373 chp 9

MC equals A. ΔTC/ΔQ. B. ΔVC/ΔQ. C. FC/Q. D. VC/Q.

A. ΔTC/ΔQ.

Let the TC curve be given by the equation TC(Q) = 10 + 5Q. The average variable cost can be expressed as A. 10. B. (10/Q) + 5. C. 10+(5/Q). D. It cannot be determined.

B. (10/Q) + 5.

The AFC curve A. always slopes downward. B. is U-shaped. C. is a horizontal line. D. is the same as the total fixed cost curve.

a. always slopes downward

Let the TC curve be given by the equation TC(Q) = 20 + 5Q. The variable cost curve can be expressed as A. 20+5Q. B. 20. C. 5Q. D. 5.

c. 5Q

Let the TC curve be given by the equation TC(Q) = 5 + Q. The ATC curve can be expressed as A. (1/Q)+5. B. (5/Q) + 1. C. 5. D. Q.

B. (5/Q) + 1.

ATC equals A. AVC-AFC. B. FC/Q. C. (TFC+TVC)/Q. D. MC+AFC.

C. (TFC+TVC)/Q

Which statement is false? A. Short-run cost assumes a fixed capital size, while long-run cost includes all possible capital levels in determining cost. B. Short-run total cost can never be less than long-run total cost at any given output level. C. Long-run marginal cost never intersects long-run average cost as long as increasing returns to scale are present. D. Short run ATC and long run ATC are never equal except at the minimum point on the long run ATC curve.

D. Short run ATC and long run ATC are never equal except at the minimum point on the long run ATC curve.

Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the *total fixed cost* of producing 80 units of output? A. $200 B. $33 C. $25 D. $85

a. $200

Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of output. Subsequent hires add 5 units less to production than the previous worker. Thus the second worker adds 15, the third adds 10 etc. What is the average variable cost of output when one worker is hired? A. 1 B. 20 C. 24.50 D. None of these is the correct AVC.

a. 1

Suppose you have the following values for a short-run production process: Q = 20, VC = 100, FC = 600 and MC = 40. Given this, we know that the A. average cost curve must be increasing. B. average cost curve must be decreasing. C. marginal cost curve must be increasing. D. marginal cost curve must be decreasing.

a. average cost curve must be increasing

When marginal cost is *greater* than *average total cost*, A. average total cost must be increasing with output. B. average variable cost must be decreasing with output. C. average fixed cost must be increasing with output. D. marginal cost must be increasing with output.

a. average total cost must be increasing with output.

The total fixed cost function A. is horizontal. B. is U-shaped. C. is an upward sloping line. D. is a downward sloping line.

a. is horizontal

The minimum efficient scale of production is the level of production required for the A. long run average curve to reach its minimum. B. variable cost curve to reach its minimum. C. marginal cost curve to reach its minimum. D. average cost curve to reach its minimum.

a. long run average curve to reach its minimum

Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of output. Subsequent hires add 5 units less to production than the previous worker. Thus the second worker adds 15, the third adds 10 etc. If the fifth laborer adds 25 units to the short run production output and the sixth laborer adds 20 units to the total output and the firm can hire all the labor it wants at the going wage we can be sure that A. marginal cost is increasing. B. average total cost is increasing. C. average variable cost is increasing. D. None of these is correct because all the costs listed are decreasing.

a. marginal cost is increasing

Output for a simple production process is given by Q = KL, where K denotes capital and L denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit. If at the current level of production the marginal product of labor is 4 while the marginal product of capital is 2, then in order to minimize your costs of production you should use A. more capital and less labor. B. more labor and less capital. C. more of both inputs. D. the same amount of both inputs.

a. more capital and less labor

A firm that is trying to produce a given level of output Q0 at the lowest possible cost will A. select the input combination at which an isocost line is tangent to the Q0 isoquant. B. select the input combination at which an isocost line is above the Q0 isoquant. C. select the input combination at which an isocost line is below the Q0 isoquant. D. choose to produce at a level where variable costs are less than or equal to fixed costs.

a. select the input combination at which an isocost line is tangent to the Q0 isoquant.

Whenever the ratio of marginal products to input prices differs across inputs, A. the marginal products of inputs will adjust as input combinations change to correct for the inefficiency. B. no change will necessarily follow because the process could still be at peak efficiency. C. a firm's costs could be reduced by shifting input usage toward the input with the lower marginal product to price ratio. D. the costs of the inputs adjust to bring the marginal product ratios and cost ratios together

a. the marginal products of inputs will adjust as input combinations change to correct for the inefficiency.

