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Version A
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Date ________________
Unit 4 Practice all at once
1.
Refer to the following table about the production function for Terry's Widget Shoppe to
answer questions 1-4. Assume labor is the only variable input Terry uses in the production
of widgets.
The marginal product of labor from hiring the third worker is (1 point)
450 widgets per worker.
200 widgets per worker.
150 widgets per worker.
250 widgets per worker.
2.
Diminishing returns to labor begins when Terry hires the
(1 point)
second worker.
third worker.
fourth worker.
fifth worker.
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3.
Terry spends $200 a month to rent a building for his company, $600 a month for the capital
he employs to produce widgets, and $10 per hour for every worker he employs. Terry's fixed
cost per month is
(1 point)
$200.
$600.
$800.
$810.
4.
Terry spends $200 a month to rent a building for his company, $600 a month for the capital
he employs to produce widgets, and $10 per hour for every unit of labor he employs.
(1 point)
deciding whether or not he is producing in the short run or the long run.
whether or not the cost varies as his level of production changes.
whether or not the cost exceeds $500.
recognizing that capital is always a fIxed cost while rent and labor are variable costs.
5.
Use the information below to answer the next four questions. The table provides production
function information for Jimmy's Service Shop. Assume Jimmy hires only labor and capital to
produce his services. The price of labor is $100 per worker per week, and the price of capital
is $10 per unit.
Jimmy's fIxed cost of production equals (1 point)
$0.
$100.
$110.
$500.
6.
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Jimmy's variable cost of production
(1 point)
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is constant and equal to $100 given the above information.
varies with the level of output that is produced.
is always greater than his fIxed cost
decreases as the level of production increases due to diminishing marginal returns.
7.
Jimmy's total cost of producing 700 units of output is
(1 point)
equal to the sum of his fIxed and variable costs of producing this level of output.
$500.
greater than his total cost of producing 600 units of output.
Answers (A), (B), and (C) are all true.
8.
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Jimmy's marginal cost of producing the seven-hundredth unit of output is equal to
(1 point)
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$500 per unit of output.
$400 per unit of output.
$100 per unit of output.
$1 per unit of output.
9.
The marginal cost curve is upward sloping as output increases due to
(1 point)
increasing returns to scale.
decreasing returns to scale.
diminishing marginal returns to the variable input.
increasing marginal returns to the variable input.
10. In recent years there has been an increased demand for organic produce due to concerns
about health issues related to food consumption. Holding everything else constant, in the
short run this demand should lead to , while in the long run _______.
(1 point)
increases in the price of organic produce; entry of firms into the industry will reduce
the price of organic produce
increases in the price of organic produce; exit of fIrms from the industry will further
increase the price of organic produce
decreases in the price of organic produce; entry of firms into the industry will further
reduce the price of organic produce
decreases in the price of organic produce; exit of firms from the industry will increase
the price of organic produce
11. Which of the following describes a perfectly competitive industry?
(1 point)
Elementary school students are only allowed to attend only the school in their
attendance area
Water for household use is sold by the local water utility.
The price of wine is determined by global supply and demand. A small share of the
total world production of wine is produced in a local valley by ten companies.
The price of oil is determined by global supply and demand. A total of five companies
produce the world's supply of oil.
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12. Marginal revenue is the addition to total
(1 point)
revenue from producing one more unit of the good.
cost from selling one more unit of the good.
revenue from selling one more unit of the good.
profit from producing and selling one more unit of the good.
13. Suppose Jerry calculates that if he produces one more box of pens, his total cost will
increase by $15, but that he can sell this box of pens for $14.Jerry will
(1 point)
produce the pens and increase his revenues.
not produce the pens, since the revenue from the additional pens is less than the cost
of producing the additional pens.
produce the pens, but wait to sell them until the market price of pens increases
shut down his pen production because his addition to revenue from pen production is
less than his addition to cost from pen production.
14. The optimal output rule for a perfectly competitive firm is to produce that quantity at which
(1 point)
MR = MC in the long run, but in the short run, to produce that quantity at which MC =
ATC.
MC = ATC in the short run.
MR = MC no matter what the time period, provided that marginal revenue is greater
than average variable cost.
MR = MC no matter what the time period, provided that marginal revenue is greater
than average total cost.
15. Which of the following statements about a perfectly competitive firm is true?
I. A firm profit maximizes by producing that output where MR = MC.
II. A firm will produce in the short run provided that the price of the good exceeds its
average variable cost.
III. A firm in the long run can make positive economic profits.
(1 point)
Statement I
Statements I and II
Statements I and III
Statements I, II, and III
16. When a perfectly competitive firm earns zero economic profit in the long run, this implies
that accounting profits
(1 point)
are also zero.
are positive.
are negative.
may be positive, negative, or zero.
