Unit 3 Production Choice and Behavior Quiz #1

Which of the following explains the difference between short-run and long-run costs? A) All costs are variable in the short run but not in the long run. B) All costs are fixed in the long run but not in the short run. C) All costs are variable in the long run but not in the short run. D) All costs are fixed in the short run but not in the long run. E) All costs are variable in the short run and fixed in the long run.

C) All costs are variable in the long run but not in the short run.

Which of the following statements relating to a firm in an imperfectly competitive market and a firm in a perfectly competitive market is true? A) Firms in both types of markets will likely advertise the merits of their products to increase sales. B) Firms in both types of markets will increase price to increase total revenues when their demand is inelastic. C) An imperfectly competitive firm must lower its price to increase sales, while a perfectly competitive firm can increase sales by increasing output at the current price. D) Barriers to entry give both imperfectly competitive and perfectly competitive firms market power to raise price. E) As their product becomes different from their competitors' product, both an imperfectly competitive firm and a perfectly competitive firm will face less elastic consumer demand.

C) An imperfectly competitive firm must lower its price to increase sales, while a perfectly competitive firm can increase sales by increasing output at the current price.

Assume the marginal product of labor first rises, reaches a maximum, and then falls. If the average product of labor is falling, which of the following is true? A) The marginal product of labor is greater than the average product of labor. B) The level of output produced must be at its maximum. C) The marginal product of labor must be falling. D) The marginal product of labor must be negative. E) The average product of labor has not yet reached its maximum.

C) The marginal product of labor must be falling.

Based on the short-run production function graph above showing the relationship between the quantity of labor and total product, which of the following statements is true? A) The marginal product of labor is always increasing. B) At L0 the marginal product of labor is at its maximum. C) Total product is maximized when marginal product is zero. D) At L0 the marginal product of labor exceeds the average product of labor. E) The marginal product of labor is always positive.

C) Total product is maximized when marginal product is zero.

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 increases but at a diminishing rate.

Assume that the short-run marginal cost curve initially falls, and it then rises as quantity of output increases. Which of the following must be true? A) The marginal product of labor is always falling. B) At every output level, the short-run marginal cost curve is always above the average variable cost curve. C) As output increases, the unit price of labor (the wage rate) is first falling and then rising. D) Initially the marginal product of labor increases but eventually marginal product of labor decreases. E) The average variable cost curve must always be rising.

D) Initially the marginal product of labor increases but eventually marginal product of labor decreases.

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.

In the short run, assume diminishing marginal product of labor sets in with the hiring of the second worker. Which of the following will remain constant as a firm produces more output? A) Average product of labor B) Total cost C) Total fixed cost D) Total variable cost E) Marginal cost

C) Total fixed cost

Which of the following statements relating to a firm in an imperfectly competitive market and a firm in a perfectly competitive market is true? A) An imperfectly competitive firm does not experience diminishing returns, while a perfectly competitive firm experiences diminishing returns. B) An imperfectly competitive firm will always earn economic profits, while a perfectly competitive firm always earns zero economic profits. C) An imperfectly competitive firm and a perfectly competitive firm have a marginal revenue that equals the product price. D) When an imperfectly competitive firm raises the price, it will likely continue to sell some units of output, but when a perfectly competitive firm raises the price, it will sell no output. E) Both imperfectly competitive and perfectly competitive firms face no barriers to entry.

D) When an imperfectly competitive firm raises the price, it will likely continue to sell some units of output, but when a perfectly competitive firm raises the price, it will sell no output.