Question 1

According to economic theory, the difference between the long run and the short run is:

Accepted Answer

A)  about two months.
B)  about two years.
C)  not relevant for executive decision makers.
D)  strictly theoretical so that in practice there is no difference between the short run and the long run.
E)  the ability for a firm to vary all resources.F) A) and E)
G) B) and E)

Question 2

The table below shows the total cost of producing different units of a commodity. Table 7.2
 Refer to Table 7.2.The average fixed cost of the first unit of output is:

Accepted Answer

A)  $46.
B)  $98.
C)  $100.
D)  $50.
E)  $140.F) B) and E)
G) All of the above

Question 3

The figure given below shows cost curves of a firm. Figure: 7.2  In the figure,
|: Marginal cost curve
||: Average total cost curve
|||: Average variable cost curve
Refer to Figure 7.2.At an output level of G:

Accepted Answer

A)  both average total cost and average variable cost are falling.
B)  average fixed cost is equal to the distance JK.
C)  average variable cost exceeds marginal cost by the amount LJ.
D)  average total cost exceeds marginal cost by the amount KJ.
E)  total cost is equal to the area 0AJG.F) A) and C)
G) B) and D)

Question 4

The table given below shows the total cost of producing different units of the output by a competitive firm. Table 7.4
 In Table 7.4, at 4 units of output,

Accepted Answer

A)  AFC = $6.25 and AVC = $10
B)  AFC = $6.25 and AVC = $40
C)  AFC = $40 and AVC = $6.25
D)  AFC = $25 and AVC = $40
E)  AFC and AVC cannot be determined from the information provided.F) B) and D)
G) A) and C)

Question 5

As the output produced by a firm increases, the average fixed cost:

Accepted Answer

A)  continues to decline.
B)  initially increases, and then declines.
C)  quickly drops to zero.
D)  becomes constant.
E)  declines and finally becomes negative.F) B) and E)
G) None of the above

Question 6

The term minimum efficient scale means:

Accepted Answer

A)  the output corresponding to the minimum point of the short run average total cost curve.
B)  the total of all efficient points along the long-run average-cost curve.
C)  diseconomies of scale.
D)  the minimum point of the long-run average-cost curve, or the output level at which the cost per unit of output is the lowest.
E)  the maximum point of the long-run average-cost curve, or the output level at which the cost per unit of output is the highest.F) A) and C)
G) A) and B)

Question 7

The figure given below shows the average fixed cost (AFC) and the average variable cost (AVC) curves of a competive firm. Figure 7.1  Refer to Figure 7.1.Compute the total cost of producing 4 units of the output.

Accepted Answer

A)  $64.
B)  $72.
C)  $80.
D)  $84.
E)  $90.F) A) and D)
G) B) and D) C

Question 8

If marginal product increases with an increase in the variable input, the marginal cost must also increase as more units of the input are hired.

Accepted Answer

A) True 
 B)False

Question 9

If a firm experiences economies of scale,

Accepted Answer

A)  it moves up along the long run average total cost curve.
B)  expansion of output becomes more expensive for the firm.
C)  the firm can reduce its per unit cost by producing less.
D)  the firm must shut down in the long run.
E)  the firm can reduce its per unit cost by expanding production.F) B) and C)
G) A) and B)

Question 10

The following table shows the cost of producing different units of ball point pens by a firm. Table 7.1
 According to Table 7.1, the average variable cost of producing five ball point pens is:

Accepted Answer

A)  $3.5.
B)  $2.
C)  $4.
D)  $2.5
E)  $4.5F) B) and C)
G) A) and E) C

Question 11

When more and more doses of fertilizers are added to a fixed plot of agricultural land, the crop yield initially declines but eventually rises.

Accepted Answer

A) True 
 B)False

Question 12

At its minimum point, the average-total-cost curve is intersected by the:

Accepted Answer

A)  average-fixed-cost curve.
B)  average-variable-cost curve.
C)  total-fixed-cost curve.
D)  total-variable-cost curve.
E)  marginal-cost curve.F) C) and D)
G) A) and B)

Question 13

If an average cost curve is U-shaped, then:

Accepted Answer

A)  costs per unit are constant throughout the entire range of production.
B)  costs per unit are declining throughout the entire range of production.
C)  costs per unit are increasing throughout the entire range of production.
D)  costs per unit first rise, then reach a maximum, and then begin to fall as output is increased.
E)  costs per unit first fall, then reach a minimum, and then increase as output is increased.F) A) and E)
G) A) and D) E

Question 14

Assume that one laborer produces 6 units of output, two laborers produce 14 units, three produce 20 units, and four produce 24 units.If the cost is $20 per unit of labor and fixed costs are $100, what is the average total cost at 14 units of output?

