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Section 10 Practice Test

1. In central Florida, the demand for real estate has been increasing rapidly for years. This reality, in combination with occasional freezes that kill orange trees, has led many orange grove owners to sell their land to real estate developers. Because of the freezes and land demand, the ________ cost of capital is ________ in central Florida's orange groves.

|a. |explicit; decreasing |

|b. |implicit; increasing |

|c. |implicit; decreasing |

|d. |explicit; increasing |

|e. |total; decreasing |

2. George owns a gun range in Texas. He pays $32,000 per year in insurance, $408,000 in wages, $23,000 in supplies, and he forgoes $32,000 per year he could make as a police officer. His total revenue last year equaled $460,000. That means his economic ________ equaled ________.

|a. |profit; $3,000 |

|b. |losses; $3,000 |

|c. |losses; $35,000 |

|d. |profit; $35,000 |

|e. |losses; $25,000 |

3. Bessie wants to calculate the accounting and economic profits on her cattle farm in Nebraska. She pays $30,000 per year for the cost of raising cattle, $80,000 in wages, $20,000 in insurance, and she forgoes $30,000 per year that she could make as a teacher. If her total revenue equals $140,000, that means her accounting profit is ________ and her economic profit is ________.

|a. |$10,000; -$20,000 |

|b. |$30,000; -$30,000 |

|c. |-$10,000; -$10,000 |

|d. |$60,000; $30,000 |

|e. |$10,000; - $30,000 |

4. Economic profits are calculated by:

|a. |taking the difference between total revenue and the sum of explicit and implicit costs. |

|b. |taking the difference between total revenue and explicit costs only. |

|c. |taking the difference between the total revenue and implicit costs only. |

|d. |summing total revenue, explicit and implicit costs. |

|e. |summing the explicit and the implicit costs. |

5. Some highways have one lane, others have two, three, or more. If each lane costs $10 million per mile, an economist would assume that the total benefit of a three-lane highway must be:

|a. |less than $10 million per mile. |

|b. |$10 to $20 million per mile. |

|c. |$20 to $30 million per mile. |

|d. |$30 million or more per mile. |

|e. |$0, as the cost of building the highway is a sunk cost. |

|Number of Games |Total Benefit |

|0 |0 |

|1 |50 |

|2 |90 |

|3 |120 |

|4 |140 |

|5 |152 |

|6 |160 |

|7 |164 |

|8 |162 |

|Table 53-1: Marginal and Total Benefit |

6. (Table 53-1: Marginal and Total Benefit) Rodger is deciding how many football games he wants to attend this year. The total benefit that Rodger receives from football games is shown in the table. Rodger's marginal benefit from increasing the number of games that he attends from two to three is:

|a. |40. |

|b. |120. |

|c. |10. |

|d. |20. |

|e. |30. |

Figure 53-2: Marginal Benefit Curve

[pic]

7. (Figure 53-2: Marginal Benefit Curve) Using the marginal benefit curve in the figure provided, we can determine that the total benefit of mowing four lawns is approximately:

|a. |$20. |

|b. |$23. |

|c. |$80. |

|d. |$114. |

|e. |$65. |

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|Sigmund tutors five students for the introductory psychology class. The students differ in |

|their willingness to pay for a one-hour session. The second column of the table shows their |

|willingness to pay. Sigmund has estimated his costs of providing tutoring hours |

|(he has no sunk costs) and these costs appear in the last column. |

|Student |Students' |Hours of |Sigmund's |

| |Willingness to Pay |Tutoring |Cost |

|Peter |$25 |1 |$5 |

|Quincy |15 |2 |10 |

|Rosemary |5 |3 |15 |

|Sally |20 |4 |20 |

|Tomas |10 |5 |25 |

|Table 53-2: Tutoring |

8. (Table 53-2: Tutoring) Sigmund's optimal number of tutoring hours is:

|a. |5. |

|b. |4. |

|c. |3. |

|d. |2. |

|e. |1. |

|Quantity |Total |

|of Labor |Output |

|0 |0 |

|1 |12 |

|2 |22 |

|3 |30 |

|4 |36 |

|5 |40 |

|6 |43 |

|7 |44 |

|Table 54-1 : Labor and Output |

9. (Table 54-1: Labor and Output) Referring to the table, the average product when four workers are employed is:

|a. |4. |

|b. |36. |

|c. |10. |

|d. |6. |

|e. |9. |

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Scenario 54-1: Marginal Product of Labor

