3.1, 3.2, & 3.3 MCQs to Check for Understanding

Which of the following explains the difference between short-run and long-run costs? A) All costs are variable in the short run but not in the long run. B) All costs are fixed in the long run but not in the short run. C) All costs are variable in the long run but not in the short run. D) All costs are fixed in the short run but not in the long run. E) All costs are variable in the short run and fixed in the long run.

C) All costs are variable in the long run but not in the short run.

The graph above shows a firm's long-run average total cost curve (LRATC). Which of the following statements is true as the firm increases its scale of production? A) From zero output to Q0Q0, the firm experiences diseconomies of scale. B) From Q0Q0 to Q1Q1, the firm experiences increasing returns to scale. C) For output levels above Q1Q1, the firm experiences diseconomies of scale. D) At all output levels, the firm's long-run marginal cost must be constant. E) From Q0Q0 to Q1Q1, LRATCLRATC falls because average fixed cost decreases; after Q1Q1, LRATCLRATC rises due to diminishing returns to labor.

C) For output levels above Q1Q1, the firm experiences diseconomies of scale.

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) The marginal product of labor must be falling.

In the short run, assume diminishing marginal product of labor sets in with the hiring of the second worker. Which of the following will remain constant as a firm produces more output? A) Average product of labor B) Total cost C) Total fixed cost D) Total variable cost E) Marginal cost

C) Total fixed cost

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 L0L0 the marginal product of labor is at its maximum. C) Total product is maximized when marginal product is zero. D) At L0L0 the marginal product of labor exceeds the average product of labor. E) The marginal product of labor is always positive.

C) Total product is maximized when marginal product is zero.

Which of the following provides an example of the law of diminishing returns? A) A farm doubles all its inputs and observes that output less than doubles. B) A textile producer's output increases by 5 units when adding a fourth worker and by 7 units when adding a fifth worker. C) If a fixed input increases, fewer additional units of a variable input will be needed to increase output by one unit. D) As more of a variable input—for example, labor is used with a fixed number of machines— output increases but at a diminishing rate. E) More cooks in a single kitchen will increase the number of meals produced by increasing amounts.

D) As more of a variable input—for example, labor is used with a fixed number of machines— output increases but at a diminishing rate.

Assume a firm doubles its usage of each input, resulting in a doubling of the firm's output. Which of the following describes this result? A) Increasing total cost B) Diminishing marginal returns C) Decreasing returns to scale D) Constant returns to scale E) Increasing returns to scale

D) Constant returns to scale

Assume that the short-run marginal cost curve initially falls, and it then rises as quantity of output increases. Which of the following must be true? A) The marginal product of labor is always falling. B) At every output level, the short-run marginal cost curve is always above the average variable cost curve. C) As output increases, the unit price of labor (the wage rate) is first falling and then rising. D) Initially the marginal product of labor increases but eventually marginal product of labor decreases. E) The average variable cost curve must always be rising.

D) Initially the marginal product of labor increases but eventually marginal product of labor decreases.

Which of the following statements about short-run costs is true? A) Average fixed cost plus variable cost equals total cost. B) Average total cost plus average fixed cost equals average variable cost. C) Total fixed cost increases in constant increments as output produced increases. D) Total fixed cost plus total variable cost equals total cost. E) At low output levels, as output increases, total fixed cost and total variable cost decrease, reducing average total cost.

D) Total fixed cost plus total variable cost equals total cost.