Deck 9: Businesses and the Costs of Production

Question 1

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 total economic costs are

A) $286,000.
B) $150,000.
C) $94,000.
D) $156,000.

Answer 1

$286,000.

Question 2

Which of the following is most likely to be an implicit cost for Company X?

A) forgone rent from the building owned and used by Company X
B) rental payments on IBM equipment
C) payments for raw materials purchased from Company Y
D) transportation costs paid to a nearby trucking firm

Answer 2

forgone rent from the building owned and used by Company X

Question 3

Accounting profits are typically

A) greater than economic profits because the former do not take explicit costs into account.
B) equal to economic profits because accounting costs include all opportunity costs.
C) smaller than economic profits because the former do not take implicit costs into account.
D) greater than economic profits because the former do not take implicit costs into account.

Answer 3

greater than economic profits because the former do not take implicit costs into account.

Question 4

Economic profits are calculated by subtracting

A) explicit costs from total revenue.
B) implicit costs from total revenue.
C) implicit costs from normal profits.
D) explicit and implicit costs from total revenue.

Question 5

Economic cost can best be defined as

A) any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers.
B) those payments for resources that involve an obvious cash transaction.
C) the income the firm must provide to resource suppliers to attract resources from alternative uses.
D) the opportunity cost of using a resource already owned by the firm.

Question 6

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) $150,000.
B) $380,000.
C) $230,000.
D) $294,000.

Question 7

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

A) $100,000 and its economic profits were $0.
B) $200,000 and its economic profits were $0.
C) $100,000 and its economic profits were $100,000.
D) $0 and its economic loss was $200,000.

Question 8

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

A) profits were $100,000 and its economic profits were $0.
B) losses were $500,000 and its economic losses were $0.
C) profits were $500,000 and its economic profits were $1 million.
D) profits were $0 and its economic losses were $500,000.

Question 9

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 implicit costs, including a normal profit, are

A) $136,000.
B) $150,000.
C) $94,000.
D) $156,000.

Question 10

An explicit cost is

A) omitted when accounting profits are calculated.
B) a money payment made for resources not owned by the firm itself.
C) an implicit cost to the resource owner who receives that payment.
D) always in excess of a resource's opportunity cost.

Question 11

Economic cost can best be defined as

A) any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers.
B) any contractual obligation to labor or material suppliers.
C) a payment that must be made to obtain and retain the services of a resource.
D) all costs exclusive of payments to fixed factors of production.

Question 12

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

A) None are either implicit or explicit costs.
B) All are opportunity costs.
C) All are implicit costs.
D) All are explicit costs.

Question 13

Which of the following definitions is correct?

A) Accounting profit + economic profit = normal profit.
B) Economic profit − accounting profit = explicit costs.
C) Economic profit = accounting profit − implicit costs.
D) Economic profit − implicit costs = accounting profits.

Question 14

Accounting profits equal total revenue minus

A) total explicit costs.
B) total implicit costs.
C) total economic costs.
D) economic profits.

Question 15

Normal profit is

A) determined by subtracting implicit costs from total revenue.
B) determined by subtracting explicit costs from total revenue.
C) the return to the entrepreneur when economic profits are zero.
D) the average profitability of an industry over the preceding 10 years.

Question 16

Production costs to an economist

A) consist only of explicit costs.
B) reflect opportunity costs.
C) never reflect monetary outlays.
D) always reflect monetary outlays.

Question 17

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

A) payments of wages to its office workers
B) rent paid for the use of equipment owned by the Schultz Machinery Company
C) use of savings to pay operating expenses instead of generating interest income
D) economic profits resulting from current production

Question 18

Implicit and explicit costs are different in that

A) explicit costs are opportunity costs; implicit costs are not.
B) implicit costs are opportunity costs; explicit costs are not.
C) the latter refer to nonexpenditure costs and the former to monetary payments.
D) the former refer to nonexpenditure costs and the latter to monetary payments.

Question 19

To the economist, total cost includes

A) explicit and implicit costs.
B) neither implicit nor explicit costs.
C) implicit, but not explicit, costs.
D) explicit, but not implicit, costs.

Question 20

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 explicit costs are

A) $286,000.
B) $150,000.
C) $94,000.
D) $156,000.

Question 21

Which of the following is a short-run adjustment?

