Question 1

If a firm decides to produce no output in the short run, its costs will be

Accepted Answer

A)   its marginal costs.
B)   its variable costs.
C)   its fixed costs.
D)   zero.E) A) and D)
F) C) and D)

Question 2

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that

Accepted Answer

A)   the long-run average total cost curve is upsloping.
B)   a 10 percent increase in all inputs will increase output by less than 10 percent.
C)   a 10 percent increase in all inputs will increase output by more than 10 percent.
D)   the firm is encountering problems of managerial bureaucracy because of its size.E) B) and C)
F) A) and D)

Question 3

For most producing firms,

Accepted Answer

A)   marginal cost rises as output is carried to a certain level, and then begins to decline.
B)   total costs rise as output is carried to a certain level, and then begin to decline.
C)   average total costs decline as output is carried to a certain level, and then begin to rise.
D)   average total costs rise as output is carried to a certain level, and then begin to decline.E) B) and C)
F) All of the above

Question 4

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that

Accepted Answer

A)   technology precludes both economies and diseconomies of scale.
B)   the industry will be a natural monopoly.
C)   both relatively small and relatively large firms can be viable in the industry.
D)   the industry will comprise a very large number of small firms.E) A) and B)
F) A) and C)

Question 5

If a firm produces 10 units of output, total costs are $1,030, and average fixed costs are $10, then total variable costs are

Accepted Answer

A)   $104.
B)   $930.
C)   $1,040.
D)   $1,130.E) All of the above
F) A) and B)

Question 6

The law of diminishing returns explains why

Accepted Answer

A)   total cost eventually rises faster and faster.
B)   total cost eventually falls.
C)   total cost eventually rises more and more slowly.
D)   total cost eventually reaches a maximum point.E) A) and B)
F) None of the above

Question 7

Marginal cost

Accepted Answer

A)   equals both average variable cost and average total cost at their respective minimums.
B)   is the difference between total cost and total variable cost.
C)   rises for a time but then begins to decline when diminishing returns set in.
D)   declines continuously as output increases.E) A) and C)
F) All of the above

Question 8

The total product curve graphically shows how much

Accepted Answer

A)   profit the firm will earn at various levels of production.
B)   output the firm will produce at various prices of its product.
C)   the costs of production will be as the firm changes its total production level.
D)   output the firm can produce with various quantities of its variable input.E) B) and D)
F) All of the above

Question 9

In the short run,

Accepted Answer

A)   TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.
B)   TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate.
C)   TVC will increase by the same absolute amount for each additional unit of output produced.
D)   one cannot generalize concerning the behavior of TVC as output increases.E) A) and B)
F) All of the above

Question 10

Marginal product

Accepted Answer

A)   diminishes at all levels of production.
B)   may initially increase, then diminish, but never become negative.
C)   may initially increase, then diminish, and ultimately become negative.
D)   is always less than average product.E) A) and C)
F) All of the above

Question 11

Which of the following is correct?

Accepted Answer

A)   There is no relationship between MP and MC.
B)   When AP is rising, MC is falling, and when AP is falling, MC is rising.
C)   When MP is rising, MC is rising, and when MP is falling, MC is falling.
D)   When MP is rising, MC is falling, and when MP is falling, MC is rising.E) A) and B)
F) B) and C)

Question 12

The amount of calendar time associated with the long run

Accepted Answer

A)   is less than that associated with the immediate market period.
B)   varies from industry to industry.
C)   is the same for all firms.
D)   is, by definition, any length of time greater than one year.E) A) and B)
F) A) and C)

Question 13

Answer the question on the basis of the following cost data.   Output  Average Fixed Cost  Average Variable Cost 1$50.00$100.00225.0080.00316.6766.67412.5065.00510.0068.0068.3773.3377.1480.0086.2587.50\begin{array} { | c | c | c | } \hline 	ext { Output } & 	ext { Average Fixed Cost } & 	ext { Average Variable Cost } \\hline 1 & \$ 50.00 & \$ 100.00 \\hline 2 & 25.00 & 80.00 \\hline 3 & 16.67 & 66.67 \\hline 4 & 12.50 & 65.00 \\hline 5 & 10.00 & 68.00 \\hline 6 & 8.37 & 73.33 \\hline 7 & 7.14 & 80.00 \\hline 8 & 6.25 & 87.50 \\hline\end{array} Output 12345678​ Average Fixed Cost $50.0025.0016.6712.5010.008.377.146.25​ Average Variable Cost $100.0080.0066.6765.0068.0073.3380.0087.50​​  The marginal cost of the fifth unit of output is

Accepted Answer

A)   $3.
B)   $62.
C)   $80.
D)   $78. E) A) and B)
F) A) and C)

Question 14

In the short run, which of the following statements is correct?

