# Chapter 7 Production Costs

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1 Chapter 7 Production s MULTIPLE CHOICE Exhibit 1 Production of pizza data Workers Pizzas Exhibit 1 shows the change in the production of pizzas as more workers are hired. The marginal product of the second employee equals: a. 4. b. 1. c. 14. d. 6. answer e. 15. Exhibit 2 schedule for pizza production Pizzas Labor Energy Materials \$ 1 \$ \$ Exhibit 2 shows the labor, energy, and materials cost of making various quantities of pizzas. The table shows that the labor cost of making pizzas will: a. increase at a decreasing rate. b. decrease at a decreasing rate. c. decrease at an increasing rate. d. increase at an increasing rate. answer e. increase at a constant rate.

2 Exhibit 3 A marginal product curve 2 15 B Marginal product 1 A 5 C MP Quantity of workers (per day) As shown in Exhibit 3, the law of diminishing returns applies where there are: a. more than 5 workers per day. answer b. more than 4 workers per day. c. more than 3 workers per day. d. between and 5 workers per day. Exhibit 4 A marginal product curve 15 Marginal product (units per day) MP Quantity of labor (number of workers per day) As shown in Exhibit 4, the law of diminishing returns applies in the range of: a. over 1 workers per day at point C. b. over 5 workers per day at point B. answer c. over 2 workers per day at point A. d. between and 5 workers per day at point B.

3 Exhibit 5 Workers and output data Laborers Product In Exhibit 5, diminishing returns set in when the worker is hired. a. first b. second c. third answer d. fourth e. fifth Exhibit 6 cost curves TC cost (dollars) 8, 5, 1, 3, 6, Quantity In Exhibit 6, the total fixed cost is: a.. b. 1,. answer c. 3,. d. 5,. e. 6,.

4 Exhibit 7 schedule for a firm Quantity Marginal \$ \$9 3 3, In Exhibit 7, by filling in the blanks it can be determined that the fixed costs are a.. b. 2. answer c. 9. d. 1,. e. 3,. Exhibit 8 s schedules for producing pizza Pizzas Fixed Variable Marginal \$ \$ \$ \$ By filling in the blanks in Exhibit 8, the total cost of producing zero pizzas is shown to be equal to: a. zero. b. \$1. answer c. \$5. d. \$15. e. \$95. Exhibit 9 schedule for firm X Output Quantity Fixed \$1 \$ Variable

5 As shown in Exhibit 9, the marginal cost of producing the third unit is: a. \$5. b. \$16. c. \$24. answer d. \$23. Exhibit 1 Short-run cost schedule for book publisher's hourly production Output cases of books Variable \$ \$ In Exhibit 1, the publisher's fixed cost is equal to: a. \$5. b. \$1. c. \$2. answer d. \$3. Exhibit 11 Short-run cost curves schedule for pizzeria's hourly production Product pizzas Variable \$ \$ In Exhibit 11, the pizzeria's fixed cost is equal to: a. \$2. answer b. \$3. c. \$5. d. \$7.

6 Exhibit 12 schedule for producing pizza Pizzas Fixed Variable \$ \$ \$ By filling in the blanks in Exhibit 12, the AFC of 4 pizzas is shown to be equal to: a. \$1. answer b. \$9.5. c. \$19.5. d. \$4. e. \$78. Exhibit 13 curves \$ I II III IV V \$ \$ \$ \$ Q Q Q Q Q In Exhibit 13, AFC is shown by the graph labeled: a. I. answer b. II. c. III. d. IV. e. V.

7 Exhibit 14 curves LRAC SRATC 1 SRATC 4 Average total cost (dollars) SRATC 2 SRATC 3 1, 2, 3, 4, Quantity In Exhibit 14, economies of scale only exist for output levels up to: a. 1,. b. 2,. answer c. 3,. d. 4,. e. greater than 4,. Exhibit 15 Long-run average cost s per unit (dollars) SRATC A SRATC B SRATC C LRAC 1 5 1, 1,5 2, Quantity of output (units per week) Given the short-run average total cost curves in Exhibit 15, what level of output per week minimizes average total cost? a. 5 units. b. 1, units. answer c. 1,5 units. d. 2, units.

8 Exhibit 16 Long-run average cost curves s per unit (dollar) FIRM A FIRM B FIRM C Quantity of output (thousands per week) In Exhibit 16, which firm's long-run average cost curve experiences constant returns to scale? a. Firm A. b. Firm B. answer c. Firm C. d. Firms A and C. Exhibit 17 Long-run average cost curve 1, SRATC A SRATC B SRATC C LRAC s per unit (dollars) Q 1 Q 2 Q 3 Q 4 Quantity of output (units per week) Given the short-run average total cost curves in Exhibit 17, what level of output per week minimizes average total cost? a. Q 1 units. b. Q 2 units. answer c. Q 3 units. d. Q 4 units.

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