ch 8 econ

The law of diminishing returns applies only to agriculture. explains why mass production leads to lower costs. is another way of stating Parkinson's Law. focuses on marginal output.

focuses on marginal output.

If price is between the break-even point and the shutdown point, in the long run the firm will stay in business. operate. shut down. go out of business.

go out of business.

Each of the following is a fixed cost except insurance premiums. interest payments. rent. hourly wages.

hourly wages.

The AVC curve is curve L. K. M. J.

k

he MC curve is J. M. L. K.

m

The law of diminishing returns states that as output rises, eventually _____ output will decline. marginal total average fixed

marginal

If output is rising then each of the following must be constant or rising except variable cost. total cost. fixed cost. marginal cost.

marginal cost.

We know that diminishing returns has set in when ______ declines.

marginal output

When MC is rising, ATC must be falling. may be falling or rising. must be rising. will remain constant.

may be falling or rising.

If a firm is losing money, in the short run it will definitely operate. may operate if covering variable costs. will definitely shut down. will definitely go out of business.

may operate if covering variable costs.

The MC curve intersects the AVC curve at the ____________ of the AVC curve.

minimum point

The marginal cost curve intersects the ATC at the _____________ point of the ATC curve.

minimum point

If a firm that is losing money shuts down and has variable costs of $10 million and continues to operate, we may conclude that its total revenue is __________.

more than $10 million

When MC is falling, ATC and AVC may be falling or rising. must be rising. will remain constant. must be falling.

must be falling.

If marginal output is rising it is possible to have diminishing returns. neither diminishing returns nor negative returns. both diminishing returns and negative returns. negative returns.

neither diminishing returns nor negative returns.

Jimmy, Walter, Mike, and Bill run a school for political candidates. The school has fixed costs of $10 million, variable costs of $4 million, and total revenue of $15 million. In the short run the school will _____ and in the long run the school will ____. shut down; stay in business shut down; go out of business operate; stay in business operate; go out of business

operate; stay in business

The shutdown decision is made in the ________________.

short run

George and Dick's used car lot has a total revenue of $5 million, fixed costs of $8 million, and variable costs of $6 million. In the short run the firm will ________, and in the long run it will ________. shut down; stay in business shut down; go out of business operate; stay in business operate; go out of business

shut down; go out of business

The law of diminishing returns states that profit margins decline as output rises. states that if any two resources are combined, production will fall. is completely invalid. states that if units of a resource are added to a fixed proportion of other resources, eventually marginal product will decline.

states that if units of a resource are added to a fixed proportion of other resources, eventually marginal product will decline.

Fixed costs are sometimes referred to as _________ costs.

sunk

Fixed costs are best defined as costs ____________ with the firm's output level over some period. that will not vary which vary inversely which vary directly

that will not vary

The production function illustrates The Law of Diminishing Marginal Returns. The Law of Demand. The Law of Diminishing Marginal Utility. The Law of Increasing Opportunity Cost.

the Law of Diminishing Marginal Returns.

Marginal cost may be defined as the rate of change in total fixed cost that results from producing one more unit of output. the change in average total cost that results from producing one more unit of output. the change in total cost that results from producing one more unit of output. the change in average variable cost that results from producing one more unit of output.

the change in total cost that results from producing one more unit of output.

The phrase "spreading the overhead" refers to the decrease in average fixed cost that occurs as a firm increases its output. the decrease in total cost that occurs as a firm reduces the size of its work force. the decrease in average variable cost that occurs as a firm increases its output. the decrease in total fixed cost that occurs as a firm increases its output.

the decrease in average fixed cost that occurs as a firm increases its output.

Hourly wages of employees not under guaranteed contracts would be an example of __________ costs.

variable

A firm will operate in the short run as long as it can cover its _______________.

variable costs

The ATC curve is curve X. Y. W. Z.

x

The AVC curve is curve X. Y. Z. W.

y

The AFC curve is curve Z. Y. W. X.

z

Macy's spent $1 million to set up a customer surveillance system and spends $80,000 a year to maintain it. What would be the AVC and ATC of the system if it watched (a) 100,000 customers a year? (b) 1 million customers a year?

(a) AVC $.80; ATC $10.80 (b) AVC $.08; ATC $1.08

Diminishing returns set in with the _____ worker.

4th

Use the above table and assume a fixed cost of $200. At an output of 4, AFC is $100. $200. $400. $50.

50

If a firm with variable costs of $14 million lost money and continues to operate, we may conclude that its total revenue is __________

: more than $14 million

If you wanted to produce an output of 7,000, in the long run you would choose a plant whose size was represented by ATC4. ATC2. ATC1. ATC3.

ATC3

As a firm's output expands, the ATC and AVC will reach minimums at the same output. AVC will reach a minimum before the ATC. ATC will reach a minimum before the AVC.

AVC will reach a minimum before the ATC.

Who said "Work expands so as to fill the time available for its completion," and "Work expands to occupy people available for its completion"? C. Northcote Parkinson Karl Marx John Maynard Keynes Adam Smith

C. Northcote Parkinson

Which is most clearly a fixed cost? Shipping costs Advertising Wages of production workers Insurance premiums

Insurance premiums

The AFC curve is L. M. K. J.

J

The ATC curve is K. L. M. J.

L

If a firm's sales are $6 million, its fixed costs are $7 million, and its variable costs are $4 million, what does it do in the (a) short run and (b) long run?

a) operate; (b) go out of business.

Which of the following is an example of a fixed cost? Contract salaries Insurance premiums All of these choices are fixed costs. Rent

all

Diseconomies of scale are associated with a horizontal long-run average cost curve. an upward-sloping long-run average cost curve. a downward-sloping long-run average cost curve.

an upward-sloping long-run average cost curve.

If marginal cost is less than average variable cost, there is no way to determine if average variable cost is falling, constant, or rising. average variable cost is constant. average variable cost is rising. average variable cost is falling.

average variable cost is falling.

As output rises, average fixed cost __________.

declines

If the marginal cost curve is below the average variable cost curve, average variable cost must be _____________.

declining

the marginal cost curve is below the average total cost curve, average total cost must be ____.

declining

As output expands, increasing returns will follow diminishing returns. diminishing returns will follow increasing returns. increasing returns and diminishing returns will occur simultaneously.

diminishing returns will follow increasing returns.

Firms taking advantage of ____________ accounts for the downward slope in the long-run average cost curve. economies of scale the production function diseconomies of scale marginal cost

economies of scale

If a firm has a fixed cost of $200,000, and a variable cost of $130,000 at an output of one, how much is marginal cost at an output of one? $70,000 $130,000 $200,000 $270,000

130,000

Use the above table and assume a fixed cost of $1000. At an output of 4, AFC is $250. $500. $200. $1,000.

250

If fixed cost is $5,000, and, at an output of 3 variable cost is $4,000, how much is average total cost at an output of 3? $9,000 $4,500 $1,333.33 $3,000

3000

Use the above table and assume a fixed cost of $1000. At an output of 1, marginal cost is $400. 0. $300. $200.

400

Which statement is true? Only fixed cost varies with output. Neither fixed costs nor variable costs vary with output. Only variable cost varies with output. Fixed costs and variable costs vary with output.

Only variable cost varies with output.

As a farmer adds more and more fertilizer to a fixed amount of land he will eventually experience

diminishing marginal returns

At an output of zero, total cost = ______________

fixed cost

A firm will stay in business if _____ are greater than ______; A firm will go out of business if ______ are greater than ______

total revenue; total costs; total costs; total revenue