Question 1

What is meant by economies of scope?

Accepted Answer

A)  Economies of scope refers to the cost advantages from the joint production of multiple goods.
B)  Economies of scope refers to the profits that firms earn when they practice price discrimination across market segments.
C)  Economies of scope refers to efficiency that firms gain when they specialize in the production of one good.
D)  Economies of scope refers to the efficiency gains from specialization and division of labor.
E)  Economies of scope refers to the reduction in cost that accrues to a firm due to cumulative production experience and learning.F) B) and D)
G) A) and C)

Question 2

Three college students consider the option of forming a lawn care and landscaping business during their summer vacation.They estimate the following costs:
  
Their projected revenue depends on the number of lawns serviced.The price per job is $30.The going wage for a typical unskilled college student is about $2,400 for the summer months.Derive an equation for total accounting profit and total economic profit.Should the students launch the business if they expect to service about 200 lawn jobs during the summer?

Accepted Answer

Accounting profit = (30 - 6)Q - 3,600 = ...

Question 3

If a firm were to stop production of its only product,the firm's total cost will be equal to _____.

Accepted Answer

A)  zero
B)  its total fixed cost
C)  its total variable cost
D)  its opportunity cost
E)  its average costF) All of the above
G) B) and C)

Question 4

The production manager of a clothing manufacturer estimates that the total annual cost of producing men's suits is given by the equation: C = 5,000 + 4,100Q - 8Q2 + 0.004Q3.If the market price of suits is constant,what is the shutdown level of output? What is the minimum price the firm can accept?

Accepted Answer

The shutdown point under competitive conditions occurs at the minimum point of the average variable cost [AVC] curve.From the total cost equation,variable cost [VC] = 4,100Q - 8Q² + 0.004Q³,and,in turn,AVC = 4,100 - 8Q + 0.004Q².To find minimum average variable cost,∂(AVC)/∂Q = -8 + 0.008Q should be equal to zero.The solution is Q = 1,000 units.The value of minimum AVC is: 4,100 - 8(1,000)+ 0.004(1,000)² = $100.Therefore,the lowest price the firm can accept is $100 per suit.

Question 5

In the short run,if the marginal product of labor is decreasing,then:

Accepted Answer

A)  marginal cost must be increasing.
B)  the marginal revenue of the firm must be decreasing.
C)  average total cost must be increasing.
D)  average variable cost must be decreasing.
E)  average total cost must be decreasing.the marginal revenue product of labor must be increasing.F) A) and B)
G) A) and C)

Question 6

Bill gives up his present job in Delaware to pursue a graduate school program in New York.What is the opportunity cost of his decision?

Accepted Answer

A)  The difference between the cost of living in New York and in Delaware
B)  The total tuition cost of the program
C)  The increase in wages that he can expect as a result of higher educational qualifications
D)  The wages that he forgoes when he quits his job
E)  The cost of relocating to New York from DelawareF) C) and D)
G) A) and B)

Question 7

The table gives the short-run production data for a manufacturing firm.Compute average cost and marginal cost for the output levels shown in the table.

Accepted Answer

Average and marginal...

Question 8

Mexico is capable of producing 20 auto tires or 16 microcircuits per labor hour.Brazil is capable of producing 24 auto tires or 24 microcircuits per labor hour.Based on this information,we can conclude that:

Accepted Answer

A)  Brazil has an absolute advantage in both goods.
B)  Brazil will export both goods to Mexico.
C)  Mexico has a comparative advantage in microcircuits.
D)  Mexico has a comparative advantage in tires.
E)  Mexico will import tires from Brazil.F) None of the above
G) A) and E)

Question 9

The average variable cost of producing 1,2,3,and 4 units of a product is respectively equal to $5,$6,$7,and $8.Find the marginal cost of the first four units of output.

Accepted Answer

The average variable cost [AVC],variable cost [VC],and marginal cost [MC] are given in the following table.The values are in dollars.

Question 10

A profit-maximizing firm should shut down in the short run if:

Accepted Answer

A)  price is greater than marginal cost.
B)  total revenue is less than total variable cost.
C)  the firm is earning less than a normal rate of return.
D)  the firm is not able to cover its overhead expenses.
E)  marginal cost is higher than average cost.F) A) and C)
G) A) and B)

Question 11

The average fixed cost for a firm _____.

Accepted Answer

A)  is constant at all levels of output
B)  is increasing over all levels of output
C)  first increases at an increasing rate and then declines
D)  first decreases and then increases as output increases
E)  is decreasing over all levels of outputF) B) and E)
G) A) and B)

Question 12

Assume that an investor invests $100,000 in a business venture.He earns an economic profit of $5,000.If the rate of return on an investment of equal risk is 10%,what is the rate of return that he earned on his investment?

