question
Which of the following is always true of the relationship between average and marginal costs?
3.2:
A
Average total costs are increasing when marginal costs are increasing.
B
Marginal costs are increasing when average variable costs are higher than marginal costs.
C
Average variable costs are increasing when marginal costs are increasing.
D
Average variable costs are increasing when marginal costs are higher than average variable costs.
E
Average total costs are constant when marginal costs are constant.
3.2:
A
Average total costs are increasing when marginal costs are increasing.
B
Marginal costs are increasing when average variable costs are higher than marginal costs.
C
Average variable costs are increasing when marginal costs are increasing.
D
Average variable costs are increasing when marginal costs are higher than average variable costs.
E
Average total costs are constant when marginal costs are constant.
answer
D
Average variable costs are increasing when marginal costs are higher than average variable costs.
Average variable costs are increasing when marginal costs are higher than average variable costs.
question
Which of the following is true about a firm's average variable cost?
3.2:
A
It will rise if marginal cost is less than average variable cost.
B
It will never equal the firm's marginal cost.
C
It will decline when the firm's marginal product declines.
D
It will be negative if marginal revenue declines.
E
It will equal average total cost when fixed costs are zero.
3.2:
A
It will rise if marginal cost is less than average variable cost.
B
It will never equal the firm's marginal cost.
C
It will decline when the firm's marginal product declines.
D
It will be negative if marginal revenue declines.
E
It will equal average total cost when fixed costs are zero.
answer
E
It will equal average total cost when fixed costs are zero.
It will equal average total cost when fixed costs are zero.
question
The table above shows the amount of labor inputs necessary to produce given levels of output. If the cost of a unit of labor is $20 and total fixed cost is $100, the average total cost of producing 20 units of output is
3.2
A
$1
B
$2
C
$7
D
$40
E
$120
3.2
A
$1
B
$2
C
$7
D
$40
E
$120
answer
C
$7
$7
question
Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output?
3.2
A
$2
B
$5
C
$7
D
$9
E
$12
3.2
A
$2
B
$5
C
$7
D
$9
E
$12
answer
C
$7
$7
question
If labor is the only variable input and it costs $15 per hour and if the marginal product of labor is 3 units per hour, the short-run marginal cost of 1 unit of output is approximately
3.2
A
$0.20
B
$3.00
C
$5.00
D
$15.00
E
$45.00
3.2
A
$0.20
B
$3.00
C
$5.00
D
$15.00
E
$45.00
answer
C
$5.00
$5.00
question
A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?
3.2
A
The demand curve for the product will shift to the left.
B
The firm's demand curve for plastic will shift to the left.
C
The firm will increase the number of units offered for sale.
D
The firm will definitely go out of business, since competitive firms earn zero economic profits in equilibrium.
E
The firm's marginal costs will increase at each level of output.
3.2
A
The demand curve for the product will shift to the left.
B
The firm's demand curve for plastic will shift to the left.
C
The firm will increase the number of units offered for sale.
D
The firm will definitely go out of business, since competitive firms earn zero economic profits in equilibrium.
E
The firm's marginal costs will increase at each level of output.
answer
E
The firm's marginal costs will increase at each level of output.
The firm's marginal costs will increase at each level of output.
question
For a firm where labor is the only variable input, which of the following happens when diminishing returns set in?
3.2
A
Average variable cost begins to increase.
B
Average product of labor begins to decline.
C
Total product begins to decline.
D
Marginal cost begins to increase.
E
Average total cost begins to increase.
3.2
A
Average variable cost begins to increase.
B
Average product of labor begins to decline.
C
Total product begins to decline.
D
Marginal cost begins to increase.
E
Average total cost begins to increase.
answer
D
Marginal cost begins to increase.
Marginal cost begins to increase.
question
Which of the following indicates the presence of economies of scale as the quantity of output increases?
3.3
A
Average variable cost decreases.
B
Long-run average total cost decreases.
C
Marginal cost decreases.
D
Average fixed cost decreases.
E
Marginal cost exceeds average total cost.
3.3
A
Average variable cost decreases.
B
Long-run average total cost decreases.
C
Marginal cost decreases.
D
Average fixed cost decreases.
