Chapter 22 – The Cost of Production
Extra Multiple Choice Questions for Review
1. Implicit costs are:
A) equal to total fixed costs.
B) comprised entirely of variable costs.
C) "payments" for self-employed resources.
D) always greater in the short run than in the long run.
2. Which would be an implicit cost for a firm? The cost:
A) of worker wages and salaries for the firm.
B) paid for leasing a building for the firm.
C) paid for production supplies for the firm.
D) of wages foregone by the owner of the firm.
3. If a firm's revenues just cover all its opportunity costs, then:
A) normal profit is zero.
B) economic profit is zero.
C) total revenues equal its explicit costs.
D) total revenues equal its implicit costs.
4. Suppose a firm sells its product at a price lower than the opportunity cost of the inputs
used to produce it. Which is true?
A) The firm will earn accounting and economic profits.
B) The firm will face accounting and economic losses.
C) The firm will face an accounting loss, but earn economic profits.
D) The firm may earn accounting profits, but will face economic losses.
5. Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The
explicit costs of production are $1,500,000 and the implicit costs of production are
$300,000. The firm has an accounting profit of:
A) $500,000 and an economic profit of $200,000.
B) $400,000 and an economic profit of $200,000.
C) $300,000 and an economic profit of $400,000.
D) $200,000 and an economic profit of $500,000.
6. The short run is a time period in which:
A) all resources are fixed.
B) the level of output is fixed.
C) the size of the production plant is variable.
D) some resources are fixed and others are variable.
7. The law of diminishing returns states that:
A) as a firm uses more of a variable resource, given the quantity of fixed resources,
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, the average product of the firm will increase.
B) as a firm uses more of a variable resource, given the quantity of fixed resources,
marginal product of the firm will eventually decrease.
C) in the short run, the average total costs of the firm will eventually diminish.
D) in the long run, the average total costs of the firm will eventually diminish.
8. The law of diminishing returns only applies in cases where:
A) there is increasing scarcity of factors of production.
B) the price of extra units of a factor is increasing.
C) there is at least one fixed factor of production.
D) capital is a variable input.
9. The marginal product of labor curve shows the change in total product resulting from
a:
A) one-unit increase in the quantity of a particular resource used, letting other
resources vary.
B) one-unit increase in the quantity of a particular resource used, holding constant
other resources.
C) change in the cost of a variable resource.
D) change in the cost of a fixed resource.
10. When the total product curve is falling, the:
A) marginal product of labor is zero.
B) marginal product of labor is negative.
C) average product of labor is increasing.
D) average product of labor must be negative.
11. When marginal product reaches its maximum, what can be said of total product?
A) total product must be at its maximum
B) total product starts to decline even if marginal product is positive
C) total product is increasing if marginal product is still positive
D) total product levels off
12. Variable costs are:
A) sunk costs.
B) multiplied by fixed costs.
C) costs that change with the level of production.
D) defined as the change in total cost resulting from the production of an additional
unit of output.
13. Which is not a fixed cost?
A) monthly rent of $1,000 contractually specified in a one-year lease
B) an insurance premium of $50 per year, paid last month
C) an attorney's retainer of $50,000 per year
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Extra Multiple Choice Questions for Review
1. Implicit costs are:
A) equal to total fixed costs.
B) comprised entirely of variable costs.
C) "payments" for self-employed resources.
D) always greater in the short run than in the long run.
2. Which would be an implicit cost for a firm? The cost:
A) of worker wages and salaries for the firm.
B) paid for leasing a building for the firm.
C) paid for production supplies for the firm.
D) of wages foregone by the owner of the firm.
3. If a firm's revenues just cover all its opportunity costs, then:
A) normal profit is zero.
B) economic profit is zero.
C) total revenues equal its explicit costs.
D) total revenues equal its implicit costs.
4. Suppose a firm sells its product at a price lower than the opportunity cost of the inputs
used to produce it. Which is true?
A) The firm will earn accounting and economic profits.
B) The firm will face accounting and economic losses.
C) The firm will face an accounting loss, but earn economic profits.
D) The firm may earn accounting profits, but will face economic losses.
5. Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The
explicit costs of production are $1,500,000 and the implicit costs of production are
$300,000. The firm has an accounting profit of:
A) $500,000 and an economic profit of $200,000.
B) $400,000 and an economic profit of $200,000.
C) $300,000 and an economic profit of $400,000.
D) $200,000 and an economic profit of $500,000.
6. The short run is a time period in which:
A) all resources are fixed.
B) the level of output is fixed.
C) the size of the production plant is variable.
D) some resources are fixed and others are variable.
7. The law of diminishing returns states that:
A) as a firm uses more of a variable resource, given the quantity of fixed resources,
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, the average product of the firm will increase.
B) as a firm uses more of a variable resource, given the quantity of fixed resources,
marginal product of the firm will eventually decrease.
C) in the short run, the average total costs of the firm will eventually diminish.
D) in the long run, the average total costs of the firm will eventually diminish.
8. The law of diminishing returns only applies in cases where:
A) there is increasing scarcity of factors of production.
B) the price of extra units of a factor is increasing.
C) there is at least one fixed factor of production.
D) capital is a variable input.
9. The marginal product of labor curve shows the change in total product resulting from
a:
A) one-unit increase in the quantity of a particular resource used, letting other
resources vary.
B) one-unit increase in the quantity of a particular resource used, holding constant
other resources.
C) change in the cost of a variable resource.
D) change in the cost of a fixed resource.
10. When the total product curve is falling, the:
A) marginal product of labor is zero.
B) marginal product of labor is negative.
C) average product of labor is increasing.
D) average product of labor must be negative.
11. When marginal product reaches its maximum, what can be said of total product?
A) total product must be at its maximum
B) total product starts to decline even if marginal product is positive
C) total product is increasing if marginal product is still positive
D) total product levels off
12. Variable costs are:
A) sunk costs.
B) multiplied by fixed costs.
C) costs that change with the level of production.
D) defined as the change in total cost resulting from the production of an additional
unit of output.
13. Which is not a fixed cost?
A) monthly rent of $1,000 contractually specified in a one-year lease
B) an insurance premium of $50 per year, paid last month
C) an attorney's retainer of $50,000 per year
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