Accepted Answer

A)   The marginal cost curve intersects the average variable and average fixed cost curves at their minimum points.
B)   Average variable cost declines continuously as total output is expanded.
C)   Total cost will exceed variable cost.
D)   If the inputs of all resources are increased by equal amounts, total output will expand by diminishing amounts.E) A) and B)
F) B) and C)

Question 15

The law of diminishing returns indicates that

Accepted Answer

A)   as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
B)   because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped.
C)   the demand for goods produced by purely competitive industries is downsloping.
D)   beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.E) A) and C)
F) A) and D)

Question 16

A natural monopoly exists when

Accepted Answer

A)   unit costs are minimized by having one firm produce an industry's entire output.
B)   several formerly competing producers merge to become the only firm in an industry.
C)   short-run average total cost curves are tangent to long-run average total cost curves.
D)   minimum efficient scale is attained at a small level of output.E) A) and B)
F) A) and C)

Question 17

Economic profits are calculated by subtracting

Accepted Answer

A)   explicit costs from total revenue.
B)   implicit costs from total revenue.
C)   implicit costs from normal profits.
D)   explicit and implicit costs from total revenue.E) All of the above
F) A) and B)

Question 18

Plant sizes get larger as you move from ATC-1 to ATC-4.  The firm's minimum efficient scale is at what output level?

Accepted Answer

A)   2,500
B)   3,000
C)   3,500
D)   4,000E) A) and C)
F) B) and C)

Question 19

The main difference between the short run and the long run is that

Accepted Answer

A)   firms earn zero profits in the long run.
B)   the long run always refers to a time period of one year or longer.
C)   in the short run, some inputs are fixed and some are variable.
D)   in the long run, all inputs are fixed.E) All of the above
F) A) and B)

Question 20

If the minimum efficient scale in an industry were smaller than the size of the market of that industry, then we would have a natural-monopoly situation.

Accepted Answer

A) True 
 B)False

Exam 9: Businesses and the Costs of Production

For most producing firms,

Correct Answer
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Correct Answer
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If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that

Correct Answer
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If the minimum efficient scale in an industry were smaller than the size of the market of that industry, then we would have a natural-monopoly situation.

Correct Answer
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Economic profits are calculated by subtracting

Correct Answer
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In the short run, which of the following statements is correct?

Correct Answer
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The main difference between the short run and the long run is that

Correct Answer
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Which of the following is correct?

Correct Answer
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If a firm produces 10 units of output, total costs are $1,030, and average fixed costs are $10, then total variable costs are

Correct Answer
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In the short run,

Correct Answer
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The amount of calendar time associated with the long run

Correct Answer
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If a firm decides to produce no output in the short run, its costs will be

Correct Answer
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Marginal product

Correct Answer
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Plant sizes get larger as you move from ATC-1 to ATC-4. The firm's minimum efficient scale is at what output level?

Correct Answer
verified

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that

Correct Answer
verified

The total product curve graphically shows how much

Correct Answer
verified

The law of diminishing returns explains why

Correct Answer
verified

A natural monopoly exists when

Correct Answer
verified

Marginal cost

Correct Answer
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The law of diminishing returns indicates that

Correct Answer
verified

Exam 9: Businesses and the Costs of Production

For most producing firms,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that

Correct AnswerverifiedShow Answer

If the minimum efficient scale in an industry were smaller than the size of the market of that industry, then we would have a natural-monopoly situation.

Correct AnswerverifiedShow Answer

Economic profits are calculated by subtracting

Correct AnswerverifiedShow Answer

In the short run, which of the following statements is correct?

Correct AnswerverifiedShow Answer

The main difference between the short run and the long run is that

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If a firm produces 10 units of output, total costs are $1,030, and average fixed costs are $10, then total variable costs are

Correct AnswerverifiedShow Answer

In the short run,

Correct AnswerverifiedShow Answer

The amount of calendar time associated with the long run

Correct AnswerverifiedShow Answer

If a firm decides to produce no output in the short run, its costs will be

Correct AnswerverifiedShow Answer

Marginal product

Correct AnswerverifiedShow Answer

Plant sizes get larger as you move from ATC-1 to ATC-4. The firm's minimum efficient scale is at what output level?

Correct AnswerverifiedShow Answer

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that

Correct AnswerverifiedShow Answer

The total product curve graphically shows how much

Correct AnswerverifiedShow Answer

The law of diminishing returns explains why

Correct AnswerverifiedShow Answer

A natural monopoly exists when

Correct AnswerverifiedShow Answer

Marginal cost

Correct AnswerverifiedShow Answer

The law of diminishing returns indicates that

Correct AnswerverifiedShow Answer

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