship between the outputs that a firm uses and the inputs that it
produces. B) the flow of labour (L) and capital (K) services that are available when output is (Q). C) the level of output (Q) required to fully employ labour (L) and capital (K). D)
the technological relationship between the inputs that a firm uses and the outputs that it
produces. E) the financial relationship between the inputs that a firm uses and the outputs that it produces. Answer: D
Explanation: A) B) C) D) E) 36) Real capital includes 36) A) owner’s equity. B) a firm’s balance in its bank account. C) a firm’s physical assets. D) corporate bonds. E) corporate stock. Answer: C
Explanation: A) B) C) D) E