Average variable cost is A. the ratio of total variable cost to the quantity of output produced. B. the ratio of variable cost to total cost. C. the ratio of variable cost to fixed cost. D. the difference between variable and fixed cost.

a. the ratio of total variable cost to the quantity of output produced.

If the total variable cost curve is a *straight line* then the A. total cost curve will also be a straight line. B. total cost curve may or may not be a straight line. C. marginal cost function is downward sloping. D. marginal cost function is upward sloping.

a. total cost curve will also be a straight line

Suppose output for a simple production process is given by Q = K + L, where K denotes capital, and L denotes labor. The price of labor is $2 per unit and the price of capital is $4 per unit. What would be the minimum costs of producing 10 units of output? A. $40 B. $20 C. $10 D. It is impossible to say with the information given

b. $20

Let TC(Q) = 10 + Q; MC equals A. 10. B. 1. C. 11. D. It cannot be determined from the information given

b. 1

Output for a simple production process is given by Q = KL, where K denotes capital and L denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit. Suppose at the current level of production the firm is minimizing costs and the marginal product of labor is 10. Given this you know that the marginal product of capital must be A. 5. B. 2. C. 10. D. It is impossible to say with the information given

b. 2

With constant returns to scale and factor prices invariant with the amount of factors used, the long-run output expansion path is A. horizontal. B. a straight line. C. U-shaped. D. zero.

b. a straight line

Producing an additional unit whose marginal cost *exceeds* the *average total cost* incurred thus far has the effect of pulling the A. fixed cost up. B. average cost up. C. average cost down. D. total cost down.

b. average cost up

The vertical distance between the *average* total cost and the *average* variable cost curves at any level of output will always be A. variable cost. B. average fixed cost. C. fixed cost less variable cost. D. total cost less fixed cost.

b. average fixed cost.

Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of output. Subsequent hires add 5 units less to production than the previous worker. Thus the second worker adds 15, the third adds 10 etc. Which of the following is a true statement? A. At an output of 20 the total cost is $20. B. Average total cost at an output of 50 is 11. C. Average fixed cost is 10 when output is 45. D. Marginal cost keeps falling as the number of laborers hired increases.

b. average total cost at an output of 50 is 11.

The slope of a ray from the origin to a point on the *total cost* curve is the A. average fixed cost of producing the corresponding level of output. B. average total cost of producing the corresponding level of output. C. marginal cost of producing the corresponding level of output. D. variable cost of producing the corresponding level of output.

b. average total cost of producing the corresponding level of output.

Say at the current output level marginal costs = $20 and the average total cost = $10. From this information we know that the A. marginal costs are increasing. B. average total costs are increasing. C. average total costs are decreasing. D. marginal costs are decreasing.

b. average totals costs are increasing.

The short run total cost of zero output is equal to A. variable cost. B. fixed cost. C. zero. D. variable cost plus fixed cost.

b. fixed cost

The short-run output expansion path is __________ in the relevant area. A. a ray B. horizontal C. U-shaped D. upward sloping

b. horizontal

Once we enter the region of diminishing returns, total variable cost A. increases at a decreasing rate. B. increases at an increasing rate. C. decreases at a decreasing rate. D. decreases at an increasing rate.

b. increases at an increasing rate.

Suppose labor and capital are both used to produce output. In the long run, if the wage rate rises while the rental rate on capital remains unchanged, A. the process will become more labor intensive. B. the process will become more capital intensive. C. market forces will come into play to bring the prices back to their earlier relationship. D. the marginal product of capital will rise and the marginal product of labor will fall.

b. the process will become more capital intensive.

Marginal cost is defined as A. the rate at which average cost changes with output. B. the rate at which total variable cost changes with output. C. the rate at which fixed cost changes with output. D. total cost minus variable cost.

b. the rate at which total variable cost changes with output.

Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the *variable cost* of producing 80 units of output? A. $200 B. $33 C. $25 D. $85

c. $25

Let the TC curve be given by the equation TC(Q) = 6Q. The FC curve can be expressed as A. 6. B. 6Q. C. 0. D. It cannot be determined with the information given

c. 0

Average fixed cost A. is a horizontal line. B. increases steadily as output increases. C. decreases steadily as output increases. D. exhibits diminishing returns.

c. decreases steadily as output increases.

