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1 Page 1 of award: Which of the following is a factor of production for the Little Biscuit Bread Company? Flour. Bread. Productivity. Money. Factors of production are resources used to produce goods and services. Productivity is a measurement of how much output we get from an input such as labor. Learning Objective: What the production function represents. 2. award: Labor productivity will increase in response to Lower wages. An increase in the amount of physical capital per worker. Higher resource costs. An increase in diminishing returns. The productivity of any factor of production depends on the amount of other resources available to it. For example, a snow removal worker will be more productive with a show shovel than without. Learning Objective: What the production function represents. 3. award: When a firm produces at a technically efficient output level, it is Producing the output at the minimum MC curve. Using the fewest resources to produce a good or service. Producing the output where the AVC curve is at a minimum. Producing the best combination of goods and services. Technical efficiency is getting the most output attainable from any given level of factor inputs. In other words, no resources are being wasted. Learning Objective: What the production function represents.

2 Page 2 of award: The short-run production function shows how output changes when The quantity of labor changes. The quantity of land changes. Technology changes. The fixed inputs change. In the short run some inputs (e.g., land and capital) are fixed in quantity. Output then depends on how much of a variable input (e.g., labor) is used. Learning Objective: What the production function represents. 5. award: Which of the following statements is not true regarding the production function and the production possibilities curve? Both the production function and the production possibilities curve maximize the amount of output attainable. The production function describes the capacity of a single firm, whereas the production function summarizes the output capacity of the entire economy. A production function tells us the maximum amount of output attainable from the use of all resources. The production possibilities curve expresses the ability to produce various combinations of goods given the use of all resources. A production function tells us the maximum amount of output attainable from alternative combinations of factor inputs for a single firm. Difficulty: 3 Hard Learning Objective: What the production function represents. 6. award: The change in total output associated with one additional unit of input is the Opportunity cost of the output. Average productivity. Marginal physical product. Marginal cost. The marginal physical product (MPP) is the change in total output associated with one additional unit of input. Difficulty: 1 Easy Learning Objective: Why the law of diminishing returns applies to production processes.

3 Page 3 of award: Which of the following is the slope of the production function with respect to an input? The marginal physical product of the input. The average product of the input. The unit cost of the input. The input price. The slope of the production function shows how output changes as we employ more workers in fixed-resource factory. Learning Objective: Why the law of diminishing returns applies to production processes. 8. award: As an In and Out Burger restaurant increases the number of employees for a specific restaurant, Total production of hamburgers will fall. Costs of production will fall. Efficiency will suffer as the restaurant becomes too crowded with employees. The production function will increase. In the short run, when one input is fixed (here it is the size of the restaurant) and a variable input increases (the number of workers), marginal production will fall. Restaurants such as In and Out Burger know the efficient amount of labor to use, given their size. Learning Objective: What the production function represents. 9. award: If the marginal physical product (MPP) is falling, then the Marginal cost of each unit of output is falling. Marginal cost of each unit of output is rising. Total cost of each unit of output is falling. Total cost of each unit of output is rising. At the point of diminishing marginal returns, the marginal physical product declines and the marginal cost increases.

4 Page 4 of award: The sum of fixed cost and variable cost at any rate of output is Total variable cost. Total cost. Average total cost. Average marginal cost. Total cost includes both fixed and variable costs. Difficulty: 1 Easy 11. award: Which of the following is most likely a fixed cost? Raw materials cost. Labor cost. Energy cost. Property taxes. Property tax is an example of a fixed cost. Once you purchase land, you're obligated to pay for it whether or not you use it. Labor, energy, and raw material costs will vary with output. 12. award: Which of the following is most likely a fixed cost? The material used to make jackets. The labor on an automotive assembly line. The rent for a factory. The electricity used to run packaging equipment. The factory lease is an example of a fixed cost. Once you lease a factory, you're obligated to pay for it whether or not you use it. Labor, energy, and raw material costs will vary with output.

5 Page 5 of award: Changes in short-run total costs result from changes in Variable costs. Fixed costs. Profit. The price elasticity of demand. Total costs rise as output increases because additional variable costs must be incurred. 14. award: Marginal cost is equal to The change in total costs divided by the change in quantity produced. The change in fixed costs as more units are produced. Total cost divided by quantity produced. Average total cost multiplied by quantity produced. Marginal cost is the change in total cost divided by the change in quantity produced. It is equivalent to the rate of change in total costs as output increases. It is also equal to the change in variable costs. Difficulty: 1 Easy 15. award: In the short run, which of the following is most likely a variable cost? Contractual lease payments. Labor and raw materials costs. Property taxes. Interest payments on borrowed funds. Variable costs are the costs of production that change when the rate of output is altered, such as labor or material costs.

