Test bank for principles of economics 2nd by openstax

Test Bank for Principles of Economics 2nd by Openstax

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Economics Chapter 7 Test Bank Multiple Choice Questions 1. In economics, a firm that faces no competitors is referred to as _________________.

A. an oligopoly B. a monopoly C. a perfect competitor D. an oligopolizor Answer: B Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

2. ________________________ arises where many firms are competing in a market to sell similar but differentiated products.

A. Oligopolistic competition B. Perfect competition C. Monopolistic competition D. Monogopolised competition Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

3. A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

A. fixed costs; do not change, B. variable costs; are constantly changing, C. fixed costs; are consistently changing, D. variable costs; do not change, Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Remember

4. ______________ include all of the costs of production that increase with the quantity produced.

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A. Fixed costs B. Variable costs C. Average costs D. Average variable costs Answer: B Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

5. ____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

A. Diminishing variable returns B. Diminishing average returns C. Diminishing marginal returns D. Diminishing marginal costs Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Understand

6. In order to determine ____________, the firm's total costs must be divided by the quantity of its output.

A. diminishing marginal returns B. fixed costs C. variable cost D. average cost Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

7. In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

A. its' fixed costs B. the quantity of output C. its' average costs D. diminishing marginal costs Answer: B Reference: Explanation:

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Type: Multiple Choice

Difficulty: Easy

Category: Remember

8. The term _____________ is used to describe the additional cost of producing one more unit.

A. average cost B. fixed cost C. variable cost D. marginal cost Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

9. In order to reduce the harmful affects of recession and carbon emissions, the government provided tax incentives for manufacturing firm's to ___________________ that provide alternative, more efficient methods of combining inputs to produce output.

A. acquire energy efficient production technologies B. increase the returns to scale C. maintain constant returns to scale D. create perfect competition between firms Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

10. The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

A. diminishing marginal returns B. marginal cost output C. economies of scale D. diseconomies of scale Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

11. In microeconomics, the term _____________________ is synonymous with economies of scale.

A. diminishing marginal returns

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B. increasing returns to scale C. decreasing returns to scale D. constant returns to scale Answer: B Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

12. The term "constant returns to scale" describes a situation where A. expanding all inputs does not change the average cost of production.

B. a larger-scale firm can produce at a lower cost than a smaller-scale firm.

C. expanding all inputs changes the average cost of production.

D. the quantity of output rises and the average cost of production falls.

Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

13. In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.

A. monopoly B. economies of scale C. diminishing returns D. diseconomies of scale Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

14. If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.

A. decreasing returns to scale B. consent returns to scale C. economies of scale D. increasing returns to scale Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

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15. In the US economy, nearly half of all the workers employed by private firms work at A. 18,000 firms with fewer than 100 employees.

B. 18,000 large firms that employ more than 500 workers.

C. 26,000 firms with fewer than 100 employees.

D. 26,000 large firms that employ more than 300 workers.

Answer: B Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

16. _____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

A. Total revenue B. Total profits C. Average profit margin D. Total cost Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

17. ___________ include all spending on labor, machinery, tools, and supplies purchased from other firms.

A. Total profits B. Total revenues C. Total costs D. Total profit margins Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Analyze

18. Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?

A. 63% B. 50% C. 45% D. 35%

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Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

19. According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will A. do so regardless of what type of competition exists in a market.

B. take a long-run perspective on costs, when such costs cannot be adjusted.

C. take a short-run perspective on labor costs which cannot be immediately changed.

D. breakdown its cost structure according to short-run adjustments.

Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Analyze

20. The ______________ of all firms can be broken down into some common underlying patterns.

A. total revenues B. diminishing short-run costs C. cost structure D. diminishing long-run costs Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

21. If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

A. divide total costs into two categories: variable costs that can't be changed in the short run and fixed costs that can be B. divide the total costs of production by the quantity of output C. divide the variable costs of production by the quantity of output D. divide total costs into two categories: fixed costs that can’t be changed in the short run and variable costs that can be Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

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22. Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?

A. costs that must be made before production starts B. costs that vary according to specific line of business C. costs incurred in the act of producing D. costs incurred as advertising expenses Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

23. Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?

