question
1. Diminishing returns set in, when
a. the marginal product equals zero.
b. the marginal product is at the maximum.
c. the total product has reached capacity.
d. the marginal product is increasing.
a. the marginal product equals zero.
b. the marginal product is at the maximum.
c. the total product has reached capacity.
d. the marginal product is increasing.
answer
B
question
2. The marginal cost is at a minimum, when
a. the marginal product equals zero.
b. the marginal product is at the maximum.
c. the total product has reached capacity.
d. the marginal product is increasing.
a. the marginal product equals zero.
b. the marginal product is at the maximum.
c. the total product has reached capacity.
d. the marginal product is increasing.
answer
B
question
3. A firm will produce and stop hiring more workers at an output level in which
a. the marginal product is increasing.
b. the total product is at capacity.
c. the marginal cost is decreasing.
d. the marginal product is decreasing.
a. the marginal product is increasing.
b. the total product is at capacity.
c. the marginal cost is decreasing.
d. the marginal product is decreasing.
answer
D
question
4. When the firm's total product has reached capacity,
a. the marginal product is increasing.
b. the marginal product is positive.
c. the marginal product is equal to zero.
d. the marginal product is negative.
a. the marginal product is increasing.
b. the marginal product is positive.
c. the marginal product is equal to zero.
d. the marginal product is negative.
answer
C
question
5. The formula for the total cost is
a. (TFC + TVC).
b. (TFC - TVC).
c. (ΔTFC / ΔQ).
d. (ΔTFC + ΔTVC).
a. (TFC + TVC).
b. (TFC - TVC).
c. (ΔTFC / ΔQ).
d. (ΔTFC + ΔTVC).
answer
A
question
6. If the marginal cost is greater than the average total cost,
a. the average total cost is decreasing.
b. the average total cost is at its minimum.
c. the average total cost is increasing.
d. the marginal cost is at a minimum.
a. the average total cost is decreasing.
b. the average total cost is at its minimum.
c. the average total cost is increasing.
d. the marginal cost is at a minimum.
answer
C
question
7. If the average variable cost is greater than the marginal cost,
a. the average variable cost is decreasing.
b. the average variable cost is at its minimum.
c. the average variable cost is increasing.
d. the average total cost is increasing.
a. the average variable cost is decreasing.
b. the average variable cost is at its minimum.
c. the average variable cost is increasing.
d. the average total cost is increasing.
answer
A
question
8. Specialization and the division of labor generate increased efficiencies, which cause
a. the marginal product to decrease.
b. the marginal cost to increase.
c. the total product to decrease.
d. the marginal product to increase.
a. the marginal product to decrease.
b. the marginal cost to increase.
c. the total product to decrease.
d. the marginal product to increase.
answer
D
question
9. If the marginal cost is greater than the marginal revenue, a profit maximizing/ loss minimizing firm will
a. shut down.
b. produce more.
c. produce less.
d. maximize the profit at this output level.
a. shut down.
b. produce more.
c. produce less.
d. maximize the profit at this output level.
answer
C
question
10. If the marginal cost equals the average total cost,
a. the average total cost is increasing.
b. the average total cost is at a minimum.
c. the average total cost is decreasing.
d. The answer cannot be determined from the above information.
a. the average total cost is increasing.
b. the average total cost is at a minimum.
c. the average total cost is decreasing.
d. The answer cannot be determined from the above information.
answer
B
question
11. Which of the following costs would an accountant ignore?
a. Salaries of office staff
b. Annual rent
c. Foregone interest on a savings account that is cashed in to start up a business
d. Interest paid on the company's mortgage
a. Salaries of office staff
b. Annual rent
c. Foregone interest on a savings account that is cashed in to start up a business
d. Interest paid on the company's mortgage
answer
C
question
12. To an economist, costs will include
a. only dollar costs.
b. fixed and variable costs.
c. costs explicitly paid by others.
d. both dollar (accounting) costs as well as costs incurred in the form of foregone opportunities
a. only dollar costs.
b. fixed and variable costs.
c. costs explicitly paid by others.
d. both dollar (accounting) costs as well as costs incurred in the form of foregone opportunities
answer
D
question
13. Division of labor has an advantage over no specialization because
a. it reduces the firm's labor costs.
b. it guarantees every worker a job.
c. it allows for a dramatic increase in output.
d. it permits marginal costs to fall to zero.
a. it reduces the firm's labor costs.
b. it guarantees every worker a job.
c. it allows for a dramatic increase in output.
d. it permits marginal costs to fall to zero.
