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MULTIPLECHOICE 1. Accordingtothelawofsupply, a. firmsproductionlevelsarenotcorrelatedwiththepriceofagood. b. thesupplycurveslopesdownward. c. firmsarewillingtoproduceagreaterquantityofagoodwhenthepriceofthegoodishigher. d. Noneoftheabovearecorrect. ANSWER:c. firmsarewillingtoproduceagreaterquantityofagoodwhenthepriceofthegoodishigher. TYPE:MDIFFICULTY:2SECTION:13.1 2. Industrialorganizationisthestudyofhow a. laborunionsorganizeworkersinindustries. b. profitablefirmsareinorganizedindustries. c. industriesorganizeforpoliticaladvantage. d. firmsdecisionsregardingpricesandquantitiesdependonthemarketconditionstheyface. ANSWER:d. firmsdecisionsregardingpricesandquantitiesdependonthemarketconditionstheyface. TYPE:MDIFFICULTY:1SECTION:13.1 3. Economistsnormallyassumethatthegoalofafirmisto (i) sellasmuchoftheirproductaspossible. (ii) setthepriceoftheirproductashighaspossible. (iii) maximizeprofit. a. (i)and(ii) b. (ii)and(iii) c. (iii)only d. Alloftheabovearecorrect. ANSWER:c. (iii)only TYPE:MDIFFICULTY:2SECTION:13.1 4. Theamountofmoneythatafirmreceivesfromthesaleofitsoutputiscalled a. totalgrossprofit. b. totalnetprofit. c. totalrevenue. d. netrevenue. ANSWER:c. totalrevenue. TYPE:MDIFFICULTY:1SECTION:13.1 5. Theamountofmoneythatafirmpaystobuyinputsiscalled a. totalcost. b. variablecost. c. marginalcost. d. fixedcost. ANSWER:a. totalcost. TYPE:MDIFFICULTY:1SECTION:13.1 6. Profitisdefinedas a. netrevenueminusdepreciation. b. totalrevenueminustotalcost. c. averagerevenueminusaveragetotalcost. d. marginalrevenueminusmarginalcost. ANSWER:b. totalrevenueminustotalcost. TYPE:MDIFFICULTY:1SECTION:13.1
113
Thefigurebelowdepictsaproductionfunctionforafirmthatproducescookies.Usethefiguretoanswerquestions52and 53.
52.
Asthenumberofworkersincreases, a. totaloutputincreases,butatadecreasingrate. b. marginalproductincreases,butatadecreasingrate. c. marginalproductincreasesatanincreasingrate. d. totaloutputdecreases. ANSWER:a. totaloutputincreases,butatadecreasingrate. TYPE:MDIFFICULTY:2SECTION:13.2 53. Withregardtocookieproduction,thefigureimplies a. diminishingmarginalproductofworkers. b. diminishingmarginalcostofcookieproduction. c. decreasingcostofcookieproduction. d. increasingmarginalproductofworkers. ANSWER:a. diminishingmarginalproductofworkers. TYPE:MDIFFICULTY:2SECTION:13.2 54. Whichofthefollowingstatementsaboutaproductionfunctioniscorrectforafirmthatuseslabortoproduce output? a. Theproductionfunctiondepictstherelationshipbetweenthequantityoflaborandthequantityofoutput. b. Theslopeoftheproductionfunctionmeasuresmarginalcost. c. Thequantityofoutputismeasuredalongthehorizontalaxis. d. Alloftheabovearecorrect. ANSWER:a. Theproductionfunctiondepictstherelationshipbetweenthequantityoflaborandthequantityof output. TYPE:MDIFFICULTY:2SECTION:13.2
Thefigurebelowdepictsatotalcostfunctionforafirmthatproducescookies.Usethefiguretoanswerquestions55 through58.
55.
Whichofthefollowingistrueoftheproductionfunction(notpictured)thatunderliesthistotalcostfunction? (ii) Totaloutputincreasesasthequantityofinputsincreases,butatadecreasingrate. (ii) Marginalproductisdiminishingforalllevelsofinputusage. (iii) Theslopeoftheproductionfunctiondecreasesasthequantityofinputsincreases. a. (i)only b. (ii)and(iii) c. (i)and(iii) d. Alloftheabovearecorrect. ANSWER:d. Alloftheabovearecorrect. TYPE:MDIFFICULTY:3SECTION:13.2 56. Thechangingslopeofthetotalcostcurvereflects a. decreasingaveragevariablecost. b. decreasingaveragetotalcost. c. decreasingmarginalproduct. d. increasingfixedcost. ANSWER:c. decreasingmarginalproduct. TYPE:MDIFFICULTY:2SECTION:13.2 57. Whichofthefollowingstatementsbestcapturesthenatureoftheunderlyingproductionfunction? a. Outputincreasesatadecreasingratewithadditionalunitsofinput. b. Outputincreasesatanincreasingratewithadditionalunitsofinput. c. Outputdecreasesatadecreasingratewithadditionalunitsofinput. d. Outputdecreasesatanincreasingratewithadditionalunitsofinput. ANSWER:a. Outputincreasesatadecreasingratewithadditionalunitsofinput. TYPE:MDIFFICULTY:2SECTION:13.2
91.