[pic]

|Quantity of Labor |Marginal Product of |

| |Labor |

|0 | |

| |19 |

|1 | |

| |17 |

|2 | |

| |15 |

|3 | |

| |13 |

|4 | |

| |11 |

|5 | |

| |9 |

|6 | |

| |7 |

|7 | |

| |5 |

|8 | |

10. (Scenario 54-1: Marginal Product of Labor) Using the marginal product of labor curve in the figure, the total product of labor for three workers is:

|a. |51 bushels. |

|b. |45 bushels. |

|c. |39 bushels. |

|d. |15 bushels. |

|e. |17 bushels. |

11. The long run is a planning period:

|a. |too short to vary all inputs. |

|b. |that is at least 5 years in length. |

|c. |that must be over 6 months in length. |

|d. |that must be between 6 months and 5 years. |

|e. |over which a firm can consider all inputs as variable. |

Figure 54-1: Total Product

[pic]

12. (Figure 54-1: Total Product) Between points A and B the marginal product of labor is:

|a. |increasing. |

|b. |zero. |

|c. |falling. |

|d. |infinite. |

|e. |constant. |

13. Oscar has negotiated a lease for his sporting goods store in which he is required to pay $2,500 per month in rent. Oscar pays his staff $9 per hour to sell sporting goods and his monthly electricity bill averages $700, depending on his total hours of operation. Oscar's fixed costs of production equal:

|a. |$2,500 per month. |

|b. |$3,200 per month. |

|c. |$9 per hour multiplied by total hours of work plus $700. |

|d. |$9 per hour multiplied by total hours of work plus $3,200. |

|e. |$700 per month. |

|Q = output, FC = fixed cost, VC = variable cost, |

|TC = total cost, MC = marginal cost |

|Q |FC |VC |TC |MC |

|1 |20 |10 |30 | |

|2 |20 |18 |38 | |

| | | | |13 |

|3 |20 |31 | | |

| | | | |17 |

|4 |20 | |68 | |

|Table 55-2: Output and Costs |

14. (Table 55-2: Output and Costs) Using the information in the table, when quantity equals three, average total cost equals:

|a. |13. |

|b. |10. |

|c. |8. |

|d. |17. |

|e. |20 |

|Quantity |Total |Total |

|of Bagels |Variable Costs |Fixed Costs |

|(per period) | | |

|0 |$0.00 |$0.10 |

|1 |0.20 |0.10 |

|2 |0.30 |0.10 |

|3 |0.35 |0.10 |

|4 |0.45 |0.10 |

|5 |0.60 |0.10 |

|6 |0.80 |0.10 |

|7 |1.05 |0.10 |

|8 |1.35 |0.10 |

|Table 55-3: Costs of Producing Bagels |

15. (Table 55-3: Costs of Producing Bagels) The total cost of producing six bagels is:

|a. |$0.10. |

|b. |$0.20. |

|c. |$0.80. |

|d. |$0.90. |

|e. |$0.15. |

Figure 55-4: A Firm's Cost Curves

[pic]

16. (Figure 55-4: A Firm's Cost Curves) The curve labeled V represents the firm's ________ curve.

|a. |total cost |

|b. |average total cost |

|c. |marginal cost |

|d. |average variable cost |

|e. |average fixed cost |

17.

|Quantity of |Long-Run |

|Soybeans |Total Cost |

|(bushels) | |

|1 |$ 50 |

|2 |$ 80 |

|3 |$ 90 |

|4 |$120 |

|5 |$200 |

|6 |$300 |

|Table: Long-Run Total Cost |

Over what range of output does this soybean grower experience constant returns to scale?

|a. |the first and second bushels |

|b. |the third and fourth bushels |

|c. |the fourth and fifth bushels |

|d. |the fifth and sixth bushels |

|e. |the second and third bushels |

Figure 56-1: Long-Run Average Cost

[pic]

18. (Figure 56-1: Long-Run Average Cost) Output per period in the region B to C indicates that a firm is experiencing:

|a. |constant returns to scale. |

|b. |diseconomies of scale. |

|c. |economies of scale. |

|d. |falling marginal cost. |

|e. |increasing returns to scale. |

19. For large beer breweries, it is common for long-run average total cost to decline as output increases. This indicates that many breweries achieve:

|a. |diseconomies of scale. |

|b. |diminishing marginal returns. |

|c. |economies of scale. |

|d. |constant returns to scale. |

|e. |fixed cost minimization. |

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Figure 56-2: Cost Curves

[pic]

20. (Figure 56-2: Cost Curves) If a firm faced a long-run average total cost curve as shown in the figure, and it expected to produce 100,000 units of the good in the long run, the firm should build the plant associated with:

|a. |ATC1. |

|b. |ATC2. |

|c. |ATC3. |

|d. |ATC1 or with ATC2. |

|e. |ATC2 or with ATC3. |

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