Production, Cost, and Supply Quiz

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1. Economic profits

(a) Exceed accounting profits because accountants are more conservative in their treatment of the cost of funds contributed to the business by its owner and the impact on the owner of bearing risk.
(b) Exceed accounting profits because accountants treat as costs the foregone uses of the owner's contributed funds and the owner's cost of risk bearing.
(c) Are identical to accounting profits when the two are properly measured.
(d) Are smaller than accounting profits because economists treat as costs the foregone uses of the owner's contributed funds and the owner's cost of risk bearing.

2. Which of the following diagrams shows a plausible set of cost functions for helicopter ejection seats?

(a)	(b)
(c)	(d)

3. A manufacturer of inflatable dart boards is producing 500 units per day. Its total variable cost is $9500 per day and its short-run average total cost is $33. Its average fixed cost is:

(a) $12.
(b) $13.
(c) $14.
(d) $15.

4. Lewinsky Monikers produces pseudonyms. When output equals 15, average total cost is $12. When output equals 16, average total cost is $13. The marginal cost of the sixteenth unit is:

(a) $28.
(b) $12.
(c) $13.
(d) $14.

5. To maximize profits, a manufacturer of motorcycle seatbelts should produce the output at which:

(a) TR = STC and the difference between MR and SMC is a large as possible.
(b) MR = SMC and the difference between TR and STC is a large as possible.
(c) SMC = AVC and the difference between P and SMC is a large as possible.
(d) SMC = SATC and the difference between P and SATC is a large as possible.

6. Which of the following diagrams shows a consistent pair of average and marginal product functions for solar-powered flashlights?

(a)	(b)
(c)	(d)

7. If the marginal product of bulldozers (MP_B) is greater than the the average product of bulldozers (AP_B), then:

(a) AP_B must be falling and MP_B may be rising or falling.
(b) MP_B must be falling and AP_B may be rising or falling.
(c) AP_B must be rising and MP_B may be rising or falling.
(d) MP_B must be rising and AP_B may be rising or falling.

8. Elihu sells clerihews in Baraboo, where he is required to buy an operating license for $500 per year. If the cost of a license is raised to $600,

(a) his marginal cost is increased but his average total cost is unaffected.
(b) his average total cost is increased but his marginal cost is unaffected.
(c) both his average total cost and his marginal cost are increased.
(d) neither his average total cost nor his marginal cost is affected.

9. Marginal cost eventually increases with output because:

(a) variable factors of production are subject to diminishing marginal returns.
(b) increasing output spreads overhead costs over a larger number of units.
(c) the price of variable inputs tends to increase when the firm purchases more of them.
(d) it requires more variable inputs to produce a larger level of output.

10. The table at right shows the productivity of various levels of labor input for Sisyphean Hauling, Inc. Which of the statements below is correct?

Labor input
1 2 3 4 5 6 7 8

Tons of rock moved
18 35 51 66 80 93 105 116

(a) When L = 2, AP_L = 35 and MP_L = 17.
(b) When L = 3, AP_L = 16 and MP_L = 51.
(c) When L = 5, AP_L = 14 and MP_L = 16.
(d) When L = 7, AP_L = 15 and MP_L = 12.

11. The table at right shows cost data for a typical producer of battery-powered sundials. If output must be produced in whole-number quantities, the profit-maximizing output when price is $25 is:

q

SMC

AVC

SATC

0

--

--

--

1

20

20

70

2

10

15

40

3

15

15

31.67

4

17

15.50

28

5

28

18

28

6

42

22

30.33

7

54

26.57

33.71

(a) 3.
(b) 4.
(c) 5.
(d) 6.

12. Consider again the cost data in Question 11. If the firm were to produce 6 units of output when the price were $50, its total profit would be:

(a) $300.
(b) $168.
(c) $118.
(d) $48.

13. The price/quantity combinations at which a perfectly competitive producer of wind-up chainsaws can sell its output are described by:

(a) the short-run marginal cost curve.
(b) the market demand curve.
(c) a horizontal line at the height of the market equilibrium price.
(d) the short-run average total cost curve.

14. The SATC, AVC, and SMC functions for fireproof cigars are illustrated at right, although they are not labeled. If the market price for fireproof cigars is P, then the profit-maximizing quantity for this firm to produce is:

(a) Q₁.
(b) Q₂.
(c) Q₃.
(d) Q₄.

15. Which of the following statements about the production function for waterproof teabags, illustrated at right, is correct?

(a) The average product of labor at L₀ is 2 and the marginal product of labor at L₀ is 3.
(b) The average product of labor at L₀ is ½ and the marginal product of labor at L₀ is 1/3.
(c) The average product of labor at L₀ is 3 and the marginal product of labor at L₀ is 2.
(d) The average product of labor at L₀ is 1/3 and the marginal product of labor at L₀ is ½.