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Multiple Choice

1. Total revenue equals

a. price × quantity.
b. price/quantity.
c. (price × quantity) − total cost.
d. output − input.
ANSWER: a

2. Kerem makes candles. If he charges $25 for each candle, his total revenue will be
a. $1,250 if he sells 100 candles.
b. $625 if he sells 25 candles.
c. $25 regardless of how many candles he sells.
d. $2,500 if he sells 5 candles.
ANSWER: b

3. The Bow Wow company produced and sold 400 dog beds. The average cost of production per dog bed was $40. Each
dog bed can be sold for a price of $75. Bow Wow's total costs are
a. $17,500.
b. $16,000.
c. $30,000.
d. $46,000.
ANSWER: b

4. Total cost is the

a. amount a firm receives for the sale of its output.
b. fixed cost less variable cost.
c. market value of the inputs a firm uses in production.
d. quantity of output minus the quantity of inputs used to make a good.
ANSWER: c

5. Tiana sells 275 candy bars at $0.50 each. Her total costs are $125. Her profits are
a. $12.50.
b. $124.50.
c. $125.00.
d. $137.50.
ANSWER: a

6. Cameron's Lamp Emporium produced 300 lamps but sold only 230 of the units it produced. The average cost of
production for each unit of output produced was $100. The price for each of the 230 units sold was $90. Total profit for
Cameron's Lamp Emporium would be
a. -$2,300.
b. $20,700.
c. $27,000.
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d. $30,000.
ANSWER: a

7. A firm's opportunity costs of production are equal to its

a. explicit costs only.
b. implicit costs only.
c. explicit costs + implicit costs.
d. explicit costs + implicit costs + total revenue.
ANSWER: c

8. Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly
withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the
bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the
business?
a. $30
b. $140
c. $170
d. $300
ANSWER: c

9. Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman.
In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp
business's
a. total revenue.
b. explicit costs.
c. implicit costs.
d. marginal costs.
ANSWER: c

10. An example of an explicit cost of production would be the

a. cost of forgone labor earnings for an entrepreneur.
b. lost opportunity to invest in capital markets when the money is invested in one's business.
c. lease payments for the land on which a firm's factory stands.
d. value of the time the business could've spent producing something else.
ANSWER: c

11. Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial
statements?
a. Shoe polish and wages Pete could earn delivering newspapers
b. Shoe polish and rent on the shoe stand
c. Wages Pete could earn delivering newspapers and interest that Pete's money was earning before he spent his
savings to set up the shoe-shine business
d. Rent on the shoe stand and interest that Pete's money was earning before he spent his savings to set up the
shoe-shine business
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ANSWER: b

12. A difference between explicit and implicit costs is that

a. explicit costs must be greater than implicit costs.
b. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do.
c. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
d. implicit costs must be greater than explicit costs.
ANSWER: c

13. Which of the following is an example of an implicit cost?

a. Interest paid on the firm's debt
b. Rent paid by the firm to lease office space
c. The owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm
d. Wages paid to workers
ANSWER: c

14. Jacqui decides to open her own business and earns $90,000 in accounting profit the first year. When deciding to open
her own business, she withdrew $20,000 from her savings, which earned 3 percent interest. She also turned down three
separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running
her own business?
a. $49,400
b. $89,400
c. $44,400
d. $59,400
ANSWER: c

15. Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal
savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in
interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year,
Bev's revenues were $30,000, and she spent $1,000 on materials and supplies. Which of the following statements is
correct?
a. Bev's total explicit costs are $26,300.
b. Bev's total implicit costs are $300.
c. Bev's accounting profits exceed her economic profits by $300.
d. Bev's economic profit is $3,700.
ANSWER: d

16. Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business.
To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed
$30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had
revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business's costs.
a. Tyler says his costs are $25,900, and Greg says his costs are $66,500.
b. Tyler says his costs are $25,000, and Greg says his costs are $65,000.
c. Tyler says his costs are $66,500, and Greg says his costs are $66,500.
d. Tyler says his costs are $75,000, and Greg says his costs are $41,500.
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ANSWER: a