A. costs that increase with the quantity produced B. costs of research and development C. costs related to labor expenditures D. costs related to physical inputs Answer: B Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

24. Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

A. physical space for the gallery B. costs of purchasing art work to sell in the gallery C. wages paid to three part-time employees D. accountant's fees for preparing tax returns Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Analyze

25. Why would labor be treated as a variable cost?

A. they are costs incurred in the act of producing that will decrease with quantity produced B. they are made before production starts and vary according to the specific line of business C. labor costs are an input cost that firms are unable to change in the short run

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D. producing larger quantities of a good or service generally requires more workers Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

26. The graph above illustrates the total cost function for GoodieCookie Co. The changing slope of the total cost curve reflects this company's A. decreasing average total costs.

B. decreasing marginal costs.

C. decreasing average variable costs.

D. decreasing fixed costs.

Answer: B Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Analyze

27. The graph above illustrates the total cost function for GoodieCookie Co. How are the company's fixed costs represented in this graph?

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A. by adding up the fixed costs B. at any vertical axis point where the total cost curve never equals zero C. as the point where the total cost curve touches the vertical axis D. by adding up the variable costs Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Analyze

28. If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

A. variable costs B. fixed costs C. opportunity costs D. total cost Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

29. The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct?

Quantity

Variable Cost

Fixed Cost

Total Cost

Marginal Cost ($ per unit)

30

Average Variable Cost ($ per unit) 0

0

0

30

1

12

B

12

E

2

25

C

D

F

3

A

72

14

G

-

A. A = 42; E = 40 B. A = 70; E = 40 C. A = 42, E = 12 D. A = 70; E = 12 Answer: C Reference: Explanation:

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Type: Multiple Choice

Difficulty: Hard

Category: Apply

30. Mindy's company manufactures rubber balls used by elementary schools for playground activities. The table below sets out her firm's production cost information. Some values are missing. Which of the following statements is correct?

Quantity

Variable Cost

Fixed Cost

Total Cost

Marginal Cost ($ per unit)

40

Average Variable Cost ($ per unit) 0

0

0

40

1

5

B

5

E

2

15

C

D

F

3

A

60

20

G

-

A. A = 20; E = 45 B. A = 25; E = 45 C. A = 25; E = 5 D. A = 20; E = 5 Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Hard

Category: Apply

31. Refer to the table below.

Quantity

0

Cost Fixed Total Average Total Average Variable Costs Marginal (in dollars) Costs Costs Costs (in dollars per unit) Costs (in dollars) (in dollars) (in dollars per (in dollars per unit) unit) 0 40 40 ----

1

1

40

55

15

55

15

2

35

40

75

17.5

37.5

20

3

60

40

100

20

33.3

25

4

90

40

130

22.5

32.5

30

5

125

40

155

25

31

35

6

160

40

200

26.6

33.3

40

If this information were used to create a total cost graph, the curve should

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A. begin at 40 on the vertical axis and slope upward.

B. become steeper as quantity increases.

C. become steeper due to diminishing returns.

D. reflect all of the above.

Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Analyze

32. Refer to the table below.

Quantity

0

Cost Fixed Total Average Total Average Variable Costs Marginal (in dollars) Costs Costs Costs (in dollars per unit) Costs (in dollars) (in dollars) (in dollars per (in dollars per unit) unit) 0 40 40 ----

1

1

40

55

15

55

15

2

35

40

75

17.5

37.5

20

3

60

40

100

20

33.3

25

4

90

40

130

22.5

32.5

30

5

125

40

155

25

31

35

6

160

40

200

26.6

33.3

40

If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal?

A. losses equal $5 B. profits equal $5 C. profits equal $25 D. losses equal $25 Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Hard

Category: Apply

33. Refer to the table below.

Quantity

0

Cost Fixed Total Average Total Average Variable Costs Marginal (in dollars) Costs Costs Costs (in dollars per unit) Costs (in dollars) (in dollars) (in dollars per (in dollars per unit) unit) 0 40 40 ----

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1

1

40

55

15

55

15

2

35

40

75

17.5

37.5

20

3

60

40

100

20

33.3

25

4

90

40

130

22.5

32.5

30

5

125

40

155

25

31

35

6

160

40

200

26.6

33.3

40

If the firm produces 5 units that it sells for $39.00 each, what will its profits or losses equal?

