Question 1

(Consider This)  Susie purchased a nonrefundable ticket to a soccer match for $20.It will cost her $10 worth of gas and wear and tear to drive to the match and $5 to park her car.On the day of the match, Susie's boss offers her $100 to come to work instead.In considering what to do, which of the above would be considered a sunk cost?

Accepted Answer

A)  The $20 ticket to the match.
B)  The $10 cost to drive to the match.
C)  The $5 cost to park at the stadium.
D)  The $100 offered by Susie's boss.E) None of the above
F) All of the above

Question 2

A fast-food company spends millions of dollars to develop and promote a new hamburger on their menu only to find that consumers won't buy it because they don't like the taste.From an economic perspective, the company should

Accepted Answer

A)  keep the hamburger on the menu because they've spent so much money and time developing and promoting the product.
B)  spend more money to develop a more efficient way to cook the hamburger so it cooks in a shorter time.
C)  pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost.
D)  keep trying to sell the hamburger so that people who developed and promote it have a job with the company.E) A) and C)
F) A) and D)

Question 3

The phrase "don't cry over spilt milk" could be rephrased in economic terms by saying,

Accepted Answer

A)  "Sunk costs are irrelevant to a decision."
B)  "Real resources have opportunity costs."
C)  "There will always be fixed costs of production."
D)  "The law of diminishing returns applies to everything."E) A) and B)
F) C) and D)

Question 4

When a firm increases its output, its average fixed costs will stay constant.

Accepted Answer

A) True 
 B)False

Question 5

The following statements about the "sunk cost fallacy" are true, except

Accepted Answer

A)  it's the tendency to drag past costs into current marginal cost-benefit calculations.
B)  it comes from a desire to "get one's money's worth" out of a past expenditure.
C)  it refers to the fact that average fixed costs are not a major part of production costs.
D)  it could lead one to "throw good money after bad."E) B) and C)
F) C) and D)

Question 6

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that

Accepted Answer

A)  technology precludes both economies and diseconomies of scale.
B)  the industry will be a natural monopoly.
C)  both relatively small and relatively large firms can be viable in the industry.
D)  the industry will comprise a very large number of small firms.E) B) and D)
F) B) and C)

Question 7

The minimum efficient scale of a firm

Accepted Answer

A)  is realized somewhere in the range of diseconomies of scale.
B)  occurs where marginal product becomes zero.
C)  is in the middle of the range of constant returns to scale.
D)  is the smallest level of output at which long-run average total cost is minimized.E) C) and D)
F) None of the above

Question 8

Cash expenditures a firm incurs to pay for resources are called

Accepted Answer

A)  implicit costs.
B)  explicit costs.
C)  normal profit.
D)  opportunity costs.E) A) and C)
F) A) and B)

Question 9

(Consider This)  Which of the following is an example of a sunk cost, as it relates to a firm?

Accepted Answer

A)  an expenditure on raw materials used in the production process
B)  an expenditure on a nonrefundable, nontransferable airline ticket
C)  an expenditure to buy a delivery van
D)  an expenditure for a new factoryE) A) and B)
F) None of the above

Question 10

If the minimum efficient scale in an industry were smaller than the size of the market of that industry, then we would have a natural-monopoly situation.

Accepted Answer

A) True 
 B)False

Question 11

The main difference between the short run and the long run is that

Accepted Answer

A)  firms earn zero profits in the long run.
B)  the long run always refers to a time period of one year or longer.
C)  in the short run, some inputs are fixed and some are variable.
D)  in the long run, all inputs are fixed.E) A) and B)
F) A) and C)

Question 12

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30.This firm's

Accepted Answer

A)  ATC is $35.
B)  ATC is $57.
C)  total cost is $270.
D)  total cost is $30.E) All of the above
F) C) and D)

Question 13

The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by only 8 percent.This means that initially it was producing

Accepted Answer

A)  in the range of diseconomies of scale.
B)  in the range of economies of scale.
C)  where AP is less than MP.
D)  at the point of minimum efficient scale.E) A) and B)
F) A) and C)

Question 14

At the Amarillo Piano Company, the average product of labor stays constant at 5, regardless of how much labor is employed.This implies that

Accepted Answer

A)  there are no fixed costs.
B)  this firm can never maximize its profits.
C)  the marginal product of labor is constant.
D)  labor exhibits diminishing marginal returns.E) A) and D)
F) A) and B)

Question 15

If the average product of labor equals 4 at all levels of output, the marginal product of labor is also equal to 4 at all levels of output.

Accepted Answer

A) True 
 B)False

Question 16

If a firm increases all its inputs by 10 percent and its output increases by 15 percent, the firm is experiencing diseconomies of scale.