17. Which of the following statements is correct?

a. Assuming that explicit costs are positive, economic profit is greater than accounting profit.
b. Assuming that implicit costs are positive, accounting profit is greater than economic profit.
c. Assuming that explicit costs are positive, accounting profit is equal to economic profit.
d. Assuming that implicit costs are positive, economic profit is positive.
ANSWER: b

18. Chloe gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's
market. One day she spends 4 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers,
she can sell them for $150 at the farmer's market. Chloe's accounting profits are
a. $100, and her economic profits are $40.
b. $100, and her economic profits are $15.
c. $40, and her economic profits are $100.
d. $15, and her economic profits are $140.
ANSWER: a

19. Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first
year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from
her first year in her own practice is
a. −$39,000.
b. $124,000.
c. $163,000.
d. $184,000.
ANSWER: a

20. Which of the following expressions is correct?

a. accounting profit = economic profit + implicit costs
b. accounting profit = total revenue − implicit costs
c. economic profit = accounting profit + explicit costs
d. economic profit = total revenue − implicit costs
ANSWER: a

21. Suppose that for a particular business there are no implicit costs. Then
a. accounting profit will be greater than economic profit.
b. accounting profit will be the same as economic profit.
c. accounting profit will be less than economic profit.
d. the relationship between accounting profit and economic profit cannot be determined without more
information.
ANSWER: b

Scenario 13-1
Korie wants to start her own business making custom furniture. She can purchase a factory that costs $400,000. Korie
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currently has $500,000 in the bank earning 3 percent interest per year.
22. Refer to Scenario 13-1. Suppose Korie purchases the factory using $200,000 of her own money and $200,000
borrowed from a bank at an interest rate of 6 percent. What is Korie's annual opportunity cost of purchasing the factory?
a. $3,000
b. $6,000
c. $15,000
d. $18,000
ANSWER: d

Scenario 13-2
Kachina is a senior majoring in graphic design at Awesome University (AU). While she has been attending college,
Kachina started a computer consulting business to help senior citizens learn how to use their iPads. Kachina charges $25
per hour for her consulting services. She also works 5 hours a week for the Economics Department to maintain that
department's Web page. The Economics Department pays Kachina $20 per hour.
23. Refer to Scenario 13-2. If Kachina can work additional hours at either job, what is the opportunity cost if she spends
one hour reading a novel?
a. $20
b. $25
c. $100
d. $125
ANSWER: b

Scenario 13-3
Diamond is an organic brocolli farmer, but she also spends part of her day as a professional organizing consultant. As a
consultant, Diamond helps people organize their houses. Due to the popularity of her home-organization services, Farmer
Diamond has more clients requesting her services than she has time to help if she maintains her farming business. Farmer
Diamond charges $45 an hour for her home-organization services. One spring day, Diamond spends 8 hours in her fields
planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of brocolli.
24. Refer to Scenario 13-3. What is the total opportunity cost of the day that Farmer Diamond spent in the field planting
brocolli?
a. $130
b. $490
c. $300
d. $360
ANSWER: d

25. Refer to Scenario 13-3. An economist would calculate Diamond's total cost for the day of farming to equal
a. $130.
b. $360.
c. $300.
d. $490.
ANSWER: d

26. Refer to Scenario 13-3. Diamond's accountant would calculate the total cost for the day of farming to equal
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a. $45.
b. $130.
c. $300.
d. $380.
ANSWER: b

27. Refer to Scenario 13-3.Diamond's accounting profit from farming equals

a. −$80.
b. $130.
c. $170.
d. $260.
ANSWER: c

28. Refer to Scenario 13-3. Diamond's economic profit from farming equals
a. −$130.
b. −$190.
c. $130.
d. $170.
ANSWER: b

29. Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the
short run, the firm most likely considers
a. both labor and capital to be fixed.
b. both labor and capital to be variable.
c. labor to be variable and capital to be fixed.
d. capital to be variable and labor to be fixed.
ANSWER: c

30. If a firm uses labor to produce output, the firm's production function depicts the relationship between
a. the number of workers and the quantity of output.
b. marginal product and marginal cost.
c. the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor.
d. fixed inputs and variable inputs in the short run.
ANSWER: a

