### Homework 7 In Tutorial Library

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### TITLE: Homework 7

#### CLASS / COURSE: ECON 25100: Microeconomics

QUESTION DESCRIPTION:

Homework 7 (Chapter 7)

1. Cash expenditures a firm makes to pay for resources are called:

A. Implicit costs
B. Explicit costs
C. Normal profit
D. Opportunity costs

2. Which would be an implicit cost for a firm? The cost:

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. Harvey quit his job at State University where he earned \$45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be \$5,000 a year. To start the business, he cashed in \$100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at \$75 for each unit. Of the \$75 per unit, \$55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.

Refer to the above information. The economic profits of Harvey's firm in the first year were:

A. \$155,000
B. \$160,000
C. \$220,000
D. \$280,000

4. Economic profits are:

A. Always larger than accounting profits
B. The sum of accounting profits and implicit costs
C. Equal to the difference between total revenues and implicit costs
D. Equal to the difference between accounting profits and implicit costs

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 earns 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. In the short run, output:

A. Is absolutely fixed
B. Can vary as the result of using a fixed amount of plant and equipment more or less intensively
C. May be altered by varying the size of plant and equipment which now exist in the industry
D. Can vary as the result of changing the size of existing plants and by new firms entering or leaving the industry

7. According to the law of diminishing marginal returns:

A. Output will fall and then rise as additional units of input are employed
B. Employing additional inputs will diminish total output
C. The additional output generated by additional units of an input will diminish
D. The additional inputs necessary to produce an additional unit of output will 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. Refer to the above graph showing the marginal product (MPL) and the average product of labor (APL). At which quantity of labor employed does diminishing marginal returns set in?

A. A
B. B
C. C
D. D

10. Refer to the above graph showing the marginal product (MPL) and the average product of labor (APL). At which quantity of labor employed is total product maximized?

A. A
B. B
C. C
D. D

11. Refer to the above graph. It shows the total product (TP) curve. At which point is the marginal product zero?

A. Point a
B. Point b
C. Point c
D. Point d

12. Refer to the above table. The average variable cost of producing 1 unit of output is:

A. \$10
B. \$20
C. \$30
D. Unable to be determined from the information given

13. If you know that when a firm produces 10 units of output, total costs are \$1,030 and average fixed costs are \$10, then total variable costs are:

A. \$104
B. \$930
C. \$1,040
D. \$1,130

14. If average variable cost is \$74 and total fixed cost is \$100 at 5 units of output, then average total cost at this output level is:

A. \$91
B. \$94
C. \$97
D. \$100

15. At an output of 1,000 units per year, a firm's variable costs are \$5,000 and its average fixed costs are \$3. Its total costs per year are:

A. \$10,000
B. \$8,000
C. \$6,000
D. \$5,000

16. When marginal cost is increasing:

A. Total cost must be increasing
B. Average total cost must be increasing
C. Average total cost must be decreasing
D. Average fixed costs might be increasing or decreasing

17. As output increases, average fixed costs:

A. Increase
B. Decrease
C. Remain constant
D. First increase and then decrease

18. The fixed cost of the firm is \$500. The firm's total variable cost is indicated in the table.

Refer to the above table and information. The average total cost of the firm when 3 units of output are being produced is:

A. \$350
B. \$400
C. \$500
D. \$700

19. Refer to the cost data given above. How much is the firm's total fixed costs?

A. \$900
B. \$500
C. \$400
D. Cannot be determined from the given data

20. Assume a firm is operating at minimum average total cost in the short run. If there is a decrease in output it follows that:

A. Marginal cost increases
B. Average fixed cost increases
C. Average total costs decrease
D. Average variable cost increases

A. Point A
B. Point B
C. Point C
D. Point D

22. At an output of 20,000 units per year, a firm's variable costs are \$80,000 and its average fixed costs are \$3. The total costs per year for the firm are:

A. \$80,000
B. \$100,000
C. \$140,000
D. \$240,000

23. If marginal cost exceeds average total cost in the short run, then which is likely to be true?

A. Average total cost is increasing
B. Average variable cost is decreasing
C. Average total cost is less than average variable cost
D. Marginal cost is less than average variable cost

24. Round Things, Inc.'s production process exhibits economies of scale. Currently their long-run average cost is \$1/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be:

A. \$1/unit
B. Less than \$1/unit
C. Greater than \$2/unit
D. Greater than \$1/unit but less than \$2/unit

25. If long-run average total cost decreases as output increases, this is due to:

A. Declining average fixed costs
B. The law of diminishing returns
C. Economies of scale
D. Externalities

26. Plant sizes get larger as you move from ATC-1 to ATC-4.

Refer to the above table. In the long run the firm should use plant size ATC-3 for what level of output?

A. Less than 3000
B. 3000 to 3500
C. 4000 to 4500
D. 5000 to 5500

27. Refer to the above graphs. They show the long-run average total cost (LRATC) for a product. For which graph would a firm experience first economies and then diseconomies of scale over its range of output?

A. Graph A
B. Graph B
C. Graph C
D. Graph D

28. Refer to the above graphs. They show the long-run average total cost (LRATC) for a product. Which graph would most probably be applicable to a natural monopoly?

A. Graph A
B. Graph B
C. Graph C
D. Graph D

29. Diseconomies of scale occur mainly because:

A. Of the law of diminishing returns
B. Firms in an industry must be relatively large in order to use the most efficient production techniques
C. Of the inherent difficulties involved in managing and coordinating a large business enterprise
D. The short-run average total cost curve rises when marginal product is greater than average total cost

30. A natural monopoly is characterized by:

A. Collusion with other competitors to divide up the market
B. A decreasing average-cost curve extending beyond the market's size
C. A firm protected from competition by a government regulation
D. A firm having control over the entire supply of a basic input in the production process

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