Question 1

Every firm has to bear its fixed costs even when it produces nothing.

Accepted Answer

A) True 
 B)False

Question 2

If marginal product increases with an increase in the variable input, the marginal cost must also increase as more units of the input are hired.

Accepted Answer

A) True 
 B)False

Question 3

The table given below shows the total cost of producing different units of the output by a competitive firm. Table 21.4
  In Table 21.4, at 4 units of output,

Accepted Answer

A) AFC = $6.25 and AVC = $10 
B) AFC = $6.25 and AVC = $40 
C) AFC = $40 and AVC = $6.25 
D) AFC = $25 and AVC = $40 
E) AFC and AVC cannot be determined from the information provided. 
A) AFC = $6.25 and AVC = $10 
B) AFC = $6.25 and AVC = $40 
C) AFC = $40 and AVC = $6.25 
D) AFC = $25 and AVC = $40 
E) AFC and AVC cannot be determined from the information provided.

Question 4

The figure given below shows cost curves of a firm. Figure: 21.2   In the figure,
|: Marginal cost curve
||: Average total cost curve
|||: Average variable cost curve
Refer to Figure 21.2.At an output level of H, total fixed cost is:

Accepted Answer

A) SR. 
B) LK. 
C) BE. 
D) area BEMN. 
E) area 0EMH. 
A) SR. 
B) LK. 
C) BE. 
D) area BEMN. 
E) area 0EMH.

Question 5

The table given below shows the average total cost of production of a firm at different levels of the output. Table 21.5
  In Table 21.5, what is the total cost of producing 4 units?

Accepted Answer

A) $28 
B) $10 
C) $15 
D) $20 
E) $35 
A) $28 
B) $10 
C) $15 
D) $20 
E) $35

Question 6

"As I add more workers to the factory line, the additional output produced by each additional worker seems to decline.Eventually, the workers just get in each others' way." This statement by a factory supervisor refers to:

Accepted Answer

A) the law of comparative advantage. 
B) the law of demand. 
C) the law of supply. 
D) the law of diminishing marginal utility. 
E) the law of diminishing marginal returns. 
A) the law of comparative advantage. 
B) the law of demand. 
C) the law of supply. 
D) the law of diminishing marginal utility. 
E) the law of diminishing marginal returns.

Question 7

As long as there are fixed resources, diminishing marginal returns will never exist.

Accepted Answer

A) True 
 B)False

Question 8

Assume that one laborer produces 6 units of output, two laborers produce 14 units, three produce 20 units, and four produce 24 units.If the cost is $20 per unit of labor and fixed costs are $100, what is the average total cost at 14 units of output?

Accepted Answer

A) $50 
B) $20 
C) $10 
D) $100 
E) $40 
A) $50 
B) $20 
C) $10 
D) $100 
E) $40

Question 9

The table below shows the total cost of producing different units of a commodity. Table 21.2
  Refer to Table 21.2.If the production of 2 extra units (units 11 and 12)increases total cost by $162, then:

Accepted Answer

A) the marginal cost of the twelfth unit will be $162. 
B) the total cost of producing 12 units will be $894. 
C) the average variable cost of producing 11 units is $732. 
D) the average total cost of producing 12 units is $61. 
E) the thirteenth unit will have to go up in price. 
A) the marginal cost of the twelfth unit will be $162. 
B) the total cost of producing 12 units will be $894. 
C) the average variable cost of producing 11 units is $732. 
D) the average total cost of producing 12 units is $61. 
E) the thirteenth unit will have to go up in price.

Question 10

The marginal cost curve intersects the average total cost curve at the firm's most efficient point of production.

Accepted Answer

A) True 
 B)False

Question 11

The term minimum efficient scale means:

Accepted Answer

A) the output corresponding to the minimum point of the short run average total cost curve. 
B) the total of all efficient points along the long-run average-cost curve. 
C) diseconomies of scale. 
D) the minimum point of the long-run average-cost curve, or the output level at which the cost per unit of output is the lowest. 
E) the maximum point of the long-run average-cost curve, or the output level at which the cost per unit of output is the highest. 
A) the output corresponding to the minimum point of the short run average total cost curve. 
B) the total of all efficient points along the long-run average-cost curve. 
C) diseconomies of scale. 
D) the minimum point of the long-run average-cost curve, or the output level at which the cost per unit of output is the lowest. 
E) the maximum point of the long-run average-cost curve, or the output level at which the cost per unit of output is the highest.

Question 12

If labor is the only variable input, an increase in the quantity of labor:

Accepted Answer

A) does not have any effect on the quantity of output. 
B) causes the output to increase initially at a diminishing rate and then at an increasing rate. 
C) causes the output to increase at a constant rate till the last worker is hired. 
D) causes the output to increase initially at an increasing rate and then at a decreasing rate. 
E) causes the output to decrease at a constant rate till the last laborer is hired. 
A) does not have any effect on the quantity of output. 
B) causes the output to increase initially at a diminishing rate and then at an increasing rate. 
C) causes the output to increase at a constant rate till the last worker is hired. 
D) causes the output to increase initially at an increasing rate and then at a decreasing rate. 
E) causes the output to decrease at a constant rate till the last laborer is hired.