31. Kate is a florist. Kate can arrange 27 bouquets per day. She is considering hiring her husband Amir to work for her.
Together Kate and Amir can arrange 41 bouquets per day. What is Amir's marginal product?
a. 68 bouquets
b. 41 bouquets
c. 29 bouquets
d. 14 bouquets
ANSWER: d

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32. Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her.
William can arrange 18 bouquets per day. What would be the total daily output of Kate's firm if she hired her husband?
a. 18 bouquets
b. 19 bouquets
c. 20 bouquets
d. 38 bouquets
ANSWER: d

33. Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two
points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the
13th worker is
a. 8 units of output.
b. 10 units of output.
c. 122 units of output.
d. 132 units of output.
ANSWER: a

34. Suppose a certain firm is able to produce 110 units of output per day when 12 workers are hired. The firm is able to
produce 120 units of output per day when 13 workers are hired, holding other inputs fixed. The marginal product of the
13th worker is
a. 4 units of output.
b. 5 units of output.
c. 10 units of output.
d. 120 units of output.
ANSWER: c

35. Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Murphy can
paint five houses per week. What is the maximum total output possible if Eldin hires Murphy?
a. 2 houses
b. 3 houses
c. 5 houses
d. 8 houses
ANSWER: d

Table 13-1

Labor Output Marginal Product

(Number of Workers) (Units) (Units)
0 0 –
1 30
2 45
3 60
4 50
5 40

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36. Refer to Table 13-1. What is total output when 1 worker is hired?
a. 10
b. 30
c. 45
d. 75
ANSWER: b

Table 13-2

Labor Output Marginal Product

(Number of workers) (Units) (Units)
0 0 –
1 300
2 500
3 600
4 650

37. Refer to Table 13-2. What is the marginal product of the first worker?
a. 300 units
b. 200 units
c. 100 units
d. 50 units
ANSWER: a

38. Refer to Table 13-2. At which number of workers does diminishing marginal product begin?
a. 1
b. 2
c. 3
d. 4
ANSWER: b

Table 13-3

Labor Output Fixed Cost Variable Cost Total Cost

(Number of workers) (Units) (Dollars) (Dollars) (Dollars)
0 0 50 0 50
1 90 50 20 70
2 170 50 40 90
3 230 50 60 110
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4 240 50 80 130

39. Refer to Table 13-3. The marginal product of the second worker is
a. 90 units.
b. 85 units.
c. 80 units.
d. 20 units.
ANSWER: c

40. Refer to Table 13-3. At which number of workers does diminishing marginal product begin?
a. 1
b. 2
c. 3
d. 4
ANSWER: b

41. On a 200-acre farm, a farmer is able to produce 2,000 bushels of wheat when he hires 2 workers. He is able to produce
2,800 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of
diminishing marginal product?
a. The farmer is able to produce 3,360 bushels of wheat when he hires 4 workers.
b. The farmer is able to produce 3,600 bushels of wheat when he hires 4 workers.
c. The farmer is able to produce 3,800 bushels of wheat when he hires 4 workers.
d. The farmer is able to produce 4,000 bushels of wheat when he hires 4 workers.
ANSWER: a

42. As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be
underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's
Bubble Gum Company encounters
a. economies of scale.
b. diseconomies of scale.
c. increasing marginal product.
d. diminishing marginal product.
ANSWER: d

Figure 13-1

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43. Refer to Figure 13-1. The graph illustrates a typical

a. total-cost curve.
b. production function.
c. production possibilities frontier.
d. marginal product of labor curve.
ANSWER: b

44. Refer to Figure 13-1. As the number of workers increases,

a. marginal product decreases.
b. total output decreases.
c. marginal product increases but at a decreasing rate.
d. total output increases at an increasing rate.
ANSWER: a

Table 13-4
The following table shows the production possibilities for Charles' math tutoring company.

