question
The short run is characterized by
increasing but not diminishing returns.
fixed plant capacity.
zero fixed costs.
plenty of time for firms to either enter or leave the industry.
increasing but not diminishing returns.
fixed plant capacity.
zero fixed costs.
plenty of time for firms to either enter or leave the industry.
answer
fixed plant capacity.
question
Economic cost can best be defined as
the opportunity cost of using a resource already owned by the firm.
the income the firm must provide to resource suppliers to attract resources from alternative uses.
any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers.
those payments for resources that involve an obvious cash transaction.
the opportunity cost of using a resource already owned by the firm.
the income the firm must provide to resource suppliers to attract resources from alternative uses.
any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers.
those payments for resources that involve an obvious cash transaction.
answer
the income the firm must provide to resource suppliers to attract resources from alternative uses.
question
The long run is characterized by
the ability of the firm to change its plant size.
at least one fixed input.
insufficient time for firms to enter or leave the industry.
the relevance of the law of diminishing returns.
the ability of the firm to change its plant size.
at least one fixed input.
insufficient time for firms to enter or leave the industry.
the relevance of the law of diminishing returns.
answer
the ability of the firm to change its plant size.
question
In the diagram, the range of diminishing marginal returns is
Q1Q2.
0Q2.
Q1Q3.
0Q3.
Q1Q2.
0Q2.
Q1Q3.
0Q3.
answer
Q1Q3.
question
Refer to the diagram. At output level Q, total fixed cost is
0BEQ.
BCDE.
0BEQ − 0AFQ.
0CDQ.
0BEQ.
BCDE.
0BEQ − 0AFQ.
0CDQ.
answer
BCDE.
question
The basic difference between the short run and the long run is that
at least one resource is fixed in the short run, while all resources are variable in the long run.
economies of scale may be present in the short run but not in the long run.
the law of diminishing returns applies in the long run but not in the short run.
all costs are fixed in the short run, but all costs are variable in the long run.
at least one resource is fixed in the short run, while all resources are variable in the long run.
economies of scale may be present in the short run but not in the long run.
the law of diminishing returns applies in the long run but not in the short run.
all costs are fixed in the short run, but all costs are variable in the long run.
answer
at least one resource is fixed in the short run, while all resources are variable in the long run.
question
The Sunshine Corporation finds that its costs are $40 when it produces no output. Its total variable costs (TVC) change with output as shown in the accompanying table. Use this information to answer the following question.
Output TVC
1 $30
2 50
3 65
4 85
5 110
The marginal cost of the third unit of output is
$20.
$25.
$105.
$15.
Output TVC
1 $30
2 50
3 65
4 85
5 110
The marginal cost of the third unit of output is
$20.
$25.
$105.
$15.
answer
$15
question
When diseconomies of scale occur,
average fixed costs will rise.
the long-run average total cost curve falls.
marginal cost intersects average total cost.
the long-run average total cost curve rises.
average fixed costs will rise.
the long-run average total cost curve falls.
marginal cost intersects average total cost.
the long-run average total cost curve rises.
answer
the long-run average total cost curve rises.
question
Marginal cost is the
rate of change in total fixed cost that results from producing one more unit of output.
change in average variable cost that results from producing one more unit of output.
change in average total cost that results from producing one more unit of output.
change in total cost that results from producing one more unit of output.
rate of change in total fixed cost that results from producing one more unit of output.
change in average variable cost that results from producing one more unit of output.
change in average total cost that results from producing one more unit of output.
change in total cost that results from producing one more unit of output.
answer
change in total cost that results from producing one more unit of output.
question
Economies and diseconomies of scale explain
why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point.
the profit-maximizing level of production.
the distinction between fixed and variable costs.
why the firm's long-run average total cost curve is U-shaped.
why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point.
the profit-maximizing level of production.
the distinction between fixed and variable costs.
why the firm's long-run average total cost curve is U-shaped.
answer
why the firm's long-run average total cost curve is U-shaped.
question
When a firm does more of something, it gets better at it. This learning-by-doing is
called the principle of natural progression.
a source of diseconomies of scale.
called "spreading the overhead."
