The Cost of Production

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CHAPTER 22
The Costs of Production

TopicQuestion numbers
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1.Costs: explicit and implicit1-9
2.Profits10-23
3.Short run versus long run24-31
4.Law of diminishing returns32-55
5.Short-run costs56-157
6.Long-run costs158-193
Last Word194-196
True-False197-210
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Multiple Choice Questions

Costs: explicit and implicit

Type: D Topic: 1 E: 392 MI: 148
1.Economic cost can best be defined as:
A)any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers. B)any contractual obligation to labor or material suppliers. C)compensations that must be received by resource owners to insure their continued supply. D)all costs exclusive of payments to fixed factors of production. Answer: C

Type: A Topic: 1 E: 393 MI: 149
2.Which of the following constitutes an implicit cost to the Johnston Manufacturing Company? A)payments of wages to its office workers
B)rent paid for the use of equipment owned by the Schultz Machinery Company C)depreciation charges on company-owned equipment
D)economic profits resulting from current production
Answer: C

Type: A Topic: 1 E: 393 MI: 149
3.Which of the following is most likely to be an implicit cost for Company X? A)depreciation charges on company-owned equipment
B)rental payments on IBM equipment
C)payments for raw materials purchased from Company Y
D)transportation costs paid to a nearby trucking firm
Answer: A

Type: A Topic: 1 E: 393 MI: 149
4.Costs to an economist:
A)consist only of explicit costs. C)never reflect monetary outlays. B)may or may not involve monetary outlays. D)always reflect monetary outlays. Answer: B

Type: A Topic: 1 E: 393 MI: 149
5.What do wages paid to blue-collar workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common? A)None are either implicit or explicit costs. C)All are implicit costs. B)All are opportunity costs. D)All are explicit costs. Answer: B

Type: A Topic: 1 E: 393 MI: 149
6.To the economist total cost includes:
A)explicit and implicit costs, including a normal profit. B)neither implicit nor explicit costs.
C)implicit, but not explicit, costs.
D)explicit, but not implicit, costs.
Answer: A

Type: D Topic: 1 E: 393 MI: 149
7.Implicit and explicit costs are different in that:
A)explicit costs are relevant only in the short run.
B)implicit costs are relevant only in the short run.
C)the latter refer to nonexpenditure costs and the former to out-of-pocket costs. D)the former refer to nonexpenditure costs and the latter to out-of-pocket costs. Answer: D

Type: D Topic: 1 E: 393 MI: 149
8.Implicit costs are:
A)regarded as costs by accountants but not by economists. B)payments that a firm makes to other firms or individuals who supply resources to it. C)nonexpenditure costs.
D)costs that vary proportionately with output.
Answer: C

Type: D Topic: 1 E: 393 MI: 149
9.An explicit cost is:
A)omitted when accounting profits are calculated.
B)a money payment made for resources not owned by the firm itself. C)an implicit cost to the resource owner who receives that payment. D)always in excess of a resource's opportunity cost.

Answer: B

Profits

Type: A Topic: 2 E: 393 MI: 149
10.Accounting profits are typically:
A)greater than economic profits because the former do not take explicit costs into account. B)equal to economic profits because accounting costs include all...
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