Output
Labor
(Number of students
(Number of tutors)
tutored per week)
0 0
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1 20
2 45
3 60
4 70

45. Refer to Table 13-4. Suppose that Charles's math tutoring company has a fixed cost of $50 per month for his cell
phone. Each worker costs Charles $60 per day. As output increases from 45 to 70 students, Charles's total cost curve
a. increases but gets flatter.
b. increases and gets steeper.
c. decreases and gets flatter.
d. decreases but gets steeper.
ANSWER: b

Table 13-5
The following table shows the production and costs for the Wooden Chair Factory.

Marginal
Output Product of
Labor Capital Cost of Cost of Total
(Chairs Labor
(Number of (Number of Workers Machines Cost
produced per (Chairs
workers) machines) (Dollars) (Dollars (Dollars)
hour) produced per
hour)
1 2 5
2 2 10
3 2 20
4 2 35
5 2 55
6 2 70
7 2 80

46. Refer to Table 13-5. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20
per day regardless of the number of chairs produced. What is the total daily cost of producing at a rate of 55 chairs per
hour if the factory operates 8 hours per day?
a. $480
b. $576
c. $520
d. $616
ANSWER: c

47. Refer to Table 13-5. Assume the Wooden Chair Factory currently employs 5 workers. What is the marginal product
of labor when the factory adds a 6th worker?
a. 5 chairs per hour

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b. 15 chairs per hour

c. 25 chairs per hour
d. 70 chairs per hour
ANSWER: b

48. Refer to Table 13-5. The Wooden Chair Factory experiences diminishing marginal product of labor with the addition
of which worker?
a. The third worker
b. The fourth worker
c. The fifth worker
d. The sixth worker
ANSWER: d

Scenario 13-4
If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If
he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his
only cost.
49. Refer to Scenario 13-4. Farmer Brown's production function exhibits
a. increasing marginal product.
b. constant marginal product.
c. diminishing marginal product.
d. The production function is unrelated to the marginal product.
ANSWER: c

50. Refer to Scenario 13-4. Farmer Brown's total-cost curve is

a. increasing at an increasing rate.
b. increasing at a decreasing rate.
c. increasing at a constant rate.
d. decreasing.
ANSWER: a

51. Which of the following costs of publishing a book is a fixed cost?

a. Author royalties of 5 percent per book
b. The costs of paper and binding
c. Shipping and postage expenses
d. Composition, typesetting, and jacket design for the book
ANSWER: d

52. If a firm produces nothing, which of the following costs will be zero?
a. Total cost
b. Fixed cost
c. Opportunity cost
d. Variable cost
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ANSWER: d

53. For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?
a. The $20 million payment that the firm pays each year for accounting services
b. The cost of the steel that is used in producing automobiles
c. The rent that the firm pays for office space in a suburb of St. Louis
d. The cost of internet advertising incurred each year
ANSWER: b

54. Omar's Car Wash has average variable costs of $4 and average fixed costs of $5 when it produces 200 units of output
(car washes). The firm's total cost is
a. $800.
b. $1,000.
c. $200.
d. $1,800.
ANSWER: d

55. Ren's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $120 for 10,000
tents. At that level of output, the firm's average total costs equal
a. $120
b. $130
c. $140
d. $150
ANSWER: d

56. Suppose that for a particular firm the only variable input into the production process is labor and that output equals
zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is
$80, and the marginal cost of the sixth unit of output is $160. What is the average total cost when six units are produced?
a. $80.00
b. $83.33
c. $88.33
d. $93.33
ANSWER: d

57. Lim Industries has average variable costs of $1 and average total costs of $4 when it produces 900 units of output. The
firm's total fixed costs equal
a. $3.
b. $5.
c. $2,700.
d. $3,700.
ANSWER: c

58. Suppose that for a particular firm the only variable input into the production process is labor and that output equals
zero when no workers are hired. In addition, suppose that when four units of output are produced, the total cost is $175,
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and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced?
a. $4
b. $10
c. $40
d. $135
ANSWER: a

59. A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000,
a. average fixed cost is 50 cents.
b. average variable cost is $2.
c. average total cost is $2.50.
d. average total cost is 50 cents.
ANSWER: a

60. A firm produces 100 units of output at a total cost of $1,900. If fixed costs are $100,
a. average fixed cost is $19.
b. average variable cost is $18.
c. average total cost is $20.
d. average total cost is $21.
ANSWER: b

Table 13-6
Consider the following information about baseball production at Bobby's Baseball Factory.

