Chapter 13 Mankiw

Chapter 13 Mankiw/Taylor, Economics
True/False
Indicate whether the sentence or statement is true or false.
1. Total revenue equals the quantity of output the firm produces times the price at
which it sells its output.
ANSWER: T
POINTS: 0 / 1
2. Wages and salaries paid to workers are an example of implicit costs of production.
ANSWER: F
POINTS: 0 / 1
3. If total revenue is €100, explicit costs are €50, and implicit costs are €30, then
accounting profit equals €50.
ANSWER: T
POINTS: 0 / 1
4. If there are implicit costs of production, accounting profits will exceed economic
profits.
ANSWER: T
POINTS: 0 / 1
5. When a production function gets flatter, the marginal product is increasing.
ANSWER: F
POINTS: 0 / 1
6. If a firm continues to employ more workers within the same size factory, it will
eventually experience diminishing marginal product
ANSWER: T
POINTS: 0 / 1
7. If the production function for a firm exhibits diminishing marginal product, the
corresponding total cost curve for the firm will become flatter as the quantity of
output expands.
ANSWER: F
POINTS: 0 / 1
8. Fixed costs plus variable costs equal total costs.
ANSWER: T
POINTS: 0 / 1
9. Average total costs are total costs divided by marginal costs.
ANSWER: F
POINTS: 0 / 1
10. When marginal costs are below average total costs, average total costs must be
falling.
ANSWER: T
POINTS: 0 / 1
11. If, as the quantity produced increases, a production function first exhibits increasing
marginal product and later diminishing marginal product, the corresponding
marginal cost curve will be U-shaped.
ANSWER: T
POINTS: 0 / 1
12. The average total cost curve crosses the marginal cost curve at the minimum of the
marginal cost curve.
ANSWER: F
POINTS: 0 / 1
13. The average total cost curve in the long run is flatter than the average total cost
curve in the short run.
ANSWER: T
POINTS: 0 / 1
14. The efficient scale for a firm is the quantity of output that minimizes marginal cost.
ANSWER: F
POINTS: 0 / 1
15. In the long run, as a firm expands its production facilities, it generally first
experiences diseconomies of scale, then constant returns to scale, and finally
economies of scale.
ANSWER: F
POINTS: 0 / 1
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
16. Accounting profit is equal to total revenue minus

a. implicit costs.
b. variable costs.
c. the sum of implicit and explicit costs.
d. explicit costs.
e. marginal costs.
ANSWER: D
POINTS: 0 / 1
17. Economic profit is equal to total revenue minus

a. variable costs.
b. implicit costs.
c. explicit costs.
d. marginal costs.
ANSWER: B
POINTS: 0 / 1
18. Nicole owns a small pottery factory. She can make 1,000 pieces of pottery per year
and sell them for €100 each. It costs Nicole €20,000 for the raw materials to
produce the 1,000 pieces of pottery. She has invested €100,000 in her factory and
equipment: €50,000 from her savings and €50,000 borrowed at 10 per cent.
(Assume that she could have loaned her money out at 10 per cent, too.) Nicole can
work at a competing pottery factory for €40,000 per year. The accounting profit at
Nicole's pottery factory is
a. €30,000.
b. €35,000.
c. €75,000.
d. €70,000.
e. €80,000.
ANSWER: C
POINTS: 0 / 1
19. Nicole owns a small pottery factory. She can make 1,000 pieces of pottery per year
and sell them for €100 each. It costs Nicole €20,000 for the raw materials to
produce the 1,000 pieces of pottery. She has invested €100,000 in her factory and
equipment: €50,000 from her savings and €50,000 borrowed at 10 percent (assume
that she could have loaned her money out at 10 percent, too). Nicole can work at a
competing pottery factory for €40,000 per year. The economic profit at Nicole's
pottery factory is
a. €80,000.
b. €30,000.
c. €75,000.
d. €70,000.
e. €35,000.
ANSWER: B
POINTS: 0 / 1
20. If there are implicit costs of production,

a. accounting profit will exceed economic profit.
b. economic profit will always be zero.
c. economic profit will exceed accounting profit.
d. accounting profit will always be zero.
e. economic profit and accounting profit will be equal.
ANSWER: A
POINTS: 0 / 1
21. If a production function exhibits diminishing marginal product, its slope

a. is linear (a straight line).
b. becomes steeper as the quantity of the input increases.
c. could be any of these answers.
d. becomes flatter as the quantity of the input increases.
ANSWER: D
POINTS: 0 / 1
22. If a production function exhibits diminishing marginal product, the slope of the
corresponding total-cost curve
a. is linear (a straight line).
b. could be any of these answers.
c. becomes steeper as the quantity of output increases.
d. becomes flatter as the quantity of output increases.
ANSWER: C
POINTS: 0 / 1
23. Refer to Figure 13-1. The marginal product of labour as production moves from
employing one worker to employing two workers is
a. 10.
b. 0.
c. 23.
d. 40.
e. 17.
ANSWER: E
POINTS: 0 / 1
24. Refer to Figure 13-1. The production process described above exhibits
a. constant marginal product of labour.

