82 Chapter 13/The Costs of Production

Chapter 13
The Costs of Production
MULTIPLE CHOICE
Figure 13-4
Cost

11

10

9
8
7
6
5
4
3
2
1

A
1

10

11

12 Quantity

139. Refer to Figure 13-4. Curve A represents which type of cost curve?
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
ANS: D
DIF:
LOC: Costs of production
MSC: Interpretive

REF:
TOP:

13-3
NAT: Analytic
Cost curves | Average fixed cost

140. Refer to Figure 13-4. Which of the curves is most likely to represent average fixed cost?
a. A
b. B
c. C
d. D
ANS: A
DIF:
LOC: Costs of production
MSC: Interpretive

REF:
TOP:

13-3
NAT: Analytic
Cost curves | Average fixed cost

141. Refer to Figure 13-4. Curve C represents which type of cost curve?
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
ANS: B
DIF:
LOC: Costs of production
MSC: Interpretive

REF:
TOP:

13-3
NAT: Analytic
Cost curves | Average total cost

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.

83 Chapter 13/The Costs of Production

142. Refer to Figure 13-4. Which curve is most likely to represent average total cost?
a. A
b. B
c. C
d. D
ANS: C
DIF:
LOC: Costs of production
MSC: Interpretive

REF:
TOP:

13-3
NAT: Analytic
Cost curves | Average total cost

143. Refer to Figure 13-4. Curve D represents which type of cost curve?
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
ANS: A
DIF:
LOC: Costs of production
MSC: Interpretive

REF:
TOP:

13-3
NAT: Analytic
Cost curves | Marginal cost

144. Refer to Figure 13-4. Which curve is most likely to represent marginal cost?
a. A
b. B
c. C
d. D
ANS: D
DIF:
LOC: Costs of production
MSC: Interpretive

REF:
TOP:

13-3
NAT: Analytic
Cost curves | Marginal cost

145. Refer to Figure 13-4. Curve D is increasing because of

a. diminishing marginal product.
b. increasing marginal product.
c. the fact that increasing marginal product follows decreasing marginal product.
d. the fact that decreasing marginal product follows increasing marginal product.
ANS: A
DIF:
LOC: Costs of production
MSC: Analytical

REF:
TOP:

13-3
NAT: Analytic
Cost curves | Marginal cost

146. Refer to Figure 13-4. Curve A is always declining because of

a. diminishing marginal product.
b. dividing fixed costs by higher and higher levels of output.
c. the fact that increasing marginal product follows decreasing marginal product.
d. the fact that decreasing marginal product follows increasing marginal product.
ANS: B
DIF:
LOC: Costs of production
MSC: Analytical

REF:
TOP:

13-3
NAT: Analytic
Cost curves | Average fixed cost

147. Refer to Figure 13-4. Curve D intersects curve C

a. where the firm maximizes profit.
b. at the minimum of average fixed cost.
c. at the efficient scale.
d. where fixed costs equal variable costs.
ANS: C
DIF:
LOC: Costs of production
MSC: Analytical
15.

REF:
TOP:

13-3
NAT: Analytic
Cost curves | Efficient scale

If Kelsey sells 300 glasses of lemonade at $0.50 each, her total revenues are
a. $150.
b. $299.50.
c. $300.
d. $600.

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or distributed without the prior consent of the publisher.

Chapter 13/The Costs of Production 84

ANS: A
DIF:
LOC: Costs of production
MSC: Analytical
28.

REF:
TOP:

13-1
Total revenue

NAT: Analytic

An example of an opportunity cost that is also an implicit cost is

a. a lease payment.
b. the cost of raw materials.
c. the value of the business owners time.
d. All of the above are correct.

ANS: C
DIF:
LOC: Costs of production
MSC: Interpretive

REF:
TOP:

13-1
NAT: Analytic
Opportunity cost

31. Which of the following would be an example of an implicit cost?

(i)
forgone investment opportunities
(ii)
wages of workers
(iii)
raw materials costs
a.
b.
c.
d.

(i) only
(ii) only
(ii) and (iii) only
(i) and (iii) only

ANS: A
DIF:
LOC: Costs of production
MSC: Interpretive
54.

REF:
TOP:

13-1
Implicit costs

NAT: Analytic

Suppose that for a particular business there are no implicit opportunity costs. Then
a. accounting profit will be greater than economic profit.
b. accounting profit will be the same as economic profit.
c. accounting profit will be less than economic profit.
d. the relationship between accounting profit and economic profit cannot be determined without more
information.