Labor Marginal Product

(Number of workers) (Baseballs)
1 3
2 5
3 8
4 10
5 7
6 4
7 2

61. Refer to Table 13-6. Bobby pays all his workers the same wage, and labor is his only variable cost. From this
information we can conclude that Bobby's average variable cost decreases
a. as output rises from 0 to 10, but rises after that.
b. as output rises from 0 to 26, but rises after that.
c. as output rises from 0 to 33, but increases after that.
d. continually as output rises.
ANSWER: b

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Table 13-7
The following table shows the production costs for The Flying Elvis Copter Rides.

Average Average Average

Output Total Fixed Variable Marginal
Fixed Cost Variable Cost Total Cost
(Helicopter Cost Cost Cost Cost
(Dollars per (Dollars per (Dollars per
rides) (Dollars) (Dollars) (Dollars) (Dollars)
ride) ride) ride)
0 50 50 0 -- -- -- --
1 150 A B C D E F
2 G H I 120 J K L
3 M N O P Q 120 R

62. Refer to Table 13-7. What is the value of A?

a. $25
b. $50
c. $100
d. $200
ANSWER: b

63. Refer to Table 13-7. What is the value of B?

a. $25
b. $50
c. $100
d. $200
ANSWER: c

64. Refer to Table 13-7. What is the value of C?

a. $25
b. $50
c. $100
d. $200
ANSWER: c

65. Refer to Table 13-7. What is the value of D?

a. $25
b. $50
c. $100
d. $200
ANSWER: b

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66. Refer to Table 13-7. What is the value of E?
a. $25
b. $50
c. $100
d. $150
ANSWER: c

67. Refer to Table 13-7. What is the value of F?

a. $50
b. $100
c. $150
d. $200
ANSWER: c

Table 13-8

Output Fixed Cost Variable Cost

(Units) (Dollars) (Dollars)
0 20 0
1 20 10
2 20 40
3 20 80
4 20 130
5 20 200
6 20 300

68. Refer to Table 13-8. What is the average fixed cost of producing 5 units of output?
a. $4
b. $5
c. $40
d. $44
ANSWER: a

69. Refer to Table 13-8. What is the average variable cost of producing 5 units of output?
a. $4
b. $5
c. $40
d. $44
ANSWER: c

70. Refer to Table 13-8. What is the marginal cost of producing the fifth unit of output?
a. $4
b. $40
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c. $50
d. $70
ANSWER: d

71. Refer to Table 13-8. What is the shape of the marginal cost curve for this firm?
a. constant
b. upward-sloping
c. downward-sloping
d. U-shaped
ANSWER: b

Table 13-9

Labor Output Fixed Cost Variable Cost

(Number of workers) (Units) (Dollars) (Dollars)
0 0 30 0
1 100 30 15
2 180 30 30
3 240 30 45
4 280 30 60
5 300 30 75

72. Refer to Table 13-9. What is the marginal product of the third worker?
a. 80 units
b. 60 units
c. 40 units
d. 20 units
ANSWER: b

73. Refer to Table 13-9. The marginal products of hiring additional workers are
a. increasing at an increasing rate.
b. increasing at a decreasing rate.
c. decreasing.
d. constant.
ANSWER: c

74. Refer to Table 13-9. For the firm whose production function and costs are specified in the table, its total-cost curve is
a. constant.
b. increasing at a decreasing rate.
c. increasing at an increasing rate.
d. unknown because there is no relationship between a firm's production function and its total-cost curve.
ANSWER: c

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75. Refer to Table 13-9. The average variable cost of producing 240 units is
a. $0.13.
b. $0.19.
c. $0.32.
d. $0.80.
ANSWER: b

76. Refer to Table 13-9. The average total cost of producing 240 units is
a. $0.13.
b. $0.19.
c. $0.32.
d. $0.80.
ANSWER: c

77. Refer to Table 13-9. For the firm whose production function and costs are specified in the table, its average-variable-
cost curve is
a. constant.
b. decreasing.
c. increasing.
d. U-shaped.
ANSWER: c

78. Refer to Table 13-9. For the firm whose production function and costs are specified in the table, its average-total-cost
curve is
a. constant.
b. decreasing.
c. increasing.
d. U-shaped.
ANSWER: d

Table 13-10
Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in
public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has
leased computer equipment that costs $480 a month.