A) A local bakery hires two additional bakers.
B) Six new firms enter the plastics industry.
C) The number of farms in the United States declines by 5 percent.
D) BMW constructs a new assembly plant in South Carolina.

Question 22

Which of the following best expresses the law of diminishing returns?

A) Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output.
B) Population growth automatically adjusts to that level at which the average product per worker will be at a maximum.
C) As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.
D) Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output.

Question 23

The short run is characterized by

A) plenty of time for firms to either enter or leave the industry.
B) increasing but not diminishing returns.
C) fixed plant capacity.
D) zero fixed costs.

Question 24

To economists, the main difference between the short run and the long run is that

A) the law of diminishing returns applies in the long run, but not in the short run.
B) in the long run all resources are variable, while in the short run at least one resource is fixed.
C) fixed costs are more important to decision making in the long run than they are in the short run.
D) in the short run all resources are fixed, while in the long run all resources are variable.

Question 25

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

A) has lower implicit costs, including a normal profit, than its explicit costs.
B) is earning a normal profit but not an economic profit.
C) is earning an economic profit.
D) is suffering an economic loss, when implicit costs are considered.

Question 26

The long run is characterized by

A) the relevance of the law of diminishing returns.
B) at least one fixed input.
C) insufficient time for firms to enter or leave the industry.
D) the ability of the firm to change its plant size.

Question 27

The basic characteristic of the short run is that

A) barriers to entry prevent new firms from entering the industry.
B) the firm does not have sufficient time to change the size of its plant.
C) the firm does not have sufficient time to cut its rate of output to zero.
D) a firm does not have sufficient time to change the amounts of any of the resources it employs.

Question 28

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 economic profit is

A) $150,000.
B) $80,000.
C) $230,000.
D) $94,000.

Question 29

Which of the following represents a long-run adjustment?

A) A farmer uses an extra dose of fertilizer on his corn crop.
B) Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants.
C) A steel manufacturer cuts back on its purchases of coke and iron ore.
D) A supermarket hires four additional clerks.

Question 30

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. $\begin{array} { |c | c| } \hline \text { Nuriber of Warkers } & \text { Units of Output } \\\hline \mathbf { 0 } & \mathbf { 0 } \\\hline 1 & 40 \\\hline 2 & \mathbf { 90} \\\hline \mathbf { 3 }& \mathbf { 126 }\\\hline 4 & 150 \\\hline 5 & 165 \\\hline \mathbf { 6} & \mathbf { 180} \\\hline\end{array}$ Average product is at a maximum when

A) five workers are hired.
B) four workers are hired.
C) three workers are hired.
D) two workers are hired.

Question 31

Marginal product is

A) the change in total output attributable to the employment of one more worker.
B) the change in total revenue attributable to the employment of one more worker.
C) the change in total cost attributable to the employment of one more worker.
D) total product divided by the number of workers employed.

Question 32

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. $\begin{array} { |c | c| } \hline \text { Nuriber of Warkers } & \text { Units of Output } \\\hline 0 & 0 \\\hline 1 & 40 \\\hline 2 & 90 \\\hline 3 & 126 \\\hline 4 & 150 \\\hline 5 & 165 \\\hline 6 & 180 \\\hline\end{array}$ Diminishing marginal returns become evident with the addition of the

A) sixth worker.
B) fourth worker.
C) third worker.
D) second worker.

Question 33

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all non labor resources are fixed. $\begin{array} { |c | c| } \hline \text { Nuriber of Warkers } & \text { Units of Output } \\\hline 0 & 0 \\\hline 1 & 40 \\\hline 2 & 90 \\\hline 3 & 126 \\\hline 4 & 150 \\\hline 5 & 165 \\\hline 6 & 180 \\\hline\end{array}$ The marginal product of the sixth worker is

A) 180 units of output.
B) 30 units of output.
C) 15 units of output.
D) negative.

Question 34

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
If, other things equal, Creamy Crisp's revenue fell to $286,000,

A) its implicit costs, including a normal profit, would exceed its explicit costs.
B) it would earn a normal profit but not an economic profit.
C) it would suffer an economic loss.
D) its accounting profit would fall to $0.

Question 35

The amount of calendar time associated with the long run

A) is less than that associated with the immediate market period.
B) varies from industry to industry.
C) is the same for all firms.
D) is, by definition, any length of time greater than one year.

