202 Test 2 Review

202 Test 2 Review - Chapter 21Costs and the Supply of Goods...

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Chapter 21—Costs and the Supply of Goods 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 party d. interest income foregone on funds invested in the firm by the owners ANS: D 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. ( but not on a test ) ANS: D 3. The law of diminishing returns a. is reflected in the eventually rising marginal cost curve for the firm in the short run. 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 studying. d. applies to a capitalist economy but would be irrelevant if the means of production were owned by the state. ANS: A 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 ANS: C 5. The short run average total cost (ATC) curve of a firm will tend to be U-shaped because a. larger firms always have lower per unit costs than smaller firms. b. at small output rates, AFC will be high while at large output rates MC will be high as the result of diminishing returns and over-utilization of the plant. c. Diminishing returns will be present when output is small while high AFC will push per unit cost to high levels when output is large. d. diseconomies of scale will be present at both small and large output rates. ANS: B 6. When costs that change with the level of output are divided by the output level, you have calculated a. total cost. c. average fixed costs b. total fixed cost. d. average variable costs ANS: D 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.
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c. grapefruit, because these farmers use the same land and labor pool as orange growers. d. wheat, because these farmers use land unsuitable for the growing of oranges. ANS:
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202 Test 2 Review - Chapter 21Costs and the Supply of Goods...

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