A. losses equal $40 B. profits equal $70 C. profits equal $40 D. losses equal $70 Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Hard

Category: Apply

34. Refer to the table below.

Quantity

0

Cost Fixed Total Average Total Average Variable Costs Marginal (in dollars) Costs Costs Costs (in dollars per unit) Costs (in dollars) (in dollars) (in dollars per (in dollars per unit) unit) 0 40 40 ----

1

1

40

55

15

55

15

2

35

40

75

17.5

37.5

20

3

60

40

100

20

33.3

25

4

90

40

130

22.5

32.5

30

5

125

40

155

25

31

35

6

160

40

200

26.6

33.3

40

If the firm sells 5 units at a price of $30 each, then the marginal unit produced A. costs more than the average cost.

B. is subtracting from profits.

C. costs the same as the average cost.

D. is adding to profits.

Answer: B Reference:

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Explanation: Type: Multiple Choice

Difficulty: Hard

Category: Apply

35. I’MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was A. $1.50 B. $1.23 C. $2.25 D. $2.43 Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Hard

Category: Apply

36. I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was A. $3.00 B. $2.00 C. $1.80 D. $1.60 Answer: B Reference: Explanation: Type: Multiple Choice

Difficulty: Hard

Category: Apply

37. I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was A. $1.00 B. $3.00 C. $4.00 D. $7.00 Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Hard

Category: Apply

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38. The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

A. downward-sloping; more costly to produce B. upward-sloping; more costly to produce C. downward-sloping; less costly to produce D. upward-sloping; less costly to produce Answer: B Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

39. Refer to the graph shown above. Based on the information illustrated in the graph, which of the following is correct?

A. marginal cost line must intersect the average cost line at the middle point of the average cost curve B. marginal cost of production is below the average cost for producing previous units C. producing one more unit is reducing average costs overall D. producing a marginal unit is increasing average costs overall Answer: D Reference:

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Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Analyze

40. Refer to the diagram above. Based on the information illustrated in the graph, which of the following is correct?

A. producing a marginal unit is reducing average costs overall B. the marginal cost of production for producing an additional unit is below the cost for producing the earlier units C. the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve D. low marginal costs first pull up the overall average costs Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Analyze

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41. Whatever the firm’s quantity of production, _____________ must exceed total costs if it is to earn a profit.

A. marginal costs B. average costs C. total revenue D. variable costs Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

42. Fixed costs are important because, at least in the ___________, the firm _______________.

A. long run; cannot alter them B. short run; cannot alter them C. long run; can alter them D. short run; can alter them Answer: B Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Remember

43. The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation.

A. marginal cost; total costs B. marginal cost; fixed costs C. average variable cost; fixed costs D. average variable cost; total costs Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Remember

44. In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.

A. either total cost or average cost B. increasing marginal returns C. either total cost or variable cost D. decreasing marginal returns Answer: C Reference:

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Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

45. Which of the following should typically be ignored because spending has already been made and cannot be changed?

A. variable costs B. sunk costs C. marginal costs D. average marginal costs Answer: B Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

46. ____________ tells a firm whether it can earn profits given the price in the market.

A. Marginal cost B. Total cost C. Average cost D. Average marginal cost Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

47. If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals A. that if the market price exceeds average cost, profits will be positive.

B. that if the market price is below average cost, then profits will be negative.

C. total revenues are the quantity produced multiplied by the price.

D. whether the firm is earning profit if fixed costs are left out of the calculation.

Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

48. If I'maJuiceCo. establishes a bottling plant in Delaware, it will most likely A. use production technologies that require more workers.

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B. strive for economies of scale where quantity of output falls as the cost of production falls.

C. strive to reach economies of scale that will result in producing at a higher average cost.

D. use production technologies that conserve on the number of workers.

Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

49. When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________.

A. economies of scale; a larger factory can produce at a lower average cost than a smaller company.

B. economies of scale; a smaller factory can produce at a lower average cost than a larger company.

C. low labor inputs; larger scale of production leads to higher costs.

D. labor inputs; economies-of-scale curve is U-shaped.

Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

50. The economies-of-scale curve is a long-run average cost curve, because A. it allows all factors of production to change.

B. fixed costs cannot be changed.

C. only variable costs are allowed to change.

D. only marginal costs are allowed to change Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Understand

51. A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.

A. returns to scale B. economies of scale C. constant returns to scale D. diminishing marginal returns Answer: C Reference:

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Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Analyze

52. A situation where the level of output, scale and average costs are all rising is called A. decreasing returns to scale B. diseconomies of scale C. diminishing returns to scale D. both a and b are correct Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Understand

53. _____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas.

A. Economies of scale B. Constant returns to scale C. Agglomeration factors D. Diseconomies of scale Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Easy

Category: Remember

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54. The graph above illustrates the electricity market. Consider market competition between firms where price is based on AR and select the most appropriate answer.

