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Production Cost Analysis in the Short Run

Question 1.
A firm's production function is the relationship between:

the inputs employed by the firm and the resulting costs of production.
the demand for a firm's output and the quantity it is able to produce with available resources.
the firm's production costs and the amount of revenue it receives from the sale of its output.
the factors of production and the resulting outputs of the production process.

Question 2
Consider the production function for bottled water. All of the following would be considered variable inputs except:

the electricity used to power the machine used to fill the bottles.
the machine used to fill each bottle.
the plastic bottles.
the water the bottles are filled with.

Question 3
Which of the following is true in the short run, but not in the long run?

The firm is free to vary all of its inputs.
The firm's decisions are planning decisions.
The firm makes decisions by attempting to predict future demand and technological developments.
The firm is "stuck" with the existing amount of capital.

Question 4
Which of the following inputs is most likely to be "fixed" in the short run?

Capital.
Labor.
Raw Material.
Energy.

Question 5
Assume a factory that currently employs 25 workers is considering adding another 5 workers to its payroll. Economists would classify this as:

a long-run decision.
a short-run decision.
neither a short-run nor a long-run decision.
both a short-run and a long-run decision.

Question 6
Total product is defined as the total quantity of output a firm can produce:

with a given quantity of fixed inputs.
when it is operating at capacity.
with a given quantity of fixed and variable inputs.
with a given quantity of variable inputs.

Question 7
The amount of output produced with an additional unit of variable input is referred to as:

marginal product.
total product.
average variable product.
average fixed product.

Question 8
The amount of output produced per unit of variable input is referred to as:

total product.
marginal product.
average variable product.
average fixed product.

Question 9
When total product reaches its maximum:

marginal product equals 0.
average product equals zero.
marginal product and average product are also at their maximum values.
marginal product equals average product.

Question 10
All else constant, an increase in productivity has the effect of causing:

both the marginal and average product of labor to increase.
the marginal product of labor to increase and the average product of labor to decrease.
the marginal product of labor to increase and no effect on the average product of labor.
the average product of labor to increase and no effect on the marginal product of labor.

Question 11
Which of the following is true of the typical relationship between marginal product (MP) and average product (AP)?

If MP is less than AP, then AP is increasing.
The AP curve intersects the MP curve at minimum MP.
The MP curve intersects the AP curve at maximum AP.
If MP is greater than AP, then AP is falling.

Question 12
Diminishing returns occur when:

the size of the plant is increased in the long run.
the quantity of the fixed input is increased and returns to the variable input fall.
units of a variable input are added to a fixed input and total product falls.
units of a variable input are added to a fixed input and marginal product falls.

Question 13
Which of the following statements is correct?

Between 1979 and 1998, Chrysler and Ford eliminated the productivity gap between all of their production facilities and their Japanese counterparts.
The increase in productivity Japanese manufacturers experienced in the early 1980s was the result primarily of long-run changes in management focusing on inventory systems and plant layout.
Workers employed by General Motors are approximately twice as productive as their Japanese counterparts.
Auto workers in the United States are less productive than their Japanese counterparts primarily due to the higher wages U.S. workers receive.

Question 14
Recent data on productivity gains in the United States strongly suggest that a significant share of those gains is attributable to:

improvements in information technology.
improvements in education and training.
increased demand for goods and services.
substantial reductions in labor costs.

Question 15
Which of the following is an example of an "implicit cost"?

The interest payment made by the firm for funds borrowed from a bank.
The payment of rent by the firm for the building in which it is housed.
The payment of wages by the firm.
Interest that could have been earned on retained earnings used by the firm to finance expansion.

Question 16
Which of the following is an example of an "explicit cost"?

The wages a proprietor could have made by working as an employee of a large firm.
The normal profit earned by a firm.
The payment of wages by the firm.
The income that could have been earned in alternative uses by the resources owned by the firm.

Question 17
Which of the following statements regarding historic costs is false?

Historic costs vary depending on the method of depreciation a firm uses.
Historic costs represent what the firm paid for an input when it was purchased.
Using historic costs can cause true economic profit to be under or over stated.
Historic costs may not be a good indicator of the current opportunity cost of a piece of capital.

Question 18
Suppose a sole proprietorship is earning total revenues of $100,000 and is incurring explicit costs of $75,000. If the owner could work for another company for $30,000 a year, we would conclude that:

the total economic costs are $100,000.
the individual is earning an economic profit of $25,000.
implicit costs are $25,000.
the firm is incurring an economic loss.

Question 19
In the short run, if a firm chooses to produce no output (i.e., shut down) its total costs of production will equal:

0.
its marginal fixed costs
its total variable costs
its total fixed costs.

Question 20
The upward-sloping part of the short-run marginal cost function is due to:

the change in total product rising as units of a variable input are added to a fixed input.
the upward-sloping part of the production function.
marginal product falling as units of a variable input are added to a fixed input.
marginal product rising as units of a variable input are added to a fixed input.

Solution Preview

Question 1
A firm's production function is the relationship between:
the factors of production and the resulting outputs of the production process.

Question 2
Consider the production function for bottled water. All of the following would be considered variable inputs except:
the machine used to fill each bottle.

Question 3
Which of the following is true in the short run, but not in the long run?
The firm is "stuck" with the existing amount of capital.

Question 4
Which of the following inputs is most likely to be "fixed" in the short run?
Capital.

Question 5
Assume a factory that currently employs 25 workers is considering adding another 5 workers to its payroll. Economists would classify this as:
a short-run decision.

Question 6
Total product is defined as the total quantity of ...

Solution Summary

This solution selects the correct option with suitable explanation/working if necessary.

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