Microeconomics Chapter 9

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are: A. $5,000. B. $500. C. $0.50. D. $50.

$5,000.

Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the: A. AFC, AVC, ATC, and MC curves all to rise. B. AVC, ATC, and MC curves all to rise. C. AFC and ATC curves to fall. D. MP curve to fall.

AVC, ATC, and MC curves all to rise.

Total fixed cost (TFC): A. falls as the firm expands output from zero, but eventually rises. B. falls continuously as total output expands. C. varies directly with total output. D. does not change as total output increases or decreases.

does not change as total output increases or decreases.

If a firm decides to produce no output in the short run, its costs will be: A. its marginal costs. B. its variable costs. C. its fixed costs. D. zero.

its fixed costs.

When diseconomies of scale occur: A. the long-run average total cost curve falls. B. marginal cost intersects average total cost. C. the long-run average total cost curve rises. D. average fixed costs will rise.

the long-run average total cost curve rises.

Economies and diseconomies of scale explain: A. the profit-maximizing level of production. B. why the firm's long-run average total cost curve is U-shaped. C. why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point. D. the distinction between fixed and variable costs.

why the firm's long-run average total cost curve is U-shaped.

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen? A. Marginal costs and average variable costs would both rise. B. Average fixed costs and average variable costs would rise. C. Average fixed costs and average total costs would rise. D. Average fixed costs would rise, but marginal costs would fall.

Average fixed costs and average total costs would rise.

Which of the following is correct as it relates to cost curves? A. Average variable cost intersects marginal cost at the latter's minimum point. B. Marginal cost intersects average total cost at the latter's minimum point. C. Average fixed cost intersects marginal cost at the latter's minimum point. D. Marginal cost intersects average fixed cost at the latter's minimum point.

Marginal cost intersects average total cost at the latter's minimum point.

Assume a firm closes down in the short run and produces no output. Under these conditions: A. TVC is positive, but TFC and TC are zero. B. TFC is positive, but TVC and TC are zero. C. TFC and TC are positive, but TVC is zero. D. TFC, TVC, and TC will all be positive.

TFC and TC are positive, but TVC is zero.

In the short run: A. TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate. B. TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate. C. TVC will increase by the same absolute amount for each additional unit of output produced. D. one cannot generalize concerning the behavior of TVC as output increases.

TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.

(Consider This) Susie purchased a non-refundable ticket to a soccer match for $20. It will cost her $10 worth of gas and wear and tear to drive to the match, and $5 to park her car. On the day of the match, Susie's boss offers her $100 to come to work instead. In considering what to do, which of the above would be considered a sunk cost? A. The $20 ticket to the match. B. The $10 cost to drive to the match. C. The $5 cost to park at the stadium. D. The $100 offered by Susie's boss.

The $20 ticket to the match.

In the short run, which of the following statements is correct? A. The marginal cost curve intersects the average variable and average fixed cost curves at their minimum points. B. Average variable cost declines continuously as total output is expanded. C. Total cost will exceed total variable cost. D. If the inputs of all resources are increased by equal amounts, total output will expand by diminishing amounts.

Total cost will exceed total variable cost.

In the long run: A. all costs are variable costs. B. all costs are fixed costs. C. variable costs equal fixed costs. D. fixed costs are greater than variable costs.

all costs are variable costs.

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that: A. technology precludes both economies and diseconomies of scale. B. the industry will be a natural monopoly. C. both relatively small and relatively large firms can be viable in the industry. D. the industry will be comprised of a very large number of small firms.

both relatively small and relatively large firms can be viable in the industry.

Average fixed cost: A. equals marginal cost when average total cost is at its minimum. B. may be found for any output by adding average variable cost and average total cost. C. graphs as a U-shaped curve. D. declines continually as output increases.

declines continually as output increases.

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This: A. firm's ATC is $35. B. firm's ATC is $57. C. firm's total cost is $270. D. firm's total cost is $30.

firm's total cost is $270.

As output increases, total variable cost: A. increases more rapidly than does total cost. B. increases continuously at a decreasing rate. C. increases at a decreasing rate and then at an increasing rate. D. increases at a constant rate.

increases at a decreasing rate and then at an increasing rate.

Other things equal, if the prices of a firm's variable inputs were to fall: A. one could not predict how unit costs of production would be affected. B. marginal cost, average variable cost, and average fixed cost would all fall. C. marginal cost, average variable cost, and average total cost would all fall. D. average variable cost would fall, but marginal cost would be unchanged.

marginal cost, average variable cost, and average total cost would all fall.

If marginal cost is: A. falling, then average total cost must also be falling. B. rising, then average total cost must also be rising. C. rising, then average total cost could be either falling or rising. D. falling, then average total cost could be either falling or rising.

rising, then average total cost could be either falling or rising.

For most producing firms: A. marginal cost rises as output is carried to a certain level, and then begins to decline. B. total costs rise as output is carried to a certain level, and then begin to decline. C. average total costs decline as output is carried to a certain level, and then begin to rise. D. average total costs rise as output is carried to a certain level, and then begin to decline.

average total costs decline as output is carried to a certain level, and then begin to rise.

