Additional Exercises
3rd edition
Chapter 4:
1) Marginal product is:
a) the increase in total output attributable to the employment of one more worker.
b) the increase in total revenue attributable to the employment of one more worker.
c) the increase in total cost attributable to the employment of one more worker.
d) total product divided by the number of workers employed.
2) In the diagram, the range of diminishing marginal returns is:
a) 0Q3.
b) 0Q2.
c) Q1Q2.
d) Q1Q3.
3) Production cost to an economist:
a) Consist only of explicit cost
b) reflect opportunity cost
c) never reflect monetary outlays
d) always reflect monetary outlays
4) Implicit and explicit costs are different in that:
a) explicit costs are opportunity costs; implicit costs are not.
b) implicit costs are opportunity costs; explicit costs are not.
c) the latter refer to non expenditure costs and the former to monetary payments.
d) the former refer to non expenditure costs and the latter to monetary payments.
5) Suppose that a business incurred implicit costs of R500,000 and explicit costs of R5
million in a specific year. If the firm sold 100,000 units of its output at R50 per unit, its
accounting:
a) profits were R100,000 and its economic profits were zero.
b) losses were R500,000 and its economic losses were zero.
c) profits were R500,000 and its economic profits were R1 million.
d) profits were zero and its economic losses were R500,000.
6) Daily newspapers have been rising in price in recent years because:
a) wages in the newspaper industry have risen dramatically.
b) the overhead costs have recently been spread over a shrinking number of
buyers.
c) capital has replaced virtually all labor used to produce a newspaper.
d) long-standing government subsidies have been removed in most major cities.
7`) The diagram shows the short-run average total cost curves for five different plant sizes
of a firm. If in the long run the firm should produce output 0x, it should do it with a plant of
size:
a) #4.
b) #3.
c) #2.
d) #1
8) Use the following cost information for the Hoola Hoop Sport Shop to answer the
questions:
1 Entrepreneur's potential earnings as a salaried worker = R75, 000
2 Annual lease on building = R60, 000
3 Annual revenue from operations = R550, 000
4 Payments to workers = R180, 000
5 Utilities (electricity, water, disposal) costs = R20, 000
6 Entrepreneur's potential economic profit from the next best entrepreneurial
activity = R100, 000
7 Entrepreneur's forgone interest on personal funds used to finance the business
= R60, 000
1.1 Hoola Hoop's explicit costs are:
1.2 Hoola Hoop's implicit costs, including a normal profit are:
1.3 Hoola Hoop's total economic costs (explicit + implicit costs, including a
normal profit) are:
1.4 Hoola Hoop's accounting profit is
1.5 Hoola Hoop's economic profit is:
9) Calculate the Average product and Marginal Product in the following table:
Units of Total Average Marginal
Labour Product Product Product
0 0
1 20
2 60
3 120
4 160
5 190
6 210
10) Fill in the missing gaps (A-O) in the following table:
Total TC F VC AFC AVC AC MC
Product C
0 80 A 0 - - - -
1 130 A B 80 50 130 50
2 165 A 85 40 C 82.5 45
3 205 A 125 26.67 41.67 68.33 D
4 240 A E 20 40 F 35
5 280 A 200 G 40 56 40
6 330 A 250 13.33 H 55 50
7 395 A I 11.42 45 56.42 65
8 J A 405 10 50.62 60.62 K
9 605 A L 8.88 M 67.22 120
10 765 A 685 8 68.5 N O
11) Draw a Hypothetical Marginal Cost, Average Total Cost, Average Variable
Cost and Average Fixed Cost curves.
