Micro Chapter 8 Study Guide Questions 13e

Transcription

1 Micro Chapter 8 Study Guide Questions 13e Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The law of diminishing returns indicates why a. beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller amounts of additional satisfaction. b. the firm's total fixed costs do not change with output in the short run. c. a firm's long-run average total cost curve is U-shaped. d. a firm's marginal costs will eventually increase as the firm expands output in the short run. 2. The short run is a time period of insufficient length for the firm to change its a. output. b. amount of labor employed. c. plant size and heavy equipment. d. price. 3. Sunk or "historical" costs are costs a. associated with current operational decisions. b. that have already been incurred as the result of past decisions. c. that add to the firm's marginal costs. d. that form the major component of the firm's variable costs. 4. The average variable cost curve and average total cost curve become closer together as output increases because a. the marginal cost curve intersects the average total cost curve at its minimum. b. average fixed cost remains constant as output rises. c. average fixed cost, which is the difference between them, declines with output. d. output is rising more rapidly than inputs are being increased. 5. Which of the following factors would not shift the cost curves of an automobile company upward? a. a regulation requiring all automobiles be equipped with improved safety equipment b. an increase in the price of steel used to make automobiles c. an increase in the property tax on buildings and equipment used by the automobile company d. An employee develops a new method of installing doors on the cars that requires half as many workers as before. 6. The firm's average total costs will be a minimum at the output level where the a. firm just begins to confront diminishing returns to the variable factors. b. marginal costs are a minimum. c. firm's average fixed costs are at their minimum. d. marginal cost curve crosses the firm's average total cost curve. 7. The law of diminishing returns states that a. as we continually add variable factors to a fixed amount of other resources, output eventually increases at a decreasing rate. b. as we increase plant size, costs must diminish. c. the additional output generated by the employment of additional units of a variable input eventually decline. d. both a and c are correct.

2 Figure 8-14 The following question(s) refer( (s) to the below cost curves for one very small firm in a large market. _ 8. Refer units of output, its average total cost is a. 6. b. 7. c. 12. d. 13. _ 9. Refer produces 15 units of output, its average fixed cost is a. 4. b. 5. c. 6. d. 60. _ 10. Refer units of output, its total cost is a. 7. b. 13. _ 11. Refer units of output, its total fixed cost is a. 6. b. 60. _ 12. Refer to Figure The marginal cost of producing the tenth unit is a. 7. b. 13.

3 13. Refer to Figure This firm minimizes its per-unit costs of production at an output level of a. Q = 6. b. Q = 10. c. Q = 15. d. none of the above. 14. Refer to Figure Diminishing returns to the variable factor of production for this firm set in at a. Q = 6. b. Q = 10. c. Q = 15. d. none of the above. 15. A homeowner will be away from her house for six months. The monthly mortgage payment on the house is $300. The utilities, to be paid by the owner, cost $100 per month if the house is occupied; otherwise zero. If the owner wishes to minimize her losses from the house, she should rent the house for as much as the market will bear, as long as monthly rent is greater than which of the following? (Assume wear and tear to be zero regardless of whether the house is occupied.) (Hint: Remember the concept of sunk cost.) a. $0 b. $100 c. $200 d. $ Which of the following factors is most likely to shift the cost curves of an Iowa corn farmer downward? a. an increase in the price of fertilizer b. an increase in the tax on diesel fuel, which is used by the farmer c. the development of a new, more efficient corn harvester d. the adoption of a regulation requiring farmers to treat their crops with three new pesticides. 17. Which of the following is true? a. Economic profits are generally lower than accounting profits. b. Economic profits are generally greater than accounting profits. c. Economic profits are generally equal to accounting profits. d. Economic profits plus accounting profits must equal zero. 18. When a firm increases its plant size in the long run and its per-unit costs fall, this is called a. diminishing returns and is shown by the downward-sloping portion of the MP curve (or the upward-sloping portion of the MC curve). b. constant returns to scale and is shown by the flat portion of the LRATC curve. c. diseconomies of scale and is shown by the upward-sloping portion of the LRATC curve. d. economies of scale and is shown by the downward-sloping portion of the LRATC curve. 19. When the owner of a business invests his or her own money in the business, they give up the interest this money could be earning in the bank. This forgone interest is called a. the marginal cost of diminishing financial services. b. the opportunity cost of equity capital. c. the opportunity cost of labor services. d. interest expense and is included as a cost in the accounting statements of the business. 20. When an economist says a firm is earning zero economic profit, this implies that the firm a. will be forced out of business in the near future unless market conditions change. b. is earning a zero rate of return on its assets. c. is earning as high a rate of return now as could be earned in other industries. d. has an accounting profit of zero.

4 21. The long run is a period of a. at least one year. b. sufficient length to allow a firm to expand output by hiring additional workers. c. sufficient length to allow a firm to alter its plant size and capacity and all other factors of production. d. sufficient length to allow a firm to transform economic losses into economic profits. 22. As output is expanded, if MC is more than ATC, a. ATC must be at its minimum. b. ATC must be at its maximum. c. ATC must be increasing. d. ATC must be constant. 23. Mr. Hudson notes that if he pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day? a. $5 b. $7 c. $8 d. $ Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crop twice during the growing season and notices that the second layer of fertilizer increases his crop but not as much as the first layer. What economic concept best explains this observation? a. the law of diminishing marginal utility b. the law of diminishing returns c. return equalization principle d. the principal-agent problem 25. Larger firms will often have lower minimum per-unit costs than smaller firms because a. employee shirking is less of a problem. b. large-scale output allows greater specialization for both labor and machines in the production process. c. mass production techniques, with high setup and development costs, are appropriate only when a small output is planned. d. all of the above are correct.

5 Micro Chapter 8 Study Guide Questions 13e Answer Section MULTIPLE CHOICE 1. D 2. C 3. B 4. C 5. D 6. D 7. D 8. D 9. A 10. D 11. B 12. A 13. C 14. A 15. B 16. C 17. A 18. D 19. B 20. C 21. C 22. C 23. B 24. B 25. B