Question 36

The basic difference between the short run and the long run is that

A) all costs are fixed in the short run, but all costs are variable in the long run.
B) the law of diminishing returns applies in the long run but not in the short run.
C) at least one resource is fixed in the short run, while all resources are variable in the long run.
D) economies of scale may be present in the short run but not in the long run.

Question 37

Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?

A) AP continues to rise so long as TP is rising.
B) AP reaches a maximum before TP reaches a maximum.
C) TP reaches a maximum when the MP of the variable input becomes zero.
D) MP cuts AP at the maximum AP.

Question 38

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 total revenues exceed its total costs, including a normal profit, by

A) $150,000.
B) $94,000.
C) $80,000.
D) $230,000.

Question 39

The law of diminishing returns indicates that

A) as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
B) because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped.
C) the demand for goods produced by purely competitive industries is downsloping.
D) beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

Question 40

Maria's Mexican Cantina is a restaurant that has been around for 30 years. In that time they have remained in the same building and only changed inputs such as staff and the menu. Based on this, we can conclude that Maria's

A) has only ever operated in the short run.
B) experienced a long run change whenever it changed personnel.
C) has operated in the long run, even though it chose to keep the building input fixed.
D) only operated in the long run if other firms entered or left the industry at this time.

Question 41

Use the following data to answer the question. $\begin{array} { | c | c | } \hline \text { Inputs of Labor } & \text { Total Product } \\\hline 0 & 0 \\\hline 1 & 8 \\\hline 2 & 18 \\\hline 3 & 25 \\\hline 4 & 30 \\\hline 5 & 33 \\\hline 6 & 34 \\\hline 7 & 32 \\\hline\end{array}$ Diminishing returns begin to occur with the hiring of the unit of labor.

A) first
B) second
C) third
D) seventh

Question 42

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes

A) economies and diseconomies of scale.
B) X-inefficiency.
C) the law of diminishing returns.
D) the law of diminishing marginal utility.

Question 43

The law of diminishing returns describes the

A) relationship between total costs and total revenues.
B) profit-maximizing position of a firm.
C) relationship between resource inputs and product outputs in the short run.
D) relationship between resource inputs and product outputs in the long run.

Question 44

The law of diminishing returns results in

A) an eventually rising marginal product curve.
B) a total product curve that eventually increases at a decreasing rate.
C) an eventually falling marginal cost curve.
D) a total product curve that rises indefinitely.

Question 45

The total output of a firm will be at a maximum where

A) MP is at a maximum.
B) AP is at a minimum.
C) MP is zero.
D) AP is at a maximum.

Question 46

Answer the question on the basis of the following information. $\begin{array}{|c|c|c|}\hline \text { Nurrber of } & \text { T otal Product } & \text { Margirial Product } \\\hline \text { Workers } & & \\\hline 0 & 0 & -\cdots \\\hline 1 & 8 & 8 \\\hline 2 & & 10 \\\hline 3 & 25 & \\\hline 4 & 30 & \\\hline 5 & & 3 \\\hline 6 & 34 & \\\hline\end{array}$ When two workers are employed,

A) total product is 20.
B) total product is 18.
C) average product is 10.
D) total product cannot be determined from the information given.

Question 47

Marginal product

A) diminishes at all levels of production.
B) may initially increase, then diminish, but never become negative.
C) may initially increase, then diminish, and ultimately become negative.
D) is always less than average product.

Question 48

Which of the following is correct?

A) When total product is rising, both average product and marginal product must also be rising.
B) When marginal product is falling, total product must be falling.
C) When marginal product is falling, average product must also be falling.
D) Marginal product rises faster than average product and also falls faster than average product.

Question 49

Use the following data to answer the question. $\begin{array} { | c | c | } \hline \text { Inputs of Labor } & \text { Total Product } \\\hline 0 & 0 \\\hline 1 & 8 \\\hline 2 & 18 \\\hline 3 & 25 \\\hline 4 & 30 \\\hline 5 & 33 \\\hline 6 & 34 \\\hline 7 & 32 \\\hline\end{array}$ The average product (AP) when two units of labor are hired is

A) 8.
B) 9.
C) 10.
D) 18.

