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chapter13 cost and production
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9/12/24, 3:49 Doc - M/C withPM answers
82 Chapter 13/The Costs of Production
Chapter 13
The Costs of Production
TRUE/FALSE
1. The economic field of industrial organization examines how firms’ decisions about prices and
quantities depend on the market conditions they face.
Answer: T
2. Profit equals marginal revenue minus marginal
cost. Answer: F
3. Profit equals total revenue minus total
cost. Answer: T
4. The difference between economic profit and accounting profit is that economic profit is calculated based
on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only.
Answer: T
5. Accounting profit is greater than or equal to economic
profit. Answer: T
6. Economic profit is greater than or equal to accounting
profit. Answer: F
7. Although economists and accountants treat many costs differently, they both treat the cost of capital the
same. Answer: F
8. Accountants keep track of the money that flows into and out of firms.
Answer: T
9. When economists speak of a firm's costs, they are usually excluding the opportunity costs.
Answer: F
10. Economists and accountants both include forgone income as a cost to a small business
owner. Answer: F
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83 Chapter 13/The Costs of Production
11. Economists and accountants usually disagree on the inclusion of implicit costs into the cost analysis of a
firm. Answer: T
12. Implicit costs are costs that do not require an outlay of money by the firm.
Answer: T
13. Accountants often ignore implicit
costs. Answer: T
14. In the long run, a factory is usually considered a fixed input.
Answer: F
15. Diminishing marginal productivity implies decreasing total product.
Answer: F
16. Diminishing marginal product exists when the total cost curve becomes flatter as outputs increases.
Answer: F
17. Diminishing marginal product exists when the production function becomes flatter as inputs increase.
Answer: T
18. A second or third worker may have a higher marginal product than the first worker in certain circumstances.
Answer: T
19. The typical total-cost curve is U-shaped.
Answer: F
20. The average fixed cost curve is constant.
Answer: F
21. In the short run, if a firm produces nothing, total costs are
zero. Answer: F
22. If a firm produces nothing, it still incurs its fixed costs.
Answer: T
23. The shape of the total cost curve is unrelated to the shape of the production
function. Answer: F
24. The shape of the total cost curve is related to the shape of the production function.
Answer: T
25. If the marginal cost of producing the tenth unit of output is $3, and if the average total cost of producing
the tenth unit of output is $2, then at ten units of output, average total cost is rising.
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Chapter 13/The Costs of Production 84
Answer: T
26. If the marginal cost of producing the tenth unit of output is $2.50, and if the average total cost of producing
the tenth unit of output is $3, then at ten units of output, average total cost is rising.
Answer: F
27. If the marginal cost of producing the fifth unit of output is higher than the marginal cost of producing
the fourth unit of output, then at five units of output, average total cost must be rising.
Answer: F
28. Marginal costs are costs that do not vary with the quantity of output produced.
Answer: F
29. Several related measures of cost can be derived from a firm's total cost.
Answer: T
30. Variable costs usually change as the firm alters the quantity of output
produced. Answer: T
31. Variable costs equal fixed costs when nothing is produced.
Answer: F
32. The cost of producing an additional unit of a good is not the same as the average cost of the
good. Answer: T
33. Average variable cost is equal to total variable cost divided by quantity of output.
Answer: T
34. The average total cost curve is unaffected by diminishing marginal
product. Answer: F
35. The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves.
Answer: T
36. If the marginal cost curve is rising, then so is the average total cost curve.
Answer: F
37. The marginal cost curve intersects the average total cost curve at the minimum point of the average total
cost curve.
Answer: T
38. The marginal cost curve intersects the average total cost curve at the minimum point of the marginal
cost curve.
Answer: F
39. Assume Jack received all A's in his classes last semester. If Jack gets all B's in his classes this semester,
his GPA may or may not fall.
Answer: T
40. Average total cost and marginal cost express information that is already contained in a firm's total cost.
Answer: T
41. Average total cost reveals how much total cost will change as the firm alters its level of production.
Answer: F
42. The shape of the marginal cost curve tells a producer something about the marginal product of her workers.
Answer: T
43. When average total cost rises if a producer either increases or decreases production, then the firm is said to
be operating at efficient scale.
Answer: T
44. Fixed costs are those costs that remain fixed no matter how long the time horizon
is. Answer: F
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85 Chapter 13/The Costs of Production
45. Diseconomies of scale often arise because higher production levels allow specialization among
workers. Answer: F
46. Economies of scale often arise because higher production levels allow specialization among workers.
Answer: T
47. If long-run average total cost is rising, then the firm is experiencing economies of
scale. Answer: F
48. The fact that many inputs are fixed in the short run but variable in the long run has little impact on the firm's
cost curves.
Answer: F
49. In some cases, specialization allows larger factories to produce goods at a lower average cost than
smaller factories.
Answer: T
50. The use of specialization to achieve economies of scale is one reason modern societies are as prosperous
as they are.
Answer: T
51. As a firm moves along its long-run average cost curve, it is adjusting the size of its factory to the quantity
of production.
Answer: T
52. Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above
the long-run curve.
Answer: T
53. There is general agreement among economists that the long-run time period exceeds one year.
Answer: F
Table 13-1
Listed in the table are the long-run total costs for three different firms.
Quantity 1 2 3 4 5
Firm A 100 100 100 100 100
Firm B 100 200 300 400 500
Firm C 100 300 600 1,000 1,500
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