Questions:
1 Total revenue minus total cost is equal to:
2 In the short run, the cost of __________ is variable, whereas the cost of __________ is fixed.
3 Which of the following is a that a firm must answer in the long run but not in the short run?
4 If all workers are able to specialize and become more productive as more labor is hired, the amount of total output produced:
5 It is important for a firm to know its minimum efficient scale of production because that is where:
6 The production function of a restaurant includes items such as labor (i.e., cooks, waiters, a manager), capital (i.e., ovens, counters, tables, chairs, and a building), and land. In the short run, the owner of the restaurant will optimize production by employing a variable amount of __________ given a fixed amount of __________.
7 Which is the best example of diseconomies of scale?
8 Refer to the accompanying graph to answer the questions that follow. If the firm depicted in the graph had to pay higher rent to its landlord, we would expect its __________ curve to shift __________.
9 Refer to the following graph to answer the questions that follow. The firm is experiencing diminishing marginal product beyond what level of output along the marginal cost curve?
10 Use the following graph to answer the questions that follow. If the firm expanded its scale of production and found that its average costs increased, which of the curves would reflect this situation?
11 Which is the best example of economies of scale?
12 Economists consider both explicit and implicit costs when measuring economic profit. The reason they consider implicit costs is that:
13 When firms grow larger, they sometimes add many additional layers of managers between the top executives and the entry¬level employees. Because these managers do not actually produce any output themselves, we expect more layers of management to lead to:
14 The change in total output divided by the change in input is known as:
15 If a firm's long¬run average total costs increase as it increases its scale of production, the firm is experiencing:
16 If the marginal product of labor for a firm decreases as more workers are hired, we know that:
17 In the accompanying table, diminishing marginal product begins after the:
18 If a firm hires another worker and her marginal product of labor is positive, we know that the firm's total output is:
19 Nathan owns a coffee¬roasting company. If he increases the size of his company and experiences constant returns to scale as a result, his long¬run average total cost curve should be:
20 In the accompanying table, diminishing marginal product begins after the:
Version 2
1 Lauren is the owner of a bakery that earns 0 (zero) economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her total implicit costs were:
2 Use the following scenario to answer the questions that follow. Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes. Steve's average total cost was __________ per bike.
3 It is important for a firm to know its minimum efficient scale of production because that is where:
4 Use the following graph to answer the questions that follow. Which of the curves depicts economies of scale?
5 In the accompanying table, diminishing marginal product begins after the:
6 Darrell owns a furniture store. If he decided to expand the size of his store in order to sell more furniture, how would he know if he is experiencing diseconomies of scale?
7 Ralph owns a small pizza restaurant, where he works full¬time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total accounting profit for the year was:
8 Steve owns a bike store. Last year, his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost remain the same, his long¬run average total cost curve should be:
9 Chief executive officers (CEOs) of major corporations are often paid mostly with stock options, as opposed to salaries and cash payments. These stock options often cannot be converted into stock and sold until years after they were issued. All this is ultimately intended to create incentives for the CEO to:
10 Refer to the following table. What is the total cost of producing five (5) units of the good?
11 In the accompanying table, diminishing marginal product begins after the:
12 When a firm hires another employee and, as a result, total output increases, this change in total output is also known as:
13 Which of the following is a that a firm must answer in the long run but not in the short run?
14 Ralph owns a small pizza restaurant, where he works full¬time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total implicit costs for the year were:
15 Steve owns a bike store. Last year his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost decrease to $950, his long¬run average total cost curve should be:
16 In the short run, the cost of __________ is variable, whereas the cost of __________ is fixed.
17 Which of the following is the best example of a variable cost in the short run?
18 Darrell owns a furniture store. If he increases the size of his furniture store and experiences diseconomies of scale as a result, his long¬run average total cost curve should be:
19 Nathan owns a coffee¬roasting company. If he increases the size of his company and experiences constant returns to scale as a result, his long¬run average total cost curve should be:
20 Madison owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Madison know if she is experiencing economies of scale from increasing the size of her boxing gym?