Question 1

The vertical distance between average total cost and average variable cost curves decreases as output increases because

Accepted Answer

A) it is traditional to draw the curves that way. 
B) marginal cost first falls and then rises. 
C) in geometry, both curves must reach their minimums on the marginal cost curve. 
D) marginal product first rises and then falls. 
E) average fixed cost decreases as output increases. 
A) it is traditional to draw the curves that way. 
B) marginal cost first falls and then rises. 
C) in geometry, both curves must reach their minimums on the marginal cost curve. 
D) marginal product first rises and then falls. 
E) average fixed cost decreases as output increases.

Question 2

If total revenue is greater than variable costs but less than total costs, a firm should remain in operation because its revenue is sufficient to cover variable costs and some fixed costs.

Accepted Answer

A) True 
 B)False

Question 3

Exhibit 8A-1  
-Refer to Exhibit 8A-1. At point C, output is

Accepted Answer

A) higher than at point A but lower than at point B. 
B) lower than at point A but higher than at point B. 
C) the same as at points A and B, but the cost is lower than at point A. 
D) the same as at points A and B, but the cost is higher than at point A. 
E) the same as at points A and B, and the costs for the three points are the same as well. 
A) higher than at point A but lower than at point B. 
B) lower than at point A but higher than at point B. 
C) the same as at points A and B, but the cost is lower than at point A. 
D) the same as at points A and B, but the cost is higher than at point A. 
E) the same as at points A and B, and the costs for the three points are the same as well.

Question 4

Exhibit 8-11  
-Refer to Exhibit 8-11, which is a long-run average total cost (ATC) schedule. At 3 units of output, the firm's production is in

Accepted Answer

A) decreasing marginal cost. 
B) increasing marginal product of labor. 
C) constant returns to scale. 
D) economies of scale. 
E) diseconomies of scale. 
A) decreasing marginal cost. 
B) increasing marginal product of labor. 
C) constant returns to scale. 
D) economies of scale. 
E) diseconomies of scale.

Question 5

If a firm produces at an output level where price exceeds average total cost, then it makes an economic profit.

Accepted Answer

A) True 
 B)False

Question 6

Explain what happens to the average total cost curve when capital usage is increased.

Accepted Answer

At relatively low levels of output, aver

Question 7

When diminishing returns to labor begins,

Accepted Answer

A) average total cost starts to rise. 
B) total costs start to rise. 
C) variable costs start to rise. 
D) marginal cost starts to rise. 
E) average variable costs start to rise. 
A) average total cost starts to rise. 
B) total costs start to rise. 
C) variable costs start to rise. 
D) marginal cost starts to rise. 
E) average variable costs start to rise.

Question 8

Which of the following would likely result in diseconomies of scale?

Accepted Answer

A) The development of auxiliary services in the neighborhood 
B) Adoption of a new (more efficient) production process 
C) Specialization 
D) Management problems 
E) Lowering the per-unit cost of resources by buying them in larger quantities 
A) The development of auxiliary services in the neighborhood 
B) Adoption of a new (more efficient) production process 
C) Specialization 
D) Management problems 
E) Lowering the per-unit cost of resources by buying them in larger quantities

Question 9

Economies of scope occur when average total costs fall as a result of increased production of the same product.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 8-7  
-Refer to Exhibit 8-7. If the market price is $90, then the amount of total economic profits for a profit-maximizing, price-taking firm is

Accepted Answer

A) $0. 
B) -$1,000. 
C) $1,000. 
D) -$3,000. 
E) $3,000. 
A) $0. 
B) -$1,000. 
C) $1,000. 
D) -$3,000. 
E) $3,000.

Question 11

Economies of scale exist when the long-run total cost curve is increasing at an increasing rate.

Accepted Answer

A) True 
 B)False

Question 12

The slope of an isocost line depends on the ratio of

Accepted Answer

A) the output prices. 
B) the input prices. 
C) an output price over an input price. 
D) an input price over an output price. 
E) total profits over total costs. 
A) the output prices. 
B) the input prices. 
C) an output price over an input price. 
D) an input price over an output price. 
E) total profits over total costs.

Question 13

An isoquant is a line that

Accepted Answer

A) illustrates firm demand for an input. 
B) shows different combinations of two goods that yield the same utility. 
C) shows different combinations of two inputs that yield the same output. 
D) shows a firm's preferences. 
E) shows different combinations of two inputs that cost the same. 
A) illustrates firm demand for an input. 
B) shows different combinations of two goods that yield the same utility. 
C) shows different combinations of two inputs that yield the same output. 
D) shows a firm's preferences. 
E) shows different combinations of two inputs that cost the same.

Question 14

Increasing marginal product of labor results in increasing marginal cost.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 8-4  
-Refer to Exhibit 8-4. Calculate the marginal cost for the third unit of output.

Accepted Answer

$13
TC for the third

Question 16

Average fixed cost is the difference between average total cost and average variable cost.

Accepted Answer

A) True 
 B)False

Question 17

Exhibit 8-3  
-Refer to Exhibit 8-3. At an output of 5 units, the average total cost is

Accepted Answer

A) $16.40. 
B) $20. 
C) $30.40. 
D) $50.40. 
E) $252. 
A) $16.40. 
B) $20. 
C) $30.40. 
D) $50.40. 
E) $252.

Question 18

The breakeven point is the point where price equals a firm's average total cost.

Accepted Answer

A) True 
 B)False

Question 19

Exhibit 8-10  
-Refer to Exhibit 8-10. Diseconomies of scale begin when output is at

Accepted Answer

A) 3 units. 
B) 4 units. 
C) 5 units. 
D) 6 units. 
E) 7 units. 
A) 3 units. 
B) 4 units. 
C) 5 units. 
D) 6 units. 
E) 7 units.

Question 20

Average fixed cost always declines as output increases.

Accepted Answer

A) True 
 B)False

Exam 8: Costs and the Changes at Firms Over Time

The vertical distance between average total cost and average variable cost curves decreases as output increases because

If total revenue is greater than variable costs but less than total costs, a firm should remain in operation because its revenue is sufficient to cover variable costs and some fixed costs.

Exhibit 8A-1 -Refer to Exhibit 8A-1. At point C, output is

Exhibit 8-11 -Refer to Exhibit 8-11, which is a long-run average total cost (ATC) schedule. At 3 units of output, the firm's production is in

If a firm produces at an output level where price exceeds average total cost, then it makes an economic profit.

Explain what happens to the average total cost curve when capital usage is increased.

When diminishing returns to labor begins,

Which of the following would likely result in diseconomies of scale?

Economies of scope occur when average total costs fall as a result of increased production of the same product.

Exhibit 8-7 -Refer to Exhibit 8-7. If the market price is $90, then the amount of total economic profits for a profit-maximizing, price-taking firm is

Economies of scale exist when the long-run total cost curve is increasing at an increasing rate.

The slope of an isocost line depends on the ratio of

An isoquant is a line that

Increasing marginal product of labor results in increasing marginal cost.

Exhibit 8-4 -Refer to Exhibit 8-4. Calculate the marginal cost for the third unit of output.

Average fixed cost is the difference between average total cost and average variable cost.

Exhibit 8-3 -Refer to Exhibit 8-3. At an output of 5 units, the average total cost is

The breakeven point is the point where price equals a firm's average total cost.

Exhibit 8-10 -Refer to Exhibit 8-10. Diseconomies of scale begin when output is at

Average fixed cost always declines as output increases.

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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