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17. A firm calculates that the cost of producing its tenth unit of output is $0.50, while the
revenue from producing this tenth unit is $0.55. This firm
(1 point)
should definitely produce the tenth unit.
should definitely stop producing because it knows it is profit maximizing and may risk
reducing its profit if it produces any more units of the good.
should definitely produce at least five more units if it hopes to profit maximize.
cannot increase its production in the short run because its fixed inputs are constant.
18. The implicit cost of capital is:
(1 point)
the expense associated with leasing machines.
the expense associated with buying machines.
the opportunity cost of capital used by a business.
irrelevant for determining economic profit.
the interest rate paid to the bank on loans.
19. Suppose the Chicago Cubs could rent out Wrigley Field (the field the players play on) to local
youth leagues for $11,000 per month. The $11,000 per month reflects the ________ of
capital.
(1 point)
implicit cost
explicit cost
direct cost
total cost
average fixed cost
20. For most firms, economic profit is:
(1 point)
less than accounting profit.
equal to accounting profit.
greater than accounting profit.
negative in the short run.
positive in the short run but negative in the long run.
21. Economic profits are calculated by:
(1 point)
taking the difference between total revenue and the sum of explicit and implicit costs.
taking the difference between total revenue and explicit costs only.
taking the difference between the total revenue and implicit costs only.
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summing total revenue, explicit and implicit costs.
summing the explicit and the implicit costs.
22. Rodger is deciding how many football games he wants to
attend this year. The total benefit that Rodger receives from football games is shown in the
table.
Rodger's marginal benefit from increasing the number of games that he attends from two to
three is:
(1 point)
40.
120.
10.
20.
30.
23. Rodger is deciding how many football games he wants to
attend this year. The total benefit that Rodger receives from football games is shown in the
table.
If tickets to each football game cost $10, then he should attend ________ game(s).
(1 point)
0
1
2
5
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6
24. Rodger is deciding how many football games he wants to
attend this year. The total benefit that Rodger receives from football games is shown in the
table. If tickets to each football game cost $75, he should attend ________ game(s).
(1 point)
0
1
2
5
3
25. Rodger is deciding how many football games he wants to
attend this year. The total benefit that Rodger receives from football games is shown in the
table.
If the games are free, he should attend ________ game(s).
(1 point)
1
5
7
8
0
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26. Referring to the table, the marginal product of the fifth worker is:
(1 point)
8.
4.
3.
40.
36.
27. The idea of diminishing returns to an input in production suggests that if a local college adds
more and more custodians, the marginal product of labor for the custodial staff will
________ over time. (1 point)
increase at an increasing rate
increase at a decreasing rate
decrease
not change
increase at a constant rate.
28. 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?
(1 point)
the dining room where customers eat their meals
loaves of bread used to make sandwiches
cans of tomato sauce used to make soups
employees hired to help make the food
electricity to power the lights and appliances.
29. A planning period during which all of a firm's resources are variable is the:
(1 point)
long run.
fixed run.
short run.
nominal run.
production run.
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30. Assuming that all other factors of production are held constant, marginal product is the
change in ________ output resulting from a one-unit change in ________ .
(1 point)
total; a variable input
total; a fixed input
total; average product
per unit; a fixed input
total; consumption
31. The costs associated with variable inputs are ________ costs and the costs associated with
________ inputs are ________costs.
(1 point)
constant; fixed; fixed
fixed; fixed; variable
variable; fixed; variable
fixed; fixed; fixed
variable; fixed; fixed
32. Which of the following cost concepts is correctly defined? (1 point)
a
b
c
d
e
33. A cost that does not change with the level of output produced is called a:
(1 point)
marginal cost.
fixed cost.
variable cost.
average total cost.
average fixed cost.
34. When a cherry orchard in Oregon adds an additional worker, the total cost of production
increases by $24,000. Adding the worker increases total cherry output by 600 pounds.
Therefore, the marginal cost of the last pound of cherries produced is: (1 point)
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$40.
$19.
$4,000.
$24,000.
$60
35. If Marie’s Marionettes is operating under conditions of diminishing marginal product, the
marginal costs will be:
(1 point)
equal to ATC.
decreasing.
increasing.
constant.
equal to zero.
36. The marginal cost curve is the mirror image of the:
(1 point)
total product curve.
average product curve.
marginal product curve.
average total cost curve.
marginal utility curve.
37. When marginal cost is rising:
(1 point)
average variable cost must be rising.
average total cost must be rising
average variable cost and average total cost must be falling.
both average variable cost and average total cost may be rising or falling.
marginal product is rising.
38. The ________ curve continually declines as more output is produced in the short run.
(1 point)
marginal cost
average variable cost
average fixed cost
average total cost
total variable cost
39. A fixed cost:
(1 point)
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will exist only in the long run.
depends on the level of output.
will be positive, even if the firm doesn't produce any output in the short run.
decreases after the point of diminishing returns is reached.
exists in both the short and the long run.
40. The long run refers to the period of time for which:
(1 point)
a fixed input exists.
all inputs are variable.
marginal costs are decreasing.
diminishing returns causes marginal cost to increase
marginal product is increasing.
