Micro Chapter 8

Which of the following must be true if average total costs are declining? A. Marginal cost is less than average total cost. B. Marginal cost is less than average variable cost. C. Marginal cost is greater than average total cost. D. Marginal cost equals average total cost.

A. Marginal cost is less than average total cost.

Fixed costs are best defined as A. costs that do not vary with output. B. costs that are at a minimum when output approaches the firm's capacity. C. the amount that one more unit of output adds to total costs. D. costs that decline as output increases.

A. costs that do not vary with output.

When total revenue minus total economic cost is greater than zero, the firm is A. earning higher than normal profits. B. earning the normal profit rate. C. making economic losses. D. earning economic profit but accounting losses.

A. earning higher than normal profits.

Liam notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost (MC) is $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day? A. $5 B. $7 C. $8 D. $15

B. $7

Which of the following is a cause of diminishing marginal productivity? A. In the long run, labor gets tired as more labor gets added to the production process. B. In the short run, labor runs out of available capital as more labor gets added to the production process. C. In the long run, capital depreciates as more capital gets added to the production process. D. In the short run, capital gets more expensive as you add more capital to the production process.

B. In the short run, labor runs out of available capital as more labor gets added to the production process.

Will a change in fixed costs change marginal cost? A. Yes B. No

B. No

In the long run, a firm might experience rising average total costs due to A. economies of scale. B. diseconomies of scale. C. the law of supply. D. the law of diminishing marginal returns.

B. diseconomies of scale.

Larger firms will often have lower minimum per-unit costs than smaller firms because A. employee shirking is less of a problem. B. large-scale output allows greater specialization for both labor and machines in the production process. C. mass production techniques, with high setup and development costs, are appropriate only when a small output is planned. D. all of the above are correct.

B. large-scale output allows greater specialization for both labor and machines in the production process.

Economists refer to historical costs (irreversible costs already incurred) as A. implicit costs. B. sunk costs. C. opportunity costs. D. variable costs.

B. sunk costs.

Normal profit is a term for A. explicit profit. B. the competitive rate of return. C. the accounting profit forgone. D. pure economic profit.

B. the competitive rate of return.

Accounting costs are often unsatisfactory from the economist's point of view because A. they fail to allow for depreciation, the wearing out of capital assets during a period. B. they often exclude the opportunity costs of the firm's equity capital. C. accountants attempt to minimize costs in order to make profits look good. D. accounting procedures are designed to overstate costs in order to minimize business tax liability.

B. they often exclude the opportunity costs of the firm's equity capital.

If marginal cost is equal to average cost, average cost at this point must be ______________. A. Increasing B. Decreasing C. At its minimum point D. At its maximum point

C. At its minimum point

Which of the following is an implication of the law of diminishing returns? A. Total output will decline as more workers are hired. B. In the long run, average total cost will eventually decline as output is expanded. C. In the short run, expansion of output will eventually lead to increases in marginal cost and average total cost. D. A doubling of all inputs will lead to more than a doubling of output.

C. In the short run, expansion of output will eventually lead to increases in marginal cost and average total cost.

With respect to the average cost curves, the marginal cost curve A. intersects average total cost, average fixed cost, and average variable cost at their minimum points. B. intersects average total cost, average fixed cost, and average variable cost at their maximum points. C. intersects both average total cost and average variable cost at their minimum points. D. intersects average total cost where it is increasing and average variable cost where it is decreasing. E. intersects only average total cost at its minimum point.

C. intersects both average total cost and average variable cost at their minimum points.

As a company adds the first four workers to its production process in the short run, its output rises from 0 to 12 to 25 to 35 to 43. Addition of the fifth worker will most likely lead to an output rate A. greater than 51. B. equal to 51. C. less than 51. D. greater than 51 if the firm experiences diseconomies of scale. E. none of the above.

C. less than 51.

Marginal cost is best defined as A. a cost that does not vary with the rate of output. B. the difference between fixed and variable cost at any level of output. C. the amount added to total cost when one more unit of output is produced. D. the difference between price and average total cost at the profit-maximizing level of output.

C. the amount added to total cost when one more unit of output is produced.

The average fixed costs of a firm equal A. implicit costs divided by output. B. explicit costs divided by output. C. total cost minus variable cost. D. (total cost minus variable cost) divided by output.

D. (total cost minus variable cost) divided by output.

The law of diminishing marginal returns is the cause of ______________ marginal product and ______________ marginal cost. A. Increasing; increasing B. Increasing; decreasing C. Decreasing; decreasing D. Decreasing; increasing

D. Decreasing; increasing

In the short run, a firm will eventually experience rising average total costs because of A. economies of scale. B. diseconomies of scale. C. the law of supply. D. the law of diminishing returns.

D. the law of diminishing returns.

The sum of the explicit and implicit costs incurred in the production process is called A. fixed cost. B. sunk cost. C. marginal cost. D. total cost.

D. total cost.

Which of the following will become smaller and smaller as the firm expands output? A. average total cost B. average fixed cost C. marginal cost D. total fixed cost

D. total fixed cost

Economic profit is A. total revenues minus variable costs. B. total revenues minus private costs. C. total revenues minus explicit costs. D. total revenues minus total costs.

D. total revenues minus total costs.

If a firm produces nothing, which of the following costs will be zero? A. total cost B. fixed cost C. opportunity cost D. variable cost

D. variable cost

Which of the following reflects diseconomies of scale? A. Marginal product decreases as output increases. B. Short-run marginal cost increases as output increases. C. Long-run marginal cost increases as output increases. D. Short-run average cost increases as output increases. E. As output doubles, long-run total cost more than doubles.

E. As output doubles, long-run total cost more than doubles.