Whichoftheabovemarginalcostcurvesreflectstheexistenceofdiminishingmarginalproduct? a. A b. B c. C d. D ANSWER:a. A TYPE:MDIFFICULTY:2SECTION:13.3 92. Ifmarginalcostisrising, a. averagevariablecostmustbefalling. b. averagefixedcostmustberising. c. marginalproductmustbefalling. d. marginalproductmustberising. ANSWER:c. marginalproductmustbefalling. TYPE:MDIFFICULTY:2SECTION:13.3 93. Diminishingmarginalproductsuggeststhatthemarginal a. costofanextraworkerisunchanged. b. costofanextraworkerislessthanthepreviousworkersmarginalcost. c. productofanextraworkerislessthanthepreviousworkersmarginalproduct. d. productofanextraworkerisgreaterthanthepreviousworkersmarginalproduct. ANSWER:c. productofanextraworkerislessthanthepreviousworkersmarginalproduct. TYPE:MDIFFICULTY:2SECTION:13.3
108.
Whichofthefollowingcanbeinferredfromthefigureabove? (i) Marginalcostisincreasingatalllevelsofoutput. (ii) Marginalproductisincreasingatlowlevelsofoutput. (iii) Marginalproductisdecreasingathighlevelsofoutput. a. (i)and(ii) b. (ii)and(iii) c. (i)and(iii) d. Alloftheabovearecorrect. ANSWER:b. (ii)and(iii) TYPE:MDIFFICULTY:3SECTION:13.3
Thecurvesbelowreflectinformationaboutthecoststructureofafirm.Usethefiguretoanswerquestions109through115.
109.
Whichofthecurvesismostlikelytorepresentaveragetotalcost? a. A b. B c. C d. D ANSWER:b. B TYPE:MDIFFICULTY:2SECTION:13.3 110. Whichofthecurvesismostlikelytorepresentaveragefixedcost? a. A b. B c. C d. D ANSWER:d. D TYPE:MDIFFICULTY:2SECTION:13.3 111. Whichofthecurvesismostlikelytorepresentaveragevariablecost? a. A b. B c. C d. D ANSWER:c. C TYPE:MDIFFICULTY:2SECTION:13.3 112. Whichofthecurvesismostlikelytorepresentmarginalcost? a. A b. B c. C d. D ANSWER:a. A TYPE:MDIFFICULTY:2SECTION:13.3
RefertothefollowinginformationtoanswerQuestions127through131. Acertainfirmproducesandsellsstaplers.Lastyear,itproduced5,000staplersandsoldeachstaplerfor$8.Inproducing the5,000staplers,itincurredvariablecostsof$30,000andatotalcostof$45,000. 127. Thefirmsfixedcostsamountedto a. $15,000. b. $30,000. c. $40,000. d. $50,000. ANSWER:a. $15,000. TYPE:MDIFFICULTY:1SECTION:13.3 128. Inproducingthe5,000staplers,thefirmsaveragefixedcostwas a. $3. b. $4. c. $5. d. $7. ANSWER:a. $3. TYPE:MDIFFICULTY:2SECTION:13.3 129. Inproducingthe5,000staplers,thefirmsaveragevariablecostwas a. $2. b. $4. c. $6. d. $8. ANSWER:c. $6. TYPE:MDIFFICULTY:1SECTION:13.3 130. Inproducingthe5,000staplers,thefirmsaveragetotalcostwas a. $6. b. $7. c. $8. d. $9. ANSWER:d. $9. TYPE:MDIFFICULTY:1SECTION:13.3 131. Thefirmseconomicprofitfortheyearwas a. $35,000. b. $5,000 c. $10,000. d. $40,000. ANSWER:b. $5,000 TYPE:MDIFFICULTY:2SECTION:13.3 RefertothefiguresbelowtoanswerQuestions132through134
Figure1 132.
