Exam 6: Costs

Isocost lines

Assume Congress decides that oil companies are making too much profit and decides to tax oil companies for each gallon of gasoline produced. This would

Which of the following does NOT represent a possible shape of the long-run average cost curve?

If the cost of labor increases the isocost line will

Isoquant lines represent ________ whereas isocost lines represent ________.

Suppose that capital and labor must be kept in a fixed proportion to produce a particular good. For example, digging a trench requires one worker who has one shovel. What does this imply about returns to scale?

If increasing returns to scale are present, the long-run average cost increases as more output is produced.

Which of the following will cause the average fixed cost curve of making cigarettes to shift?

Which of the following will cause the average cost curve of making cigarettes to shift?

Average variable cost (AVC)

If average cost is decreasing

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. Which of the following statements is TRUE at all levels of production?

An old friend takes you out to dinner and pays for your meal. Which of the following best represents your opportunity cost?

Average fixed cost (AFC)

Suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the long run, the firm will experience

The Nifty Gum Co. has purchased a large parcel of land for $1 million. The company recently discovered that the land is contaminated and is worthless to all possible buyers. The opportunity cost of the land is

If a firm buys a delivery van for $18,000 and can resell it in 2 years for $7,500, the opportunity cost of using the van is

Long-run average cost is never greater than short-run average cost because in the long run

In the short run, the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve

A consumer purchases a book by driving across town to a bookstore, standing in line for five minutes to pay the cashier, and then pays $5. The same book is purchased by another consumer who spends 2 minutes placing the order over the Internet for $10. The book necessarily cost the first consumer less.