82  Chapter 13/The Costs of Production

Chapter 13
The Costs of Production

MULTIPLE CHOICE

Figure 13-4
Cost
D
11
C
10
B
9

1
A
1 2 3 4 5 6 7 8 9 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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Cost curves | Average fixed cost
MSC: Interpretive
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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Cost curves | Average fixed cost
MSC: Interpretive
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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Cost curves | Average total cost
MSC: Interpretive

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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Cost curves | Average total cost
MSC: Interpretive
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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Cost curves | Marginal cost
MSC: Interpretive
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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Cost curves | Marginal cost
MSC: Interpretive
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: 3 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Cost curves | Marginal cost
MSC: Analytical
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: 3 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Cost curves | Average fixed cost
MSC: Analytical
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: 3 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Cost curves | Efficient scale
MSC: Analytical

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

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  84
ANS: A DIF: 2 REF: 13-1 NAT: Analytic
LOC: Costs of production TOP: Total revenue
MSC: Analytical
28. 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 owner’s time.
d. All of the above are correct.
ANS: C DIF: 1 REF: 13-1 NAT: Analytic
LOC: Costs of production TOP: Opportunity cost
MSC: Interpretive
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. (i) only
b. (ii) only
c. (ii) and (iii) only
d. (i) and (iii) only
ANS: A DIF: 2 REF: 13-1 NAT: Analytic
LOC: Costs of production TOP: Implicit costs
MSC: Interpretive
54. 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: 2 REF: 13-1 NAT: Analytic
LOC: Costs of production TOP: Accounting profit | Economic profit
MSC: Analytical

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: 1 REF: 13-2 NAT: Analytic
LOC: Costs of production TOP: Production function
MSC: Definitional
22. 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: 2 REF: 13-2 NAT: Analytic
LOC: Costs of production TOP: Marginal product
MSC: Definitional

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: 2 REF: 13-2 NAT: Analytic
LOC: Costs of production TOP: Marginal product
MSC: Definitional
31. 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: 2 REF: 13-2 NAT: Analytic
LOC: Costs of production TOP: Diminishing marginal product
MSC: Analytical
Table 13-4
Gallo Cork Factory
Output
Number Number (corks Marginal
Cost of Cost of Total
of of produced Product of
Workers Machines Cost
Workers Machines per hour) Labor
1 2 5
2 2 10
3 2 20
4 2 35
5 2 55
6 2 70
7 2 80

45. 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 Gallo’s total labor cost per day?
a. $72
b. $112
c. $576
d. $616
ANS: C DIF: 2 REF: 13-2 NAT: Analytic
LOC: Costs of production TOP: Variable costs
MSC: Applicative
46. 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 Gallo’s operates 8 hours per day?
a. $480
b. $576
c. $520
d. $616
ANS: C DIF: 2 REF: 13-2 NAT: Analytic
LOC: Costs of production TOP: Total cost 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: 2 REF: 13-2 NAT: Analytic
LOC: Costs of production TOP: Fixed costs MSC: Applicative
48. 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: 2 REF: 13-2 NAT: Analytic
LOC: Costs of production TOP: Variable costs
MSC: Applicative
49. 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: 2 REF: 13-2 NAT: Analytic
LOC: Costs of production TOP: Marginal product
MSC: Applicative
50. 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: 2 REF: 13-2 NAT: Analytic
LOC: Costs of production TOP: Marginal product
MSC: Applicative
51. 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: 2 REF: 13-2 NAT: Analytic
LOC: Costs of production TOP: Marginal product
MSC: Applicative

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.

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.
87  Chapter 13/The Costs of Production
ANS: C DIF: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Average total cost
MSC: Definitional
22. 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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Average total cost
MSC: Interpretive
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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Average total cost
MSC: Applicative
30. 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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Average total cost
MSC: Applicative
47. 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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Marginal cost
MSC: Analytical

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 Average Average Average
Modules Fixed Variable Total Fixed Variable Total Marginal
per Month) Costs Costs Cost Cost Cost Cost Cost
0 $1,080
1 $1,080 $ 400 $1,480 $400
2 $965 $450
3 $1,350 $2,430
4 $1,900 $475
5 $2,500 $216
6 $4,280 $700
7 $4,100
8 $5,400 $135
9 $7,300
10 $10,880 $980
73. 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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Marginal cost
MSC: Applicative
74. 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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Average variable cost
MSC: Applicative
75. 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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Average fixed cost
MSC: Applicative
76. 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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Marginal cost
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.
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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Average fixed cost
MSC: Applicative
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: 2 REF: 13-3 NAT: Analytic
LOC: Costs of production TOP: Cost curves | Marginal cost
MSC: Analytical

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.