Microeconomics ECO 122
Practice Test for Selected Topics
Chapter 9
The Economic Costs of Production

The following questions have been altered and are the property of William Walstad in connection with the text of McConnell and Brue, Microeconomics, 12th edition, McGraw Hill, 1993.

If you can answer the following questions, you are on your way to a successful exam.

  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. Economic profit for a company is defined as the total revenues of the firm minus the
    a. opportunity cost of all resources
    b. explicit costs of production
    c. implicit cost of production
    d. accounting profit
  3. 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
  4. 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
  5. The next four questions are based on the following table that provides information on the production of a product that requires one variable input.

    Input Total Output
    0 0
    1 5
    2 20
    3 32
    4 42
    5 50
    6 55
    7 58
    8 58
    9 56

  6. There are increasing marginal returns through the
    a. first unit of variable input
    b. second unit of variable input
    c. third unit of variable input
    d. fourth unit of variable input
  7. Diminishing returns set in with the addition of the
    a. first unit of input
    b. second unit of input
    c. third unit of input
    d. fourth unit of input
  8. There are negative marginal returns when the
    a. fifth unit of input is added
    b. sixth unit of input is added
    c. seventh unit of input is added
    d. ninth unit of input is added
  9. When the marginal product is zero, then total product is
    a. 50
    b. 55
    c. 56
    d. 58
  10. 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
  11. Which of the following 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
    d. a worker's wage of $15 per hour
  12. The next four questions refer to the following table.

    Output Total Cost
    0 $10
    1 20
    2 28
    3 38
    4 53
    5 73
    6 98

  13. The total variable cost of producing five units is
    a. $10
    b. $14.60
    c. $63
    d. $73
  14. The average total cost of producing three units of output is
    a. $9.33
    b. $10
    c. $12.67
    d. $38
  15. The average fixed cost for producing three units of output is
    a. $3.33
    b. $10
    c. $12.67
    d. $38
  16. The marginal cost of producing the sixth unit of output is
    a. $10
    b. $16.33
    c. $25
    d. $98
  17. Answer the next two questions on the basis of the following diagram, wherein it is assumed that variable inputs of labor are being added to a constant amount of property resources.

  18. The total output of this firm will cease to expand
    a. if a labor force in excess of Q1 is employed
    b. if a labor force in excess of Q2 is employed
    c. if a labor force in excess of Q3 is employed
    d. only if the marginal product curve becomes negative at all levels of output
  19. Marginal cost will be at a minimum for this firm when it is hiring
    a. Q3 workers
    b. Q2 workers
    c. Q1 workers
    d. more than Q3 workers
    e. less than Q1 workers
  20. In the following figure, curves 1, 2, 3, and 4 represent the
    a. ATC, MC, AFC, and AVC curves respectively
    b. AFC, MC, AVC, and ATC curves respectively
    c. MC, ATC, AVC, and AFC curves respectively
    d. ATC, AVC, AFC, and MC curves respectively

  21. When average variable cost is at a minimum
    a. marginal cost is at a maximum
    b. the average product of labor is at a minimum
    c. the marginal product of labor is at a minimum
    d. the average product of labor is at a maximum
  22. In the short-run average variable costs of production for a firm are rising, then this indicated that
    a. average total costs are at a maximum
    b. average fixed costs are constant
    c. marginal costs are above average variable costs
    d. average variable costs are below average fixed costs
  23. Economies of scale are shown by a(an)
    a. increasing marginal cost curve
    b. difference between total revenue and total cost
    c. increasing segment of the average variable cost curve
    d. decreasing segment of the long-run average cost curve
  24. 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 that average total cost
  25. In the graph below, minimum efficient scale occurs at
    a. Q1
    b. Q2
    c. Q3
    d. Q4

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