Chapter 7

Question 1

An objective of firms is to maximize​ profits.” This statement:
A. makes the theory of the firm to take into account the firm’s financial structure
B. is the only key assumption of the theory of the firm about firm behaviour.
C. applies only to corporations
D. is a normative statement and thus cannot be tested.

Answer 1

E. is an assumption used by economists to predict the behaviour of firms.

Question 2

The technological relationship between the inputs of factor services and output is called _______.

Answer 2

the production function

Question 3

Economic
profit=Revenues−​(Explicit
costs+ ____________.
implicit costs

Answer 3

implicit costs

Question 4

A firm earning positive accounting profits could have zero __________ if the​ owner’s capital is earning exactly its opportunity cost.

Answer 4

economic profit

Question 5

Identify whether it is an explicit or an implicit cost to a firm. Which costs would be subtracted from a​ firm’s total revenue to calculate economic​ profit, and which to calculate accounting​ profit?
b. depreciation of the​ firm’s physical assets:
This is an _______ cost. This ______ be subtracted from revenue to compute economic profit and _______ be subtracted from revenue to compute accounting profit.

Answer 5

explicit, would, would

Question 6

Identify whether it is an explicit or an implicit cost to a firm. Which costs would be subtracted from a​ firm’s total revenue to calculate economic​ profit, and which to calculate accounting​ profit?
c. the​ risk-free 2% return the​ firm’s owners could receive on their financial capital instead of investing it in the firm:
This is an ________ cost. This cost _____ be subtracted from revenue to compute economic profit and ______ be subtracted from revenue to compute accounting profit.

Answer 6

implicit, would, would not

Question 7

Identify whether it is an explicit or an implicit cost to a firm. Which costs would be subtracted from a​ firm’s total revenue to calculate economic​ profit, and which to calculate accounting​ profit?
d. annual rental payments for a production facility:
This is an _______ cost. This _______ be subtracted from revenue to compute economic profit and ______ be subtracted from revenue to compute accounting profit.

Answer 7

explicit, would, would

Question 8

The short run is defined as the time period over which:
A. all the firm’s factors of production are implicit.
B. all the firm’s factors of production can be varied.
C. some of the firm’s factors of production are fixed.
D. all the firm’s factors of production are identified.

Answer 8

C. some of the firm’s factors of production are fixed.

Question 9

As more of a variable factor is used in combination with given quantities of fixed​ factors, the marginal product of the variable factor will eventually decrease. This hypothesis is known as the :

Answer 9

law of diminishing marginal returns

Question 10

The change in total output resulting from the use of one additional unit of the variable factor is called the:

Answer 10

marginal product

Question 11

If the average product and marginal product curves are plotted on a​ graph, the AP curve is rising as long as the MP curve lies _______ the AP curve. The AP curve is falling when the MP curve lies _____ the AP curve.

Answer 11

above, below

Question 12

Consider a firm whose only variable factor is labour. As the firm hires more​ labour, the point of diminishing marginal productivity sets in once the marginal product of labour reaches a:

Answer 12

maximum

Question 13

As more and more labour is applied to a fixed amount of physical​ capital, we can expect that the marginal product of labour will eventually _______. n the​ extreme, if total output decreases as additional labour is​ added, then the marginal product of labour has become __________.

Answer 13

fall, negative

Question 14

For given factor​ prices, when average product per worker is at a​ maximum, average variable cost is :

Answer 14

at minimum

Question 15

If marginal costs are above average​ costs, then producing one more unit of output will _______ the average cost.

Answer 15

increase

Question 16

Average variable cost curves are​ U-shaped because eventually diminishing average product of the variable factor implies eventually __________ average variable costs.

Answer 16

increasing

Question 17

Eventually diminishing marginal product of the variable factor implies eventually _________ marginal costs.

Answer 17

increasing

Question 18

The level of output that corresponds to a​ firm’s minimum​ short-run average total cost is called the _______ of the firm.