Question 13

The figure given below shows three Short Run Average Total Cost (SRATC)curves and the Long Run Average Total Cost (LRATC)curve of a firm. Figure 21.3   Refer to the Figure 21.3.In the long run, an increase in production from Q1 to Q3 would:

Accepted Answer

A) increase average cost by C4 - C1. 
B) increase average cost by C3 - C1. 
C) increase average cost by C3 - C2. 
D) decrease average cost by C3 - C1. 
E) decrease average cost by C3 - C2. 
A) increase average cost by C4 - C1. 
B) increase average cost by C3 - C1. 
C) increase average cost by C3 - C2. 
D) decrease average cost by C3 - C1. 
E) decrease average cost by C3 - C2.

Question 14

The following table shows the cost of producing different units of ball point pens by a firm. Table 21.1
  Refer to Table 21.1.What will be the average fixed cost of producing five ball point pens?

Accepted Answer

A) $2 
B) $5 
C) $4 
D) $3.33 
E) $10 
A) $2 
B) $5 
C) $4 
D) $3.33 
E) $10

Question 15

Economies and diseconomies of scale are the reasons why short-run average total cost decreases and then increases.

Accepted Answer

A) True 
 B)False

Question 16

If a firm experiences economies of scale throughout it will have a horizontal long-run average total cost curve.

Accepted Answer

A) True 
 B)False

Question 17

The long-run average total cost curve connects the lowest cost for each level of output given by the short run average total cost curves.

Accepted Answer

A) True 
 B)False

Question 18

Assume that one laborer produces 6 units of output, two laborers produce 14 units, three laborers 22 units, four laborers 24 units, and five laborers 25 units.Diminishing returns set in when the firm hires:

Accepted Answer

A) the first laborer. 
B) the second laborer. 
C) the third laborer. 
D) the fourth laborer. 
E) the fifth laborer. 
A) the first laborer. 
B) the second laborer. 
C) the third laborer. 
D) the fourth laborer. 
E) the fifth laborer.

Question 19

In the oil tanker industry, large companies have lower risk and are able to optimize vessel utilization.If consolidation allows companies to lower their long-run average total costs, this is an example of:

Accepted Answer

A) the opportunity costs of mergers. 
B) the increase in utility of managers by being able to control larger companies. 
C) the dangers of oil tankers to the environment. 
D) economies of scale in the oil tanker industry. 
E) the law of diminishing returns. 
A) the opportunity costs of mergers. 
B) the increase in utility of managers by being able to control larger companies. 
C) the dangers of oil tankers to the environment. 
D) economies of scale in the oil tanker industry. 
E) the law of diminishing returns.

Question 20

The law of diminishing returns applies:

Accepted Answer

A) in the long run because all inputs are variable. 
B) in the short run because some inputs remain fixed. 
C) in both the short run and the long run. 
D) to fixed inputs in the long run. 
E) to fixed inputs in the short run. 
A) in the long run because all inputs are variable. 
B) in the short run because some inputs remain fixed. 
C) in both the short run and the long run. 
D) to fixed inputs in the long run. 
E) to fixed inputs in the short run.

Exam 41: Supply: the Costs of Doing Business

Every firm has to bear its fixed costs even when it produces nothing.

If marginal product increases with an increase in the variable input, the marginal cost must also increase as more units of the input are hired.

The table given below shows the total cost of producing different units of the output by a competitive firm. Table 21.4 In Table 21.4, at 4 units of output,

The figure given below shows cost curves of a firm. Figure: 21.2 In the figure, |: Marginal cost curve ||: Average total cost curve |||: Average variable cost curve Refer to Figure 21.2.At an output level of H, total fixed cost is:

The table given below shows the average total cost of production of a firm at different levels of the output. Table 21.5 In Table 21.5, what is the total cost of producing 4 units?

"As I add more workers to the factory line, the additional output produced by each additional worker seems to decline.Eventually, the workers just get in each others' way." This statement by a factory supervisor refers to:

As long as there are fixed resources, diminishing marginal returns will never exist.

Assume that one laborer produces 6 units of output, two laborers produce 14 units, three produce 20 units, and four produce 24 units.If the cost is $20 per unit of labor and fixed costs are $100, what is the average total cost at 14 units of output?

The table below shows the total cost of producing different units of a commodity. Table 21.2 Refer to Table 21.2.If the production of 2 extra units (units 11 and 12)increases total cost by $162, then:

The marginal cost curve intersects the average total cost curve at the firm's most efficient point of production.

The term minimum efficient scale means:

If labor is the only variable input, an increase in the quantity of labor:

The figure given below shows three Short Run Average Total Cost (SRATC)curves and the Long Run Average Total Cost (LRATC)curve of a firm. Figure 21.3 Refer to the Figure 21.3.In the long run, an increase in production from Q1 to Q3 would:

The following table shows the cost of producing different units of ball point pens by a firm. Table 21.1 Refer to Table 21.1.What will be the average fixed cost of producing five ball point pens?

Economies and diseconomies of scale are the reasons why short-run average total cost decreases and then increases.

If a firm experiences economies of scale throughout it will have a horizontal long-run average total cost curve.

The long-run average total cost curve connects the lowest cost for each level of output given by the short run average total cost curves.

Assume that one laborer produces 6 units of output, two laborers produce 14 units, three laborers 22 units, four laborers 24 units, and five laborers 25 units.Diminishing returns set in when the firm hires:

In the oil tanker industry, large companies have lower risk and are able to optimize vessel utilization.If consolidation allows companies to lower their long-run average total costs, this is an example of:

The law of diminishing returns applies:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

The figure given below shows three Short Run Average Total Cost (SRATC)curves and the Long Run Average Total Cost (LRATC)curve of a firm. Figure 21.3 Refer to the Figure 21.3.In the long run, an increase in production from Q₁to Q₃would: