MC_Chap_6.rtf

16 Pages
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Department
Economics
Course Code
ECON 1900
Professor
Nancy Carson

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Practice multiple choice for chapter 6, Producer theory 1. The advantage of sole proprietorship over partnership is that: A) it is easier to finance a business where there is only one owner. B) a greater specialization in the management level is possible. C) there is a limited liability in the sole proprietorship form of business while there is unlimited liability in case of partnership. D) the sole proprietor has substantial freedom of action. 2. The principal-agent problem arises because: A) the agent wants to maximize the company's profit and stock prices while the owners want power and prestige. B) the owners want to maximize company's profit and stock prices while the agent wants power and prestige. C) the owners want expensive office building while the agent wants to maximize the Company's profit. D) The stock holders have unlimited liability in case of a loss while the agent does not. 3. Costs to an economist: A) consist only of explicit costs. B) may or may not involve monetary outlays. C) never reflect monetary outlays. D) always reflect monetary outlays. 4. Suppose that you could prepare your own tax return in 15 hours, or you could hire a tax specialist to prepare it for you in 2 hours. You value your time at $11.00 an hour. The tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is: A) $40. B) $55. C) $110. D) $165. 5. To the economist total cost includes: A) explicit and implicit costs, including a normal profit. B) neither implicit nor explicit costs. C) implicit, but not explicit, costs. D) explicit, but not implicit, costs. 6. Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were: A) $100,000 and its economic profits were zero. B) $200,000 and its economic profits were zero. C) $100,000 and its economic profits were $100,000. D) zero and its economic loss was $200,000. 7. To economists the main difference between "the short run" and "the long run" is that: A) the law of diminishing returns applies in the long run, but not in the short run. B) in the long run all factors of production are variable, while in the short run at least one factor of production is fixed. C) fixed costs are more important to decision making in the long run than they are in the short run. D) in the short run all factors of production are fixed, while in the long run all factors of production are variable. 8. Marginal product is: A) the increase in total output attributable to the employment of one more worker. B) the increase in total revenue attributable to the employment of one more worker. C) the increase in total cost attributable to the employment of one more worker. D) total product divided by the number of workers employed. Use the following to answer questions 9-12: Assume that the only variable factor of production used to produce output is labour. Amount of Total Product Labour 1 6 2 16 3 24 4 30 5 34 6 36 Page 3 9. Refer to the table above. The marginal product of the fourth unit of labour is: A) 4 units of output. B) 6 units of output. C) 8 units of output. D) 30 units of output. 10. Refer to the table above. When the firm hires four units of labour the average product of labour is: A) 5 units of output. B) 7.50 units of output. C) 8.50 units of output. D) 30 units of output. 11. Refer to the table above. There are increasing marginal returns through the: A) first unit of labour. B) second unit of labour. C) third unit of labour. D) fourth unit of labour. 12. Refer to the table above. Diminishing marginal returns set in with the addition of the: A) first unit of labour. B) second unit of labour. C) third unit of labour. D) fourth unit of labour. 13. The law of diminishing returns implies: A) the more hours you spend studying the less you will know. B) your understanding will be increased by decreasing your marginal study time. C) eventually, the more hours you spend studying per day, the less you will learn with each added hour. D) the more hours you spend studying per day, the more you will learn with each added hour. 14. In the short run, total product begins to decrease at the point where the: A) average product of labour is zero. B) marginal product of labour is zero. C) average product of labour is negative. D) average product of labour is declining. 15. In the diagram the range of diminishing marginal returns is: Marginal and Average Product MP AP 0 L L 1 L 2 3 Quantity of Labour A) 0L . 3 B) Starting at L a2d greater. C) Starting at L a1d ending atL . 2 D) Starting from L and greater. 1 Page 5 16. Total fixed cost (TFC): A) falls as the firm expands output from zero, but eventually rises. B) falls continuously as total output expands. C) varies directly with total output. D) does not change as total output increases or decreases. 17. Fixed costs are associated with: A) highly adjustable inputs such as labour. B) both the short run and the long run. C) the short run only. D) the long run only. 18. Which 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 19. Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are: A) $5,000. B) $500. C) $0.50. D) $50. 20. A firm's total variable cost will depend on: A) the prices of variable factors of production. B) the production techniques which are used. C) the level of output. D) all of the above. For questions 21 to 24: Output Total cost 0 $24 1 33 2 41 3 48 4 54 5 61 6 69 21.
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