E
Marginal cost exceeds average total cost.
answer
B
Long-run average total cost decreases
Long-run average total cost decreases
question
3.3 Economies of scale exist when
A
the doubling of all inputs doubles the output produced
B
short-run average total cost decreases as output increases
C
short-run average total cost remains constant as output increases
D
long-run average total cost increases as output increases
E
long-run average total cost decreases as output increases
A
the doubling of all inputs doubles the output produced
B
short-run average total cost decreases as output increases
C
short-run average total cost remains constant as output increases
D
long-run average total cost increases as output increases
E
long-run average total cost decreases as output increases
answer
E
long-run average total cost decreases as output increases
long-run average total cost decreases as output increases
question
3.3
F&D Manufacturing Company increases all its inputs by 50 percent each. If F&D's output increases by 100 percent, then F&D is experiencing
A
increasing returns to scale
B
constant returns to scale
C
diseconomies of scale
D
increasing marginal cost
E
decreasing profits
F&D Manufacturing Company increases all its inputs by 50 percent each. If F&D's output increases by 100 percent, then F&D is experiencing
A
increasing returns to scale
B
constant returns to scale
C
diseconomies of scale
D
increasing marginal cost
E
decreasing profits
answer
A
increasing returns to scale
increasing returns to scale
question
3.2
At 100 units of a firm's output, average total cost is $10, average variable cost is $8, average fixed cost is $2, and marginal cost is $12. How will each of the following change as the firm's output further increases?
A
Average Total CostAverage Variable CostAverage Fixed CostIncreaseIncreaseIncrease
B
Average Total CostAverage Variable CostAverage Fixed CostIncreaseIncreaseDecrease
C
Average Total CostAverage Variable CostAverage Fixed CostIncreaseDecreaseDecrease
D
Average Total CostAverage Variable CostAverage Fixed CostDecreaseIncreaseIncrease
E
Average Total CostAverage Variable CostAverage Fixed CostDecreaseDecreaseDecrease
At 100 units of a firm's output, average total cost is $10, average variable cost is $8, average fixed cost is $2, and marginal cost is $12. How will each of the following change as the firm's output further increases?
A
Average Total CostAverage Variable CostAverage Fixed CostIncreaseIncreaseIncrease
B
Average Total CostAverage Variable CostAverage Fixed CostIncreaseIncreaseDecrease
C
Average Total CostAverage Variable CostAverage Fixed CostIncreaseDecreaseDecrease
D
Average Total CostAverage Variable CostAverage Fixed CostDecreaseIncreaseIncrease
E
Average Total CostAverage Variable CostAverage Fixed CostDecreaseDecreaseDecrease
answer
B
Average Total CostAverage Variable CostAverage Fixed CostIncreaseIncreaseDecrease
Average Total CostAverage Variable CostAverage Fixed CostIncreaseIncreaseDecrease
question
3.2
Which of the following factors can cause a firm's cost curves to shift upward?
A
An increase in wages
B
An increase in the firm's output
C
An increase in the output price
D
A decrease in the firm's output
E
A decrease in the price of energy
Which of the following factors can cause a firm's cost curves to shift upward?
A
An increase in wages
B
An increase in the firm's output
C
An increase in the output price
D
A decrease in the firm's output
E
A decrease in the price of energy
answer
A
An increase in wages
An increase in wages
question
3.3
A
The firm increases only its labor input, and output decreases.
B
The firm doubles its inputs, and output triples.
C
The firm builds a new plant, and the average cost of production increases.
D
The firm hires a new plant manager, and profits increase.
E
The product price increases, and the firm increases its output.
A
The firm increases only its labor input, and output decreases.
B
The firm doubles its inputs, and output triples.
C
The firm builds a new plant, and the average cost of production increases.
D
The firm hires a new plant manager, and profits increase.
E
The product price increases, and the firm increases its output.
answer
B
The firm doubles its inputs, and output triples.
The firm doubles its inputs, and output triples.
question
3.1
Locotek produces toy trains and pays each worker $350 per week. Five workers can produce 40 trains per week and six workers can produce 45 trains per week. The marginal product per week of the sixth worker is
A
$70
B
$350
C
5 trains
D
7.5 trains
E
42.5 trains
Locotek produces toy trains and pays each worker $350 per week. Five workers can produce 40 trains per week and six workers can produce 45 trains per week. The marginal product per week of the sixth worker is
A
$70
B
$350
C
5 trains
D
7.5 trains
E
42.5 trains
answer
C
5 trains
5 trains
question
The long-run average cost curve will be sloping downward if a firm experiences
A
diminishing marginal returns
B
decreasing returns to scale
C
constant returns to scale
D
diseconomies of scale
E
economies of scale
A
diminishing marginal returns
B
decreasing returns to scale
C
constant returns to scale
D
diseconomies of scale
E
economies of scale
answer
E
economies of scale
economies of scale
question
3.2
Marginal cost is defined as the
A
change in total cost resulting from producing an additional unit of output
B
change in total cost resulting from using an additional unit of input
C
difference between total cost and total variable cost
D
difference between total variable cost and total fixed cost
E
difference between average total cost and average variable cost divided by output
Marginal cost is defined as the
A
change in total cost resulting from producing an additional unit of output
B
change in total cost resulting from using an additional unit of input
C
difference between total cost and total variable cost
D
difference between total variable cost and total fixed cost
E
difference between average total cost and average variable cost divided by output
answer
A
change in total cost resulting from producing an additional unit of output
change in total cost resulting from producing an additional unit of output
question
3.2
The chart below gives a firm's total cost of producing different levels of output.
