ap econ u3

If a firm's production function exhibits diminishing marginal product of the variable input in the short run, which of the following about the firm's short-run marginal cost (MC) curve must be true? A. As output Increases, the MC curve slopes upward. B. As output increases, the MC curve slopes downward and becomes flatter. C. As output increases, the MC curve slopes downward and becomes steeper. D. The MC curve is horizontal. E. The MC curve is vertical,

A. As output increases, the MC curve slopes upward.

With capital held constant, when Zane employs one additional worker, the marginal product of labor decreases by 5 units. Which economic concept best characterizes Zane's production process? A. Diminishing marginal returns B. Increasing marginal returns C. Constant returns to scale D. Economies of scale E. Diseconomies of scale

A. Diminishing marginal returns

Assume a perfectiy competitive firm is currently producing 100 units of output. Its marginal cost is $6 and rising at that output quantity. Its average variable cost is $7 and its average fixed cost is $3. If the product's price is $6, which of the following will the firm do in the short run to maximize its profit? A. Shut down B. Produce, but less than 100 units of output C. Produce more than 100 units of output D. Continue to produce at exactly 100 units of output E. Increase its price above $6

A. Shut down

Which of the following MUST be true of the long run? A. It is at least one year in duration. B. All factors of production are variable. C. At least one factor of production is fixed. D. Marginal costs are constant. E. Average total costs are constant.

B.

As output of a firm increases, the difference between the firm's average total cost and its average variable cost gets smaller because the firm's A. total cost is increasing B. marginal cost is increasing c. average fixed cost is decreasing D. marginal product of labor is decreasing E. long-run average total cost is decreasing

C.

Suppose a firm's production process exhibits diseconomies of scale. How and why will costs change if the firm reduces its output? A. Long-run average total cost will increase because it becomes more difficult for the firm to manage its workforce. B. Long-run average fixed costs will increase because the firm produces fewer units of output. C. Long-run average total cost will decrease because it becomes easier for the firm to manage its inputs. D. Long-run average fixed costs will decrease because the firm produces fewer units of output. E. Long-run average total cost will decrease because it becomes more difficult for the firm to manage its workforce.

C.

Raheem is currently working as a financial analyst earning $75,000 a year and is considering quitting his current job to start an art gallery. The estimated annual revenue from the art gallery is $175,000. The annual cost of labor, advertising, and acquiring the art inventory is $125,000. What are Raheem's accounting and economic profits if he opens the art gallery? A. Accounting Profit: - $25,000; Economic Profit: $50,000 B. Accounting Profit: $100,000; Economic Profit: $50,000 C. Accounting Profit: $50,000; Economic Profit: - $25,000 D. Accounting Profit: $100,000; Economic Profit: - $25,000 E. Accounting Profit: $50,000; Economic Profit: $100,000

C. Accounting Profit: $50,000; Economic Profit: -$25,000

In the short run, which of the following is true of a firm's average total cost of production? A. It is equal to marginal cost plus average variable cost. B. It is equal to marginal cost plus average fixed cost. C. It is equal to average fixed cost plus average variable cost. D. It always increases when a firm increases production. E. It is zero if the firm shuts down.

C. It is equal to average fixed cost plus average variable cost.

If the output of a firm doubles when the firm doubles all of its inputs, the firm must be experiencing A. economies of scale B. increasing returns to scale C. constant returns to scale D. decreasing returns to scale E. diseconomies of scale

C. constant returns to scale.

Which of the following is true for a firm that uses labor as a variable input and capital as a fixed input in the short run? A. If the marginal product of labor is negative, the average product of labor must also be negative. B. If the marginal product of labor is rising, the average product of labor must be greater than the marginal product of labor. C. If the average product of labor is rising, the marginal product of labor must be rising. D. If the average product of labor is falling, the marginal product of labor must be less than the average product of labor. E. The average product of labor can never be equal to the marginal product of labor.

D. If the average product of labor is falling, the marginal product of labor must be less than the average product of labor.

Economies of scale can be illustrated by A. an increasing short-run marginal cost curve as a firm produces more output B. a decreasing short-run average total cost curve as a firm produces more output C. a downward-sloping long-run supply curve for an industry D. a decreasing long-run average total cost curve as a firm produces more output

D. a decreasing long-run average total cost curve as a firm produces more output

Which of the following is true about a firm's average variable cost? A. It will rise if marginal cost is less than average variable cost. B. It will never equal the firm's marginal cost. C. It will decline when the firm's marginal product declines. D. It will be negative if marginal revenue declines. E. It will equal average total cost when fixed costs are zero.

E: It will equal average total cost when fixed costs are zero.

A firm produces 400 books and sells each book for $15. If the explicit cost of producing the books is $4,500 and the implicit cost is $1,000, the firm's economic profit is A. $0 B. $500 C. $1,000 D. $1,500 E. $5,000

b. $500

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output? A. $2 B. $5 C. $7 D. $9 E. $12

c) $7