Output Average Average Average

Fixed Variable Total Marginal
(Instructional Fixed Cost Variable Cost Total Cost
Cost Cost Cost Cost
modules per (Dollars per (Dollars per (Dollars per
(Dollars) (Dollars) (Dollars) (Dollars)
month) unit) unit) unit)
0 1,080
1 1,080 400 1480 400
2 450 965
3 1,350 2,430
4 1,900 475

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5 2,500 216
6 4,280 700
7 4,100
8 5,400 135
9 7,300
10 10,880 980

79. Refer to Table 13-10. What is the marginal cost of creating the tenth instructional module in a given month?
a. $900
b. $1,250
c. $2,500
d. $3,060
ANSWER: c

80. Refer to Table 13-10. What is the average variable cost for the month if 6 instructional modules are produced?
a. $180.00
b. $533.33
c. $700.00
d. $713.33
ANSWER: b

81. Refer to Table 13-10. What is the average fixed cost for the month if 9 instructional modules are produced?
a. $108.00
b. $120.00
c. $150.00
d. $811.11
ANSWER: b

82. Refer to Table 13-10. How many instructional modules are produced when marginal cost is $1,300?
a. 4
b. 5
c. 7
d. 8
ANSWER: d

83. Refer to Table 13-10. One month, Teacher's Helper produced 18 instructional modules. What was the average fixed
cost for that month?
a. $60
b. $108
c. $811
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d. It can't be determined from the information given.

ANSWER: a

84. If marginal cost is rising,

a. average variable cost must be falling.
b. average fixed cost must be rising.
c. marginal product must be falling.
d. marginal product must be rising.
ANSWER: c

Figure 13-2

85. Refer to Figure 13-2. Curve D represents which type of cost curve?
a. Marginal cost
b. Average total cost
c. Average variable cost
d. Average fixed cost
ANSWER: d

86. Refer to Figure 13-2. Which of the curves is most likely to represent marginal cost?
a. Curve A
b. Curve C
c. Curve D

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d. Curve B
ANSWER: a

87. Refer to Figure 13-2. Curve B is increasing because

a. of diminishing marginal product.
b. of increasing marginal product.
c. marginal product first increases, then decreases.
d. marginal product first decreases, then increases.
ANSWER: a

88. Refer to Figure 13-2. Curve D is always declining because

a. of diminishing marginal product.
b. we are dividing fixed costs by higher and higher levels of output.
c. marginal product first increases, then decreases.
d. marginal product first decreases, then increases.
ANSWER: b

89. Refer to Figure 13-2. Curve A intersects curve B

a. where the firm maximizes production.
b. at the minimum of average fixed cost.
c. at the efficient scale.
d. where fixed costs equal variable costs.
ANSWER: c

Figure 13-3

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90. Refer to Figure 13-3. Which of the following can be inferred from the figure above?
a. Marginal cost is increasing at all levels of output, and marginal product is increasing at low levels of output.
b. Marginal product is increasing at low level of output and decreasing at high level of output.
c. Marginal cost is increasing at all levels of output, and marginal product is decreasing at high level of output.
d. Marginal product is increasing at all levels of output.
ANSWER: b

91. Refer to Figure 13-3. Why doesn't the total cost curve begin at the origin (the point 0,0)?
a. Because variable costs are positive when output is zero
b. Because fixed costs are positive when output is zero
c. Because the firm is producing at the efficient scale
d. Because the firm is maximizing profits
ANSWER: b

Figure 13-4

Figure 1 Figure 2 Figure 3 Figure 4

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92. Refer to Figure 13-4. Which of the figures represents the total cost curve for a typical firm?
a. Figure 1
b. Figure 2
c. Figure 3
d. Figure 4
ANSWER: b