Accepted Answer

A) True 
 B)False

Question 17

When a firm does more of something, it gets better at it.This learning-by-doing is

Accepted Answer

A)  a source of diseconomies of scale.
B)  a source of economies of scale.
C)  called the principle of natural progression.
D)  called "spreading the overhead."E) A) and B)
F) None of the above

Question 18

At the point where diminishing marginal returns of an input sets in, the

Accepted Answer

A)  average product starts to decrease.
B)  marginal product starts to decrease.
C)  total product starts to decrease.
D)  average product exceeds the marginal product.E) A) and D)
F) B) and C)

Question 19

The following is cost information for the Creamy Crisp Donut Company.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
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's
Forgone interest on personal funds used to finance the business = $6,000
Creamy Crisp's total economic costs are

Accepted Answer

A)  $286,000.
B)  $150,000.
C)  $94,000.
D)  $156,000.E) A) and C)
F) B) and D)

Question 20

The long-run average total cost curve

Accepted Answer

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 that 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.E) A) and B)
F) B) and C)

Exam 9: Businesses and the Costs of Production

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that

Correct Answer
verified

Correct Answer
verified

The main difference between the short run and the long run is that

Correct Answer
verified

The phrase "don't cry over spilt milk" could be rephrased in economic terms by saying,

Correct Answer
verified

The minimum efficient scale of a firm

Correct Answer
verified

At the point where diminishing marginal returns of an input sets in, the

Correct Answer
verified

When a firm increases its output, its average fixed costs will stay constant.

Correct Answer
verified

(Consider This) Which of the following is an example of a sunk cost, as it relates to a firm?

Correct Answer
verified

A fast-food company spends millions of dollars to develop and promote a new hamburger on their menu only to find that consumers won't buy it because they don't like the taste.From an economic perspective, the company should

Correct Answer
verified

The following statements about the "sunk cost fallacy" are true, except

Correct Answer
verified

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30.This firm's

Correct Answer
verified

If the average product of labor equals 4 at all levels of output, the marginal product of labor is also equal to 4 at all levels of output.

Correct Answer
verified

The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by only 8 percent.This means that initially it was producing

Correct Answer
verified

If a firm increases all its inputs by 10 percent and its output increases by 15 percent, the firm is experiencing diseconomies of scale.

Correct Answer
verified

Correct Answer
verified

The long-run average total cost curve

Correct Answer
verified

Cash expenditures a firm incurs to pay for resources are called

Correct Answer
verified

At the Amarillo Piano Company, the average product of labor stays constant at 5, regardless of how much labor is employed.This implies that

Correct Answer
verified

When a firm does more of something, it gets better at it.This learning-by-doing is

Correct Answer
verified

If the minimum efficient scale in an industry were smaller than the size of the market of that industry, then we would have a natural-monopoly situation.

Correct Answer
verified

Exam 9: Businesses and the Costs of Production

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The main difference between the short run and the long run is that

Correct AnswerverifiedShow Answer

The phrase "don't cry over spilt milk" could be rephrased in economic terms by saying,

Correct AnswerverifiedShow Answer

The minimum efficient scale of a firm

Correct AnswerverifiedShow Answer

At the point where diminishing marginal returns of an input sets in, the

Correct AnswerverifiedShow Answer

When a firm increases its output, its average fixed costs will stay constant.

Correct AnswerverifiedShow Answer

(Consider This) Which of the following is an example of a sunk cost, as it relates to a firm?

Correct AnswerverifiedShow Answer

A fast-food company spends millions of dollars to develop and promote a new hamburger on their menu only to find that consumers won't buy it because they don't like the taste.From an economic perspective, the company should

Correct AnswerverifiedShow Answer

The following statements about the "sunk cost fallacy" are true, except

Correct AnswerverifiedShow Answer

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30.This firm's

Correct AnswerverifiedShow Answer

If the average product of labor equals 4 at all levels of output, the marginal product of labor is also equal to 4 at all levels of output.

Correct AnswerverifiedShow Answer

The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by only 8 percent.This means that initially it was producing

Correct AnswerverifiedShow Answer

If a firm increases all its inputs by 10 percent and its output increases by 15 percent, the firm is experiencing diseconomies of scale.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The long-run average total cost curve

Correct AnswerverifiedShow Answer

Cash expenditures a firm incurs to pay for resources are called

Correct AnswerverifiedShow Answer

At the Amarillo Piano Company, the average product of labor stays constant at 5, regardless of how much labor is employed.This implies that

Correct AnswerverifiedShow Answer

When a firm does more of something, it gets better at it.This learning-by-doing is

Correct AnswerverifiedShow Answer

If the minimum efficient scale in an industry were smaller than the size of the market of that industry, then we would have a natural-monopoly situation.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified