Question 1

Average variable cost and marginal cost are two ways for economists to say the same thing.

Accepted Answer

A) True 
 B)False

Question 2

Diseconomies of scale occur when:

Accepted Answer

A) long-run average total costs rise as output increases 
B) long-run average total costs fall as output increases 
C) average fixed costs are falling 
D) average fixed costs are constant 
A) long-run average total costs rise as output increases 
B) long-run average total costs fall as output increases 
C) average fixed costs are falling 
D) average fixed costs are constant

Question 3

Graph 13-5   The set of curves above reflect information about the cost structure of a firm.Use this graph to answer the following question(s).
-Refer to Graph 13-5.This particular firm is necessarily experiencing increasing marginal product when curve:

Accepted Answer

A) A is falling 
B) B is falling 
C) C is falling 
D) D is falling 
A) A is falling 
B) B is falling 
C) C is falling 
D) D is falling

Question 4

Complete the following formulae:
TVC = costs
TC = total
AVC = costs
AC = costs
TFC = costs
AFC = average
MC = costs
TC = TFC +
AC = + AVC
MC = ∆TC/ = /∆Q
AFC = TFC/
AVC = /Q
AC = TC/Q

Accepted Answer

TVC = total variable costs
TC = total co

Question 5

Fixed costs can be defined as costs that:

Accepted Answer

A) are incurred only when production is large enough 
B) are unaffected by production 
C) vary inversely with production 
D) vary at a fixed rate with production 
A) are incurred only when production is large enough 
B) are unaffected by production 
C) vary inversely with production 
D) vary at a fixed rate with production

Question 6

Implicit costs are costs that do not require an outlay of cash by the firm.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following would be categorised as an opportunity cost?
(i) wages of workers
(ii) fixed costs already incurred
(iii) forgone investment opportunities

Accepted Answer

A) (i) and (iii) 
B) (iii) only 
C) (ii) and (iii) 
D) (i), (ii) and (iii) 
A) (i) and (iii) 
B) (iii) only 
C) (ii) and (iii) 
D) (i), (ii) and (iii)

Question 8

According to the information provided, what is the total opportunity cost that Amy incurred to spend her time developing photographs?

Accepted Answer

A) $1250 
B) $2500 
C) $3500 
D) $3750 
A) $1250 
B) $2500 
C) $3500 
D) $3750

Question 9

According to the information provided, Jack's production function will:

Accepted Answer

A) increase at an increasing rate 
B) increase at a decreasing rate 
C) decrease at a decreasing rate 
D) decrease at an increasing rate 
A) increase at an increasing rate 
B) increase at a decreasing rate 
C) decrease at a decreasing rate 
D) decrease at an increasing rate

Question 10

Marginal cost equals which of the following?
(i) the average fixed cost of the current unit
(ii) the change in total costs divided by change in quantity produced
(iii) the change in variable costs divided by change in quantity produced

Accepted Answer

A) (i) and (ii) 
B) (ii) and (iii) 
C) (ii) only 
D) (i), (ii) and (iii) 
A) (i) and (ii) 
B) (ii) and (iii) 
C) (ii) only 
D) (i), (ii) and (iii)

Question 11

Total revenue equals:

Accepted Answer

A) total output multiplied by the unit cost of output 
B) total output multiplied by profit 
C) total output multiplied by the unit price of output 
D) total output divided by profit 
A) total output multiplied by the unit cost of output 
B) total output multiplied by profit 
C) total output multiplied by the unit price of output 
D) total output divided by profit

Question 12

Graph 13-5   The set of curves above reflect information about the cost structure of a firm.Use this graph to answer the following question(s).
-Refer to Graph 13-5.Which of the curves is most likely to represent marginal cost?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 13

The use of specialisation to achieve economies of scale is one reason modern societies are as prosperous as they are.

Accepted Answer

A) True 
 B)False

Question 14

Table 13-3
Consider the following firm which makes high-performance racing bicycles.All costs are given in dollars.Output is shown on a monthly basis.The firm's fixed costs include a rent of $800 and a lease cost of $400 per month.  
-Refer to Table 13-3.How many bicycles are produced when marginal cost is $321?