Accepted Answer

A)  25%
B)  15%
C)  10%
D)  5%
E)  20%F) B) and E)
G) B) and C)

Question 13

Accounting profit differs from economic profit because:

Accepted Answer

A)  accounting cost does not include sunk cost.
B)  economic cost includes all relevant opportunity costs.
C)  accounting cost includes the implicit costs of production.
D)  accounting cost does not include fixed cost.
E)  economic cost does not include the explicit costs of production.F) B) and D)
G) A) and E)

Question 14

When average total cost is at its minimum point:

Accepted Answer

A)  marginal cost is also at its minimum point.
B)  marginal cost is equal to zero.
C)  marginal cost is constant.
D)  average total cost is equal to marginal cost.
E)  the firm is maximizing profit.F) A) and D)
G) B) and E)

Question 15

If short-run average cost is increasing then:

Accepted Answer

A)  average fixed cost must be increasing.
B)  marginal cost must be decreasing.
C)  marginal cost must be greater than short-run average cost.
D)  the production function displays decreasing returns to scale.
E)  average variable cost must be decreasing.F) C) and D)
G) A) and D)

Question 16

Assume that the minimum efficient scale for a typical firm in an industry is 2 million units.The estimated output for the whole industry is 6 million units.Therefore,one can conclude that:

Accepted Answer

A)  the industry is a natural monopoly.
B)  the output produced in the industry is less than the perfectly competitive output.
C)  the industry experiences increasing returns to scale.
D)  the industry is likely to support 3 firms,each producing at minimum efficient scale.
E)  the price in the industry is higher than the perfectly competitive price.F) None of the above
G) C) and E)

Question 17

Which of the following correctly defines the minimum efficient scale for a firm?

Accepted Answer

A)  The output level at which the firm earns an abnormal profit
B)  The minimum point of the firm's learning or experience curve
C)  The lowest output at which minimum average cost can be achieved
D)  The output level where average fixed cost is at its minimum point
E)  The level of output produced when the firm is operating at full production capacityF) B) and E)
G) A) and E)

Question 18

A law firm will be paid $500 to send one of its lawyers to a client to take a routine deposition.The firm can send a 2nd year lawyer whose usual billing rate is $150 per hour and who is currently working on a lucrative tax deal,or it can send a 4th year associate (billing rate $200 per hour) who is currently overseeing the selection and hiring of law students as summer associates.Based on this information,the firm should send:

Accepted Answer

A)  the 2nd year lawyer because his billable rate is lower.
B)  the 4th year lawyer because her billable rate is higher.
C)  the 2nd year lawyer because he is currently more productive.
D)  either the 2nd year lawyer or the 4th year associate since the firm receives the same $500 fee.
E)  the 4th year lawyer because her current work is less valuable to the firm.F) B) and E)
G) C) and E) E

Question 19

A firm's total cost function is: C = 50 + 6Q + 2Q2.
(a)Compute the level of output that minimizes average total cost [AC].

Accepted Answer

AVC = 6 + 2Q and MC ...

Question 20

When a firm's production function exhibits constant returns to scale:

Accepted Answer

A)  the short-run average cost curve will be horizontal.
B)  the long-run average cost curve will be U-shaped.
C)  the long-run marginal cost curve will be upward sloping.
D)  the short-run average variable cost curve will be downward sloping.
E)  the long-run average cost curve will be horizontal.F) B) and D)
G) A) and B)

Exam 6: Cost Analysis

What is meant by economies of scope?

Correct Answer
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Correct Answer
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Accounting profit = (30 - 6)Q - 3,600 = ...
View Answer

If a firm were to stop production of its only product,the firm's total cost will be equal to _____.

Correct Answer
verified

The production manager of a clothing manufacturer estimates that the total annual cost of producing men's suits is given by the equation: C = 5,000 + 4,100Q - 8Q2 + 0.004Q3.If the market price of suits is constant,what is the shutdown level of output? What is the minimum price the firm can accept?

In the short run,if the marginal product of labor is decreasing,then:

Correct Answer
verified

Bill gives up his present job in Delaware to pursue a graduate school program in New York.What is the opportunity cost of his decision?

Correct Answer
verified

The table gives the short-run production data for a manufacturing firm.Compute average cost and marginal cost for the output levels shown in the table.

Correct Answer
verified
Average and marginal...
View Answer

Mexico is capable of producing 20 auto tires or 16 microcircuits per labor hour.Brazil is capable of producing 24 auto tires or 24 microcircuits per labor hour.Based on this information,we can conclude that:

Correct Answer
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The average variable cost of producing 1,2,3,and 4 units of a product is respectively equal to $5,$6,$7,and $8.Find the marginal cost of the first four units of output.