Answer 18

capacity

Question 19

Consider a firm whose only variable cost is labour. A wage increase will lead to a shift upward of which of the following​ curves?
A. Average Variable Cost
B. Marginal Cost
C. Average Fixed Cost
D. Average Total Cost
E. Marginal Product

Answer 19

A,B and D

Question 20

Suppose LeBron James​ (an NBA​ star) averages 28 points per game going into the last game of the​ season, in which he collects only 16 points. Use the concepts of marginal and average to describe the effect on this​ player’s stats.
​LeBron’s marginal score is ______. When​ LeBron’s average is recalculated after the last​ game, his average will have ______. His average score ___________ because his marginal score is _____ his average.

Answer 20

16, decreased, falls, below

Question 21

The output level at which diminishing marginal returns begins occurs where:
A. the average product curve begins to fall.
B. the total product curve is at a maximum.
C. the marginal product curve has a downward slope and intersects the average product curve.
D. marginal product is at its maximum.
E. the marginal product curve is below the average product curve for the first time.

Answer 21

D. marginal product is at its maximum.

Question 22

if the average product is 4 and the marginal product is 2 ​,the:
A. marginal product may rise or fall.
B. average product will fall.
C. marginal product will rise.
D. average product will rise.

Answer 22

average product will fall

Question 23

If the marginal product of a variable input is increasing​,
A. the average fixed cost is increasing.
B. the marginal cost is increasing.
C.the marginal cost is decreasing.
D. the average variable cost is increasing.
E. the average total cost is increasing.

Answer 23

C.the marginal cost is decreasing.

Question 24

f the average variable
cost is increasing in the short​ run, the
A. the total cost is decreasing.
B. the average total cost is decreasing.
C. the marginal cost is decreasing.
D. the total cost is at a maximum.
E. the marginal cost is more than the average variable cost

Answer 24

E. the marginal cost is more than the average variable cost.

Question 25

The average total cost curve and the average variable cost curve get
A. closer and closer as output​ increases, because the average variable cost curve is rising.
B. closer and closer as output​ increases, because the marginal cost curve is declining.
C. closer and closer as output​ increases, because the average fixed cost curve is declining.
D. farther and farther apart as output​ increases, because the average variable cost curve is rising.

Answer 25

C. closer and closer as output​ increases, because the average fixed cost curve is declining.

Question 26

If average total cost is equal to marginal​ cost,
A. average total cost is at a minimum.
B. total costs are at a minimum.
C. total fixed costs are at a minimum.
D. marginal cost is at a maximum.
E. average variable cost is at a maximum

Answer 26

A. average total cost is at a minimum.

Question 27

The average variable cost reaches a minimum at the output quantity that is
A. the same as the output quantity where the marginal cost is at a minimum.
B. less than the output quantity where the average total cost is at a minimum.
C. more than the output quantity where the average total cost is at a minimum.
D. the same as the output quantity where the average total cost is at a minimum.

Answer 27

B. less than the output quantity where the average total cost is at a minimum.

Question 28

If the marginal product is at a​ maximum, the
A. marginal cost is at a minimum.
B. average total cost is at a minimum.
C. average fixed cost is at a maximum.
D. average variable cost is at a maximum.
E. total fixed cost is at a maximum.

Answer 28

A. marginal cost is at a minimum.

Question 29

If the marginal product is equal to the average​ product, the
A. marginal cost is decreasing.
B. average total cost is equal to the average variable cost.
C. average total cost is decreasing.
D. average variable cost is at a minimum.
E. average fixed cost is at a minimum.

Answer 29

D. average variable cost is at a minimum.

Question 30

If the marginal product of labour is rising​, then the average product of labour
A. must be rising​; but the marginal cost must be falling.
B. can be​ rising, falling, or at its​ maximum; and the marginal cost can be​ rising, falling or at its minimum.
C. must be​ falling; but the marginal cost can be​ rising, falling, or at its minimum.
D. must be​ falling; but the marginal cost must be rising.
E. can be​ rising, falling, or at its​ maximum; but the marginal cost must be rising.

Answer 30

A. must be rising​; but the marginal cost must be falling.

Question 31

The marginal cost curve will shift up if
A. fixed costs increase.
B. technological innovation results in an improvement in labour productivity.
C. there is an increase in the price of a variable factor.
D. the firm hires more workers.

Answer 31

C. there is an increase in the price of a variable factor.