MOCK EXAM "PRODUCTION COSTS"





1. Average fixed costs can be determined graphically by:
A.summing the marginal costs of any number of units of output and dividing the sum by that output.
B.the vertical distance between TC and TVC.
C.the vertical distance between AVC and MC.
D.the vertical distance between ATC and AVC.


2. Diseconomies of scale stem primarily from the difficulties in managing and coordinating a large-scale business enterprise.
A.True
B.False


3. Which of the following statements is correct?
A.Average total cost is the difference between average variable cost and average fixed cost.
B.Marginal cost measures the cost per unit of output associated with any level of production.
C.When marginal product rises, marginal cost must also rise.
D.Marginal cost is the price or cost of an extra variable input (for example, an additional worker) divided by its marginal product.


4. The long-run average total cost curve:
A.displays declining unit costs so long as output is increasing.
B.indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.
C.has a shape which is the inverse of the law of diminishing returns.
D.can be derived by summing horizontally the average total cost curves of all firms in an industry.


5. Marginal product is:
A.the increase in total output attributable to the employment of one more worker.
B.the increase in total revenue attributable to the employment of one more worker.
C.the increase in total cost attributable to the employment of one more worker.
D.total product divided by the number of workers employed.


6. Accounting profits are typically:
A.greater than economic profits because the former do not take explicit costs into account.
B.equal to economic profits because accounting costs include all opportunity costs.
C.smaller than economic profits because the former do not take implicit costs into account.
D.greater than economic profits because the former do not take implicit costs into account.


7. To the economist total cost includes:
A.explicit and implicit costs, including a normal profit.
B.neither implicit nor explicit costs.
C.implicit, but not explicit, costs.
D.explicit, but not implicit, costs.


8. Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:
A.$100,000 and its economic profits were zero.
B.$200,000 and its economic profits were zero.
C.$100,000 and its economic profits were $100,000.
D.zero and its economic loss was $200,000.


9. The amount of calendar time associated with the long run:
A.is less than that associated with the immediate market period.
B.varies from industry to industry.
C.is the same for all firms.
D.is one year by definition.


10.
Answer the next question(s) on the basis of the following information:

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Refer to the above data. When two workers are employed:
A.total product is 20.
B.total product is 18.
C.average product is 10.
D.total product cannot be determined from the information given.



11. For most producing firms:
A.marginal cost rises as output is carried to a certain level, and then begins to decline.
B.total costs rise as output is carried to a certain level, and then begin to decline.
C.average total costs decline as output is carried to a certain level, and then begin to rise.
D.average total costs rise as output is carried to a certain level, and then begin to decline.


12. Total cost minus total variable cost equals:
A.average fixed cost.
B.total fixed cost.
C.average variable cost.
D.marginal cost.


13. The law of diminishing returns describes the:
A.relationship between total costs and total revenues.
B.profit-maximizing position of a firm.
C.relationship between resource inputs and product outputs in the short run.
D.relationship between resource inputs and product outputs in the long run.


14. Diseconomies of scale arise primarily because:
A.the short-run average total cost curve rises when marginal product is increasing.
B.of the difficulties involved in managing and coordinating a large business enterprise.
C.firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available.
D.beyond some point marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).


15.
Use the following data to answer the next question(s). The letters A, B, and C designate three successively larger plant sizes.

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Refer to the above data. At what level of output is minimum efficient scale realized?
A.30
B.40
C.50
D.60



16.
Use the following data to answer the next question(s). The letters A, B, and C designate three successively larger plant sizes.

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Refer to the above data. Economies of scale are realized over the ___ to ___ levels of output; diseconomies of scale exist over the ___ to ___ levels of output.
A.10, 30; 40, 100
B.10, 40; 80, 100
C.10, 50; 60, 100
D.10, 70; 80, 100



17.


In the above diagram curves 1, 2, and 3 represent:
A.average variable cost, marginal cost, and average fixed cost respectively.
B.total variable cost, total fixed cost, and total cost respectively.
C.total fixed cost, total variable cost, and total cost respectively.
D.marginal product, average variable cost, and average total cost respectively.


18. "If a variable input is added to some fixed input, beyond some point the resulting extra output will decline." This statement describes:
A.economies and diseconomies of scale.
B.X-inefficiency.
C.the law of diminishing returns.
D.the law of diminishing marginal utility.


19.
Use the following cost information for the Creamy Crisp Donut Company to answer questions 16-23:

Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Entrepreneur's potential economic profit from the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
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Refer to the above data. Creamy Crisp's accounting profit is:
A.$150,000.
B.$380,000.
C.$230,000.
D.$294,000.



20.


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Refer to the above diagram. At output level Q total cost is:
A.0BEQ.
B.BCDE.
C.0BEQ plus BCDE.
D.0AFQ plus BCDE.




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