Figure 13-5

93. Refer to Figure 13-5. The efficient scale of production occurs at which quantity?
a. A
b. B
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c. C
d. D
ANSWER: c

94. Refer to Figure 13-5. Which of the following statements is correct?

a. Marginal cost is rising for quantities higher than D because marginal cost is higher than average total cost.
b. Average variable cost is declining for quantities less than B because marginal cost is lower than average
variable cost.
c. Marginal cost is minimized at B because at that quantity, marginal cost equals average variable cost.
d. Average total cost is declining for quantities less than C because average variable cost is less than average
total cost.
ANSWER: b

95. The average fixed cost curve

a. always declines with increased levels of output.
b. always rises with increased levels of output.
c. declines as long as it is above marginal cost.
d. declines as long as it is below marginal cost.
ANSWER: a

96. Average total cost is very high when a small amount of output is produced because
a. average variable cost is high.
b. average fixed cost is high.
c. marginal cost is high.
d. marginal product is high.
ANSWER: b

97. When marginal cost is less than average total cost,

a. marginal cost must be falling.
b. average variable cost must be falling.
c. average total cost is falling.
d. average total cost is rising.
ANSWER: c

98. Average total cost is increasing whenever

a. total cost is increasing.
b. marginal cost is increasing.
c. marginal cost is less than average total cost.
d. marginal cost is greater than average total cost.
ANSWER: d

99. Marginal cost is equal to average total cost when

a. average variable cost is falling.

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b. average fixed cost is rising.

c. marginal cost is at its minimum.
d. average total cost is at its minimum.
ANSWER: d

100. The minimum points of the average variable cost and average total cost curves occur where the
a. marginal cost curve lies below the average variable cost and average total cost curves.
b. marginal cost curve intersects those curves.
c. average variable cost and average total cost curves intersect.
d. slope of total cost is the smallest.
ANSWER: b

101. When a factory is operating in the short run,

a. it cannot alter variable costs.
b. total cost and variable cost are usually the same.
c. average fixed cost rises as output increases.
d. it cannot adjust the quantity of fixed inputs.
ANSWER: d

102. In the short run, a firm that produces and sells house paint can adjust
a. where to produce along its long-run average-total-cost curve.
b. the size of its factories.
c. how many workers to hire.
d. the location of its factory.
ANSWER: c

103. A firm that produces and sells furniture gets to choose

a. how many workers to hire in both the short run and the long run.
b. the size of its factories in the short run but not in the long run.
c. which short-run average-total-cost curve to use in both the short run and the long run.
d. the number of machines it uses in the short run but not in the long run.
ANSWER: a

104. In the long run,

a. inputs that were fixed in the short run remain fixed.
b. inputs that were fixed in the short run become variable.
c. inputs that were variable in the short run become fixed.
d. variable inputs are rarely used.
ANSWER: b

105. Which of the following explains why long-run average total cost at first decreases as output increases?
a. Diseconomies of scale
b. Less-efficient use of inputs
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c. Fixed costs becoming spread out over more units of output

d. Gains from specialization of inputs
ANSWER: d

106. The most likely explanation for economies of scale is

a. coordination problems.
b. specialization of labor.
c. increasing marginal cost.
d. decreasing marginal cost.
ANSWER: b

107. Economies of scale occur when

a. long-run average total costs rise as output increases.
b. long-run average total costs fall as output increases.
c. average fixed costs are falling.
d. average fixed costs are constant.
ANSWER: b

108. A firm that wants to achieve economies of scale could do so by

a. assigning limited tasks to its employees, so they can master those tasks.
b. employing a smaller number of workers.
c. producing a smaller quantity of output.
d. producing an output level higher than the efficient scale.
ANSWER: a

109. If long-run average total cost decreases as the quantity of output increases, the firm is experiencing
a. economies of scale.
b. diseconomies of scale.
c. coordination problems arising from the large size of the firm.
d. fixed costs greatly exceeding variable costs.
ANSWER: a

110. In the long run a company that produces and sells popcorn incurs total costs of $1,150 when output is 60 canisters
and $1,100 when output is 90 canisters. The popcorn company exhibits
a. diseconomies of scale because total cost is rising as output rises.
b. diseconomies of scale because average total cost is rising as output rises.
c. economies of scale because total cost is rising as output rises.
d. economies of scale because average total cost is falling as output rises.
ANSWER: d

111. Suppose that a firm's long-run average total costs of producing televisions decreases as it produces between 70,000
and 80,000 televisions. For this range of output, the firm is experiencing
a. economies of scale.