Accepted Answer

A)  $50
B)  $20
C)  $10
D)  $100
E)  $40F) A) and D)
G) A) and C)

Question 15

If a firm is experiencing diminishing returns, then:

Accepted Answer

A)  the firm must be hiring less-qualified units of the variable resource.
B)  the firm must be experiencing diseconomies of scale.
C)  marginal physical product must be decreasing.
D)  average physical product must be decreasing.
E)  total physical product must be decreasing.F) A) and E)
G) C) and E)

Question 16

The long-run average total cost curve connects the lowest cost for each level of output given by the short run average total cost curves.

Accepted Answer

A) True 
 B)False

Question 17

The minimum efficient scale is the level of output where the short-run average-total-cost curve reaches its minimum point.

Accepted Answer

A) True 
 B)False

Question 18

When a firm is experiencing economies of scale, it will:

Accepted Answer

A)  under use a larger plant size than is indicated by short-run efficiency concerns.
B)  under use a smaller plant than is indicated by short-run efficiency concerns.
C)  overuse a larger plant size than is indicated by short-run efficiency concerns.
D)  overuse a smaller plant size than is indicated by short-run efficiency concerns.
E)  produce at the minimum short-run and long-run average costs.F) A) and B)
G) None of the above

Question 19

The figure given below shows cost curves of a firm. Figure: 7.2  In the figure,
|: Marginal cost curve
||: Average total cost curve
|||: Average variable cost curve
Refer to Figure 7.2.At an output level of H, average total cost is:

Accepted Answer

A)  0E.
B)  BE.
C)  area 0EMH.
D)  0B.
E)  area 0BNH.F) B) and D)
G) B) and E)

Question 20

Assume that one laborer produces 6 units of output, two laborers produce 14 units, three laborers 22 units, four laborers 24 units, and five laborers 25 units.Diminishing returns set in when the firm hires:

Accepted Answer

A)  the first laborer.
B)  the second laborer.
C)  the third laborer.
D)  the fourth laborer.
E)  the fifth laborer.F) None of the above
G) A) and B)

Exam 9: Supply: The Costs of Doing Business

According to economic theory, the difference between the long run and the short run is:

Correct AnswerverifiedShow Answer

The table below shows the total cost of producing different units of a commodity. Table 7.2 Refer to Table 7.2.The average fixed cost of the first unit of output is:

Correct AnswerverifiedShow Answer

The figure given below shows cost curves of a firm. Figure: 7.2 In the figure, |: Marginal cost curve ||: Average total cost curve |||: Average variable cost curve Refer to Figure 7.2.At an output level of G:

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The table given below shows the total cost of producing different units of the output by a competitive firm. Table 7.4 In Table 7.4, at 4 units of output,

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As the output produced by a firm increases, the average fixed cost:

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The term minimum efficient scale means:

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The figure given below shows the average fixed cost (AFC) and the average variable cost (AVC) curves of a competive firm. Figure 7.1 Refer to Figure 7.1.Compute the total cost of producing 4 units of the output.

Correct AnswerverifiedC

If marginal product increases with an increase in the variable input, the marginal cost must also increase as more units of the input are hired.

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If a firm experiences economies of scale,

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The following table shows the cost of producing different units of ball point pens by a firm. Table 7.1 According to Table 7.1, the average variable cost of producing five ball point pens is:

Correct AnswerverifiedC

When more and more doses of fertilizers are added to a fixed plot of agricultural land, the crop yield initially declines but eventually rises.

Correct AnswerverifiedShow Answer

At its minimum point, the average-total-cost curve is intersected by the:

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If an average cost curve is U-shaped, then:

Correct AnswerverifiedE

Assume that one laborer produces 6 units of output, two laborers produce 14 units, three produce 20 units, and four produce 24 units.If the cost is $20 per unit of labor and fixed costs are $100, what is the average total cost at 14 units of output?

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If a firm is experiencing diminishing returns, then:

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The long-run average total cost curve connects the lowest cost for each level of output given by the short run average total cost curves.

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The minimum efficient scale is the level of output where the short-run average-total-cost curve reaches its minimum point.

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When a firm is experiencing economies of scale, it will:

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The figure given below shows cost curves of a firm. Figure: 7.2 In the figure, |: Marginal cost curve ||: Average total cost curve |||: Average variable cost curve Refer to Figure 7.2.At an output level of H, average total cost is:

Correct AnswerverifiedShow Answer

Assume that one laborer produces 6 units of output, two laborers produce 14 units, three laborers 22 units, four laborers 24 units, and five laborers 25 units.Diminishing returns set in when the firm hires:

Correct AnswerverifiedShow Answer

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C

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E

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