Question 1

Which of the following statements regarding the relationship between average and marginal costs is INCORRECT?

Accepted Answer

A)  There is always a definite relationship between average and marginal cost. 
B)  When marginal costs are less than average costs, the latter must fall. 
C)  When marginal costs are greater than average costs, the latter must rise. 
D)  There is no way for average variable costs to fall when marginal costs are falling. 
A)  There is always a definite relationship between average and marginal cost. 
B)  When marginal costs are less than average costs, the latter must fall. 
C)  When marginal costs are greater than average costs, the latter must rise. 
D)  There is no way for average variable costs to fall when marginal costs are falling.

Question 2

-In the above table, how many workers are employed when marginal product reaches its maximum?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 3

Suppose that one worker can produce 15 cookies, two workers can produce 35 cookies together, and three workers can produce 60 cookies together. What is the average product of the first three workers?

Accepted Answer

A)  25 cookies 
B)  30 cookies 
C)  17.5 cookies 
D)  20 cookies 
A)  25 cookies 
B)  30 cookies 
C)  17.5 cookies 
D)  20 cookies

Question 4

When the average physical product is falling

Accepted Answer

A)  average variable costs are rising. 
B)  average fixed costs are rising. 
C)  total costs are falling. 
D)  average variable costs are falling. 
A)  average variable costs are rising. 
B)  average fixed costs are rising. 
C)  total costs are falling. 
D)  average variable costs are falling.

Question 5

The marginal productivity of labor will eventually decrease as more workers are employed because

Accepted Answer

A)  average product is increasing. 
B)  total product is decreasing. 
C)  the amount of capital will also be increasing. 
D)  on the average each worker will have fewer inputs to work with. 
A)  average product is increasing. 
B)  total product is decreasing. 
C)  the amount of capital will also be increasing. 
D)  on the average each worker will have fewer inputs to work with.

Question 6

The observation that beyond some point, successive increases in a variable factor of production added to a fixed factor of production lead to smaller and smaller increases in output is

Accepted Answer

A)  the law of marginal utility. 
B)  the law of averages. 
C)  the law of diminishing marginal product. 
D)  the law of opportunity costs. 
A)  the law of marginal utility. 
B)  the law of averages. 
C)  the law of diminishing marginal product. 
D)  the law of opportunity costs.

Question 7

The locus of points representing the minimum unit cost of producing any given rate of output is the

Accepted Answer

A)  short-run average total cost curve. 
B)  long-run marginal cost curve. 
C)  short-run total cost curve. 
D)  long-run average cost curve. 
A)  short-run average total cost curve. 
B)  long-run marginal cost curve. 
C)  short-run total cost curve. 
D)  long-run average cost curve.

Question 8

As a firm continues to produce additional output, which of the following will continue to decline as output expands?

Accepted Answer

A)  average total costs 
B)  marginal costs 
C)  average fixed costs 
D)  opportunity costs 
A)  average total costs 
B)  marginal costs 
C)  average fixed costs 
D)  opportunity costs

Question 9

In the long run, a firm can change

Accepted Answer

A)  nothing. 
B)  only one input, such as plant size. 
C)  all inputs. 
D)  None of the above are correct. 
A)  nothing. 
B)  only one input, such as plant size. 
C)  all inputs. 
D)  None of the above are correct.

Question 10

"The long-run average cost curve is derived from adding all short-run average cost curves together." Do you agree or disagree? Explain.

Accepted Answer

Disagree. The long-run average cost curv

Question 11

-Using the above table, the TC, the AFC, and the TVC when output is 2 units are

Accepted Answer

A)  $20, $2.50, and $15, respectively. 
B)  $35, $2.50, and $30, respectively. 
C)  $30, $2.50, and $40, respectively. 
D)  $35, $2.50, and $20, respectively. 
A)  $20, $2.50, and $15, respectively. 
B)  $35, $2.50, and $30, respectively. 
C)  $30, $2.50, and $40, respectively. 
D)  $35, $2.50, and $20, respectively.

Question 12

Which of the following is TRUE for a firm in the long run?

Accepted Answer

A)  Variable costs will initially increase and then decrease. 
B)  The law of diminishing marginal product holds. 
C)  All costs are variable costs. 
D)  Variable costs will equal marginal cost at all output levels. 
A)  Variable costs will initially increase and then decrease. 
B)  The law of diminishing marginal product holds. 
C)  All costs are variable costs. 
D)  Variable costs will equal marginal cost at all output levels.