Figure2
Figure3
Figure4
Whichofthefiguresrepresentsthetotalcostcurveforafirm? a. Figure1 b. Figure2 c. Figure3 d. Figure4 ANSWER:b. Figure2 TYPE:MDIFFICULTY:1SECTION:13.3 133. Whichofthefiguresrepresentsthemarginalcostcurveforafirm? a. Figure1 b. Figure2 c. Figure3 d. Figure4 ANSWER:a. Figure1 TYPE:MDIFFICULTY:1SECTION:13.3 134. Whichofthefiguresrepresentstheproductionfunctionforafirm? a. Figure1 b. Figure2 c. Figure3 d. Figure4 ANSWER:DTYPE:MDIFFICULTY:1SECTION:13.3 135. Whichofthefollowingstatementsaboutcostsiscorrect? a. Whenmarginalcostislessthanaveragetotalcost,averagetotalcostisrising. b. ThetotalcostcurveisUshaped. c. Asthequantityofoutputincreases,marginalcosteventuallyrises. d. Alloftheabovearecorrect. ANSWER:c. Asthequantityofoutputincreases,marginalcosteventuallyrises. TYPE:MDIFFICULTY:2SECTION:13.3 136. Whenevermarginalcostisgreaterthanaveragetotalcost, a. marginalcostisrising. b. marginalcostisfalling. c. averagetotalcostisrising. d. averagetotalcostisfalling. ANSWER:c. averagetotalcostisrising. TYPE:MDIFFICULTY:2SECTION:13.3 137. Thefirmsefficientscaleisthequantityofoutputthatminimizes a. averagetotalcost. b. averagefixedcost. c. averagevariablecost. d. marginalcost. ANSWER:a. averagetotalcost. TYPE:MDIFFICULTY:1SECTION:13.3
Usethefollowinginformationtoanswerquestions138through144. MeasuresofCostforABCInc.WidgetFactory Quantity ofWidgets 0 1 2 3 4 5 6 138. Variable Costs $1 $3 $6 $10 $21 Total Costs Fixed Costs $10
Theaveragefixedcostofproducingfivewidgetsis a. $1.00. b. $2.00. c. $3.00. d. Noneoftheabovearecorrect. ANSWER:b. $2.00. TYPE:MDIFFICULTY:2SECTION:13.3 139. Theaveragevariablecostofproducingfourwidgetsis a. $2.00 b. $2.50 c. $3.33 d. $5.00 ANSWER:b. $2.50 TYPE:MDIFFICULTY:2SECTION:13.3 140. Theaveragetotalcostofproducingonewidgetis a. $1.00. b. $10.00. c. $11.00. d. $22.00. ANSWER:c. $11.00. TYPE:MDIFFICULTY:2SECTION:13.3 141. Themarginalcostofproducingthesixthwidgetis a. $1.00. b. $3.50. c. $5.00. d. $6.00. ANSWER:d. $6.00. TYPE:MDIFFICULTY:2SECTION:13.3 142. Whatisthevariablecostofproducingzerowidgets? a. $0 b. $1.00 c. $10.00 d. $10.00 ANSWER:a. $0 TYPE:MDIFFICULTY:2SECTION:13.3
TotalCost 1,480
Average FixedCost
Average TotalCost
700
Whatisthemarginalcostofcreatingthetenthinstructionalmoduleinagivenmonth? a. $900 b. $1,250 c. $2,500 d. $3,060 ANSWER:c. $2,500 TYPE:MDIFFICULTY:2SECTION:13.3 151. Whatistheaveragevariablecostforthemonthifsixinstructionalmodulesareproduced? a. $180 b. $533.33 c. $700 d. $713.33 ANSWER:b. $533.33 TYPE:MDIFFICULTY:2SECTION:13.3
Thefigurebelowdepictsaveragetotalcostfunctionsforafirmthatproducesautomobiles.Usethefiguretoanswer questions174through178.
174.
d. ATCD ANSWER:a. ATCA TYPE:MDIFFICULTY:1SECTION:13.4 175. Whichcurverepresentsthelongrunaveragetotalcost? a. ATCA b. ATCB c. ATCC d. ATCD ANSWER:d. ATCD TYPE:MDIFFICULTY:1SECTION:13.4 176. Inthelongrun,thefirmcanoperateonwhichofthefollowingaveragetotalcostcurves? a. ATCA b. ATCB c. ATCC d. Alloftheabovearecorrect. ANSWER:d. Alloftheabovearecorrect. TYPE:MDIFFICULTY:1SECTION:13.4
193.
Thethreeaveragetotalcostcurvesonthediagramcorrespondtothreedifferent a. timehorizons. b. products. c. firms. d. factorysizes. ANSWER:d. factorysizes. TYPE:MDIFFICULTY:2SECTION:13.4 194. Thefirmexperienceseconomiesofscaleifitchangesitslevelofoutput a. fromQ1toQ2. b. fromQ2toQ3. c. fromQ3toQ4.