Question 50

Answer the question on the basis of the following information. $\begin{array}{|c|c|c|}\hline \text { Nurrber of } & \text { T otal Product } & \text { Margirial Product } \\\hline \text { Workers } & & \\\hline 0 & 0 & -\cdots \\\hline 1 & 8 & 8 \\\hline 2 & & 10 \\\hline 3 & 25 & \\\hline 4 & 30 & \\\hline 5 & & 3 \\\hline 6 & 34 & \\\hline\end{array}$ The marginal product of the fourth worker

A) is 5.
B) is 7.
^C) is 7¹/₂.
D) cannot be calculated from the information given.

Question 51

Which of the following is not correct?

A) Where marginal product is greater than average product, average product is rising.
B) Where total product is at a maximum, average product is also at a maximum.
C) Where marginal product is zero, total product is at a maximum.
D) Marginal product becomes negative before average product becomes negative.

Question 52

Which of the following is most likely to be a fixed cost?

A) shipping charges
B) property insurance premiums
C) wages for unskilled labor
D) expenditures for raw materials

Question 53

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, we can conclude that

A) marginal product of the third worker is 9.
B) the third worker has to work with poorer-quality tools and raw materials.
C) the firm will not want to hire more than three workers.
D) the first worker puts forth more effort than the second and third workers.

Question 54

If you owned a small farm, which of the following would most likely be a fixed cost?

A) harvest labor
B) hail insurance
C) fertilizer
D) seed

Question 55

Use the following data to answer the question. $\begin{array} { | c | c | } \hline \text { Inputs of Labor } & \text { Total Product } \\\hline 0 & 0 \\\hline 1 & 8 \\\hline 2 & 18 \\\hline 3 & 25 \\\hline 4 & 30 \\\hline 5 & 33 \\\hline 6 & 34 \\\hline 7 & 32 \\\hline\end{array}$ Marginal product becomes negative with the hiring of the unit of labor.

A) third
B) fourth
C) sixth
D) seventh

Question 56

If in the short run a firm's total product is increasing, then its

A) marginal product must also be increasing.
B) marginal product must be decreasing.
C) marginal product could be either increasing or decreasing.
D) average product must also be increasing.

Question 57

When total product is increasing at an increasing rate, marginal product is

A) positive and increasing.
B) positive and decreasing.
C) constant.
D) negative.

Question 58

Which of the following is most likely to be a variable cost?

A) fuel and power payments
B) interest on business loans
C) rental payments on IBM equipment
D) real estate taxes

Question 59

Fixed cost is

A) the cost of producing one more unit of capital, for example, machinery.
B) any cost that does not change when the firm changes its output.
C) average cost multiplied by the firm's output.
D) usually zero in the short run.

Question 60

When total product is increasing at a decreasing rate, marginal product is

A) positive and increasing.
B) positive and decreasing.
C) constant.
D) negative.

Question 61

Average fixed cost

A) equals marginal cost when average total cost is at its minimum.
B) may be found for any output by adding average variable cost and average total cost.
C) graphs as a U-shaped curve.
D) declines continually as output increases.

Question 62

Answer the question on the basis of the following cost data. $\begin{array}{|c|c|}\hline \text { Output } & \text { Total Cost } \\\hline 0 & \$ 24 \\\hline 1 & 33 \\\hline 2 & 41 \\\hline 3 & 48 \\\hline 4 & 54 \\\hline 5 & 61 \\\hline 6 & 69 \\\hline\end{array}$ The profit-maximizing output for this firm

A) is 3.
B) is 4.
C) is 5.
D) cannot be determined from the information given.

Question 63

If a firm decides to produce no output in the short run, its costs will be

A) its marginal costs.
B) its variable costs.
C) its fixed costs.
D) zero.

Question 64

Answer the question on the basis of the following cost data. $\begin{array}{|c|c|}\hline \text { Output } & \text { Total Cost } \\\hline 0 & \$ 24 \\\hline 1 & 33 \\\hline 2 & 41 \\\hline 3 & 48 \\\hline 4 & 54 \\\hline 5 & 61 \\\hline 6 & 69 \\\hline\end{array}$ The average fixed cost of producing 3 units of output is

A) $8.
B) $7.40.
C) $5.50.
D) $6.

Question 65

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are

A) $5,000.
B) $500.
C) $0.50.
D) $50.

Question 66

In comparing the changes in TVC and TC associated with an additional unit of output, we find that

A) no generalization about the changes in TC and TVC can be made.
B) the changes in TC and TVC are equal.
C) the change in TC is greater than the change in TVC.
D) the change in TVC is greater than the change in TC.