The marginal cost of producing the fourth unit of output is
A
$ 4
B
$11
C
$19
D
$32
E
impossible to determine from the information given
The chart below gives a firm's total cost of producing different levels of output.
The marginal cost of producing the fourth unit of output is
A
$ 4
B
$11
C
$19
D
$32
E
impossible to determine from the information given
answer
A
$ 4
$ 4
question
3.2
The chart below gives a firm's total cost of producing different levels of output.
The total variable cost of producing five units of output is
A
$ 6
B
$11
C
$30
D
$43
E
impossible to determine from the information given
The chart below gives a firm's total cost of producing different levels of output.
The total variable cost of producing five units of output is
A
$ 6
B
$11
C
$30
D
$43
E
impossible to determine from the information given
answer
C
$30
$30
question
Which of the following statements about cost is always true for both monopolies and perfectly competitive firms?
A
Average total cost equals marginal cost when average total cost is a minimum.
B
Marginal cost decreases as production increases.
C
Average fixed cost is equal to marginal cost when average fixed cost is a minimum.
D
Average variable cost is equal to marginal cost when marginal cost is a minimum.
E
Average variable cost decreases as production increases.
A
Average total cost equals marginal cost when average total cost is a minimum.
B
Marginal cost decreases as production increases.
C
Average fixed cost is equal to marginal cost when average fixed cost is a minimum.
D
Average variable cost is equal to marginal cost when marginal cost is a minimum.
E
Average variable cost decreases as production increases.
answer
A
Average total cost equals marginal cost when average total cost is a minimum.
Average total cost equals marginal cost when average total cost is a minimum.
question
Beyond a certain level of output, the short-run marginal cost will rise because
A
there is no fixed input and costs will increase
B
at least one input is fixed and eventually diminishing returns will occur
C
the cost of the variable input increases when marginal product increases
D
the demand for the good decreases when production is limited
E
input prices increase when production increases and consumption is limited
A
there is no fixed input and costs will increase
B
at least one input is fixed and eventually diminishing returns will occur
C
the cost of the variable input increases when marginal product increases
D
the demand for the good decreases when production is limited
E
input prices increase when production increases and consumption is limited
answer
B
at least one input is fixed and eventually diminishing returns will occur
at least one input is fixed and eventually diminishing returns will occur
question
A merger of two firms may increase economic efficiency by
A
decreasing average total cost through an increase in economies of scale
B
decreasing output to reduce marginal cost and equalize price
C
increasing economic profits but decreasing consumer surplus
D
increasing consumer surplus by decreasing economic profits
E
increasing consumer surplus by shifting the demand curve for the product to the right
A
decreasing average total cost through an increase in economies of scale
B
decreasing output to reduce marginal cost and equalize price
C
increasing economic profits but decreasing consumer surplus
D
increasing consumer surplus by decreasing economic profits
E
increasing consumer surplus by shifting the demand curve for the product to the right
answer
A
decreasing average total cost through an increase in economies of scale
decreasing average total cost through an increase in economies of scale
question
In microeconomics, the short run is defined as which of the following?
A
A period that is less than one year
B
A period that is between one year and four years
C
A period that is too short for a firm to be able to change its level of output
D
A period during which some inputs in a firm's production process cannot be changed
E
A period during which a firm's fixed costs exceed its variable costs
A
A period that is less than one year
B
A period that is between one year and four years
C
A period that is too short for a firm to be able to change its level of output
D
A period during which some inputs in a firm's production process cannot be changed
E
A period during which a firm's fixed costs exceed its variable costs
answer
D
A period during which some inputs in a firm's production process cannot be changed
A period during which some inputs in a firm's production process cannot be changed
question
As its output increases, a firm's short-run marginal cost will eventually increase because of
A
diseconomies of scale
B
a lower product price
C
inefficient production
D
the firm's need to break even
E
diminishing returns
A
diseconomies of scale
B
a lower product price
C
inefficient production
D
the firm's need to break even
E
diminishing returns
answer
E
diminishing returns
diminishing returns
question
In most cases the supply curve for a perfectly competitive industry can be described as which of the following?