ANS: B
DIF:
LOC: Costs of production
MSC: Analytical

REF:
TOP:

13-1
NAT: Analytic
Accounting profit | Economic profit

Sec02 - The Costs of Production - Production and Cost

2.

A production function is a relationship between inputs and

a. quantity of output.
b. revenue.
c. costs.
d. profit.

ANS: A
DIF:
LOC: Costs of production
MSC: Definitional
22.

REF:
TOP:

13-2
NAT: Analytic
Production function

The marginal product of labor is equal to the

a. incremental cost associated with a one unit increase in labor.
b. incremental profit associated with a one unit increase in labor.
c. increase in labor necessary to generate a one unit increase in output.
d. increase in output obtained from a one unit increase in labor.

ANS: D
DIF:
LOC: Costs of production
MSC: Definitional

REF:
TOP:

13-2
NAT: Analytic
Marginal product

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.

85 Chapter 13/The Costs of Production

23.

The marginal product of labor can be defined as

a. change in profit/change in labor.
b. change in output/change in labor.
c. change in labor/change in output.
d. change in labor/change in total cost.

ANS: B
DIF:
LOC: Costs of production
MSC: Definitional
31.

REF:
TOP:

13-2
NAT: Analytic
Marginal product

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to
produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent
with the property of diminishing marginal product?
a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
b. The farmer is able to produce 5,800 bushels of wheat when he hires 4 workers.
c. The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers.
d. Any of the above could be correct.

ANS: A
DIF:
LOC: Costs of production
MSC: Analytical

REF:
TOP:

13-2
NAT: Analytic
Diminishing marginal product

Table 13-4
Gallo Cork Factory
Number
of
Workers
1
2
3
4
5
6
7
45.

Number
of
Machines
2
2
2
2
2
2
2

Marginal
Product of
Labor

Cost of
Workers

Cost of
Machines

Total
Cost

Refer to Table 13-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20
per day regardless of the number of corks produced. If Gallo's produces at a rate of 70 corks per hour and
operates 8 hours per day, what is Gallos total labor cost per day?
a. $72
b. $112
c. $576
d. $616

ANS: C
DIF:
LOC: Costs of production
MSC: Applicative
46.

Output
(corks
produced
per hour)
5
10
20
35
55
70
80

REF:
TOP:

13-2
Variable costs

NAT: Analytic

Refer to Table 13-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20
per day regardless of the number of corks produced. What is the total daily cost of producing at a rate of 55
units per hour if Gallos operates 8 hours per day?
a. $480
b. $576
c. $520
d. $616

ANS: C
DIF:
LOC: Costs of production

REF:
TOP:

13-2
Total cost

NAT: Analytic
MSC: Applicative

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.

Chapter 13/The Costs of Production 86

47.

Refer to Table 13-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20
per day regardless of the number of corks produced. Assume the number of machines does not change. If
Gallo's produces at a rate of 78 corks per hour, what is the total machine cost per day?
a. $20
b. $40
c. $240
d. We are unable to determine total machine costs from the information given.

ANS: B
DIF:
LOC: Costs of production
48.

NAT: Analytic
MSC: Applicative

REF:
TOP:

13-2
Variable costs

NAT: Analytic

REF:
TOP:

13-2
NAT: Analytic
Marginal product

Refer to Table 13-4. Assume Gallo's currently employs 2 workers. What is the marginal product of labor
when Gallo's adds a 3rd worker?
a. 5 corks per hour
b. 10 corks per hour
c. 20 corks per hour
d. 25 corks per hour

ANS: B
DIF:
LOC: Costs of production
MSC: Applicative
51.

13-2
Fixed costs

Refer to Table 13-4. Assume Gallo's currently employs 5 workers. What is the marginal product of labor
when Gallo's adds a 6th worker?
a. 5 corks per hour
b. 15 corks per hour
c. 25 corks per hour
d. 70 corks per hour

ANS: B
DIF:
LOC: Costs of production
MSC: Applicative
50.

REF:
TOP:

Refer to Table 13-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20
per day regardless of the number of corks produced. If Gallo's produces at a rate of 35 corks per hour, what is
the total labor cost per hour?
a. $40
b. $48
c. $384
d. $424

ANS: B
DIF:
LOC: Costs of production
MSC: Applicative
49.

REF:
TOP:

13-2
NAT: Analytic
Marginal product

Refer to Table 13-4. Gallo's cork factory experiences diminishing marginal product of labor with the addition
of which worker?
a. the third worker
b. the fourth worker
c. the fifth worker
d. the sixth worker

ANS: D
DIF:
LOC: Costs of production
MSC: Applicative

REF:
TOP:

13-2
NAT: Analytic
Marginal product

Sec03 - The Costs of Production - The Various Measures of Cost

MULTIPLE CHOICE
20.

