Question 1

If a firm has constant returns to scale, then doubling all of its inputs will just double its output.

Accepted Answer

A) True 
 B)False

Question 2

If the total cost of producing 6 units is $228 and the total cost of producing 7 units is $245, what is the marginal cost of producing the seventh unit?

Accepted Answer

A) $35 
B) $245 
C) $3 
D) $38 
E) $17 
A) $35 
B) $245 
C) $3 
D) $38 
E) $17

Question 3

In the long run, the producer can change the entire plant size to produce a certain level of the output.

Accepted Answer

A) True 
 B)False

Question 4

"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 5

The table below shows the total cost of producing different units of a commodity. Table 7.2
  From Table 7.2, derive the value of total fixed costs.

Accepted Answer

A) $10 
B) $100 
C) $98 
D) $50 
E) $60 
A) $10 
B) $100 
C) $98 
D) $50 
E) $60

Question 6

Which of the following may lead to diseconomies of scale?

Accepted Answer

A) Specialization on the basis of comparative advantage 
B) Lack of coordination among the division heads 
C) Using larger and more efficient machineries 
D) Division of labor on the basis of capability 
E) Specialization of marketing, pricing, and research 
A) Specialization on the basis of comparative advantage 
B) Lack of coordination among the division heads 
C) Using larger and more efficient machineries 
D) Division of labor on the basis of capability 
E) Specialization of marketing, pricing, and research

Question 7

When a firm expands in size such that its workers can specialize in any one activity, the long run average total cost of the firm gradually increases.

Accepted Answer

A) True 
 B)False

Question 8

Why does the law of diminishing return not apply in the long run?

Accepted Answer

A) All the factors of production are fixed 
B) There are no fixed factors of production 
C) There are some fixed and some variable factors 
D) The producer is required to produce a fixed level of output 
E) The producer can change the level of output only by changing the variable factors, fixed factors remaining unchanged 
A) All the factors of production are fixed 
B) There are no fixed factors of production 
C) There are some fixed and some variable factors 
D) The producer is required to produce a fixed level of output 
E) The producer can change the level of output only by changing the variable factors, fixed factors remaining unchanged

Question 9

If a firm doubles its resources and generates an output level which is more than double, it is said to be experiencing:

Accepted Answer

A) economic fluctuations. 
B) recession. 
C) diseconomies of scale. 
D) increasing marginal returns to a factor. 
E) economies of scale. 
A) economic fluctuations. 
B) recession. 
C) diseconomies of scale. 
D) increasing marginal returns to a factor. 
E) economies of scale.

Question 10

A positively sloped long run average cost implies:

Accepted Answer

A) economies of scale. 
B) constant returns to scale. 
C) diseconomies of scale. 
D) diminishing marginal returns to a factor. 
E) increasing returns to scale. 
A) economies of scale. 
B) constant returns to scale. 
C) diseconomies of scale. 
D) diminishing marginal returns to a factor. 
E) increasing returns to scale.

Question 11

Which of the following is not a reason for economies of scale?

Accepted Answer

A) Division of labor helps in specialization 
B) Merger of two firms 
C) Hiring larger machines which are more efficient than the smaller ones 
D) Increase in overhead expenses 
E) Research and development 
A) Division of labor helps in specialization 
B) Merger of two firms 
C) Hiring larger machines which are more efficient than the smaller ones 
D) Increase in overhead expenses 
E) Research and development

Question 12

The long-run average-total-cost curve is U-shaped because:

Accepted Answer

A) a firm initially experiences economies of scale and then diseconomies of scale. 
B) the law of diminishing returns to a factor sets in beyond a certain level of output. 
C) a firm initially experiences diseconomies of scale and then economies of scale. 
D) division of labor keeps labor productivity constant irrespective of expansion or contraction in production. 
E) efficiency of capital increases over a period of time. 
A) a firm initially experiences economies of scale and then diseconomies of scale. 
B) the law of diminishing returns to a factor sets in beyond a certain level of output. 
C) a firm initially experiences diseconomies of scale and then economies of scale. 
D) division of labor keeps labor productivity constant irrespective of expansion or contraction in production. 
E) efficiency of capital increases over a period of time.