6 Page 6 of award: Which of the following is always downward-sloping? The marginal cost curve when it is below the average total cost curve. The marginal cost curve when it is above the average total cost curve. The average total cost curve when it is below the marginal cost curve. The average total cost curve when it is above the marginal cost curve. If the marginal cost is less than the average total cost, the average total cost must be decreasing. For instance, if you have a 3.5 GPA (grade point average) and get only a 3.0 in your last (marginal) accounting class, your GPA will fall.

7 Page 7 of award: What is the total variable cost when output is 100 units in Figure 21.2? $9,600. $296. $200. $20,000. VC can be found by multiplying AVC by quantity at any output level. So at an output level of 100, VC is equal to $20,000 ($ ).

8 Page 8 of award: Economic cost Includes both implicit and explicit costs. Is the sum of actual monetary payments made for resources used to produce a good. Includes only implicit costs. Decreases as the level of production increases. Economic cost is the value of all resources used to produce a good or service; it includes both explicit and implicit costs. Difficulty: 1 Easy Learning Objective: How economic and accounting costs differ. 19. award: Accounting costs and economic costs differ because Economic costs include implicit costs and accounting costs do not. Accounting costs include implicit costs and economic costs do not. Economic costs include explicit costs and accounting costs do not. Accounting costs include explicit costs and economic costs do not. Accounting costs refer to the explicit dollar outlays made by a producer. Economic costs, in contrast, refer to the value of all costs, both explicit and implicit. Learning Objective: How economic and accounting costs differ. 20. award: In economics, the long run is considered to be The time period when all costs are variable. The time period when all costs are explicit. One year. More than two years. The long run is a period of time long enough for all inputs to be varied (no fixed costs). Difficulty: 1 Easy

9 Page 9 of award: Intel's chief executive says the company might expand the technology it is using in its planned $2.5 billion chipmanufacturing factory in China if the U.S. government allows it, underscoring the technology giant's ambitions in the world's fourth-biggest economy. The Intel executive is making a Long-run decision, and therefore an investment decision. Long-run decision, and therefore a production decision. Decision that would definitely increase costs. Decision that would cause ATC to increase. In the long run, a firm has no fixed costs and can select any desired plant size, which is an investment decision. Once a plant is built, leased, or purchased, a firm has fixed costs and focuses on short-run output or production decisions. Difficulty: 1 Easy 22. award: Economies of scale are reductions in average Total cost that result from declining average fixed costs. Fixed cost that result from reducing the firm's scale of operations. Total cost that result from using operations of larger size. Fixed cost resulting from improved technology and production efficiency. If the minimum average costs that come about through increases in the size (scale) of plants and equipment decrease, then economies of scale exist. Difficulty: 1 Easy Learning Objective: What (dis)economies of scale are. 23. award: When the size of a factory (and all its associated inputs) doubles and, as a result, output more than doubles, The law of diminishing returns must not apply in the smaller factory. Economies of scale must exist. The short-run ATC curve must be declining. Marginal costs must be declining. Economies of scale (or increasing returns to scale) exist when all inputs double but output more than doubles, which implies that the average costs have decreased. Learning Objective: What (dis)economies of scale are.

10 Page 10 of award: Economies of scale Exist in both the short run and the long run. Explain why average variable and average total costs decline in the short run. Explain why average total costs decline as output increases in the long run. Explain why average total costs increase as output increases in the long run. Economies of scale (or increasing returns to scale ) exist when all inputs double but output more than doubles, which implies that the average costs have decreased. Difficulty: 1 Easy Learning Objective: What (dis)economies of scale are. 25. award: Diseconomies of scale are reflected in The downward-sloping segment of the long-run average total cost curve. The downward-sloping segment of the long-run marginal cost curve. A downward shift of the long-run average total cost curve. The upward-sloping segment of the long-run average total cost curve. When increasing the size (scale) of a plant reduces operating efficiency, the average total cost curve will increase. Learning Objective: What (dis)economies of scale are. 26. award: Which of the following is a long-run concept? Diminishing marginal productivity. Diminishing returns. Diseconomies of scale. Fixed costs. Economies or diseconomies of scale occur when changes in the size (scale) of the plants and equipment change the minimum average costs. In the short run, plant and equipments resources are fixed. Therefore, economies and diseconomies of scale are long-run concepts. Learning Objective: What (dis)economies of scale are.

