Chapter 8

13. Average variable cost equals a. total fixed cost plus total variable cost. b. average total cost minus average fixed cost. c. average total cost plus average fixed cost. d. total cost minus average cost.

B

16. Average fixed costs in the short-run a. increase as the quantity produced increases. b. decrease as the quantity produced increases. c. first decrease, then increase eventually as the quantity producedincreases. d. first increase, then decrease eventually as the quantity producedincreases.

B

20. To minimize average total costs, a firm should always increase outputwhen a. marginal cost exceeds average total costs. b. marginal cost is less than average total costs. c. average total costs are increasing. d. marginal costs are increasing.

B

21. Refer to Table 8.5. The average variable cost of producing five units ofoutput is a. $0 b. $8.60 c. $10 d. $11.60

B

23. The long-run average cost of production is defined as a. total cost divided by the quantity of output the firm chooses when atleast some factor is fixed. b. total cost divided by the quantity of output the firm chooses when itcan choose a production facility of any size. c. the quantity produced by a firm that can choose any size productionfacility. d. the quantity produced by a firm when at least some factor is fixed.

B

3. Which of the following is a long-run adjustment? a. a firm hires two new workers. b. the number of professional baseball teams increases by two. c. GM buys more steel for its auto plants in Michigan. d. a farmer buys twice her usual amount of fertilizer

B

4. Diminishing marginal returns imply that a. marginal costs are decreasing. b. marginal costs are increasing. c. marginal costs are constant. d. marginal costs may be increasing or decreasing.

B

5. Diminishing marginal returns imply that firms a. require fewer and fewer workers to produce each additional unit ofoutput. b. require more and more workers to produce each additional unit ofoutput. c. get decreasing amounts of revenue for each unit of output theyproduce. d. get increasing amounts of revenue for each unit of output theyproduce.

B

6. Refer to Table 8.2 which gives a firm's production function. Assume thatall non-labor inputs are fixed. Diminishing returns set in with theaddition of the a. third worker. b. fourth worker. c. fifth worker. d. sixth worker.

B

7. Refer to Table 8.2 which gives a firm's production function. Assume thatall non-labor inputs are fixed. The marginal product of the fifth workeris a. 10 units. b. 30 units. c. 25 units. d. 0 units.

C

8. Marginal product in the short-run a. increases at all levels of production. b. diminishes at all levels of production. c. may initially increase, then eventually decrease. d. may initially decrease, then eventually increase.

C

9. Marginal cost is defined as a. total variable cost resulting from a one unit increase in quantity. b. quantity resulting from a one unit increase in total variable cost. c. the change in total variable cost resulting from a one unit increasein the change in quantity. d. the change in quantity resulting from a one unit increase in thechange in total variable cost.

C

14. If a firm's total fixed costs are $10, the firm's marginal cost ofproducing the first unit of output is $10, and the average total cost ofproducing two units of output is $14, the marginal cost of the secondunit of output is a. $28 b. $14 c. $18 d. $8

D

17. In the long-run, total fixed costs a. increase as the quantity produced increases. b. decrease as the quantity produced increases. c. first decrease, then increase eventually as the quantity producedincreases. d. there are no fixed costs in the long-run.

D

22. Refer to Table 8.5. The firm experiences diminishing returns beginningwith the ___ unit a. 1 b. 2 c. 3 d. 4

D

25. Under which conditions might diseconomies of scale result? a. improved coordination brought about by bureaucracy b. decreasing costs of inputs c. increasing output prices d. none of the above

D

10. Average variable cost is defined as a. total variable cost divided by quantity. b. quantity divided by total variable cost. c. the change in total variable cost divided by the change in quantity. d. the change in quantity divided by the change in total variable cost.

A

15. Table 8.4 presents the cost schedule for David's Figs. If David producesfive figs, David's marginal costs are a. $70 b. $74 c. $94 d. $100

A

2. In the short-run, ______ factors of production are fixed, while in thelong-run, _____ of them are. a. some; none b. all; none c. no; at least some d. all; at least some

A

18. The short-run average total cost curve is U-shaped because average fixedcosts _______ and average variable costs _________ eventually asquantity produced increases. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease

C

19. The marginal cost curve intersects the short-run average total costcurve where a. marginal cost is minimized in the short-run. b. average variable costs are minimized in the short-run. c. average total costs are minimized in the short-run. d. average variable costs are maximized in the short-run.

C

24. Suppose a firm experiences lower average costs whenever output increasesin the long-run. Then we would expect the firm to have a. a U-shaped long-run average cost curve. b. an L-shaped long-run average cost curve. c. a long-run average cost curve that always decreases. d. a minimum efficient scale relatively close to the origin.

C

26. Suppose that Gigantic Company is increasing in size. As Gigantic Companygrows, coordination of work teams is becoming more difficult because ofincreased bureaucracy. It is likely that continued growth will resultin: a. economies of scale. b. Gigantic Company achieving the minimum efficient scale of production. c. diseconomies of scale. d. increasing marginal returns.

C

11. Average fixed cost is defined as a. total variable cost divided by quantity. b. quantity divided by total variable cost. c. the change in total variable cost divided by the change in quantity. d. total fixed cost divided by quantity.

D

1. Barbara left a $25,000 job as an architect to run a catering business.She invested $100,000 of her own money to purchase a building for thebusiness. The interest rate that Barbara typically earns on herinvestments is 10 percent, while real estate is not appreciating inBarbara's neighborhood. Barbara spends $150,000 per year on employeesalaries, supplies, etc. What is the economic cost of Barbara's cateringbusiness? a. $125,000 b. $165,000 c. $175,000 d. $185,000

D

12. Average total cost is defined as a. total variable cost divided by quantity. b. quantity divided by total variable cost. c. the change in total variable cost divided by the change in quantity. d. total cost divided by quantity.

d