Average total cost equals

a. change in total costs divided by quantity produced.
b. change in total costs divided by change in quantity produced.
c. (fixed costs + variable costs) divided by quantity produced.
d. (fixed costs + variable costs) divided by change in quantity produced.

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or distributed without the prior consent of the publisher.

87 Chapter 13/The Costs of Production

ANS: C
DIF:
LOC: Costs of production
MSC: Definitional
22.

REF:
TOP:

13-3
NAT: Analytic
Average total cost

Which of the following expressions is correct?

a. marginal cost = (change in quantity of output)/(change in total cost)
b. average total cost = (total cost)/(quantity of output)
c. total cost = variable cost + marginal cost
d. average variable cost = (quantity of output)/(total variable cost)

ANS: B
DIF:
LOC: Costs of production
MSC: Interpretive

REF:
TOP:

13-3
NAT: Analytic
Average total cost

10,000 tents. At that level of output, the firm's average total costs equal
a. $80
b. $90
c. $100
d. $110
ANS: D
DIF:
LOC: Costs of production
MSC: Applicative
30.

REF:
TOP:

13-3
NAT: Analytic
Average total cost

The Wacky Widget company has total fixed costs of $100,000 per year. The firm's average variable cost is $5
for 10,000 widgets. At that level of output, the firm's average total costs equal
a. $10
b. $15
c. $100
d. $150

ANS: B
DIF:
LOC: Costs of production
MSC: Applicative
47.

REF:
TOP:

13-3
NAT: Analytic
Average total cost

A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its
total costs are $3,500. When it produces 101 units of output, its total costs are $3,750. What is the marginal
cost of producing the 101st unit of output?
a. $250
b. $275
c. $340.91
d. $350

ANS: A
DIF:
LOC: Costs of production
MSC: Analytical

REF:
TOP:

13-3
Marginal cost

NAT: Analytic

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.

Chapter 13/The Costs of Production 88

Table 13-9
Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in
public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month
and has leased computer equipment that costs $480 a month.
Output
(Instructional
Modules
per Month)

0
1
2
3
4
5
6
7
8
9
10
73.

Variable
Costs

Total
Cost

$1,080
$1,080

$ 400

$1,480

Marginal
Cost

$965

$400
$450

$2,430
$475
$216
$4,280

$4,100
$5,400
$7,300

$700
$135

$10,880

$980

REF:
TOP:

13-3
Marginal cost

NAT: Analytic

REF:
TOP:

13-3
NAT: Analytic
Average variable cost

Refer to Table 13-9. What is the average fixed cost for the month if 9 instructional modules are produced?
a. $108.00
b. $120.00
c. $150.00
d. $811.11

ANS: B
DIF:
LOC: Costs of production
MSC: Applicative
76.

Average
Total
Cost

Refer to Table 13-9. What is the average variable cost for the month if 6 instructional modules are produced?
a. $180.00
b. $533.33
c. $700.00
d. $713.33

ANS: B
DIF:
LOC: Costs of production
MSC: Applicative
75.

$1,350
$1,900
$2,500

Average
Variable
Cost

Refer to Table 13-9. What is the marginal cost of creating the tenth instructional module in a given month?
a. $900
b. $1,250
c. $2,500
d. $3,060

ANS: C
DIF:
LOC: Costs of production
MSC: Applicative
74.

Average
Fixed
Cost

Fixed
Costs

REF:
TOP:

13-3
NAT: Analytic
Average fixed cost

Refer to Table 13-9. How many instructional modules are produced when marginal cost is $1,300?
a. 4
b. 5
c. 7
d. 8

ANS: D
DIF:
LOC: Costs of production
MSC: Applicative

REF:
TOP:

13-3
Marginal cost

NAT: Analytic

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.

89 Chapter 13/The Costs of Production

77.

Refer to Table 13-9. One month, Teacher's Helper produced 18 instructional modules. What was the average
fixed cost for that month?
a. $60
b. $108
c. $811
d. It can't be determined from the information given.

ANS: A
DIF:
LOC: Costs of production
MSC: Applicative

REF:
TOP:

13-3
NAT: Analytic
Average fixed cost

138. Refer to Scenario 13-8. Marginal cost will be

a. rising at all points.
b. falling at all points.
c. U-shaped.
d. constant.
ANS: A
DIF:
LOC: Costs of production
MSC: Analytical

REF:
TOP:

13-3
NAT: Analytic
Cost curves | Marginal cost

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.