Accepted Answer

A) four 
B) seven 
C) nine 
D) 10 
A) four 
B) seven 
C) nine 
D) 10

Question 15

Harry Hoarder runs a small street vendor service which contracts to produce and sell moulded plastic souvenirs (key chains, commemorative plastic coins, plastic animals, etc.) at small theatre shows.As owner of the firm, Harry must decide how much of each product to produce.The key element of this decision is:

Accepted Answer

A) the fixed cost of production 
B) the cost of his selling booth 
C) how costs will vary as he changes the level of production 
D) the cost of book keeping services 
A) the fixed cost of production 
B) the cost of his selling booth 
C) how costs will vary as he changes the level of production 
D) the cost of book keeping services

Question 16

The cost of producing an additional unit of a good is not the same as the average cost of the good.

Accepted Answer

A) True 
 B)False

Question 17

Economies of scale arise when:

Accepted Answer

A) workers are able to specialise in a particular task 
B) an economy is self-sufficient in production 
C) individuals in a society are self-sufficient 
D) fixed costs are large relative to variable costs 
A) workers are able to specialise in a particular task 
B) an economy is self-sufficient in production 
C) individuals in a society are self-sufficient 
D) fixed costs are large relative to variable costs

Question 18

Table 13-3
Consider the following firm which makes high-performance racing bicycles.All costs are given in dollars.Output is shown on a monthly basis.The firm's fixed costs include a rent of $800 and a lease cost of $400 per month.  
-Refer to Table 13-3.What is the average fixed cost for the month if 10 bicycles are produced?

Accepted Answer

A) $120 
B) $284.40 
C) $404.40 
D) $1200 
A) $120 
B) $284.40 
C) $404.40 
D) $1200

Question 19

Graph 13-5   The set of curves above reflect information about the cost structure of a firm.Use this graph to answer the following question(s).
-Refer to Graph 13-5.Curve A is necessarily U-shaped because of:

Accepted Answer

A) diminishing marginal product 
B) increasing marginal product 
C) the fact that decreasing marginal product follows increasing marginal product 
D) the fact that increasing marginal product follows decreasing marginal product 
A) diminishing marginal product 
B) increasing marginal product 
C) the fact that decreasing marginal product follows increasing marginal product 
D) the fact that increasing marginal product follows decreasing marginal product

Question 20

The marginal cost curve crosses the average total cost curve at:

Accepted Answer

A) the efficient scale 
B) economies of scale 
C) diseconomies of scale 
D) maximum ATC 
A) the efficient scale 
B) economies of scale 
C) diseconomies of scale 
D) maximum ATC

Exam 13: The Costs of Production

Average variable cost and marginal cost are two ways for economists to say the same thing.

Diseconomies of scale occur when:

Graph 13-5 The set of curves above reflect information about the cost structure of a firm.Use this graph to answer the following question(s). -Refer to Graph 13-5.This particular firm is necessarily experiencing increasing marginal product when curve:

Complete the following formulae: TVC = costs TC = total AVC = costs AC = costs TFC = costs AFC = average MC = costs TC = TFC + AC = + AVC MC = ∆TC/ = /∆Q AFC = TFC/ AVC = /Q AC = TC/Q

Fixed costs can be defined as costs that:

Implicit costs are costs that do not require an outlay of cash by the firm.

Which of the following would be categorised as an opportunity cost? (i) wages of workers (ii) fixed costs already incurred (iii) forgone investment opportunities

According to the information provided, what is the total opportunity cost that Amy incurred to spend her time developing photographs?

According to the information provided, Jack's production function will:

Marginal cost equals which of the following? (i) the average fixed cost of the current unit (ii) the change in total costs divided by change in quantity produced (iii) the change in variable costs divided by change in quantity produced

Total revenue equals:

Graph 13-5 The set of curves above reflect information about the cost structure of a firm.Use this graph to answer the following question(s). -Refer to Graph 13-5.Which of the curves is most likely to represent marginal cost?

The use of specialisation to achieve economies of scale is one reason modern societies are as prosperous as they are.

The cost of producing an additional unit of a good is not the same as the average cost of the good.

Economies of scale arise when:

Graph 13-5 The set of curves above reflect information about the cost structure of a firm.Use this graph to answer the following question(s). -Refer to Graph 13-5.Curve A is necessarily U-shaped because of:

The marginal cost curve crosses the average total cost curve at:

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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