Question 67

Answer the question on the basis of the following cost data. $\begin{array}{|c|c|}\hline \text { Output } & \text { Total Cost } \\\hline 0 & \$ 24 \\\hline 1 & 33 \\\hline 2 & 41 \\\hline 3 & 48 \\\hline 4 & 54 \\\hline 5 & 61 \\\hline 6 & 69 \\\hline\end{array}$ The marginal cost of producing the sixth unit of output is

A) $24.
B) $12.
C) $16.
D) $8.

Question 68

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

A) Marginal costs and average variable costs would both rise.
B) Average fixed costs and average variable costs would rise.
C) Average fixed costs and average total costs would rise.
D) Average fixed costs would rise, but marginal costs would fall.

Question 69

Answer the question on the basis of the following cost data. $\begin{array} { | c | c | } \hline \text { Output } & \text { Total Cost } \\\hline \mathbf { 0 } & \mathbf { \$2 4 } \\\hline 1 & 33 \\\hline 2 & 41 \\\hline 3 & 48 \\\hline 4 & 54 \\\hline 5 & 61 \\\hline 6 & 69 \\\hline\end{array}$ The average total cost of producing 3 units of output is

A) $14.
B) $12.
C) $13.50.
D) $16.

Question 70

Answer the question on the basis of the following information. TFC = Total Fixed Cost Q = Quantity of Output
MC = Marginal Cost P = Product Price TVC = Total Variable Cost
Average total cost is .

A)
B)
C)
D)

Question 71

Answer the question on the basis of the following cost data. $\begin{array} { | c | c | } \hline \text { Output } & \text { Total Cost } \\\hline \mathbf { 0 } & \mathbf { \$2 4 } \\\hline 1 & 33 \\\hline 2 & 41 \\\hline 3 & 48 \\\hline 4 & 54 \\\hline 5 & 61 \\\hline 6 & 69 \\\hline\end{array}$ The total variable cost of producing 5 units is

A) $61.
B) $48.
C) $37.
D) $24.

Question 72

Other things equal, if the prices of a firm's variable inputs were to fall,

A) one could not predict how unit costs of production would be affected.
B) marginal cost, average variable cost, and average fixed cost would all fall.
C) marginal cost, average variable cost, and average total cost would all fall.
D) average variable cost would fall, but marginal cost would be unchanged.

Question 73

Answer the question on the basis of the following information. TFC = Total Fixed Cost Q = Quantity of Output
MC = Marginal Cost P = Product Price TVC = Total Variable Cost
Average fixed cost is _.

A)
B)
C)
D)

Question 74

Which of the following is correct as it relates to cost curves?

A) Average variable cost intersects marginal cost at the latter's minimum point.
B) Marginal cost intersects average total cost at the latter's minimum point.
C) Average fixed cost intersects marginal cost at the latter's minimum point.
D) Marginal cost intersects average fixed cost at the latter's minimum point.

Question 75

Marginal cost

A) equals both average variable cost and average total cost at their respective minimums.
B) is the difference between total cost and total variable cost.
C) rises for a time but then begins to decline when diminishing returns set in.
D) declines continuously as output increases.

Question 76

For most producing firms,

A) marginal cost rises as output is carried to a certain level, and then begins to decline.
B) total costs rise as output is carried to a certain level, and then begin to decline.
C) average total costs decline as output is carried to a certain level, and then begin to rise.
D) average total costs rise as output is carried to a certain level, and then begin to decline.

Question 77

If you operated a small bakery, which of the following would be a variable cost in the short run?

A) baking ovens
B) interest on business loans
C) annual lease payment for use of the building
D) baking supplies (flour, salt, etc.)

Question 78

Which of the following statements is correct?

A) Average total cost is the difference between average variable cost and average fixed cost.
B) Marginal cost measures the cost per unit of output associated with any level of production.
C) When marginal product rises, marginal cost must also rise.
D) Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.

Question 79

Answer the question on the basis of the following information. TFC = Total Fixed Cost Q = Quantity of Output
MC = Marginal Cost P = Product Price TVC = Total Variable Cost
Marginal cost is .

A)
B)
C)
D)

Question 80

Marginal cost is the

A) rate of change in total fixed cost that results from producing one more unit of output.
B) change in total cost that results from producing one more unit of output.
C) change in average variable cost that results from producing one more unit of output.
D) change in average total cost that results from producing one more unit of output.