Question 13

Economies of scale occur when there are

Accepted Answer

A)  decreases in long-run average costs resulting from increases in output. 
B)  no changes in long-run average costs when output increases. 
C)  increases in long-run average costs when output increases. 
D)  decreases in output resulting from decreases in input. 
A)  decreases in long-run average costs resulting from increases in output. 
B)  no changes in long-run average costs when output increases. 
C)  increases in long-run average costs when output increases. 
D)  decreases in output resulting from decreases in input.

Question 14

-Using the above table, we see that when output is 4 units, average variable cost equals

Accepted Answer

A)  $24.00. 
B)  $14.00. 
C)  $3.50. 
D)  $6.00. 
A)  $24.00. 
B)  $14.00. 
C)  $3.50. 
D)  $6.00.

Question 15

Average variable cost equals

Accepted Answer

A)  TC/Q. 
B)  TVC/Q. 
C)  TFC/Q. 
D)  change in total cost/change in output. 
A)  TC/Q. 
B)  TVC/Q. 
C)  TFC/Q. 
D)  change in total cost/change in output.

Question 16

Which of the following is NOT correct?

Accepted Answer

A)  MC = change in TC/change in Q 
B)  ATC = TC/Q 
C)  AVC = TVC/Q 
D)  ATC + AVC = AFC 
A)  MC = change in TC/change in Q 
B)  ATC = TC/Q 
C)  AVC = TVC/Q 
D)  ATC + AVC = AFC

Question 17

Marginal costs will begin to rise at the point where

Accepted Answer

A)  fixed costs increase. 
B)  variable costs increase. 
C)  average variable costs increase. 
D)  diminishing marginal product begins. 
A)  fixed costs increase. 
B)  variable costs increase. 
C)  average variable costs increase. 
D)  diminishing marginal product begins.

Question 18

As successive equal increases in a variable factor of production are added to fixed factors of production, there will be a point beyond which the extra product that can be attributed to each additional unit of the variable factor of production will decline. This is known as the law of

Accepted Answer

A)  diminishing total product. 
B)  diminishing average product. 
C)  diminishing marginal product. 
D)  decreasing product. 
A)  diminishing total product. 
B)  diminishing average product. 
C)  diminishing marginal product. 
D)  decreasing product.

Question 19

The time period during which a firm's capital is fixed but its labor is variable is called

Accepted Answer

A)  the planning horizon. 
B)  the short run. 
C)  the long run. 
D)  the very long run. 
A)  the planning horizon. 
B)  the short run. 
C)  the long run. 
D)  the very long run.

Question 20

-In the above table, the marginal physical product of the 6th worker is

Accepted Answer

A)  5. 
B)  4. 
C)  3. 
D)  0. 
A)  5. 
B)  4. 
C)  3. 
D)  0.

Exam 22: The Firm: Cost and Output Determination

Which of the following statements regarding the relationship between average and marginal costs is INCORRECT?

-In the above table, how many workers are employed when marginal product reaches its maximum?

Suppose that one worker can produce 15 cookies, two workers can produce 35 cookies together, and three workers can produce 60 cookies together. What is the average product of the first three workers?

When the average physical product is falling

The marginal productivity of labor will eventually decrease as more workers are employed because

The observation that beyond some point, successive increases in a variable factor of production added to a fixed factor of production lead to smaller and smaller increases in output is

The locus of points representing the minimum unit cost of producing any given rate of output is the

As a firm continues to produce additional output, which of the following will continue to decline as output expands?

In the long run, a firm can change

"The long-run average cost curve is derived from adding all short-run average cost curves together." Do you agree or disagree? Explain.

-Using the above table, the TC, the AFC, and the TVC when output is 2 units are

Which of the following is TRUE for a firm in the long run?

Economies of scale occur when there are

-Using the above table, we see that when output is 4 units, average variable cost equals

Average variable cost equals

Which of the following is NOT correct?

Marginal costs will begin to rise at the point where

As successive equal increases in a variable factor of production are added to fixed factors of production, there will be a point beyond which the extra product that can be attributed to each additional unit of the variable factor of production will decline. This is known as the law of

The time period during which a firm's capital is fixed but its labor is variable is called

-In the above table, the marginal physical product of the 6th worker is

The Nature of Economics

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