Marginal cost is the: A. rate of change in total fixed cost that results from producing one more unit of output. B. change in total cost that results from producing one more unit of output. C. change in average variable cost that results from producing one more unit of output. D. change in average total cost that results from producing one more unit of output.

change in total cost that results from producing one more unit of output.

The short-run average total cost curve is U-shaped because: A. average fixed costs decline continuously as output increases. B. of increasing and diminishing returns. C. of economies and diseconomies of scale. D. minimum efficient scale is encountered.

of increasing and diminishing returns.

In comparing the changes in TC and TVC associated with an additional unit of output, we find that: A. the change in TVC is equal to MC, while the change in TC is equal to TFC. B. the change in TC exceeds the change in TVC. C. the change in TVC exceeds the change in TC. D. the change in both are equal to MC.

the change in both are equal to MC.

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that: A. the long-run average total cost curve is upsloping. B. a 10 percent increase in all inputs will increase output by less than 10 percent. C. a 10 percent increase in all inputs will increase output by more than 10 percent. D. the firm is encountering problems of managerial bureaucracy because of its size.

a 10 percent increase in all inputs will increase output by more than 10 percent.

When a firm does more of something, it gets better at it. This learning-by-doing is: A. a source of diseconomies of scale. B. a source of economies of scale. C. called the principle of natural progression. D. called "spreading the overhead."

a source of economies of scale.

(Consider This) Which of the following is an example of a sunk cost, as it relates to a firm? A. an expenditure on raw materials used in the production process. B. an expenditure on a nonrefundable, nontransferable airline ticket. C. an expenditure to buy a delivery van. D. an expenditure for a new factory.

an expenditure on a nonrefundable, nontransferable airline ticket.

Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced: A. an upward shift in their MC, AVC, and ATC curves. B. an upward shift in their AFC, AVC, and ATC curves. C. a downward shift in their MC, AFC, and AVC curves. D. greater economies of scale.

an upward shift in their MC, AVC, and ATC curves.

In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs: A. are $2.50. B. are $1,250. C. are $750. D. are $1,100.

are $1,250.

If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that: A. technological progress has occurred. B. economies of scale are being realized. C. the firm is encountering diminishing returns. D. diseconomies of scale are being encountered.

economies of scale are being realized.

Marginal cost: A. equals both average variable cost and average total cost at their respective minimums. B. is the difference between total cost and total variable cost. C. rises for a time, but then begins to decline when diminishing returns set in. D. declines continuously as output increases.

equals both average variable cost and average total cost at their respective minimums.

Which of the following types of firms are least likely to have their MC, AVC, and ATC curves affected by fluctuations in gasoline prices? A. firms like UPS that use a fleet of gasoline-powered vehicles. B. taxi cab and limousine companies. C. companies that operate bus tours to popular vacation destinations. D. firms like iTunes that distribute their products over the Internet.

firms like iTunes that distribute their products over the Internet.

The long-run average total cost curve: A. displays declining unit costs so long as output is increasing. B. indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size. C. has a shape which is the inverse of the law of diminishing returns. D. can be derived by summing horizontally the average total cost curves of all firms in an industry.

indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.

The minimum efficient scale of a firm: A. is realized somewhere in the range of diseconomies of scale. B. occurs where marginal product becomes zero. C. is in the middle of the range of constant returns to scale. D. is the smallest level of output at which long-run average total cost is minimized.

is the smallest level of output at which long-run average total cost is minimized.

If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then: A. it is encountering diseconomies of scale. B. it is encountering economies of scale. C. it is encountering constant returns to scale. D. the marginal products of all inputs are falling.

it is encountering constant returns to scale.

If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then: A. it is encountering diseconomies of scale. B. it is encountering economies of scale. C. the law of diminishing returns is taking hold. D. the firm's long-run ATC curve will be rising.

it is encountering economies of scale.

Diseconomies of scale arise primarily because: A. the short-run average total cost curve rises when marginal product is increasing. B. of the difficulties involved in managing and coordinating a large business enterprise. C. firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available. D. beyond some point marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).

of the difficulties involved in managing and coordinating a large business enterprise.

(Consider This) Past costs that are not affected by new decisions are known as: A. variable costs. B. fixed costs. C. marginal costs. D. sunk costs.

sunk costs.

(Consider This) If the law of diminishing returns applies to study time: A. the 10th hour of study will likely be less productive than the 3rd. B. this implies that longer lectures are less productive than shorter ones. C. there is no benefit to studying a subject more than 5 hours in any given day. D. people with less intelligence necessarily experience diminishing returns sooner than those with greater intelligence.

the 10th hour of study will likely be less productive than the 3rd.

In comparing the changes in TVC and TC associated with an additional unit of output, we find that: A. no generalization about the changes in TC and TVC can be made. B. the changes in TC and TVC are equal. C. the change in TC is greater than the change in TVC. D. the change in TVC is greater than the change in TC.

the changes in TC and TVC are equal.

Economies of scale are indicated by: A. the rising segment of the average variable cost curve. B. the declining segment of the long-run average total cost curve. C. the difference between total revenue and total cost. D. a rising marginal cost curve.

the declining segment of the long-run average total cost curve.

Fixed costs are associated with: A. highly adjustable inputs such as labor. B. both the short run and the long run. C. the short run only. D. the long run only.

the short run only.