Correct Answer
verified
The average variable cost [AVC],variable cost [VC],and marginal cost [MC] are given in the following table.The values are in dollars. 11eab6b9_3df1_9a26_a5f2_c1623bef5e71_TB3175_00

A profit-maximizing firm should shut down in the short run if:

Correct Answer
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The average fixed cost for a firm _____.

Correct Answer
verified

Assume that an investor invests $100,000 in a business venture.He earns an economic profit of $5,000.If the rate of return on an investment of equal risk is 10%,what is the rate of return that he earned on his investment?

Correct Answer
verified

Accounting profit differs from economic profit because:

Correct Answer
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When average total cost is at its minimum point:

Correct Answer
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If short-run average cost is increasing then:

Correct Answer
verified

Assume that the minimum efficient scale for a typical firm in an industry is 2 million units.The estimated output for the whole industry is 6 million units.Therefore,one can conclude that:

Correct Answer
verified

Which of the following correctly defines the minimum efficient scale for a firm?

Correct Answer
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Correct Answer
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E

A firm's total cost function is: C = 50 + 6Q + 2Q2. (a)Compute the level of output that minimizes average total cost [AC].

Correct Answer
verified
AVC = 6 + 2Q and MC ...
View Answer

When a firm's production function exhibits constant returns to scale:

Correct Answer
verified

Exam 6: Cost Analysis

What is meant by economies of scope?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedAccounting profit = (30 - 6)Q - 3,600 = ...View AnswerShow Answer

If a firm were to stop production of its only product,the firm's total cost will be equal to _____.

Correct AnswerverifiedShow Answer

The production manager of a clothing manufacturer estimates that the total annual cost of producing men's suits is given by the equation: C = 5,000 + 4,100Q - 8Q2 + 0.004Q3.If the market price of suits is constant,what is the shutdown level of output? What is the minimum price the firm can accept?

In the short run,if the marginal product of labor is decreasing,then:

Correct AnswerverifiedShow Answer

Bill gives up his present job in Delaware to pursue a graduate school program in New York.What is the opportunity cost of his decision?

Correct AnswerverifiedShow Answer

The table gives the short-run production data for a manufacturing firm.Compute average cost and marginal cost for the output levels shown in the table.

Correct AnswerverifiedAverage and marginal...View AnswerShow Answer

Mexico is capable of producing 20 auto tires or 16 microcircuits per labor hour.Brazil is capable of producing 24 auto tires or 24 microcircuits per labor hour.Based on this information,we can conclude that:

Correct AnswerverifiedShow Answer

The average variable cost of producing 1,2,3,and 4 units of a product is respectively equal to $5,$6,$7,and $8.Find the marginal cost of the first four units of output.

Correct AnswerverifiedThe average variable cost [AVC],variable cost [VC],and marginal cost [MC] are given in the following table.The values are in dollars. 11eab6b9_3df1_9a26_a5f2_c1623bef5e71_TB3175_00

A profit-maximizing firm should shut down in the short run if:

Correct AnswerverifiedShow Answer

The average fixed cost for a firm _____.

Correct AnswerverifiedShow Answer

Assume that an investor invests $100,000 in a business venture.He earns an economic profit of $5,000.If the rate of return on an investment of equal risk is 10%,what is the rate of return that he earned on his investment?

Correct AnswerverifiedShow Answer

Accounting profit differs from economic profit because:

Correct AnswerverifiedShow Answer

When average total cost is at its minimum point:

Correct AnswerverifiedShow Answer

If short-run average cost is increasing then:

Correct AnswerverifiedShow Answer

Assume that the minimum efficient scale for a typical firm in an industry is 2 million units.The estimated output for the whole industry is 6 million units.Therefore,one can conclude that:

Correct AnswerverifiedShow Answer

Which of the following correctly defines the minimum efficient scale for a firm?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedE

A firm's total cost function is: C = 50 + 6Q + 2Q2. (a)Compute the level of output that minimizes average total cost [AC].

Correct AnswerverifiedAVC = 6 + 2Q and MC ...View AnswerShow Answer

When a firm's production function exhibits constant returns to scale:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
verified
Accounting profit = (30 - 6)Q - 3,600 = ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Average and marginal...
View Answer

Correct Answer
verified

Correct Answer
verified
The average variable cost [AVC],variable cost [VC],and marginal cost [MC] are given in the following table.The values are in dollars. 11eab6b9_3df1_9a26_a5f2_c1623bef5e71_TB3175_00

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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E

Correct Answer
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AVC = 6 + 2Q and MC ...
View Answer

Correct Answer
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