Question 13

The following table shows the cost of producing different units of ball point pens by a firm. Table 7.1
  According to Table 7.1, the total fixed cost of the firm equals:

Accepted Answer

A) $18. 
B) $10. 
C) $2. 
D) $12. 
E) $8. 
A) $18. 
B) $10. 
C) $2. 
D) $12. 
E) $8.

Question 14

When the marginal-cost curve lies above the average-total-cost curve, the average-total-cost curve slopes up and the average-variable-cost curve slopes down.

Accepted Answer

A) True 
 B)False

Question 15

If long-run costs are plotted on the vertical axis and quantity of output plotted on the horizontal axis, a line that is perfectly horizontal implies:

Accepted Answer

A) constant returns to scale. 
B) economies of scale. 
C) diseconomies of scale. 
D) inefficient use of capital. 
E) inefficient use of labor. 
A) constant returns to scale. 
B) economies of scale. 
C) diseconomies of scale. 
D) inefficient use of capital. 
E) inefficient use of labor.

Question 16

Suppose that the total fixed cost of producing five sailboats is $4, 000, total variable cost is $4, 000, and the total cost of producing six sailboats is $10, 000.The marginal cost of the sixth sailboat is:

Accepted Answer

A) $2, 000. 
B) $4, 000. 
C) $8, 000. 
D) $10, 000. 
E) $6, 000. 
A) $2, 000. 
B) $4, 000. 
C) $8, 000. 
D) $10, 000. 
E) $6, 000.

Question 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

The table given below shows the total fixed and variable costs of a firm. Table 7.3
  If the firm described in Table 7.3 decides to produce nothing, which of the following would be true?

Accepted Answer

A) Total cost will become zero. 
B) Total variable cost will become $30. 
C) Total cost will equal $40. 
D) Average total cost will equal zero. 
E) Marginal cost will equal $10. 
A) Total cost will become zero. 
B) Total variable cost will become $30. 
C) Total cost will equal $40. 
D) Average total cost will equal zero. 
E) Marginal cost will equal $10.

Question 20

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 7.3   Refer to the Figure 7.3.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.

Exam 9: Supply: The Costs of Doing Business

If a firm has constant returns to scale, then doubling all of its inputs will just double its output.

If the total cost of producing 6 units is $228 and the total cost of producing 7 units is $245, what is the marginal cost of producing the seventh unit?

In the long run, the producer can change the entire plant size to produce a certain level of the output.

"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:

The table below shows the total cost of producing different units of a commodity. Table 7.2 From Table 7.2, derive the value of total fixed costs.

Which of the following may lead to diseconomies of scale?

When a firm expands in size such that its workers can specialize in any one activity, the long run average total cost of the firm gradually increases.

Why does the law of diminishing return not apply in the long run?

If a firm doubles its resources and generates an output level which is more than double, it is said to be experiencing:

A positively sloped long run average cost implies:

Which of the following is not a reason for economies of scale?

The long-run average-total-cost curve is U-shaped because:

The following table shows the cost of producing different units of ball point pens by a firm. Table 7.1 According to Table 7.1, the total fixed cost of the firm equals:

When the marginal-cost curve lies above the average-total-cost curve, the average-total-cost curve slopes up and the average-variable-cost curve slopes down.

If long-run costs are plotted on the vertical axis and quantity of output plotted on the horizontal axis, a line that is perfectly horizontal implies:

Suppose that the total fixed cost of producing five sailboats is $4, 000, total variable cost is $4, 000, and the total cost of producing six sailboats is $10, 000.The marginal cost of the sixth sailboat is:

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

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

The table given below shows the total fixed and variable costs of a firm. Table 7.3 If the firm described in Table 7.3 decides to produce nothing, which of the following would be true?

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 7.3 Refer to the Figure 7.3.In the long run, an increase in production from Q1 to Q3 would:

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

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 7.3 Refer to the Figure 7.3.In the long run, an increase in production from Q₁to Q₃would: