ECO 202 Chapter 8 Exam Solution
• Question 1
1 out of 1 points
Exhibit 22-2
(1) (2) (3) (4) (5)
Variable Input Total Variable Cost Total
... [Show More] Fixed Cost
Output Marginal Cost
1 $30 $100 20
2 $60 $100 50 (A)
3 $90 $100 90 (B)
4 $120 $100 120 (C)
5 $150 $100 140 (D)
o
Refer to Exhibit 22-2. What is the average total cost of producing 120 units of output?
Selected Answer: b.
$1.83
Answers: a.
$12.50
b.
$1.83
c.
$1.07
d.
$0.67
e.
There is not enough information provided to answer the question.
• Question 2
1 out of 1 points
The law of diminishing marginal returns holds for a situation in which
Selected Answer: c.
some inputs are variable and some inputs are fixed.
Answers: a.
all inputs are fixed.
b.
all inputs are increased in the same proportion.
c.
some inputs are variable and some inputs are fixed.
d.
all inputs are variable.
• Question 3
1 out of 1 points
Situation 22-4
Joe is the owner-operator of Joe's Haircuts Unlimited. Last year he earned $200,000 in total revenues and paid $125,000 to his employees and suppliers. During the course of the year, he received three offers to work for other barbers, with the highest offer being $50,000 per year.
Refer to Situation 22-4. What are Joe's implicit costs?
Selected Answer: d.
$50,000
Answers: a.
$150,000
b.
$35,000
c.
$175,000
d.
$50,000
e.
$200,000
• Question 4
1 out of 1 points
Economies of scale are said to exist when
Selected Answer: c.
inputs are increased by some percentage and output increases by a greater percentage.
Answers: a.
inputs are increased by some percentage and output increases by the same percentage.
b.
inputs are increased by some percentage and output increases by a lesser percentage.
c.
inputs are increased by some percentage and output increases by a greater percentage.
d.
the LRATC curve slopes upward.
e.
none of the above
• Question 5
1 out of 1 points
Minimum efficient scale refers to the
Selected Answer: b.
lowest output level at which average total costs are minimized.
Answers: a.
output level at which the LRATC curve touches each SRATC curve.
b.
lowest output level at which average total costs are minimized.
c.
smallest plant size a firm can utilize and still maintain production.
d.
lowest point on a given SRATC curve.
• Question 6
1 out of 1 points
Which of the following statements is false?
Selected Answer: c.
Money must change hands before a cost can be incurred.
Answers: a.
Costs may be either explicit costs or implicit costs.
b.
No monetary payment takes place when an implicit cost is incurred.
c.
Money must change hands before a cost can be incurred.
d.
Cost implies that a sacrifice has been made.
• Question 7
0 out of 1 points
Exhibit 22-10
Hours of Studying Total Number of Problems Solved
Jose Paul Marisol
1 3 4 4
2 8 10 9
3 14 18 15
4 19 28 22
5 23 32 27
6 26 35 30
Refer to Exhibit 22-10. Jose is experiencing increasing marginal returns
Selected Answer: b.
during all six hours of studying.
Answers: a.
only in the first hour of studying.
b.
during all six hours of studying.
c.
up to the third hour of studying.
d.
up to the fourth hour of studying.
• Question 8
1 out of 1 points
"As additional units of a variable input are added to a fixed input, eventually the marginal physical product of the variable input will decline." This is a statement of the
Selected Answer: b.
law of diminishing marginal returns.
Answers: a.
law of diminishing marginal utility.
b.
law of diminishing marginal returns.
c.
average-marginal rule.
d.
law of supply.
• Question 9
1 out of 1 points
Exhibit 22-14
Quantity of Labor
Output Marginal Physical Product (MPP)
Wage
Marginal Cost
0 0
1 100 (C) $600 (E)
2 (A) 75 600 (F)
3 (B) 50 600 (G)
4 240 (D) 600 (H)
Assume that labor is the only variable input and that each additional laborer is paid $600.
Refer to Exhibit 22-14. What is the MPP of the fourth unit of labor [blank (D)]?
Selected Answer: a.
15 units
Answers: a.
15 units
b.
100 units
c.
60 units
d.
70 units
• Question 10
1 out of 1 points
The short run is
Selected Answer: c.
a period of time in which some inputs are fixed.
Answers: a.
a period of time in which all inputs are fixed.
b.
a period of time in which all inputs are variable.
c.
a period of time in which some inputs are fixed.
d.
always less than a year.
e.
a and d
• Question 11
0 out of 1 points
The reason the change in total cost divided by the change in output is equal to the change in total variable cost divided by the change in output, is because
Selected Answer: a.
total variable cost rises as output rises.
Answers: a.
total variable cost rises as output rises.
b.
of the law of diminishing marginal returns.
c.
total fixed cost does not change as output changes.
d.
total cost does not change as output changes.
• Question 12
0 out of 1 points
At 100 units of output, total cost is $22,000 and total variable cost is $14,000. At 100 units of output, what is the value of average total cost, average variable cost, and average fixed cost, respectively?
Selected Answer: d.
$340; $740; $60
Answers: a.
$22; $14; $8
b.
$220; $140; $80
c.
$740; $340; $400
d.
$340; $740; $60
e.
$400; $340: There is not enough information provided to determine the average fixed cost.
• Question 13
1 out of 1 points
Which of the following statements is true?
Selected Answer: d.
Saying that a firm earned zero economic profit is the same as saying it earned normal profit.
Answers: a.
Explicit costs always equal implicit costs.
b.
Zero economic profit is a smaller dollar figure than normal profit.
c.
Zero economic profit is a larger dollar figure than normal profit.
d.
Saying that a firm earned zero economic profit is the same as saying it earned normal profit.
e.
none of the above
• Question 14
1 out of 1 points
Which of the following statements is false?
Selected Answer: d.
If the MC curve is rising, the AVC curve must be rising.
Answers: a.
If MC is above ATC, then ATC must be rising.
b.
If MC is above AVC, then AVC must be rising.
c.
If MC is below ATC, ATC must be falling.
d.
If the MC curve is rising, the AVC curve must be rising.
• Question 15
1 out of 1 points
Which of the following curves should one look at to observe the law of diminishing marginal returns?
Selected Answer: d.
the marginal physical product curve
Answers: a.
the total fixed cost curve
b.
the average fixed cost curve
c.
the long run average total cost curve
d.
the marginal physical product curve
• Question 16
1 out of 1 points
Working alone, a person who shirks receives __________ the benefits of shirking and pays __________ the costs of shirking.
Selected Answer: c.
all; all
Answers: a.
all; only some of
b.
only part of; all
c.
all; all
d.
only part of; only part of
e.
none of the above
• Question 17
1 out of 1 points
As the marginal physical product of a variable input __________, the marginal cost __________.
Selected Answer: d.
b and c
Answers: a.
increases; increases
b.
increases; decreases
c.
decreases; increases
d.
b and c
• Question 18
1 out of 1 points
Suppose that minimum efficient scale as a percentage of U.S. consumption is 5 percent in industry X and it is 10 percent in industry Y. It follows that we would expect to find
Selected Answer: a.
fewer firms in industry Y than X.
Answers: a.
fewer firms in industry Y than X.
b.
fewer firms in industry X than Y.
c.
bigger firms in industry Y than X.
d.
bigger firms in industry X than Y.
e.
none of the above
• Question 19
1 out of 1 points
An unrecoverable cost that should be disregarded in any current or future decision is also called a(n) __________ cost.
Selected Answer: c.
sunk
Answers: a.
explicit
b.
implicit
c.
sunk
d.
variable
• Question 20
1 out of 1 points
There is a link between production and cost. We know this because
Selected Answer: b.
what happens to MPP directs what happens to MC.
Answers: a.
there are two periods of production, the short run and the long run.
b.
what happens to MPP directs what happens to MC.
c.
average fixed cost continually declines as output increases.
d.
average productivity falls when marginal productivity is below it.
e.
none of the above
• Question 21
1 out of 1 points
Exhibit 22-8
Units of Labor Units of Output
0 0
1 50
2 110
3 155
4 185
5 205
Exhibit 22-8 shows how output varies with the only variable input used in its production. Marginal physical product of the fifth unit of labor is
Selected Answer: c.
20.
Answers: a.
50.
b.
0.
c.
20.
d.
172.
• Question 22
1 out of 1 points
Exhibit 22-4
Refer to Exhibit 22-4. Curve C is a(n) __________ cost curve.
Selected Answer: c.
average variable
Answers: a.
average total
b.
average fixed
c.
average variable
d.
marginal
• Question 23
1 out of 1 points
Exhibit 22-3
Variable Input
Fixed Input
Output Marginal Physical Product of Variable Input Total
Fixed Cost Total
Variable Cost
Marginal Cost
(units) (units) (units) (units) (dollars) (dollars) (dollars)
0 1 0 $500 $0
1 1 10 (A) $500 $200 (F)
2 1 25 (B) $500 $400 (G)
3 1 45 (C) $500 $600 (H)
4 1 60 (D) $500 $800 (I)
5 1 70 (E) $500 $1000 (J)
Refer to Exhibit 22-3. What is the average total cost of producing 45 units of output?
Selected Answer: c.
$24.44
Answers: a.
$25.11
b.
$21.33
c.
$24.44
d.
$21.11
• Question 24
1 out of 1 points
Exhibit 22-3
Variable Input
Fixed Input
Output Marginal Physical Product of Variable Input Total
Fixed Cost Total
Variable Cost
Marginal Cost
(units) (units) (units) (units) (dollars) (dollars) (dollars)
0 1 0 $500 $0
1 1 10 (A) $500 $200 (F)
2 1 25 (B) $500 $400 (G)
3 1 45 (C) $500 $600 (H)
4 1 60 (D) $500 $800 (I)
5 1 70 (E) $500 $1000 (J)
Refer to Exhibit 22-3. The marginal physical product figures in blanks (D) and (E) are, respectively,
Selected Answer: e.
15 and 10.
Answers: a.
20 and 15.
b.
10 and 10.
c.
15 and 20.
d.
10 and 15.
e.
15 and 10.
• Question 25
1 out of 1 points
Exhibit 22-3
Variable Input
Fixed Input
Output Marginal Physical Product of Variable Input Total
Fixed Cost Total
Variable Cost
Marginal Cost
(units) (units) (units) (units) (dollars) (dollars) (dollars)
0 1 0 $500 $0
1 1 10 (A) $500 $200 (F)
2 1 25 (B) $500 $400 (G)
3 1 45 (C) $500 $600 (H)
4 1 60 (D) $500 $800 (I)
5 1 70 (E) $500 $1000 (J)
Refer to Exhibit 22-3. The total cost of producing 45 units of output is
Selected Answer: b.
$1,100.
Answers: a.
$1,050.
b.
$1,100.
c.
$1,000.
d.
$900.
e.
$950. [Show Less]