A
More elastic in the short run than in the long run
B
More elastic in the long run than in the short run
C
Downward sloping in the short run
D
Perfectly inelastic in the long run
E
Perfectly elastic in the short run
A
More elastic in the short run than in the long run
B
More elastic in the long run than in the short run
C
Downward sloping in the short run
D
Perfectly inelastic in the long run
E
Perfectly elastic in the short run
answer
B
More elastic in the long run than in the short run
More elastic in the long run than in the short run
question
Which of the following best describes the relationship between the average total cost curve and the marginal cost curve in the short run?
A
If the average total cost curve is rising, the marginal cost curve is above the average total cost curve.
B
If the average total cost curve is rising, the marginal cost curve is below the average total cost curve.
C
If the average total cost curve is above the marginal cost curve, the marginal cost curve is rising.
D
If the average total cost curve is below the marginal cost curve, the marginal cost curve is falling.
E
If the average and marginal cost curves intersect, the marginal cost curve is at a minimum.
A
If the average total cost curve is rising, the marginal cost curve is above the average total cost curve.
B
If the average total cost curve is rising, the marginal cost curve is below the average total cost curve.
C
If the average total cost curve is above the marginal cost curve, the marginal cost curve is rising.
D
If the average total cost curve is below the marginal cost curve, the marginal cost curve is falling.
E
If the average and marginal cost curves intersect, the marginal cost curve is at a minimum.
answer
A
If the average total cost curve is rising, the marginal cost curve is above the average total cost curve.
If the average total cost curve is rising, the marginal cost curve is above the average total cost curve.
question
If a single firm can produce and supply an entire market at a lower unit cost than many small firms can, the long-run average total cost must be
A
increasing as firm size increases
B
remaining constant as firm size increases
C
decreasing as the firm's output increases
D
inelastic due to specialization
E
constant and equal to marginal cost
A
increasing as firm size increases
B
remaining constant as firm size increases
C
decreasing as the firm's output increases
D
inelastic due to specialization
E
constant and equal to marginal cost
answer
C
decreasing as the firm's output increases
decreasing as the firm's output increases
question
Technological advances will lead to
A
an increase in marginal utility
B
a decrease in average total costs
C
a decrease in net exports
D
an increase in marginal costs
E
diseconomies of scale
A
an increase in marginal utility
B
a decrease in average total costs
C
a decrease in net exports
D
an increase in marginal costs
E
diseconomies of scale
answer
B
a decrease in average total costs
a decrease in average total costs
question
If the price of a firm's variable input increases, which of the following will occur?
A
The firm will decrease its level of production.
B
The price of the good will decrease in the short run.
C
The firm's marginal costs will decrease at every level of output.
D
The firm's average fixed cost will decrease.
E
More firms will enter the industry in the long run.
A
The firm will decrease its level of production.
B
The price of the good will decrease in the short run.
C
The firm's marginal costs will decrease at every level of output.
D
The firm's average fixed cost will decrease.
E
More firms will enter the industry in the long run.
answer
A
The firm will decrease its level of production.
The firm will decrease its level of production.
question
An increase in which of the following will cause a firm's marginal cost curve to shift upward?
A
The price of a variable input
B
The price of a fixed input
C
The level of output
D
Labor productivity
E
The demand for the firm's product
A
The price of a variable input
B
The price of a fixed input
C
The level of output
D
Labor productivity
E
The demand for the firm's product
answer
A
The price of a variable input
The price of a variable input
question
When marginal product exceeds average product, which of the following must be true?
A
Average product is increasing.
B
Average product is decreasing.
C
Marginal product is increasing.
D
Total product is decreasing.
E
Total product is at its maximum.
A
Average product is increasing.
B
Average product is decreasing.
C
Marginal product is increasing.
D
Total product is decreasing.
E
Total product is at its maximum.
answer
A
Average product is increasing.
Average product is increasing.
question
Which of the following best explains why the short-run average total cost curve is U-shaped?
A
Spreading total fixed costs over a larger output, and constant returns
B
Spreading total fixed costs over a larger output, and eventually diminishing returns
C
Increasing total fixed costs and increasing returns
D
Increasing average variable costs and decreasing returns
E
Decreasing average variable costs and increasing returns
A
Spreading total fixed costs over a larger output, and constant returns
B
Spreading total fixed costs over a larger output, and eventually diminishing returns
C
Increasing total fixed costs and increasing returns
D
Increasing average variable costs and decreasing returns
E
Decreasing average variable costs and increasing returns
answer
B
Spreading total fixed costs over a larger output, and eventually diminishing returns
Spreading total fixed costs over a larger output, and eventually diminishing returns
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