ECO112 Ch. 6

Technical efficiency is achieved when a firm produces: a. at the output level indicated by the production function. b. Below the opportunity cost of the resources. c. The minimum necessary output to cover the opportunity cost of resources. d. at an output level beyond the production function.

A. At the output level indicated by the production function

Which of the following can you compute if you know only the total cost at an output level of zero? a. Fixed cost b. Variable cost c. Marginal cost d. Average total cost

A. Fixed Costs

Given the cost of the variable input, marginal cost will increase with greater output if: a. Marginal physical product is declining b. Marginal physical product is increasing c. Total variable cost is decreasing d. Total fixed cost is increasing

A. MPP is declining

Which of the following costs will always increase as output increases? a. Total costs b. average total costs c. Marginal costs d. Fixed costs

A. Total Costs

As output increases, changes in short-run total costs result from changes in: a. Variable costs b. Fixed costs c. Profit d. The price elasticity of demand

A. Variable costs

With greater output, falling average fixed costs eventually outweigh falling ________ ___________ ________, and then average total cost starts to rise.

AVC

If an additional unit of labor costs $18, and has an MPP of 9 units of output, the marginal cost is: a. $.50 b. $2 c. $18 d.$162

B. $2

Which of the following is equivalent to ATC? a. FC+VC b. AFC+AVC c. Change in output divided by change in total cost d. Total cost times the quantity produced

B. AFC+AVC

In economics, the long run is the time period in which: a. All inputs are fixed. b. All inputs are variable c. some inputs are fixed. d. producers decide how much to produce with existing plan and equipment.

B. All inputs are variable

Which of the following contributes to the typical U shape of the ATC curve? a. The initial dominance of diminishing returns. b. The eventual dominance of the rising AVC curve. c. The steady impact of a rising AFC curve d. The continual impact of the declining MC curve.

B. The eventual dominance of the rising AVC curve.

A firm's productivity will increase if: a. wages decrease b. The workers are given additional capital to use. c. More workers are hired. d. The cost of resources increases.

B. The workers are given additional capital to use

For which of the following costs would the cost curve appear as a flat line and the associated average cost curve decline continuously? a. Total costs b. Variable costs c. fixed costs d. Marginal costs

C. Fixed costs

The long-run average cost curve is constructed from the: a. Minimum points of the short-run marginal cost curves. b. Minimum points f the short-run average cost curves. c. Lowest average cost for producing each level of output. d. Minimum points of the long-run marginal cost curves.

C. Lowest average cost for producing each level of output

A production function shows the: a. Minimum amount of output that can be obtained from alternative combinations of inputs. b. Maximum quantities of inputs required to earn a given profit level. c. Maximum output that can be produced d. Alternative combinations of goods and services that can be produced by the entire economy.

C. Maximum output that can be produced

Economies of scale are reductions in average: a. total cost that result from declining average fixed costs. b. Fixed cost that result from reducing the firm's scale of operations. c. total cost that result from increasing the firm's scale of operations. d. Fixed cost resulting from improved technology and production efficiency.

C. Total cost that result from increasing the firm's scale of operations

The laws of diminishing returns indicates that using more and more of a variable input while holding other factors fixed results in: a. An increase in total utility for each additional unit of input. b. A falling MC curve. c. A rising MPP curve. d. A declining rate of increase in total output for each additional unit of input.

D. A declining rate of increase in total output for each additional unit of input

Rising marginal costs are the result of: a. the law of increasing returns. b. the law of increasing utility. c. decreasing ATC d. Decreasing MPP

D. Decreasing MPP

In defining economic costs, economists recognize: a. Only explicit cost while accountants recognize only implicit costs. b. Only explicit costs while accountants recognized explicit an implicit costs. c. Explicit and implicit costs while accountants recognize only implicit costs. d. Explicit and implicit costs while accountants recognize only explicit costs.

D. Explicit and implicit costs while accountants recognize only explicit costs.

Which of the following statements is true? a. Accounting costs and economics costs are always the same. b. Explicit costs are NOT included in accounting costs. c. Average fixed costs are NOT included in economic costs. d. Implicit costs are included in economic costs.

D. Implicit costs are included in economic costs.

If the average total cost curve is rising, then the: a. Fixed cost curve must be rising b. Marginal physical product must be rising c. Total utility must be rising d. Marginal cost curve must be rising

D. MC curve must be rising

The ATC at a given output level multiplied by the number of units produced at that output level equals: a. Marginal cost b. Total fixed cost c. Total Variable cost d. Total cost

D. Total Cost

T or F. Economies of scale result from the law of diminishing returns.

False. Economies of scale is a long-run phenomenon. The law of diminishing returns does not apply in the long run because there are no fixed inputs in the long run.

T or F.With greater output, falling average fixed costs eventually outweigh falling average variable costs, and then average total cost starts to rise.

False. Rising AVC (MC) will eventually overcome falling AFC and cause ATC to increase

T or F. Accounting cost and economist costs differ by the amount of explicit costs.

False. The difference between accounting costs and economic costs is the opportunity cost of resources that do not receive an explicit payment. These are implicit costs.

T or F.The marginal cost curve can intersect the average total cost curve and the average variable cost curve at any point

False. The marginal cost curve always intersects the minimum point of the ATC curve and the minimum point of the AVC curve.

T or F. If the workers are very efficient, a firm can produce beyond the given production function.

False. The production function represents the maximum output that can be obtained from a given mix of inputs.

Economies of scale result from the _________________________.

Law of diminishing returns

T or F. As output increases, marginal costs eventually increase because MPP begins to decline

True

T or F. If MPP is increasing with output, the marginal cost of production is falling, ceteris paribus

True

T or F. The productivity of labor is affected by changes in the mix of other factors being used in the production process

True

T or F. The total cost at a zero level of output is always the amount of fixed costs

True

T or F. Improved technology shifts the production function upward and the cost curves downward.

True.

As output increases, marginal costs eventually ____________ because ___ begins to decline

increase, MPP

Improved technology shifts the production function _____________and the __________ ___________ downward.

upward, cost curves