The MC curve slopes upward due to A. increasing returns to scale. B. decreasing returns to scale. C. diminishing returns. D. constant returns to scale.

c. diminishing returns

At one unit of output AVC is A. zero. B. infinite. C. equal to marginal cost. D. less than marginal cost.

c. equal to marginal cost

The vertical distance between the *total* variable cost and *total* cost curves A. is everywhere equal to zero. B. is everywhere equal to marginal cost. C. is everywhere equal to total fixed cost. D. increases at a decreasing rate.

c. is everywhere equal to total fixed cost

The total fixed cost curve A. varies with the level of output. B. is negatively sloped. C. is simply a horizontal line. D. is simply a vertical line.

c. is simply a horizontal line

For a given firm, whenever the ratio of marginal product to input price differs across inputs, A. the market will adjust the price of the higher priced input. B. it will always be possible to make a cost-saving substitution in favor of the input with the lower MP/P ratio (except in the case of corner solutions). C. it will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio. D. the market will adjust the price of the lower priced input.

c. it will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio.

If the variable cost curve is a straight line, then the A. marginal cost curve will be U-shaped. B. marginal cost curve may be U-shaped. C. marginal cost curve will be horizontal. D. marginal cost curve is upward sloping.

c. marginal cost curve will be horizontal.

In order to divide a given production quota between two production processes in such a way as to produce the quota at the lowest possible cost, one should produce the output where A. average costs are equal for both processes. B. average cost is equal to marginal cost for both processes. C. marginal costs are equal in both processes. D. marginal costs are at least equal to ATC in each process.

c. marginal costs are equal in both processes

Markets characterized by declining long-run average costs are often referred to as A. perfect competition. B. diseconomies of scale. C. natural monopolies. D. nonprofit organizations.

c. natural monopolies

When costs are at a minimum, A. the ratio of the MPL/MPK < Price L/Price K. B. MPL = MPK. C. the extra output we get from the last dollar spent on an input must be the same for all inputs. D. Price L = Price K.

c. the extra output we get from the last dollar spent on an input must be the same for all inputs.

In a graph of short run cost curves, which starts rising first? A. The average variable cost curve B. The average total cost curve C. The marginal cost curve D. The average fixed cost curve

c. the marginal cost curve.

Geometrically, marginal cost at any level of output may be interpreted as the slope of A. a ray to the total cost curve at that level of output. B. the average variable cost curve at that level of output. C. the total cost curve at that level of output. D. the isoquant at that level of output.

c. the total cost curve at that level of output.

The long-run total cost of *zero* output is equal to A. variable cost. B. fixed cost. C. zero. D. the marginal revenue product of labor.

c. zero

The variable cost of *zero* units of output is equal to A. total cost. B. total fixed cost. C. zero. D. one.

c. zero

Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the *total cost* of producing 80 units of output? A. $525 B. $200 C. $233 D. $225

d. $225

If some inputs of production do not vary with the level of output we call them fixed inputs which when multiplied by their price become fixed cost. Which of the following items typically fit this category? A. Property taxes B. Insurance payments C. Interest on loans D. All of these are fixed costs

d. all of these are fixed costs

When marginal cost is *less* than *average total cost*, ______ as output increases. A. average total cost must be increasing B. average variable cost must be decreasing C. average fixed cost must be increasing D. average total cost must be decreasing

d. average total cost must be decreasing

The vertical *distance* between the average variable cost and average total cost curves A. is everywhere equal to total fixed costs. B. is everywhere equal to marginal cost. C. increases at a decreasing rate. D. decreases as quantity increases.

d. decreases as quantity increases.

The total cost curve A. is a horizontal line. B. increases at a decreasing rate due to diminishing returns. C. is parallel to the total fixed cost curve. D. is parallel to and above the total variable cost curve.

d. is parallel to and above the total variable cost curve.

Given input prices and the usual strategy of a profit-maximizing firm, efficient production occurs at A. the highest isoquant Q for a given isocost C. B. the lowest isoquant Q for a given isocost C. C. the highest isocost C for a given isoquant Q. D. the lowest isocost C for a given isoquant Q.

d. the lowest isocost C for a given isoquant Q.

Gravel is made by hand in Nepal, but by machine in the U.S. because A. the marginal product of labor is higher in Nepal than in the U.S. B. capital is much more expensive in the U.S. than in Nepal. C. of consumer preferences. D. the relative prices of labor and capital differ so dramatically in the two countries.

d. the relative prices of labor and capital differ so dramatically in the two countries.

Total cost is broken down into two components: A. average cost and marginal cost. B. average cost and fixed cost. C. variable cost and marginal cost. D. variable cost and fixed cost.

d. variable cost and fixed cost.