AP ECON STUDY

How to find AVC!

dividing the total variable cost by the output.

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) It intersects the average variable cost curve and the average total cost curve at each curve's minimum point.

Marginal cost is defined as the (A) change in total cost resulting from producing an additional unit of output (B) change in total cost resulting from using an additional unit of input (C) difference between total cost and total variable cost (D) difference between total variable cost and total fixed cost (E) difference between average total cost and average variable cost divided by output

(A) change in total cost resulting from producing an additional unit of output

Which of the following MUST be true of the long run? (A) It is at least one year in duration. (B) All factors of production are variable. (C) At least one factor of production is fixed. (D) Marginal costs are constant. (E) Average total costs are constant.

(B) All factors of production are variable.

Economic profit can be calculated as accounting profit minus which of the following? (A) Fixed costs (B) Implicit costs (C) Marginal costs (D) Explicit costs (E) Total costs

(B) Implicit costs

Which of the following indicates the presence of economies of scale as the quantity of output increases? (A) Average variable cost decreases. (B) Long-run average total cost decreases. (C) Marginal cost decreases. (D) Average fixed cost decreases. (E) Marginal cost exceeds average total cost.

(B) Long-run average total cost decreases.

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) diminishing marginal product

If a firm's long-run average total cost increases as output increases, the firm is experiencing (A) economies of scale (B) diseconomies of scale (C) increasing returns to scale (D) efficiency in plant size (E) maximum economic profit

(B) diseconomies of scale

In the short run, which of the following is true of a firm's average total cost of production? (A) It is equal to marginal cost plus average variable cost. (B) It is equal to marginal cost plus average fixed cost. (C) It is equal to average fixed cost plus average variable cost. (D) It always increases when a firm increases production. (E) It is zero if the firm shuts down.

(C) It is equal to average fixed cost plus average variable cost.

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

(D) A period during which some inputs in a firm's production process cannot be changed

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

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

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.

Profit Maximizing rule

MR=MC (marginal revenue = marginal cost)