Economists Normally Assume That the Goal of a Firm

Practice Questions Multiple Choice 1. Economists normally assume that the goal of a firm is to a. maximize its total revenue. b. maximize its profit. c. minimize its explicit costs. d. minimize its total cost. ANS: B 2. For a firm, the production function represents the relationship between a. implicit costs and explicit costs. b. quantity of inputs and total cost. c. quantity of inputs and quantity of output. d. quantity of output and total cost. ANS: C 3. The marginal product of labor is equal to the a. incremental cost associated with a one unit increase in labor. b. incremental profit associated with a one unit increase in labor. c. increase in labor necessary to generate a one unit increase in output. d. increase in output obtained from a one unit increase in labor. ANS: D 4. 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 = 132). 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. ANS: B 5. When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing a. diminishing labor. b. diminishing output. c. diminishing marginal product. d. negative marginal product. ANS: C Table 13-4 Charles’s Math Tutoring Number of Output (number of Workers students tutored per week) 0 0 1 20 2 45 3 60 4 70 6. Refer to Table 13-4. What is the marginal product of the second worker? a. 15 students b. 20 students c. 22.5 students d. 25 students ANS: D 7. Refer to Table 13-4. Charles’s math tutoring company experiences diminishing marginal productivity with the addition of the a. first worker. b. second worker. c. third worker. d. fourth worker. ANS: C Table 13-6 Wooden Chair Factory Number Number of of Workers Machines 1 2 2 2 Output (chairs produced per hour) 5 10 Marginal Product of Labor Cost of Workers Cost of Machines Total Cost 3 2 20 4 2 35 5 2 55 6 2 70 7 2 80 8. Refer to Table 13-6. 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. If the factory produces at a rate of 70 chairs per hour and operates 8 hours per day, what is the factory’s total labor cost per day? a. $72 b. $112 c. $576 d. $616 ANS: C 9. Refer to Table 13-6. 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 ANS: C 10. Refer to Table 13-6. 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. Assume the number of machines does not change. If the factory produces at a rate of 78 chairs per hour, what is the total machine cost per day? a. $20 b. $40 c. $240 d. We are unable to determine total machine costs from the information given. ANS: B 11. Refer to Table 13-6. 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 ANS: D Figure 13-3 100 Cost 90 80 70 60 50 40 30 20 10 2 4 6 8 10 12 14 16 Quantity Refer to Figure 13-3. The graph illustrates a typical a. total-cost curve. b. production function. c. production possibilities frontier. d. fixed-cost curve. ANS: A 13. Refer to Figure 13-3. The graph illustrates a typical total cost curve. Based on its shape, what does the corresponding production function look like? a. an upward-sloping curve that increases at an increasing rate b. an upward-sloping curve that increases at a decreasing rate c. a downward-sloping curve d. a horizontal straight line ANS: B 14. Total cost can be divided into two types of costs: a. fixed costs and variable costs. b. fixed costs and marginal costs. c. variable costs and marginal costs. d. average costs and marginal costs. ANS: A 15. Cindy’s Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is a. $100. b. $200. c. $300. d. $500. ANS: D 16. Average total cost (ATC) is calculated as follows: a. ATC = (change in total cost)/(change in quantity of output). b. ATC = (change in total cost)/(change in quantity of input). c. ATC = (total cost)/(quantity of output). d. ATC = (total cost)/(quantity of input). ANS: C Table 13-7 The Flying Elvis Copter Rides Quantity Total Fixed Cost Cost Variable Cost 0 $50 $50 $0 1 $150 A B 2 G H I 3 M N O 17. Refer to Table 13-7. What is the value of A? a. $25 b. $50 c. $100 d. $200 ANS: B 18. Refer to Table 13-7. What is the value of B? a. $25 b. $50 c. $100 d. $200 ANS: C 19. Refer to Table 13-7. What is the value of C? a. $25 b. $50 c. $100 Marginal Cost -C $120 P Average Fixed Cost -D J Q Average Variable Cost -E K $120 Average Total Cost -F L R d. $200 ANS: C 20. Refer to Table 13-7. What is the value of D? a. $25 b. $50 c. $100 d. $200 ANS: B 21.Marginal cost tells us the a. value of all resources used in a production process. b. marginal increment to profitability when price is constant. c. amount by which total cost rises when output is increased by one unit. d. amount by which output rises when labor is increased by one unit. ANS: C Figure 13-5 Cost D 11 C 10 B 9 8 7 6 5 4 3 2 1 A 1 2 3 4 5 6 7 8 9 10 11 12 Quantity 22. Refer to Figure 13-5. Curve A represents which type of cost curve? a. marginal cost b. average total cost c. average variable cost d. average fixed cost ANS: D 23. Refer to Figure 13-5. Curve C represents which type of cost curve? a. marginal cost b. average total cost c. average variable cost d. average fixed cost ANS: B 24. Refer to Figure 13-5. Curve D represents which type of cost curve? a. marginal cost b. average total cost c. average variable cost d. average fixed cost ANS: A 25. Refer to Figure 13-5. Curve D intersects curve C a. where the firm maximizes profit. b. at the minimum of average fixed cost. c. at the efficient scale. d. where fixed costs equal variable costs. ANS: C 26. 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. ANS: B