West Virginia University

ASP 220

CH. 8

1)Which of the following is most likely to be an implicit cost of production?

1. 1. property taxes on a building owned by the firm
   2. transportation costs paid to a trucking supplier
   3. rental payments for a building utilized by the company and rented from another party
   4. interest income foregone on funds invested in the firm by the owners
2. Which of the following explains most clearly why business owners have a strong incentive to strive for operational efficiency?
   1. They recognize that operational efficiency promotes the public interest.
   2. As residual claimants, owners will receive a higher income from increased efficiency.
   3. The owners will be able to keep production costs low by providing free managerial services to the firm.
   4. The owners will be able to gain by paying employees below market wages, which will improve the overall efficiency of the economy.
3. The law of diminishing returns
   1. explains why marginal cost eventually increases as output expands.
   2. implies that average fixed cost will remain unchanged as output expands.
   3. is true for physical production activities but not for activities such as studying.
   4. applies to a capitalist economy but would be irrelevant if the means of production were owned by the state.
4. Which of the following represents a long-run adjustment?
   1. the hiring of four additional cashiers by a supermarket
   2. a cutback on purchases of coke and iron ore by a steel manufacturer
   3. construction of a new assembly-line plant by a car manufacturer
   4. the extra dose of fertilizer used by a farmer on his wheat crop
5. The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because
   1. larger firms always have lower per-unit costs than smaller firms.
   2. at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns.
   3. diminishing returns will be present when output is small, and high AFC will push per- unit cost to high levels when output is large.
   4. diseconomies of scale will be present at both small and large output rates.
6. When costs that vary with the level of output are divided by the output, you have calculated
   1. total changing cost.
   2. total fixed cost.
   3. average fixed cost.
   4. average variable cost.
7. A downward-sloping portion of a long-run average total cost curve is the result of
   1. economies of scale.
   2. diseconomies of scale.
   3. diminishing returns.
   4. the existence of fixed resources.