The Exploration Of Economics International Edition 6th Edition By Robert L. Sexton – Test Bank

Overview

Chapter 11
The Firm: Production and Costs

True/false

1. Economic profit always exceeds accounting profit.

ANS: F
PTS: 1 REF: p. 288
TOP: 11.1 Firms and Profits: Total Revenues Minus Total Costs | A Zero Economic Profit Is a Normal Profit

2. Ray Tucker has run his company, Tucker’s Towing and Wrecking, for two years and has made an accounting profit of $34,000 each year. As long as Tucker’s Towing continues to make accounting profits, it is rational to remain in the towing business.

ANS: F
PTS: 1 REF: p. 288
TOP: 11.1 Firms and Profits: Total Revenues Minus Total Costs | A Zero Economic Profit Is a Normal Profit

3. An economic profit of zero indicates a satisfactory situation for the firm.

ANS: T
PTS: 1 REF: p. 288
TOP: 11.1 Firms and Profits: Total Revenues Minus Total Costs | A Zero Economic Profit Is a Normal Profit

4. One would expect to observe a diminishing marginal product of labor when crowded office space reduces the productivity of new workers.

ANS: T
PTS: 1 REF: p. 291-292
TOP: 11.2 Production in the Short Run | Diminishing Marginal Product

5. A Texas oil woman would like to increase the oil produced from her oil fields. Since it takes over a year to drill new wells, she opts instead for increasing labor and other variable inputs to produce more oil from existing wells. She is making a short-run production decision.

ANS: T
PTS: 1 REF: p. 290-291
TOP: 11.2 Production in the Short Run | Production in the Short Run

6. The period of time that is too short for the firm to change the quantity of certain resources used in production, known as fixed inputs, is called the short run.

ANS: T
PTS: 1 REF: p. 290-291
TOP: 11.2 Production in the Short Run | The Short Run Versus the Long Run

7. Economists define the long run as any production time period lasting over one year.

ANS: F
PTS: 1 REF: p. 290
TOP: 11.2 Production in the Short Run | The Short Run Versus the Long Run

8. In the short run, all costs are variable.

ANS: F
PTS: 1 REF: p. 290
TOP: 11.2 Production in the Short Run | The Short Run Versus the Long Run

9. In the short run, some costs are fixed.

ANS: T
PTS: 1 REF: p. 290
TOP: 11.2 Production in the Short Run | The Short Run Versus the Long Run

10. In the long run, all costs are variable.

ANS: T
PTS: 1 REF: p. 290
TOP: 11.2 Production in the Short Run | The Short Run Versus the Long Run

11. The total fixed cost of operating a lumberyard equals $12,000 this year. The average fixed cost of the lumberyard will not be affected by the quantity of lumber that is sold.

ANS: F
PTS: 1 REF: p. 294
TOP: 11.3 Costs in the Short Run | Average Total Costs