SAMPLE TEST - CHAPTER 21
1. Which of the following items is most likely to be an
implicit cost of production?
a. property taxes on a building owned by the firm
b. transportation costs paid to a trucking supplier
c. rental payments for a building utilized by the company and rented from another
d. interest income foregone on funds invested in the firm by the owners
2. An advantage of the corporate structure over proprietorship and partnership forms
of business organization is that
a. stockholders in the corporation have limited liability, whereas proprietors or
partners have unlimited liability.
b. ownership rights of a corporation may be transferred more easily.
c. large investment funds are more easily attracted by the corporation.
d. All of the above are correct.
3. The law of diminishing returns
a. is reflected in the eventually rising marginal cost curve for the firm in the
b. implies that average fixed costs will remain unchanged as output expands.
c. is true for physical production activities but not for activities such as
d. applies to a capitalist economy but would be irrelevant if the means of
production were owned by the state.
4. Which of the following represents a long-run adjustment?
a. the hiring of four additional cashiers by a supermarket
b. a cutback on purchases of coke and iron ore by a steel manufacturer
c. construction of a new assembly-line plant by an automobile manufacturer
d. the extra dose of fertilizer used by a farmer on his wheat crop
5. In the short run, the marginal cost curve crosses the average total cost curve at
a. a point just below the average fixed cost curve.
b. the minimum point on the average total cost curve.
c. the maximum point of the average variable cost curve.
d. All of the above are correct.
6. When costs that do not change with the level of output are divided by the output
level, you have calculated
a. total cost.
b. average total cost.
c. average fixed cost.
d. marginal cost.
7. If consumer demand for oranges suddenly fell, this would most likely reduce the
average total costs for growers of
a. bananas, if bananas were frequently consumed with oranges.
b. apples, which consumers often substitute for oranges.
c. grapefruit, because these farmers use the same land and labor pool as orange
d. wheat, because these farmers use land unsuitable for the growing of oranges.
8. Calculating the cost of owning and operating a used car for one year, a political
science major included the items listed in the table below:
Purchase price $5000
Gas and oil (20 cents per mile, 5000 miles) $1000
Depreciation (estimated decline in the value of the car) $1800
Interest income foregone on $5000 $500
License tag $80
Which of the following is the best appraisal of his calculations?
a. They are correct.
b. There is only one error, depreciation should not be included.
c. There is only one error, the purchase price should not be included.
d. There are two errors, neither the purchase price nor the interest income foregone
should be included.
9. What kind of costs are irrelevant when making decisions?
a. sunk costs
b. marginal costs
c. fixed costs
d. variable costs
10. Which of the following would shift a firm's short-run cost curves upward?
a. an advance in technology
b. an increase in employees' wages
c. a decrease in the demand for the firm's product
d. a reduction in excise taxes levied on the firm's product