b. diminishing marginal product of labour.
c. increasing returns to scale.
d. increasing marginal product of labour.
e. decreasing returns to scale.
ANSWER: B
POINTS: 0 / 1
25. Which of the following is a variable cost in the short run?

a. rent on the factory
b. wages paid to factory labour
c. interest payments on borrowed financial capital
d. payment on the lease for factory equipment
e. salaries paid to upper management
ANSWER: B
POINTS: 0 / 1
26. Refer to Figure 13-2. The average fixed cost of producing four units is
Figure 13-2
Quantity Fixed Variable Total Marginal

of Output Costs Costs Costs Costs
0 €10 €0
1 10 5
2 10 11
3 10 18
4 10 26
5 10 36
a. €2.50.
b. €26.
c. none of these answers.
d. €10.
e. €5.
ANSWER: A
POINTS: 0 / 1
27. Refer to Figure 13-2. The average total cost of producing three units is
Figure 13-2

0 €10 €0
1 10 5
2 10 11
3 10 18
4 10 26
5 10 36
a. €28.
b. €6.
c. €3.33.
d. €18.
e. €9.33.
ANSWER: E
POINTS: 0 / 1
28. Refer to Figure 13-2. The marginal cost of changing production from three units to
four units is
Figure 13-2

0 €10 €0
1 10 5
2 10 11
3 10 18
4 10 26
5 10 36
a. €7.
b. €5.
c. €8.
d. €9.
e. €6.
ANSWER: C
POINTS: 0 / 1
29. Refer to Figure 13-2. The efficient scale of production is
Figure 13-2

0 €10 €0
1 10 5
2 10 11
3 10 18
4 10 26
5 10 36
a. two units.
b. three units.
c. one unit.
d. five units.
e. four units.
ANSWER: E
POINTS: 0 / 1
30. When marginal costs are below average total costs,

a. average fixed costs are rising.
b. average total costs are falling.
c. average total costs are rising.
d. average total costs are minimized.
ANSWER: B
POINTS: 0 / 1
31. If marginal costs equal average total costs,

a. average total costs are falling.
b. average total costs are rising.
c. average total costs are maximized.
d. average total costs are minimized.
ANSWER: D
POINTS: 0 / 1
32. If, as the quantity produced increases, a production function first exhibits increasing
marginal product and later diminishing marginal product, the corresponding
marginal-cost curve will
a. be flat (horizontal).
b. slope upward.
c. slope downward.
d. be U-shaped.
ANSWER: D
POINTS: 0 / 1
33. In the long run, if a very small factory were to expand its scale of operations, it is
likely that it would initially experience
a. an increase in average total costs.
b. diseconomies of scale.
c. economies of scale.
d. constant returns to scale.
ANSWER: C
POINTS: 0 / 1
34. The efficient scale of production is the quantity of output that minimizes
a. average fixed cost.
b. average total cost.
c. average variable cost.
d. marginal cost.
ANSWER: B
POINTS: 0 / 1
35. Which of the following statements is true?

a. All costs are fixed in the short run.
b. All costs are variable in the long run.
c. All costs are variable in the short run.
d. All costs are fixed in the long run.
ANSWER: B
POINTS: 0 / 1

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What are the different types of costs discussed in the document?

What are the different types of costs discussed in the document?

What is the difference between accounting profit and economic profit?

What is the difference between accounting profit and economic profit?

Chapter 13 Mankiw/Taylor, Economics

5. When a production function gets flatter, the marginal product is increasing.

8. Fixed costs plus variable costs equal total costs.

9. Average total costs are total costs divided by marginal costs.

16. Accounting profit is equal to total revenue minus

17. Economic profit is equal to total revenue minus

20. If there are implicit costs of production,

21. If a production function exhibits diminishing marginal product, its slope

a. constant marginal product of labour.

25. Which of the following is a variable cost in the short run?

Quantity Fixed Variable Total Marginal

Quantity Fixed Variable Total Marginal

Quantity Fixed Variable Total Marginal

29. Refer to Figure 13-2. The efficient scale of production is

Quantity Fixed Variable Total Marginal

30. When marginal costs are below average total costs,

31. If marginal costs equal average total costs,

35. Which of the following statements is true?

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