a source of economies of scale.
called the principle of natural progression.
a source of diseconomies of scale.
called "spreading the overhead."
a source of economies of scale.
answer
a source of economies of scale.
question
If a technological advance increases a firm's labor productivity, we would expect its
total cost curve to rise.
average total cost curve to be unaffected.
average total cost curve to fall.
average total cost curve to rise.
total cost curve to rise.
average total cost curve to be unaffected.
average total cost curve to fall.
average total cost curve to rise.
answer
average total cost curve to fall.
question
Diseconomies of scale arise primarily because
of the difficulties involved in managing and coordinating a large business enterprise.
firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available.
the short-run average total cost curve rises when marginal product is increasing.
beyond some point, marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).
of the difficulties involved in managing and coordinating a large business enterprise.
firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available.
the short-run average total cost curve rises when marginal product is increasing.
beyond some point, marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).
answer
of the difficulties involved in managing and coordinating a large business enterprise.
question
If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that
technological progress has occurred.
diseconomies of scale are being encountered.
economies of scale are being realized.
the firm is encountering diminishing returns.
technological progress has occurred.
diseconomies of scale are being encountered.
economies of scale are being realized.
the firm is encountering diminishing returns.
answer
economies of scale are being realized.
question
The minimum efficient scale of a firm
occurs where marginal product becomes zero.
is in the middle of the range of constant returns to scale.
is realized somewhere in the range of diseconomies of scale.
is the smallest level of output at which long-run average total cost is minimized.
occurs where marginal product becomes zero.
is in the middle of the range of constant returns to scale.
is realized somewhere in the range of diseconomies of scale.
is the smallest level of output at which long-run average total cost is minimized.
answer
is the smallest level of output at which long-run average total cost is minimized.
question
The law of diminishing returns implies that
your understanding will be increased by decreasing your marginal study time.
the more hours you spend studying per day, the more you will learn with each added hour.
the more hours you spend studying, the less you will know.
eventually, the more hours you spend studying per day, the less you will learn with each added hour.
your understanding will be increased by decreasing your marginal study time.
the more hours you spend studying per day, the more you will learn with each added hour.
the more hours you spend studying, the less you will know.
eventually, the more hours you spend studying per day, the less you will learn with each added hour.
answer
eventually, the more hours you spend studying per day, the less you will learn with each added hour.
question
Implicit and explicit costs are different in that
implicit costs are opportunity costs; explicit costs are not.
the latter refer to nonexpenditure costs and the former to monetary payments.
explicit costs are opportunity costs; implicit costs are not.
the former refer to nonexpenditure costs and the latter to monetary payments.
implicit costs are opportunity costs; explicit costs are not.
the latter refer to nonexpenditure costs and the former to monetary payments.
explicit costs are opportunity costs; implicit costs are not.
the former refer to nonexpenditure costs and the latter to monetary payments.
answer
the former refer to nonexpenditure costs and the latter to monetary payments.
question
The law of diminishing returns describes the
relationship between total costs and total revenues.
relationship between resource inputs and product outputs in the long run.
relationship between resource inputs and product outputs in the short run.
profit-maximizing position of a firm.
relationship between total costs and total revenues.
relationship between resource inputs and product outputs in the long run.
relationship between resource inputs and product outputs in the short run.
profit-maximizing position of a firm.
answer
relationship between resource inputs and product outputs in the short run.
question
Which of the following definitions is correct?
Economic profit − implicit costs = accounting profits.
Economic profit = accounting profit − implicit costs.
Accounting profit + economic profit = normal profit.
Economic profit − accounting profit = explicit costs.
Economic profit − implicit costs = accounting profits.
Economic profit = accounting profit − implicit costs.
Accounting profit + economic profit = normal profit.
Economic profit − accounting profit = explicit costs.
answer
Economic profit = accounting profit − implicit costs.
question
Refer to the diagram. At output level Q, total cost is
0BEQ.
0AFQ + BCDE.
BCDE.
0BEQ + BCDE.
0BEQ.
0AFQ + BCDE.
BCDE.
0BEQ + BCDE.
answer
0BEQ + BCDE
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