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b. constant returns to scale.

c. diseconomies of scale.
d. coordination problems.
ANSWER: a

112. When a firm experiences constant returns to scale,

a. long-run average total cost is unchanged, even when output increases.
b. long-run marginal cost is greater than long-run average total cost.
c. long-run marginal cost is less than long-run average total cost.
d. the firm is experiencing coordination problems.
ANSWER: a

113. If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would
a. slope downward.
b. be horizontal.
c. slope upward.
d. slope downward for low output levels and upward for high output levels.
ANSWER: b

114. When a firm experiences economies of scale,

a. short-run average total cost is maximized.
b. long-run average total cost is maximized.
c. long-run average total cost decreases as output increases.
d. long-run average total cost increases as output increases.
ANSWER: c

115. Firms may experience diseconomies of scale when

a. they are too small to take advantage of specialization.
b. large management structures are bureaucratic and inefficient.
c. there are too few employees, and managers do not have enough to do.
d. average fixed costs begin to rise again.
ANSWER: b

Figure 13-6
The following figure depicts average total cost functions for a firm that produces automobiles.

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116. Refer to Figure 13-6. Which of the curves is most likely to characterize the short-run average total cost curve of the
smallest factory?
a. ATCB
b. ATCD
c. ATCC
d. ATCA
ANSWER: a

117. Refer to Figure 13-6. The firm experiences economies of scale at which output levels?
a. Output levels less than P
b. Output levels between P and Q
c. Output levels greater than Q
d. Output level greater than P
ANSWER: a

118. Refer to Figure 13-6. At levels of output less than P, the firm experiences
a. economies of scale.
b. diseconomies of scale.
c. constant returns to scale.
d. both diminishing marginal productivity and coordination problems.
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ANSWER: a

119. Refer to Figure 13-6. At levels of output between P and Q, the firm experiences
a. economies of scale.
b. diseconomies of scale.
c. constant returns to scale.
d. both the benefits of specialization and diminishing marginal productivity.
ANSWER: c

Table 13-11

Long-Run Total Cost

(Dollars)
Quantity
Firm A Firm B Firm C
1 100 100 100
2 100 200 300
3 100 300 600
4 100 400 1,000
5 100 500 1,500

120. Refer to Table 13-11. Which firm is experiencing diseconomies of scale?

a. Firm A only
b. Firm B only
c. Firm C only
d. Firm A and Firm B only
ANSWER: c

Table 13-12

Long-Run Total Cost

(Dollars)
Quantity
Firm 1 Firm 2 Firm 3 Firm 4
1 180 120 150 210
2 350 250 300 340
3 510 390 450 490
4 660 540 600 660
5 800 700 750 850
6 930 870 900 1,060
7 1,050 1,050 1,050 1,290

121. Refer to Table 13-12. Which firm has constant returns to scale over the entire range of output?

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a. Firm 1
b. Firm 2
c. Firm 3
d. Firm 4
ANSWER: c

122. Refer to Table 13-12. Which firm has economies of scale and then diseconomies of scale as output increases from 1
to 7?
a. Firm 1
b. Firm 2
c. Firm 3
d. Firm 4
ANSWER: d

123. Refer to Table 13-12. Which firm's long-run marginal cost decreases as output increases?
a. Firm 1
b. Firm 2
c. Firm 3
d. Firm 4
ANSWER: a

124. Refer to Table 13-12. Firm 4's efficient scale occurs at what quantity?
a. 2
b. 3
c. 4
d. 5
ANSWER: b

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