11 Page 11 of award: What is the marginal physical product of the second unit of labor in Table 21.1? The marginal physical product is the difference in total output associated with one additional unit of input, which is 20 (35-15). 28. award: At 30 units of output in Table 21.2, the total variable cost is $30. $40. $50. $80. To find the total variable cost at 30 units of output, you must subtract the fixed cost ($40) from the total cost ($80), which is $40.

12 Page 12 of award: Complete Table 21.3 below: What is the marginal physical product of the fourth unit of labor in Table 21.3? The marginal physical product is the difference in total output associated with one additional unit of input, which is 20 (116-96).

13 Page 13 of award: Complete Table 21.3 below: How many units of output can be produced when one unit of labor is employed in Table 21.3? Because the marginal physical product of the first worker is 30, the total units of output increased from 0 to 30 with the employment of one worker.

14 Page 14 of award: Complete Table 21.3 below: How many units of output can be produced when three units of labor are employed in Table 21.3? Because the marginal physical product of the third worker is 30, the total units of output increased from 66 to 96 with the addition of the third worker.

15 Page 15 of award: At 3 units of output in Table 21.4, average fixed costs are $ $ $5.33. $ AFC is equal to FC ($16) divided by quantity (3), which is $5.33.

16 Page 16 of award: Complete Table 21.5: Total fixed costs in Table 21.5 are equal to $0 because the problem involves the long run. $15. $30. $60. The total fixed cost is $15 at any unit of output because total cost is $15 at 0 units of output.

17 Page 17 of award: In Figure 21.4, a firm that produces over 800 units of output should choose a plant with which short-run average total cost function? ATC 1 only. ATC 2 only. ATC 3 only. Either ATC 2 or ATC 3. In the long run, the firm would choose the plant that yielded the lowest average cost for any desired rate of output.

18 Page 18 of award: Which of the following is least likely to increase productivity? Technological advances. Increased managerial capabilities. A higher wage rate. Improved labor skills. Advances in technological or managerial knowledge and human or physical capital increase our productive capability. 36. award: Unit labor cost is equal to the Wage rate. Wage rate divided by MPP. The change in labor cost divided by the change in output. Marginal cost. The wage rate divided by the marginal physical product is equal to the unit labor cost, which indicates the labor cost to produce one unit. Difficulty: 1 Easy 37. award: When the wage rate is $10 per hour and the MPP of a worker is 15 units per hour, the unit labor cost is $0.67 per unit. $10.00 per hour. $15.00 per unit. $ per hour. The wage rate divided by the marginal physical product is equal to the unit labor cost. When the wage rate is $10 per hour and the MPP is 15 units per hour, the unit labor cost is $0.67 (10/15).

19 Page 19 of award: Higher education levels and better management Cause MPP to slope downward. Shift the long-run ATC curve downward. Lead to greater diseconomies of scale. Shift the MC curve upward. Advances in technological or managerial knowledge and human or physical capital increase our productive capability and therefore cause the production function to shift upward and the production cost curves to shift downward in particular the long-run ATC curve. Difficulty: 3 Hard Learning Objective: What the production function represents. 39. award: The World View article titled "United States Gains Cost Advantage" says productivity advances have contributed to U.S. competitiveness in world markets. When improvements in productivity reduce costs, the production function shifts Upward and cost curves shift upward. Upward and cost curves shift downward. Downward and cost curves shift upward. Downward and cost curves shift downward. Advances in technological or managerial knowledge increase our productive capability. This is reflected in upward shifts of the production function (because we get more output from each unit of labor) and downward shifts of production cost curves (because each unit of output costs less to produce). 40. award: The In The News article "Ford Pumps $400 Million into Kansas City Plant" says that This investment by Ford is a long-run production decision, and the company plans to enjoy economies of scale. The $400 million investment is a short-run production decision. The $400 million investment will be a variable expense. The new plant will likely result in diseconomies of scale. The long run is a planning period when all inputs are variable. Because the plant is not built yet, Ford is in a longrun planning period. Ford can spread the fixed costs of the plant over many cars and thus will enjoy economies of scale.