answer
C
question
14. All of the following are characteristics of a monopoly, except:
a. The firm has to lower its price in order to sell larger quantities of product.
b. Marginal revenue from the sale of an additional unit is constant and equals the price.
c. Marginal revenue from the sale of an additional unit falls.
d. The firm faces a downward sloping demand curve.
a. The firm has to lower its price in order to sell larger quantities of product.
b. Marginal revenue from the sale of an additional unit is constant and equals the price.
c. Marginal revenue from the sale of an additional unit falls.
d. The firm faces a downward sloping demand curve.
answer
B
question
15. Which of the following is correct?
a. ATC + AFC = AVC
b. MC = ATC - AVC
c. ATC - AFC = AVC
d. MC = Δ ΤFC / Δ Q
a. ATC + AFC = AVC
b. MC = ATC - AVC
c. ATC - AFC = AVC
d. MC = Δ ΤFC / Δ Q
answer
C
question
16. In which of the following situations would a firm shut down?
a. P < AVC
b. MR > MC
c. Total Revenue = Total Cost
d. MR = MC
a. P < AVC
b. MR > MC
c. Total Revenue = Total Cost
d. MR = MC
answer
A
question
17. Which of the following is not true in comparing a monopolist market structure with a competitive market structure?
a. The monopolist's price is higher than the price charged by a perfectly competitive firm.
b. The monopolist's output is lower than the output of a perfectly competitive firm.
c. The monopolist and the competitive firm both maximize profits at the output level in which marginal revenue equals marginal cost.
d. The monopolist and the competitive firm both have downward sloping demand curves.
a. The monopolist's price is higher than the price charged by a perfectly competitive firm.
b. The monopolist's output is lower than the output of a perfectly competitive firm.
c. The monopolist and the competitive firm both maximize profits at the output level in which marginal revenue equals marginal cost.
d. The monopolist and the competitive firm both have downward sloping demand curves.
answer
D
question
18. Which of the following is not true of average cost curves?
a. The average total cost curve is usually U-shaped.
b. The average variable cost curve is usually U-shaped.
c. The average fixed cost curve rises continuously because the fixed costs of production are being spread over smaller and smaller levels of production.
d. The marginal cost curve first falls and then rises and cuts the average variable cost and average total cost curves at their minimum points.
a. The average total cost curve is usually U-shaped.
b. The average variable cost curve is usually U-shaped.
c. The average fixed cost curve rises continuously because the fixed costs of production are being spread over smaller and smaller levels of production.
d. The marginal cost curve first falls and then rises and cuts the average variable cost and average total cost curves at their minimum points.
answer
C
question
19. When a firm is producing 10 units of output, it has average fixed costs of $15 and average variable costs of $12. On that basis, we know that total cost is
a. $30.
b. $120.
c. $150.
d. $270.
a. $30.
b. $120.
c. $150.
d. $270.
answer
D
question
20. Using the data in Question 19 above, assume the firm sells its output for $30 per unit. On that basis, we know that the firm has total profit of
a. $30.
b. $50.
c. $180.
d. $270.
a. $30.
b. $50.
c. $180.
d. $270.
answer
A
question
Which of the following curves is horizontal when there are many competitors in the market?
a. marginal cost
b. demand
c. marginal revenue
d. supply
a. marginal cost
b. demand
c. marginal revenue
d. supply
answer
C
question
Which of the following curves always lies below the demand curve for a monopolist?
a. marginal revenue
b. average total cost
c. supply
d. marginal cost
a. marginal revenue
b. average total cost
c. supply
d. marginal cost
answer
A
question
T F 1. Fixed costs are fixed in the short run, but can change in the long run.
answer
T
question
T F 2. As output increases, the average fixed cost increases
answer
F
question
T F 3. If Joe quits his job as an accountant for a large corporation in order to start his own business, his foregone salary is an accounting cost, but not an economic cost.
answer
F
question
T F 4. Marginal revenue is a constant value for a monopoly
answer
F
question
T F 5. The profit maximizing /loss minimizing quantity for the firm occurs at the output level where the MR = MC.
answer
T
question
T F 6. The average fixed cost is asymptotic. It gets closer and closer to zero, but never reaches it.
answer
T
question
T F 7. The typical assumption in analyzing firm behavior is that firms aim to have more sales or revenue than its competitors.
answer
F
question
T F 8. An example of an accounting cost is the salary one gives up if one resigns a job to start up one's own business.
answer
F
question
T F 9. An example of a fixed cost is salaries paid to office workers
answer
F
question
T F 10. Total product will always rise if the firm adds more and more workers who are specialized
answer
F
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