problem set 6 (micro) (exam 2)

Marginal cost equals (i) change in total cost divided by change in quantity produced. (ii) change in variable cost divided by change in quantity produced. (iii) the average fixed cost of the current unit. a. (i) and (ii) only b. (ii) and (iii) only c. (i) only d. (i), (ii), and (iii)

a

The firm's efficient scale is the quantity of output that minimizes a. average total cost. b. average fixed cost. c. average variable cost. d. marginal cost.

a

When comparing short-run average total cost with long-run average total cost at a given level of output, a. short-run average total cost is typically above long-run average total cost. b. short-run average total cost is typically the same as long-run average total cost. c. short-run average total cost is typically below long-run average total cost. d. the relationship between short-run and long-run average total cost follows no clear pattern.

a

The minimum points of the average variable cost and average total cost curves occur where the a. marginal cost curve lies below the average variable cost and average total cost curves. b. marginal cost curve intersects those curves. c. average variable cost and average total cost curves intersect. d. slope of total cost is the smallest.

b

Listed in the table are the long-run total costs for three different firms. Quantity 1 2 3 4 5 Firm A 100 100 100 100 100 Firm B 100 200 300 400 500 Firm C 100 300 600 1,000 1,500 1. Which firm is experiencing diseconomies of scale? a. Firm A only b. Firm B only c. Firm C only d. Firm A and Firm B only

c

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run, a. output is not variable. b. the number of workers used to produce the firm's product is fixed. c. the size of the factory is fixed. d. there are no fixed costs.

c

Output Total Cost 0 $40 10 $60 20 $90 30 $130 40 $180 50 $240 1. Refer to Table 13-13. What is the total fixed cost for this firm? a. $20 b. $30 c. $40 d. $50

c

Pete owns a shoe-shine business. Which of the following costs would be implicit costs? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete's money was earning before he spent his savings to set up the shoe-shine business a. (i) and (ii) only b. (iv) only c. (iii) and (iv) only d. (i), (ii), (iii), and (iv)

c

The average-total-cost curve intersects a. average fixed cost at the minimum of average total cost. b. average variable cost at the minimum of average total cost. c. marginal cost at the minimum of average total cost. d. marginal cost at the minimum of marginal cost.

c

When calculating a firm's profit, an economist will subtract only a. explicit costs from total revenue because these are the only costs that can be measured explicitly. b. implicit costs from total revenue because these include both the costs that can be directly measured as well as the costs that can be indirectly measured. c. the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm. d. the marginal cost because the cost of the next unit is the only relevant cost.

c

Which of the following statements is not correct? a. Fixed costs are constant. b. Variable costs change as output changes. c. Average fixed costs are constant. d. Average total costs are typically U-shaped.

c

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? a. the unemployment insurance premium that the firm pays to the state of Missouri that is calculated based on the number of worker-hours that the firm uses b. the cost of the steel that is used in producing automobiles c. the cost of the electricity of running the machines on the factory floor d. All of the above are correct.

d

How long does it take a firm to go from the short run to the long run? a. six months b. one year c. two years d. It depends on the nature of the firm.

d

In the short run, a firm incurs fixed costs a. only if it incurs variable costs. b. only if it produces no output. c. only if it produces a positive quantity of output. d. whether it produces output or not.

d

The marginal product of labor is equal to the a. incremental cost associated with a one unit increase in labor. b. incremental profit associated with a one unit increase in labor. c. increase in labor necessary to generate a one unit increase in output. d. increase in output obtained from a one unit increase in labor.

d

Which of the following explains why long-run average cost at first decreases as output increases? a. diseconomies of scale b. less-efficient use of inputs c. fixed costs becoming spread out over more units of output d. gains from specialization of inputs

d

Which of the following statements is correct? a. If marginal cost is rising, then average total cost is rising. b. If marginal cost is rising, then average variable cost is rising. c. If average variable cost is rising, then marginal cost is minimized. d. If average total cost is rising, then marginal cost is greater than average total cost.

d

1. Economists normally assume that the goal of a firm is to earn (i) profits as large as possible, even if it means reducing output. (ii) profits as large as possible, even if it means incurring a higher total cost. (iii) revenues as large as possible, even if it reduces profits. a. (i) and (ii) only b. (i) and (iii) only c. (ii) and (iii) only d. (i), (ii), and (iii)

a

A production function is a relationship between inputs and a. quantity of output. b. revenue. c. costs. d. profit.

a

Diminishing marginal product suggests that a. additional units of output become less costly as more output is produced. b. marginal cost is upward sloping. c. the firm is at full capacity. d. adding additional workers will lower total cost.

B

Economies of scale occur when a firm's a. marginal costs are constant as output increases. b. long-run average total costs are decreasing as output increases. c. long-run average total costs are increasing as output increases. d. marginal costs are equal to average total costs for all levels of output.

B

Firms may experience diseconomies of scale when a. they are too small to take advantage of specialization. b. large management structures are bureaucratic and inefficient. c. there are too few employees, and managers do not have enough to do. d. average fixed costs begin to rise again.

B

If marginal cost is equal to average total cost, then a. marginal cost is minimized. b. average total cost is minimized. c. average variable cost is minimized. d. marginal cost is zero.

B

The marginal product of labor can be defined as the change in a. profit divided by the change in labor. b. output divided by the change in labor. c. labor divided by the change in output. d. labor divided by the change in total cost.

B

In the long run, a. inputs that were fixed in the short run remain fixed. b. inputs that were fixed in the short run become variable. c. inputs that were variable in the short run become fixed. d. variable inputs are rarely used.

b