Question 1

Capital expansion causes the average total cost curve to be shifted up for all levels of output.

Accepted Answer

A) True 
 B)False

Question 2

Average total cost is average variable cost plus marginal cost.

Accepted Answer

A) True 
 B)False

Question 3

When capital increases, variable costs

Accepted Answer

A) increase at low levels of output and decrease at high levels of output. 
B) increase for all levels of output. 
C) do not change. 
D) decrease at low levels of output and increase at high levels of output. 
E) decrease for all levels of output. 
A) increase at low levels of output and decrease at high levels of output. 
B) increase for all levels of output. 
C) do not change. 
D) decrease at low levels of output and increase at high levels of output. 
E) decrease for all levels of output.

Question 4

If marginal cost is at its minimum,

Accepted Answer

A) total output is at its maximum. 
B) average total cost is at its minimum. 
C) total cost is at its maximum. 
D) marginal product is at its maximum. 
E) average variable cost is at its minimum. 
A) total output is at its maximum. 
B) average total cost is at its minimum. 
C) total cost is at its maximum. 
D) marginal product is at its maximum. 
E) average variable cost is at its minimum.

Question 5

Which of the following is the best example of fixed costs?

Accepted Answer

A) Rent for an office 
B) Overtime wages for workers 
C) Costs of material supplies 
D) Fuel used to operate an equipment 
E) Costs for product packaging 
A) Rent for an office 
B) Overtime wages for workers 
C) Costs of material supplies 
D) Fuel used to operate an equipment 
E) Costs for product packaging

Question 6

Exhibit 8-9  
-Refer to Exhibit 8-9. Calculate the profit if price equals $10 and output is 100 units.

Accepted Answer

$0
Profit

Question 7

In the long run, a firm can increase production by

Accepted Answer

A) increasing variable costs. 
B) increasing capital input. 
C) reducing labor input. 
D) shutting down. 
E) minimizing fixed costs. 
A) increasing variable costs. 
B) increasing capital input. 
C) reducing labor input. 
D) shutting down. 
E) minimizing fixed costs.

Question 8

Exhibit 8-6  
-Refer to Exhibit 8-6. At an output of 100 units, fixed costs equal

Accepted Answer

A) $550. 
B) $200. 
C) $450. 
D) $1,000. 
E) $350. 
A) $550. 
B) $200. 
C) $450. 
D) $1,000. 
E) $350.

Question 9

Exhibit 8-6  
-Refer to Exhibit 8-6. At an output level of 300 units, variable costs equal

Accepted Answer

A) $1,650. 
B) $1,800. 
C) $450. 
D) $3,000. 
E) $1,350. 
A) $1,650. 
B) $1,800. 
C) $450. 
D) $3,000. 
E) $1,350.

Question 10

The price of labor relative to capital determines the amount of labor used relative to capital in a firm.

Accepted Answer

A) True 
 B)False

Question 11

Define average total cost, average variable cost, and average fixed cost, respectively, using letter symbols.

Accepted Answer

ATC = TC/Q

Question 12

The firm expands its capital up to the point that

Accepted Answer

A) long-run average costs are minimized. 
B) fixed costs are minimized. 
C) average variable costs are minimized. 
D) profits are maximized. 
E) average total costs are minimized. 
A) long-run average costs are minimized. 
B) fixed costs are minimized. 
C) average variable costs are minimized. 
D) profits are maximized. 
E) average total costs are minimized.

Question 13

What will happen to the average of 40, 65, and 70 when the number 50 is included and averaged?

Accepted Answer

A) It will rise because 50 is greater than the previous average. 
B) It will fall because 50 is less than the previous average. 
C) There is not enough information to know what will happen to the average. 
D) It will remain constant because it is equal to the average. 
E) It will either rise or fall depending on the next number to be included. 
A) It will rise because 50 is greater than the previous average. 
B) It will fall because 50 is less than the previous average. 
C) There is not enough information to know what will happen to the average. 
D) It will remain constant because it is equal to the average. 
E) It will either rise or fall depending on the next number to be included.

Question 14

Exhibit 8-3  
-Refer to Exhibit 8-3. The average variable cost at 3 units of output is

Accepted Answer

A) $49.33. 
B) $16. 
C) $13.33. 
D) $29.33. 
E) $25. 
A) $49.33. 
B) $16. 
C) $13.33. 
D) $29.33. 
E) $25.

Question 15

Exhibit 8-5  
-Refer to Exhibit 8-5. At an output level of L, average total cost is

Accepted Answer

A) $E. 
B) $D. 
C) $C. 
D) $A. 
E) $B. 
A) $E. 
B) $D. 
C) $C. 
D) $A. 
E) $B.

Question 16

A production function relates output to its price.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is true?

Accepted Answer

A) If AVC is increasing, ATC must be increasing, too. 
B) If MC is increasing, then AVC is increasing. 
C) ATC reaches minimum before AVC. 
D) If AVC and AFC are decreasing, ATC must be decreasing. 
E) None of these. 
A) If AVC is increasing, ATC must be increasing, too. 
B) If MC is increasing, then AVC is increasing. 
C) ATC reaches minimum before AVC. 
D) If AVC and AFC are decreasing, ATC must be decreasing. 
E) None of these.

Question 18

Marginal cost

Accepted Answer

A) is usually zero in the short run. 
B) equals total costs plus total fixed costs. 
C) will fall with output until the onset of diminishing marginal returns. 
D) does not vary with the quantity of output that a firm produces. 
E) is usually zero in the long run. 
A) is usually zero in the short run. 
B) equals total costs plus total fixed costs. 
C) will fall with output until the onset of diminishing marginal returns. 
D) does not vary with the quantity of output that a firm produces. 
E) is usually zero in the long run.

Question 19

Fixed costs exist in

Accepted Answer

A) both the long run and the short run. 
B) only in the long run but not in the short run. 
C) only in the short run but not in the long run. 
D) in neither the long run nor the short run. 
E) sometimes in the short run and sometimes in the long run. 
A) both the long run and the short run. 
B) only in the long run but not in the short run. 
C) only in the short run but not in the long run. 
D) in neither the long run nor the short run. 
E) sometimes in the short run and sometimes in the long run.

Question 20

A firm that maximizes output for a specific total cost is producing at the point where the isocost line is above the highest isoquant.

Accepted Answer

A) True 
 B)False

Exam 8: Costs and the Changes at Firms Over Time

Capital expansion causes the average total cost curve to be shifted up for all levels of output.

Average total cost is average variable cost plus marginal cost.

When capital increases, variable costs

If marginal cost is at its minimum,

Which of the following is the best example of fixed costs?

Exhibit 8-9 -Refer to Exhibit 8-9. Calculate the profit if price equals $10 and output is 100 units.

In the long run, a firm can increase production by

Exhibit 8-6 -Refer to Exhibit 8-6. At an output of 100 units, fixed costs equal

Exhibit 8-6 -Refer to Exhibit 8-6. At an output level of 300 units, variable costs equal

The price of labor relative to capital determines the amount of labor used relative to capital in a firm.

Define average total cost, average variable cost, and average fixed cost, respectively, using letter symbols.

The firm expands its capital up to the point that

What will happen to the average of 40, 65, and 70 when the number 50 is included and averaged?

Exhibit 8-3 -Refer to Exhibit 8-3. The average variable cost at 3 units of output is

Exhibit 8-5 -Refer to Exhibit 8-5. At an output level of L, average total cost is

A production function relates output to its price.

Which of the following statements is true?

Marginal cost

Fixed costs exist in

A firm that maximizes output for a specific total cost is producing at the point where the isocost line is above the highest isoquant.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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