Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

Diminishing marginal returns means that as you combine more units of a variable resource with a set of fixed resources:

Accepted Answer

A) the average physical product increases at an increasing rate. 
B) the marginal physical product decreases. 
C) the total production decreases. 
D) the marginal physical product becomes negative. 
E) the marginal physical product increases at a decreasing rate. 
A) the average physical product increases at an increasing rate. 
B) the marginal physical product decreases. 
C) the total production decreases. 
D) the marginal physical product becomes negative. 
E) the marginal physical product increases at a decreasing rate.

Question 4

The table given below shows the total cost of producing different units of the output by a competitive firm. Table 7.4
  Which of the following is correct if the firm described in Table 7.4 decides to produce nothing?

Accepted Answer

A) Total cost will be zero. 
B) Total fixed cost will be zero. 
C) Total variable cost will be zero. 
D) Average cost will be zero. 
E) It is impossible for the firm to produce nothing in the short run. 
A) Total cost will be zero. 
B) Total fixed cost will be zero. 
C) Total variable cost will be zero. 
D) Average cost will be zero. 
E) It is impossible for the firm to produce nothing in the short run.

Question 5

The minimum efficient scale is same across all industries irrespective of the types of goods they produce.

Accepted Answer

A) True 
 B)False

Question 6

Marginal cost equals:

Accepted Answer

A) total cost divided by total quantity. 
B) the slope of the demand curve under perfect competition. 
C) the slope of the total product curve when the latter is at its maximum. 
D) the change in total cost divided by the change in total output. 
E) the slope of the supply curve. 
A) total cost divided by total quantity. 
B) the slope of the demand curve under perfect competition. 
C) the slope of the total product curve when the latter is at its maximum. 
D) the change in total cost divided by the change in total output. 
E) the slope of the supply curve.

Question 7

If a firm experiences constant returns to scale throughout:

Accepted Answer

A) the long run average total cost curve is a negatively sloped curve. 
B) the short run average total cost curves are tangential to the long run average total cost curve at a point on their positively sloped portion. 
C) the short run average total cost curves are tangential to the long run average total cost curve at their minimum points. 
D) the short run average total cost curves are tangential to the long run average total cost curve at a point on their negatively sloped portion. 
E) the long run average total cost falls to zero. 
A) the long run average total cost curve is a negatively sloped curve. 
B) the short run average total cost curves are tangential to the long run average total cost curve at a point on their positively sloped portion. 
C) the short run average total cost curves are tangential to the long run average total cost curve at their minimum points. 
D) the short run average total cost curves are tangential to the long run average total cost curve at a point on their negatively sloped portion. 
E) the long run average total cost falls to zero.

Question 8

The figure given below shows cost curves of a firm. Figure: 7.2   In the figure,
|: Marginal cost curve
||: Average total cost curve
|||: Average variable cost curve
Refer to Figure 7.2.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 9

The planning horizon refers to the short run, when the firm must plan how much of a variable input to apply to a fixed input.

Accepted Answer

A) True 
 B)False

Question 10

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 11

The average fixed cost continues to decline with expansion of output.

Accepted Answer

A) True 
 B)False

Question 12

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 13

If the total cost of producing 2 pounds of cheese is $6 and the total cost of producing 4 pounds of cheese is $8, then:

Accepted Answer

A) total cost is declining. 
B) average total cost is declining. 
C) average total cost is increasing. 
D) average total cost is constant. 
E) total cost is constant. 
A) total cost is declining. 
B) average total cost is declining. 
C) average total cost is increasing. 
D) average total cost is constant. 
E) total cost is constant.

Question 14

For a steel manufacturing firm, overhead costs would include:

Accepted Answer

A) cost of iron ore. 
B) cost incurred in buying blast furnaces. 
C) insurance premiums of the firm. 
D) wages of the laborers. 
E) cost of electricity for running the machines in the factory. 
A) cost of iron ore. 
B) cost incurred in buying blast furnaces. 
C) insurance premiums of the firm. 
D) wages of the laborers. 
E) cost of electricity for running the machines in the factory.

