Ch 9 Problem Sets

| | Long Run ATC | \ / | \ / | \ / | \ / | __________________________ | | | | |_________|___________|____________|___________________ Q1 Q2 Q3 Output Refer to the diagram. Y axis is Unit cost. Minimum efficient scale A) is achieved at Q1. B) is achieved at Q3. C) occurs at some output greater than Q3. D) cannot be identified in this diagram.

A) is achieved at Q1.

In the short run, A) TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate. B) TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing 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.

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

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there A) is a minimum efficient scale. B) are constant returns to scale. C) are economies of scale. D) are diseconomies of scale.

B) are constant returns to scale.

The following is cost information for the Creamy Crisp Donut Company. Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's accounting profit is A) $380,000. B) $294,000. C) $230,000. D) $150,000.

C) $230,000.

The question is based on the following table, which provides information on the production of a product that requires one variable input. Input Total Product 0 0 1 5 2 20 3 32 4 42 5 50 6 55 7 58 8 58 9 56 With the addition of the second unit of input, the marginal product is A) 25 and the average product is 10. B) 15 and the average product is 20. C) 15 and the average product is 10. D) 10 and the average product is 15.

C) 15 and the average product is 10.

The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of one reason for A) diminishing marginal returns. B) increasing marginal cost. C) economies of scale. D) diminishing returns to scale.

C) economies of scale.

Which of the following is most likely to be a variable cost? A) real estate taxes B) rental payments on IBM equipment C) fuel and power payments D) interest on business loans

C) fuel and power payments

Refer to the provided graph, which shows the total product (TP) curve. At which point is marginal product smallest? | | c | / \ | / \ | b d | / | a | _____________________________________ 0 (imagine the lines curve at point C) y axis - total product x axis - quantity of labor A) point a B) point b C) point c D) point d

D) point d

The long run is characterized by A) at least one fixed input. B) the relevance of the law of diminishing returns. C) the increase in variable cost. D) the ability of the firm to change its plant size.

D) the ability of the firm to change its plant size.

The following table shows the relationship between output and costs for two firms in the short run. Output TC Firm A TC Firm B 0 $ 500 $ 800 1 1,000 1,200 2 1,600 1,500 3 2,300 1,800 4 2,900 2,200 5 3,800 2,700 Which of the following is correct? A) A has higher per-unit costs than B at an output level of 1. B) B starts experiencing diminishing marginal returns with the second unit of output. C) B has lower fixed costs than A. D) A has greater marginal costs than B at each level of output.

D) A has greater marginal costs than B at each level of output.