41. Total cost divided by the quantity of output produced is:
(1 point)
average total cost.
average fixed cost.
average product.
marginal cost.
average profit.
42. The marginal cost curve intersects the average variable cost curve at:
(1 point)
its lowest point.
its maximum.
its endpoint.
no point; the curves don't intersect.
all points; the curves are the same.
43. If a firm produces 10 units of output and incurs $30 in average variable cost and $5 in
average fixed cost, total cost is:
(1 point)
$35.
$50.
$300.
$350.
$25.
44. When marginal cost is above average variable cost, average variable cost must be:
(1 point)
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at its minimum.
at its maximum
falling.
equal to zero.
rising.
45. The sum of fixed and variable costs is:
(1 point)
total cost.
marginal cost.
variable cost.
average cost.
average variable cost.
46. The long-run average total cost curve is tangent to an infinite number of: (1 point)
short-run total cost curves.
short-run marginal cost curves.
short-run total cost curves. b. short-run marginal cost curves. c. short-run average
variable cost curves.
short-run average total cost curves.
short-run total cost curves. b. short-run marginal cost curves. c. short-run average
variable cost curves. d. short-run average total cost curves. e. short-run marginal
product curves.
47. A university that benefits from lower costs per unit as it grows is an example of:
(1 point)
economies of scale.
diseconomies of scale.
increasing opportunity costs.
scale reduction.
sunk costs.
48. 19. For large beer breweries, it is common for long-run average total cost to decline as
output increases. This indicates that many breweries achieve:
(1 point)
diseconomies of scale.
diminishing marginal returns.
economies of scale.
constant returns to scale.
fixed cost minimization.
49. The U-shape of the long-run average total cost curve is primarily due to:
(1 point)
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technological change.
economies and diseconomies of scale.
increasing and then diminishing marginal returns.
sunk costs.
inefficient management at all levels of output.
50. The slope of a long-run average total cost curve exhibiting decreasing returns to scale is:
(1 point)
zero.
infinite.
positive.
negative.
downward sloping.
51. One characteristic of a perfectly competitive market is that there are ________ sellers of the
good or service.
(1 point)
one or two
a few
usually less than 10
hundreds or thousands of
zero
52. a local California avocado stand operates in a perfectly competitive market, that stand
owner will be a:
(1 point)
price-maker.
price-taker.
price-discriminator.
price-maximizer.
cost-maximizer.
53. A monopoly is a market structure characterized by:
(1 point)
a single buyer and several sellers.
a product with many close substitutes.
a large number of small firms.
price-taking behavior.
barriers to entry and exit.
54. Most electric, gas, and water companies are examples of:
(1 point)
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unregulated monopolies.
natural monopolies.
restricted-input monopolies.
sunk-cost monopolies.
private monopolies.
55. An oligopoly is characterized as an industry in which:
(1 point)
there are many firms, each producing an identical product.
there are many firms, each producing a similar product.
all market participants are price-takers.
only one firm produces a very differentiated product.
there are few firms, each producing a differentiated or similar product.
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Version A
Answer Sheet
Unit 4 Practice all at once
1. 200 widgets per worker.
2. fourth worker.
3. $800.
4. whether or not the cost varies as his level of production changes.
5. $100.
6. varies with the level of output that is produced.
7. Answers (A), (B), and (C) are all true.
8. $1 per unit of output.
9. diminishing marginal returns to the variable input.
10. increases in the price of organic produce; entry of firms into the industry will reduce the
price of organic produce
11. The price of wine is determined by global supply and demand. A small share of the total
world production of wine is produced in a local valley by ten companies.
12. revenue from selling one more unit of the good.
13. not produce the pens, since the revenue from the additional pens is less than the cost of
producing the additional pens.
14. MR = MC no matter what the time period, provided that marginal revenue is greater than
average variable cost.
15. Statements I and II
16. are positive.
17. should definitely produce the tenth unit.
18. the opportunity cost of capital used by a business.
19. implicit cost
20. less than accounting profit.
21. taking the difference between total revenue and the sum of explicit and implicit costs.
22. 30.
23. 5
24. 0
25. 7
26. 4.
27. decrease
28. the dining room where customers eat their meals
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29. long run.
30. total; a variable input
31. variable; fixed; fixed
32. c
33. fixed cost.
34. $40.
35. increasing.
36. marginal product curve.
37. both average variable cost and average total cost may be rising or falling.
38. average fixed cost
39. will be positive, even if the firm doesn't produce any output in the short run.
40. all inputs are variable.
41. average total cost.
42. its lowest point.
43. $350.
44. rising.
45. total cost.
46. short-run average total cost curves.
47. economies of scale.
48. economies of scale.
49. economies and diseconomies of scale.
50. positive.
51. hundreds or thousands of
52. price-taker.
53. barriers to entry and exit.
54. natural monopolies.
55. there are few firms, each producing a differentiated or similar product.
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