A. this market is perfectly competitive with excess profits possible in the short-run B. this market is imperfectly competitive with excess profits possible in the short-run C. this market is imperfectly competitive with excess profits possible in the long-run D. this market is perfectly competitive with negative profits possible in the long-run Answer: B Reference: Explanation: Type: Multiple Choice

Difficulty: Hard

Category: Analyze

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55. The graph above illustrates the electricity market. Consider market competition between firms where price is based on AR and select the most appropriate answer.

A. in the short-run, the demand curve and average revenue shift as other firms enter the market and increase competition B. in the short-run, the demand curve and average revenue shift as other firms leave the market and decrease competition C. in the long-run, the demand curve and average revenue shift as other firms enter the market and increase competition D. in the long-run, the demand curve and average revenue shift as other firms leave the market and decrease competition Answer: C Reference: Explanation: Type: Multiple Choice

Difficulty: Hard

Category: Analyze

56. Economies of scale may arise from all but one of the following. Which one is it?

A. doubling promotional expenses to expand sale more than proportionately B. having a larger retail space can expand sales more than proportionately C. spreading the fixed-costs of administration over more customers holds average costs down D. government economic subsidies protect firms from competition to avoid losses.

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Answer: D Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Analyze

57. The future of cities in the United States and in other countries will be determined by their ability to benefit from the _________________ and to minimize or counterbalance the ______________________.

A. economies of agglomeration; corresponding diseconomies B. economies of scale; agglomeration factors C. diverse population; greater returns to scale of illegal activities D. constant returns to scale; market-orientated system Answer: A Reference: Explanation: Type: Multiple Choice

Difficulty: Medium

Category: Remember

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Essay Questions 1. Briefly explain how the total revenue for a profit-seeking firm is determined.

Reference: Explanation: The total revenue for a profit-seeking firm is determined by the price that a firm can charge and the quantity that it can sell, which in turn will be related to demand for its products and on the number of other firms that are selling similar or identical products.

Type: Essay

Difficulty: Easy

Category: Understand

2. Briefly describe the spectrum of competitive situations faced by firms in markets.

Reference: Explanation: Firms face different competitive situations. At one extreme there is perfect competition, which involves many firms all trying to sell identical products. At the other extreme there is monopoly, which involves only one firm selling a product, and this firm faces no competition. Monopolistic competition and oligopoly fall between the extremes of perfect competition and monopoly. Monopolistic competition is a situation with many firms selling similar, but not identical, products. An oligopoly refers to a situation with few firms that sell identical or similar products.

Type: Essay

Difficulty: Hard

Category: Understand

3. Briefly describe the short-run perspective of a firm's total costs. Provide a brief explanation of what a production technology refers to and explain how production technology relates to a firm's long-run perspective.

Reference: Explanation: In a short-run perspective, a firm’s total costs can be divided into fixed costs, which a firm must incur before producing any output, and variable costs, which the firm incurs in the act of producing.

A production technology refers to a specific combination of labor, physical capital and technology that makes up a particular method of production. In the long run, firms can choose their production technology, and so all costs become variable costs. In making this choice, firms will try to substitute relatively inexpensive inputs for relatively expensive inputs where possible, so as to produce at the lowest possible long-run average cost.

Type: Essay

Difficulty: Hard

Category: Understand

4. Briefly explain what is meant by the term "fixed costs" and provide three examples of same.

What determines a firm's level of fixed costs?

Reference:

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Explanation: Fixed costs are expenditures that must be made before production starts and that do not change regardless of the level of production, at least not in the short run of weeks and months. Fixed costs can take many forms: for example, machinery or equipment, physical space for a retail or manufacturing business, research and development costs to develop new technology, even an expense like advertising to popularize a brand name. The level of fixed costs varies according to the specific line of business.

Type: Essay

Difficulty: Medium

Category: Understand

5. Briefly explain what is meant by the term "variable costs" and provide three examples of same.

Reference: Explanation: Variable costs are a firm's costs that are incurred in the act of producing and will increase with the quantity produced. Labor is treated as a variable cost, as are the costs of physical inputs, like the metal and plastic involved in manufacturing a car or the cloth for making shirts and trousers.

