Microeconomics Chapter 11
7) Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's average fixed cost per day when she produces 50 gyros using two workers? A) $2.00 B) $2.40 C) $4.40 D) $6.80
B) $2.40 [Hint: Total fixed cost divided by output, so, $120/50]
15) If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is A) $1,000. B) $700. C) $300. D) impossible to determine without additional information.
B) $700. [Hint: average variable cost = $50-$15=$35. So the total variable cost for 20 units is 20 times $35].
1) A characteristic of the long run is A) there are fixed inputs. B) all inputs can be varied.
B) all inputs can be varied.
30) When a firm's long-run average cost curve is horizontal for a range of output, then that range of production displays A) increasing returns to scale. B) constant returns to scale. C) decreasing returns to scale. D) constant average fixed costs.
B) constant returns to scale.
28) when production displays economies of scale, the long-run average cost curve is A) above the short-run average total cost curve. B) downward-sloping. C) upward sloping. D) below the long-run marginal cost curve.
B) downward-sloping.
24) All of the following cost curves are U-shaped except one. Which curve is not U-shaped? A) the marginal cost curve B) the average fixed cost curve C) the average total cost curve D) the average variable cost curve
B) the average fixed cost curve
3) The production function shows A) the total cost of producing a given quantity of output. B) the maximum output that can be produced from each possible quantity of inputs. C) the technology used to produce output.
B) the maximum output that can be produced from each possible quantity of inputs.
19) Average total cost is equal to A) average fixed cost minus average variable cost. B) total cost divided by the level of output. C) marginal cost plus variable cost. D) total cost divided by the number of workers.
B) total cost divided by the level of output.
25) Average total cost is equal to average variable cost minus average fixed cost.
Answer: FALSE
26) As output increases, the distance between average total cost and average variable cost increases
Answer: FALSE
8) The short run is the time period during which a firm has at least one input fixed.
Answer: TRUE
14) If a firm produces 20 units of output and incurs a total cost of $1,000 and a variable cost is $700, calculate the firm's average fixed cost of production if it expands output to 25 units. A) $300 B) $15 C) $12 D) It is impossible to determine without additional information.
C) $12 [Hint: Variable cost is $(1000-700)=$300. Divide it by quantity]
27) Long-run cost curves are U-shaped because A) of the law of demand. B) of the law of diminishing returns. C) of economies and diseconomies of scale. D) of the law of supply
C) of economies and diseconomies of scale.
9) Marginal cost is equal to the A) change in total cost divided by the change in output. B) change in average total costs divided by the change in output. C) change in total product divided by the change in output. D) change in average product divided by the change in output.
A) change in total cost divided by the change in output.
2) Which of the following is a fixed cost? A) contractual payment to hire a security worker B) wages to hire part-time workers C) payments to an electric utility D) costs of raw materials
A) contractual payment to hire a security worker
5) Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's total variable cost per day when she produces 50 gyros using two workers? A) $100 B) $124.40 C) $220 D) $240
C) $220 [Hint: total Variable cost is the cost of ingredients for making 50 Gyros plus cost of hiring 2 workers for that = $(2 time 50 + 60 times 2) = $220]
12) Which of the following equations is correct? A) AVC - ATC = AFC B) AVC + ATC = AFC C) AFC + AVC = ATC D) ATC + AVC = AFC
C) AFC + AVC = ATC
13) Refer to Figure 11-4. What happens to the average fixed cost of production when the firm increases output from 150 to 200? A) It remains constant. B) It rises. C) It falls. D) It could rise or fall depending on what happens to total cost.
C) It falls.
29) If, when a firm doubles all its inputs, its average cost of production increases, then production displays A) diminishing returns. B) economies of scale. C) diseconomies of scale. D) declining fixed costs.
C) diseconomies of scale.
4) The average total cost of production A) is the extra cost required to produce one more unit. B) equals the explicit cost of production. C) equals total cost of production divided by the level of output.
C) equals total cost of production divided by the level of output.
6) Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's total cost per day when she produces 50 gyros using two workers? A) $100 B) $124.40 C) $220 D) $340
D) $340 [Hint: Total cost =total variable cost +total fixed cost. Total variable cost is $220 from above. Total fixed cost is $120. So add them up. ]
11) Marginal cost is calculated for a particular increase in output by A) multiplying the total cost by the change in output. B) multiplying the change in total cost by the change in output. C) dividing the total cost by the change in output. D) dividing the change in total cost by the change in output.
D) dividing the change in total cost by the change in output.
10) Average fixed costs of production A) remain constant. B) will rise at a fixed rate as more is produced. C) graph as a U-shaped curve. D) fall as long as output is increased.
D) fall as long as output is increased.