Chapter 9 Sample Test Questions

AFC is constant as output increases.

False

Which of the following costs are computed per unit of output? a. AFC b. AVC c. ATC d. all of the above

all of the above

At the output level where MC is just equal to ATC: a. ATC is increasing b. ATC is decreasing c. ATC could be either increasing or decreasing d. ATC is at its minimum value

ATC is at its minimum value

Depreciation is classified as a cash cost.

False

To maximize total profit, farms or ranches should produce the level of output at which average total cost per unit is minimized.

False

Fixed costs that result from owning farm assets such as machinery include all but which of the following: a. Fuel and lubrication b. Depreciation c. Insurance d. Interest

Fuel and lubrication

The opportunity cost of one more unit of a variable input is: a. its market value at the time of its use b. its cost at time of purchase c. the return from using that input in its next best alternative use d. the same as its marginal cost

The return from using that input in its next best alternative

In the short run: a. total fixed costs are zero when there is no production b. total variable costs are zero when there is no production c. total costs are zero when there is no production d. neither total fixed costs nor total variable costs are zero when there is no production

Total vaiable costs are zero when there is no production

A declining long run average cost curve indicates that economies of size are available.

True

ATC will decrease at first, then increase as more and more output is produced.

True

Both fixed and variable costs exist in the short run.

True

It is possible for the opportunity cost of an input to be very low or zero if there is no alternative use for it.

True

Labor can be either a cash expense or an opportunity cost.

True

MC is equal to the change in TVC divided by the change in output.

True

Variable costs such as seed and fertilizer that have already been paid for and applied are called "sunk costs."

True

There are increasing returns to size whenever increasing the output of the business results in: a. a larger average cost per unit of output b. a smaller average cost per unit of output c. the same average cost per unit of output d. increased total profit

a smaller average cost per unit of output

The long-run interest cost for an investment in a fixed asset is found by multiplying the interest rate by the: a. initial purchase price of the asset b. salvage value of the asset c. the average of the initial purchase price and the salvage value of the asset d. average annual depreciation cost of the asset

the average of the initial purchase price and the salvage value of the asset

In the short run, production should be discontinued whenever: a. total revenue is less than total variable cost b. total revenue is less than total cost c. total revenue is less than total fixed cost d. total revenue is greater than total fixed cost

total revenue is less than total variable cost

Which of the following would not cause economies of size to result if a particular farm or ranch expanded production? a. A large harvesting machine is used over more acres per year b. Travel time to transport crops or dispose of manure is increased c. Volume discounts on the purchase price of inputs can be negotiated d. Employees are assigned fewer types of tasks to perform

travel time to transport crops or dispose of manure is increased

The marginal cost curve: a. will eventually increase as output is increased b. will eventually decrease as output is increased c. is constant regardless of output level d. has the same shape as a marginal revenue curve

will eventually increase as output is increased