Type: Essay

Difficulty: Medium

Category: Understand

6. Contrast the role of fixed costs and variable costs in economic decisions about future production and pricing.

Reference: Explanation: Fixed costs are sunk costs because they are in the past and cannot be altered. For this reason, fixed costs should play no role in economic decisions about future production or pricing. Variable costs typically show diminishing marginal returns, so that the marginal cost of producing higher levels of output rises. Variable costs can change over time and should continue to play a role in economic decisions about future production or pricing.

Type: Essay

Difficulty: Medium

Category: Understand

7. Briefly discuss marginal costs, including an explanation of how they are calculated; any condition that is typical to them, and what makes knowing them useful.

Reference: Explanation: Marginal costs are calculated by taking the change in total cost or the change in variable cost, and dividing it by the change in output for each possible change in output. Marginal costs are typically rising. A firm can compare marginal cost to the additional revenue it gains from selling another unit to find out whether its marginal unit is adding to profit.

Type: Essay

Difficulty: Medium

Category: Understand

8. Briefly discuss average costs, including how they are calculated, how they are typically appear on a graph, and what they relate to profitability.

Reference:

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Explanation: Average cost is calculated by taking total cost and dividing by total output at each different level of output. Average costs are typically U-shaped on a graph. If a firm’s average cost of production is lower than the market price, a firm will be earning profits.

Type: Essay

Difficulty: Medium

Category: Understand

9. Briefly discuss average variable costs, including how they are calculated, how they typically on a graph, and how they are related to determining profitability.

Reference: Explanation: Average variable cost is calculated by taking variable cost and dividing by the total output at each level of output. Average variable costs are typically U-shaped. If a firm’s average variable cost of production is lower than the market price, then the firm would be earning profits if fixed costs are left out of the picture.

Type: Essay

Difficulty: Medium

Category: Understand

10. Briefly explain what the term "agglomeration economies" refers to and briefly describe what the fundamental reason for the development of this particular type of economy relates to. Provide two examples of factors associated with agglomeration economies and identify what these factors help to explain. Identify two factors that would lead to diseconomies and briefly explain how the future of many of the world's cities will be likely be determined.

Reference: Explanation: Agglomeration economies refer to the economies created by the concentration of large populations in a large city. The fundamental reason for agglomeration economies relates to the idea of economies of scale in a broad sense. Examples of the factors associated with agglomeration economies include: cities provide a large group of nearby customers, so that businesses can produce at an efficient economy of scale; they also provide a large group of workers and suppliers, so that business can hire easily and purchase whatever specialized inputs they need; many of the attractions of cities, like sports stadiums and museums, can only operate if they can draw on a large nearby population base, and cities are also big enough to offer a wide variety of products, which is what many shoppers are looking for. These agglomeration factors help to explain why every economy, as it develops, has an increasing portion of its population living in urban areas. At some point, agglomeration economies must turn into diseconomies due to negative factors that include: traffic congestion may reach a point where the gains from being geographically nearby are counterbalanced by how long it takes to travel. High densities of people, cars and factories can mean more garbage and air and water pollution. Facilities like parks or museums may become overcrowded. There may be economies of scale for negative activities like crime, because high densities of people and businesses, combined with the greater impersonality of cities, make it easier for illegal activities as well as legal ones. The future of cities, both in the United States and in other countries around the world, will be determined by their ability to benefit from the economies of agglomeration and to minimize or counterbalance the corresponding diseconomies.

Type: Essay

Difficulty: Hard

Category: Understand

This file is copyright 2018, Rice University. All Rights Reserved.

This file is copyright 2018, Rice University. All Rights Reserved.

Test Bank for Principles of Economics 2nd by Openstax

Test Bank Statistics Summary Multiple Choice Category Stats ...

Analyze: 13 Apply: 8 Evaluate: 0 Remember: 21 Understand: 18 Difficulty Stats ....

Easy: 21 Medium: 29

Hard: 10

Total Multiple Choice Questions: 60

True/False Total True/False Questions: 0

Essay Category Stats ...

Apply: 0 Understand: 10 Difficulty Stats ....

Easy: 1 Medium: 6

Hard: 3

Total Essay Questions: 10

All Questions Category Stats ...

Analyze: 13 Apply: 8 Evaluate: 0 Remember: 21 Understand: 28 Difficulty Stats ....

Easy: 22 Medium: 35

Hard: 13

Total Questions in Test Bank: 70

This file is copyright 2018, Rice University. All Rights Reserved.

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