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WorksheetsEcon 2 Chapter 9 Quiz Businesses and Costs of Production
Total questions: 10
Worksheet time: 50mins
The following is cost and revenue information for Pasquale's Pizza Parlor.
Entrepreneur's potential earnings as a salaried worker = $44,000
Annual lease on building = $32,000
Payments to raw material suppliers = $54,000
Annual revenue from operations = $404,000
Payments to workers = $184,000
Utilities (electricity, water, disposal) costs = $16,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $64,000
Entrepreneur's forgone interest on personal funds used to finance the business = $9,000
Pasquale's implicit costs, including a normal profit, are:
a.) $117,000
b.) 35,000
c.)280,000
d.)385,000
Cash expenditures a firm makes to pay for resources are called:
a.) Implicit Costs
b.) Explicit Costs
c.) Normal Profit
d.) Opportunity costs
As The long run is characterized by:
A) the relevance of the law of diminishing returns
B) at least one fixed input.
C) insufficient time for firms to enter or leave the industry.
D) the ability of the firm to change its plant size.
Zero economic profits mean that the firm is earning:
A) revenues that just cover all of its actual expenses
B) accounting profits that are equal to its accounting costs
C) as much as what it would have earned in its best alternative business venture
D) revenues that are equal to its accounting profits
In the short run, output:
A.) is absolutely fixed
B.) can vary as the result of using a fixed amount of plant and equipment more or less
intensively.
C.) may be altered by varying the size of plant and equipment that now exist in the industry.
D.) can vary as the result of changing the size of existing plants and by new firms entering or
leaving the industry
The main difference between the short run and the long run is that:
A. firms earn zero profits in the long run
B. the long run always refers to a time period of one year or longer
C. in the long run, only one variable can be fixed
D. in the short run, one or more inputs is fixed
Which of the following best expresses the law of diminishing returns?
A) Because large-scale production allows the realization of economies of scale, the real
costs of production vary directly with the level of output.
B) Population growth automatically adjusts to that level at which the average product per
worker will be at a maximum.
C) As successive amounts of one resource (labor) are added to fixed amounts of other
resources (capital), beyond some point the resulting extra or marginal output will
decline.
D) Proportionate increases in the inputs of all resources will result in a less-than-
proportionate increase in total output.
8. Assume that in the short run a firm is producing 500 units of output, has average total costs
of $300, and has average variable costs of $220. The firm's total fixed costs are:
A) $0.16
B) $80
C) $6.25
D) $40,000
9. Coco's Curiosity Shop recently moved to a new store where the annual rent is lower. Other
things equal, how would this affect Coco's production costs?
A) Average variable cost, average total cost, and marginal cost would all fall
B) Average fixed cost and average total cost would fall
C) Average fixed cost and average variable cost would fall
D) Average fixed cost and marginal cost would fall
10. Suppose a firm is in a range of production where it is experiencing economies of scale.
Knowing this, we can predict that
A) the long-run average total-cost curve is upsloping
B) a 10 percent increase in all inputs will increase output by less than 10 percent
C) a 10 percent increase in all inputs will increase output by more than 10 percent
D) the firm is encountering problems of managerial bureaucracy because of its size