Question 15

The table below shows the total cost of producing different units of a commodity. Table 7.2
  According to Table 7.2, the average variable cost of producing two units of output is:

Accepted Answer

A) $48. 
B) $50. 
C) $62. 
D) $55. 
E) $60. 
A) $48. 
B) $50. 
C) $62. 
D) $55. 
E) $60.

Question 16

The long run is referred to as a planning horizon because:

Accepted Answer

A) the firm has committed to a fixed quantity of at least one resource and the other resources are variable. 
B) the manager has selected the size of the firm that appears to be the least profitable and does not have the option of selecting any other plant size. 
C) the firm has not committed to a fixed quantity of any resource and has all options available to it. 
D) the manager has selected a scale of production. 
E) the firm is operating along a specific average-cost curve. 
A) the firm has committed to a fixed quantity of at least one resource and the other resources are variable. 
B) the manager has selected the size of the firm that appears to be the least profitable and does not have the option of selecting any other plant size. 
C) the firm has not committed to a fixed quantity of any resource and has all options available to it. 
D) the manager has selected a scale of production. 
E) the firm is operating along a specific average-cost curve.

Question 17

If average variable cost is falling, then:

Accepted Answer

A) average fixed cost is rising. 
B) marginal cost must be falling. 
C) marginal cost must be rising. 
D) marginal cost lies below average variable cost. 
E) marginal cost lies above average variable cost. 
A) average fixed cost is rising. 
B) marginal cost must be falling. 
C) marginal cost must be rising. 
D) marginal cost lies below average variable cost. 
E) marginal cost lies above average variable cost.

Question 18

If the cost borne by a firm when output is zero is $100 and that of producing 5 units is $250, then the variable cost of the firm is equal to $150.

Accepted Answer

A) True 
 B)False

Question 19

The table below shows the total cost of producing different units of a commodity. Table 7.2
  Refer to Table 7.2.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 20

The figure given below shows cost curves of a firm. Figure: 7.2   In the figure,
|: Marginal cost curve
||: Average total cost curve
|||: Average variable cost curve
Refer to Figure 7.2.When Average Variable Cost (AVC)is at a minimum, which of the following is true?

Accepted Answer

A) AVC equals AB 
B) Marginal cost (M
C) equals 0G 
C) Average total cost exceeds AVC by SR 
D) MC equals HN 
E) MC equals GJ 
A) AVC equals AB 
B) Marginal cost (M
C) equals 0G 
C) Average total cost exceeds AVC by SR 
D) MC equals HN 
E) MC equals GJ

Exam 9: Supply: The Costs of Doing Business

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

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:

Diminishing marginal returns means that as you combine more units of a variable resource with a set of fixed resources:

The table given below shows the total cost of producing different units of the output by a competitive firm. Table 7.4 Which of the following is correct if the firm described in Table 7.4 decides to produce nothing?

The minimum efficient scale is same across all industries irrespective of the types of goods they produce.

Marginal cost equals:

If a firm experiences constant returns to scale throughout:

The figure given below shows cost curves of a firm. Figure: 7.2 In the figure, |: Marginal cost curve ||: Average total cost curve |||: Average variable cost curve Refer to Figure 7.2.At an output level of H, total fixed cost is:

The planning horizon refers to the short run, when the firm must plan how much of a variable input to apply to a fixed input.

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

The average fixed cost continues to decline with expansion of output.

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

If the total cost of producing 2 pounds of cheese is $6 and the total cost of producing 4 pounds of cheese is $8, then:

For a steel manufacturing firm, overhead costs would include:

The table below shows the total cost of producing different units of a commodity. Table 7.2 According to Table 7.2, the average variable cost of producing two units of output is:

The long run is referred to as a planning horizon because:

If average variable cost is falling, then:

If the cost borne by a firm when output is zero is $100 and that of producing 5 units is $250, then the variable cost of the firm is equal to $150.

The table below shows the total cost of producing different units of a commodity. Table 7.2 Refer to Table 7.2.If the production of 2 extra units (units 11 and 12)increases total cost by $162, then:

The figure given below shows cost curves of a firm. Figure: 7.2 In the figure, |: Marginal cost curve ||: Average total cost curve |||: Average variable cost curve Refer to Figure 7.2.When Average Variable Cost (AVC)is at a minimum, which of the following is true?

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

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

Supply: the Costs of Doing Business

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

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