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Exam 13: The Costs of Production

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Question 31

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Table 13-2 Adrienne's Premium Boxing Service subcontracts with a chocolate manufacturer to box premium chocolates for their mail order catalogue business. Adrienne rents a small room for $150 a week in the downtown business district that serves as her factory. She can hire workers for $275 a week. Costs are in dollars per week. -Refer to Table 13-2. What is the marginal product of the fourth worker?

A) 40
B) 110
C) 260
D) 275

E) A) and C)
F) All of the above

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Question 32

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When economists speak of a firm's costs, they are usually excluding the opportunity costs.

A) True
B) False

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Question 33

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Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1. What is the marginal cost of producing the first kayak?

If a firm is operating at an efficient scale, average total cost must:

Graph 13-3 The set of curves above reflect information about the cost structure of a firm. Use this graph to answer the following question(s) . -Refer to Graph 13-3. Which of the curves is most likely to represent average fixed cost?

Diminishing marginal product causes the average variable cost curve to:

Economies of scale arise when:

Suppose an apple orchardist increases the number of fruit pickers hired for a season. The number of apple trees remains the same. As a result the orchardist's:

Lettuce Eat, a vegetarian cafe, exhibits diminishing returns to labour. If the cost of each meal is constant and labour is the only other input, then the total cost-curve will:

Bob Edwards owns Bob's Bagels. He hires an economist who assesses the shape of the bagel shop's average total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bob's economist explains that the ATC curve is U-shaped for two reasons, the first being the existence of diminishing marginal product, which causes it to rise. What would the second reason be? Assume that the marginal cost curve is linear.

An economist measures profit as:

Implicit costs that do not require a money outlay are typically ignored by economists.

Cost of capital can also be seen as implicit costs.

Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above the long-run curve.

Costs are a key determinate of a firm's production and pricing decisions.

Suppose a firm increases output by one unit. Which of the following statements is true?

The fact that many decisions are fixed in the short run, but variable in the long run has an impact on the firm's cost curves.

Suppose that as a firm expands and notices that its long-run average total costs are declining. The most likely explanation for this is economies of scale.

Table 13-3 Consider the following firm which makes high-performance racing bicycles. All costs are given in dollars. Output is shown on a monthly basis. The firm's fixed costs include a rent of $800 and a lease cost of $400 per month. -Refer to Table 13-3. At what level of output will average variable cost equal average total cost?

Average total cost reveals how much total cost will change as the firm alters its level of production.