Results Reporter

Out of 10 questions, you answered 2 correctly with a final grade of 20%

2 correct
(20%)
8 incorrect
(80%)
0
unanswere
d (0%)

Your Results:

The correct answer for each question is indicated by a .

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1
INCORRECT The WXY Corporation has fixed costs of $50. Its total variable costs (TVC) vary
with output as shown in the following table.

Refer to the table. The average total cost of 4 units of output is:

$27.50
A)

$40.00
B)

$52.50
C)

$210.00
D)

Feedback: The total cost of 4 units of output is $210 = $50 (fixed cost) +
$160 (total variable cost.) To find average total cost, divide this by the
number of units of output: $210 / 4 = $52.50 per unit.

2
INCORRECT Use the following graph to answer the next question:
 The diagram shows the short-run average total cost curves for five different
plant sizes for a firm. The firm experiences economies of scale over the range of
plant sizes:

1 through 2 only
A)

1 through 3 only
B)

1 through 5
C)

3 through 5 only
D)

Feedback: If a firm is experiencing economies of scale, its short-run average

total cost curves will be falling.

3 CORRECT
Explicit costs and implicit costs:

are alike in that both represent opportunity costs

A)

are alike in that both reflect an outlay of cash

B)

are alike in that both are deducted from revenue to find accounting profit
C)

differ in that only explicit costs are deducted from revenue to find economic
profit
D)

Feedback: Economic profit is equal to revenue minus the opportunity cost of

the firm's resources, where these costs may be either explicit or implicit.

4
INCORRECT Suppose that a business incurred implicit costs of $300,000 and explicit costs of
$1,300,000 over the past year. If the firm earned $1,400,000 in revenue, its:

accounting profits were $400,000 and its economic profits were $100,000
A)

accounting losses were $200,000 and its economic profits were $100,000
B)

accounting profits were $100,000 and its economic profits were zero
C)

accounting profits were $100,000 and its economic losses were $200,000
D)

Feedback: Accounting profit is revenue minus explicit costs. Economic profit

is revenue minus all costs, both explicit and implicit.

5
INCORRECT Which one of the following short-run cost curves would not be affected by an
increase in the wage paid to a firm's labor?

Average variable cost

A)

Average fixed cost

B)

Average total cost

C)

Marginal cost
D)

Feedback: Since labor is a variable resource in the short run, an increase in

the wage increases the firm's marginal cost and its average variable cost.
Average fixed cost, however, depends only on the cost of the firm's fixed
resources, so will not change. Average total cost must increase because of
the increase in average variable cost coupled with the unchanging average
fixed cost.

6
INCORRECT If marginal product is positive but falling:

marginal cost must also be falling

A)

average product must be falling

B)
 total product is increasing at a decreasing rate
C)

total product is falling

D)

Feedback: Marginal product is the increase in output attributable to the

employment of another worker. If this is positive, output (total product)
must be increasing. However, since marginal product is diminishing, output
is increasing at a decreasing rate. Average product may still be rising, as
long as the marginal product is still above the average.

7 CORRECT
The distinguishing feature of the short run is that:

at least one input is fixed

A)

output is fixed
B)

input prices are variable

C)

technology is variable
D)

Feedback: In the long run, all inputs are variable while the short run is
characterized by restrictions on one or more inputs.

8
INCORRECT The WXY Corporation has fixed costs of $30. Its total variable costs (TVC) vary
with output as shown in the following table.

Refer to the table. The marginal cost of the fourth unit of output is:

$30
A)

$40
B)
$50
 C)

$60
D)

Feedback: Marginal cost is the increase in cost associated with the next unit.
Both variable cost and total cost increase by $50 when output is expanded
from 3 to 4 units.

9
INCORRECT Use the following average total cost data to answer the next question. The
letters A, B, and C designate three successively larger plant sizes.

Refer to the data. In the long run, the firm should use plant size "A" for:

all possible levels of output

A)

100 to 200 units of output

B)

300 to 600 units of output

C)

600 or more units of output

D)

Feedback: For any given level of output, the firm should select the plant size
that minimizes the average cost of production. Plant A has the lowest costs
only for output levels of 100 and 200, after which plant B has lower costs
through 500 units of output.

10
INCORRECT Suppose a particular firm exhibits constant returns to scale as it increases its
output over any reasonable range. If it increases all its inputs by 10%, its:

total cost will increase by less than 10%

A)

average total cost will increase by 10%

B)
 output will increase by 10%
C)

long run average cost curve will shift to the right by 10%
D)

Feedback: Constant returns to scale occur when a proportional increase in all

inputs increases output by the same proportion, leaving average cost
unchanged.
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