Econ 3.1

In the short run, a profit-maximizing firm, faced with U-shaped average cost curves, is producing a level of output at which the average total cost of production is minimized. At this level of output, which of the following is true for the firm? (a)Marginal cost equals average fixed cost. (B) Marginal cost equals average variable cost. (C) Marginal cost equals average total cost. (D) Profit per unit equals average total cost. (E) Profit per unit equals marginal cost.

A

Which of the following best explains why the short-run average total cost curve is U-shaped? (A) Spreading total fixed costs over a larger output, and constant returns (B) Spreading total fixed costs over a larger output, and eventually diminishing returns (C) Increasing total fixed costs and increasing returns (D) Increasing average variable costs and decreasing returns (E) Decreasing average variable costs and increasing returns

A

Which of the following factors can cause a firm's cost curves to shift upward? (A) An increase in wages (B) An increase in the firm's output (C) An increase in the output price (D) A decrease in the firm's output (E) A decrease in the price of energy

A

Which of the following is true of the marginal cost curve? (A) It intersects the average variable cost curve and the average total cost curve at each curve's minimum point. (B) It intersects the average variable cost curve and the average fixed cost curve at each curve's minimum point. (C) It lies between the total cost curve and the total variable cost curve. (D) It increases initially, for a time, but begins to decline when the point of diminishing returns is reached. (E) It decreases, because average variable cost is less than marginal cost.

A

When marginal product exceeds average product, which of the following must be true? (A) Average product is increasing. (B) Average product is decreasing. (C) Marginal product is increasing. (D) Total product is decreasing. (E) Total product is at its maximum.

A

Beyond a certain level of output, the short-run marginal cost will rise because (A) there is no fixed input and costs will increase (B) at least one input is fixed and eventually diminishing returns will occur (C) the cost of the variable input increases when marginal product increases (D) the demand for the good decreases when production is limited (E) input prices increase when production increases and consumption is limited

B

Short-run marginal costs eventually increase because of the effects of (A) increasing marginal product (B) diminishing marginal product (C) diseconomies of scale (D) economies of scale (E) increasing fixed costs

B

Which of the following must be true if at the tenth unit of output, marginal cost (MC ) is $130 and average total cost ( ATC) is $150? (A) of producing the ninth unit is higher than $150. (B) of producing the ninth unit is less than $150. (C) of producing the ninth unit is higher than $130. (D) The average variable cost of producing the tenth unit is higher than $130. (E) The average variable cost of producing the tenth unit is equal to $20.

B

As output of a firm increases, the difference between the firm's average total cost and its average variable cost gets smaller because the firm's (A) total cost is increasing (B) marginal cost is increasing (C) average fixed cost is decreasing (D) marginal product of labor is decreasing (E) long-run average total cost is decreasing

C

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output? (A) $2 (B) $5 (C) $7 (D) $9 (E) $12

C

Assume the marginal product of labor first rises, reaches a maximum, and then falls. If the average product of labor is falling, which of the following is true? (A) The marginal product of labor is greater than the average product of labor. (B) The level of output produced must be at its maximum. (C) The marginal product of labor must be falling. (D) The marginal product of labor must be negative. (E) The average product of labor has not yet reached its maximum.

C

Based on the short-run production function graph above showing the relationship between the quantity of labor and total product, which of the following statements is true? (A) The marginal product of labor is always increasing. (B) At the marginal product of labor is at its maximum. (C) Total product is maximized when marginal product is zero. (D) At the marginal product of labor exceeds the average product of labor. (E) The marginal product of labor is always positive.

C

If there is only one variable input, diminishing marginal returns first occur with the production of which unit of output? (A) 7th (B) 6th (C) 5th (D) 4th (E) 3rd

C

In microeconomics, the short run is defined as which of the following? (A) A period that is less than one year (B) A period that is between one year and four years (C) A period that is too short for a firm to be able to change its level of output (D) A period during which some inputs in a firm's production process cannot be changed (E) A period during which a firm's fixed costs exceed its variable costs

C

For a firm where labor is the only variable input, which of the following happens when diminishing returns set in? (A) Average variable cost begins to increase. (B) Average product of labor begins to decline. (C) Total product begins to decline. (D) Marginal cost begins to increase. (E) Average total cost begins to increase.

D

If labor is the only variable input in the production process, the short-run marginal cost curve is upward sloping because which of the following occurs as more and more labor is added? (A) Output decreases, and thus marginal cost increases. (B) Output increases, and thus marginal cost increases. (C) Output increases at an increasing rate, and thus the cost of producing each additional unit of output increases. (D) Output increases at a decreasing rate, and thus the cost of producing each additional unit of output increases. (E) Output increases at a decreasing rate, and thus the cost of producing each additional unit of output decreases.

D

Which of the following is always true of the relationship between average and marginal costs? (A) Average total costs are increasing when marginal costs are increasing. (B) Marginal costs are increasing when average variable costs are higher than marginal costs. (C) Average variable costs are increasing when marginal costs are increasing. (D) Average variable costs are increasing when marginal costs are higher than average variable costs. (E) Average total costs are constant when marginal costs are constant.

D

Which of the following is true for a firm that uses labor as a variable input and capital as a fixed input in the short run? (A) If the marginal product of labor is negative, the average product of labor must also be negative. (B) If the marginal product of labor is rising, the average product of labor must be greater than the marginal product of labor. (C) If the average product of labor is rising, the marginal product of labor must be rising. (D) If the average product of labor is falling, the marginal product of labor must be less than the average product of labor. (E) The average product of labor can never be equal to the marginal product of labor.

D

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur? (A) The demand curve for the product will shift to the left. (B) The firm's demand curve for plastic will shift to the left. (C) The firm will increase the number of units offered for sale. (D) The firm will definitely go out of business, since competitive firms earn zero economic profits in equilibrium. (E) The firm's marginal costs will increase at each level of output.

E

Assume that a profit-maximizing firm is perfectly competitive in both the output and the factor markets and is at its long-run equilibrium. The firm's output is 100 units, its total revenue is $600.00, and the fixed cost of production is $50.00. Based on this information, which of the following is true for the firm? (A) Its marginal cost is $5.50, and its average total cost is $5.50. (B) Its marginal cost is $5.50, and its average variable cost is $5.50. (C) Its marginal cost is $6.00, and its average total cost is $5.50. (D) Its marginal cost is $6.00, and its average fixed cost is $5.50. (E) Its marginal cost is $6.00, and its average variable cost is $5.50.

E