Question 8. 8. Economists consider which of the following costs to be irrelevant

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Question 8.

8. Economists consider which of the following costs to be irrelevant to a short-run business decision? (Points : 2)

      a) opportunity cost

     b) out-of-pocket cost

      c) historical cost

      d) replacement cost

Question 9.

9. Which of the following is most likely a fixed cost? (Points : 2

     a) Expenditures for raw material

       b)Wages for unskilled labor

     c) Fuel cost

      d) Property Taxes

Question 10.

10. The distinction between sunk and incremental costs is most helpful in answering which question? (Points :

      a) How many more people should be added to the production process?

       b)What is the correct price to charge?

       c)Should we begin to build a new factory?

       d)Should we continue developing a new software application that we began last year?

Question 11.

11. MC increases because (Points :

       a)labor is paid overtime wages when volume increases.

      b) in the short run, MC always increases.

      c) the law of diminishing returns takes effect.

      d) MC naturally increases as firms nears capacity

Question 12.

12. The marginal cost (MC) will intersect the average variable cost curve (AVC): (Points : 2)

       a)when the average variable cost (AVC) curve is rising

      b) where average variable cost curve (AVC) equals price.

     c) at the minimum point of the average variable cost (AVC) curve

       d)the two will never intersect

Question 13.

13. Economies of Scale are created by greater efficiency of capital and by: (Points : 2)

     a) longer chains of command in management

       b)better wages for labor

       c)smaller plant sizes

      d) increased specialization of labor

Question 14.

14. Many firms outsource part of their operation to foreign countries with a goal to (Points : 2)

     a) maximizing profit

      b) minimizing cost

      c) creating a global market

     d) all of the above

Question 15.

15. For the given cost functions, find MC and TFC,

TC = 20,000 +10Q

(Points : 2)

      a) 10 and 20,000/Q

       b)10 and 20,000

       c)10XQ and 20,000/Q

       d)10/Q and 20,000

Question 16.

16. Demand facing an individual, perfectly competitive firm is: (Points : 2)

       a)perfectly inelastic at the quantity the firm chooses to produce.

      b) perfectly inelastic at the quantity determined by market forces.

      c) perfectly elastic at the price the firm chooses to charge.

      d) perfectly elastic at the price determined by market forces.

Question 17.

17. In determining profit maximizing price and output, the distinction between a firm and the industry is most important in (Points : 2)

       a)monopolistic competition

       b)perfect competition

      c) oligopoly

      d) monopoly

Question 18.

18. Under perfect competition, the short run break-even point occurs at (Points : 2)

       MR=MC

       MR=AR

       AR=ATC

       AR>ATC

Question 19.

19. Under perfect competition, there is no super-normal profit in the long run because of the assumption of (Points : 2)

      a) homogeneous product

      b) only one price

     c) large number of buyers and sellers

       d)free entry and exit of firms

Question 20.

20. Under perfect competition, whether a firm will make profit, break-even or incur loss in the short run will depend on (Points : 2)

     a) how large the firm is

      b) how many firms are there in the industry

      c) the average total cost of the firm at the equilibrium point

      d) how elastic the demand for the product is

Question 8.

8. Economists consider which of the following costs to be irrelevant to a short-run business decision? (Points : 2)

      a) opportunity cost

     b) out-of-pocket cost

      c) historical cost

      d) replacement cost

Explanation / Answer

8.d) replacement cost
9. b)Wages for unskilled labor
10.a) How many more people should be added to the production process?
11. b) in the short run, MC always increases.
12. a)when the average variable cost (AVC) curve is rising
13.d) increased specialization of labor
14.a) maximizing profit
15.b)10 and 20,000
16.d) perfectly elastic at the price determined by market forces.
17.b)perfect competition
18. MR=MC
19. c) large number of buyers and sellers
20.b) how many firms are there in the industry

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