Deck 20: Cost

Question 1

_______ is (are) the relationship between the maximum amounts of output a firm can produce and various quantities of inputs.

A)A production function
B)The law of diminishing returns
C)Economies of scale
D)Diseconomies of scale

Answer 1

A production function

Question 2

Which statement is true?

A)The marginal cost curve intersects both the average variable cost curve and the average total cost curve at their minimum points.
B)The marginal cost curve intersects neither the average variable cost curve nor the average total cost curve at their minimum points.
C)The marginal cost curve intersects the average variable cost curve at its minimum point, but it does not intersect the average total cost curve at its minimum point.
D)The marginal cost curve intersects the average total cost curve at its minimum point, but it does not intersect the average variable cost curve at its minimum point.

Answer 2

The marginal cost curve intersects both the average variable cost curve and the average total cost curve at their minimum points.

Question 3

In the long run

A)all costs become fixed.
B)all costs become variable.
C)all costs are a combination of fixed and variable.

Answer 3

all costs become variable.

Question 4

A firm has a fixed cost of $2,000, and at an output of one, variable cost is $1,500. How much is marginal cost at an output of 1?

A)$1,000
B)$1,500
C)$2,000
D)$3,500
E)There is insufficient information to find marginal cost at an output of 1.

Question 5

The law of diminishing marginal returns implies

A)the more hours you spend studying economics the less you will know.
B)your understanding of economics will be increased by decreasing your marginal study time.
C)after a certain point, the more hours you spend studying economics per day, the less you will learn with each added hour.
D)the more hours you spend studying economics per day, the more you will learn with each added hour.

Question 6

The law of diminishing returns

A)is completely invalid.
B)states that if units of a resource are added to a fixed proportion of other resources, eventually marginal output will decline.
C)states that if any two resources are combined, production will fall.
D)states that profit margins decline as output rises.

Question 7

As output rises,

A)AFC rises.
B)AFC falls.
C)AFC remains the same.
D)there is no way of determining what happens to AFC.

Question 8

If fixed cost is $5,000, and, at an output of 3 variable cost is $4,000, how much is average total cost at an output of 3?

A)$1,333.33
B)$3,000
C)$4,500
D)$9,000
E)There is not enough information to determine ATC at an output of 3.

Question 9

If fixed cost is $8,000, variable cost is $5,000 at an output of 2 and $9,000 at an output of 3, how much is marginal cost at an output of 3?

A)$3,000
B)$4,000
C)$5,000
D)$8,000
E)There is not enough information to determine marginal cost at an output of 3.

Question 10

Which statement is true?

A)Fixed cost rises as output rises.
B)Variable cost falls as output rises.
C)In the short-run, at an output of zero, total cost = zero.
D)None of these statements are true.

Question 11

Which statement is true?

A)Fixed costs and variable costs vary with output.
B)Neither fixed costs nor variable costs vary with output.
C)Only fixed cost varies with output.
D)Only variable cost varies with output.

Question 12

The law of diminishing returns states that as output rises, eventually _____ output will decline.

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

Question 13

Which statement is true?

A)AFC declines with output.
B)ATC declines with output.
C)AFC - AVC = ATC.
D)Output divided by fixed cost = AFC.

Question 14

Which statement is false?

A)The AFC curve is U-shaped.
B)The AVC curve is U-shaped.
C)The ATC curve is U-shaped.
D)None of these statements are false.

Question 15

If marginal output is rising it is possible to have

A)diminishing returns.
B)negative returns.
C)both diminishing returns and negative returns.
D)neither diminishing returns nor negative returns.

Question 16

When average total cost is declining, then

A)marginal cost must be less than average total cost.
B)marginal cost must be greater than average total cost.
C)average total cost must be greater than average fixed cost.
D)average variable cost must be declining.

Question 17

In the short run, the ATC curve is _____ above the AVC curve.

A)always
B)sometimes
C)never

Question 18

In the short run, output

A)can be varied by changing the size of factories.
B)can be varied by changing the amount of equipment in factories.
C)can be varied by using the factories and equipment in the industry with more or less of other inputs.
D)cannot be varied because inputs are fixed.

Question 19

The MC curve intersects the AVC and ATC curves at their minimum points

A)none of the time.
B)some of the time.
C)most of the time.
D)all of the time.

Question 20

The phrase "spreading the overhead" refers to

A)the decrease in total cost that occurs as a firm reduces the size of its work force.
B)the decrease in average fixed cost that occurs as a firm increases its output.
C)the decrease in average variable cost that occurs as a firm increases its output.
D)the decrease in total fixed cost that occurs as a firm increases its output.

Question 21

Fixed cost is sometimes referred to as

A)sunk cost.
B)variable cost.
C)total cost.
D)economic cost.
E)accounting cost.

Question 22

Which statement is true?

A)Shutting down is a long run option.
B)Going out of business is a short run option.
C)Continuing to operate is a short run option.

Question 23

Marginal cost may be defined as

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

Question 24

A variable input is an input that can change

A)in the short run but not in the long run.
B)in the long run but not in the short run.
C)in both the long run and the short run.
D)without changing the level of output.

Question 25

If a firm cannot cover its variable costs, it will

A)operate in the short run and stay in business in the long run.
B)operate in the short run and go out of business in the long run.
C)shut down in the short run and stay in business in the long run.
D)shut down in the short run and go out of business in the long run.

Question 26

As a firm's output expands, the

A)ATC will reach a minimum before the AVC.
B)AVC will reach a minimum before the ATC.
C)ATC and AVC will reach minimums at the same output.

Question 27

Which statement is false?

A)The MC always intersects the ATC at its minimum point.
B)The MC always intersects the AVC at its minimum point.
C)The MC always intersects the AFC at its minimum point.
D)None of these statements are false.

Question 28

Fixed costs are best defined as

A)costs that will not vary with the firm's output level over some period of time.
B)costs that are paid on a yearly basis rather than a weekly or monthly basis.
C)costs of inputs that cannot be moved, such as real estate.
D)costs that will last as long as the firm exists.

Question 29

When the average total cost is at its minimum, it is

A)greater than MC.
B)equal to MC.
C)smaller than MC.

Question 30

When MC is rising but still below AVC, then

A)AVC is declining.
B)AVC is constant.
C)AVC is rising.
D)There is not enough information to determine what AVC is doing.

Question 31

As output rises, average fixed cost

A)rises.
B)falls.
C)remains the same.

Question 32

Which statement is true?

A)Going out of business is a short run option.
B)Operating or shutting down are long run options.
C)Going out of business or not going out of business are long run options.

Question 33

The average fixed cost curve

A)is a vertical line.
B)is a horizontal line.
C)slopes downward to the right as output rises.
D)is U-shaped (it declines as output rises, reaches a minimum, and then rises).

Question 34

The basic characteristic of the short run is that

A)a firm does not have sufficient time to change the amounts of any of the resources it employs.
B)the firm does not have sufficient time to cut its rate of output to zero.
C)the firm does not have sufficient time to change the size of its plant.
D)the time frame is sufficient to allow new firms to enter the industry.

Question 35

Average variable cost is equal to

A)average cost plus average fixed cost.
B)marginal cost plus average fixed cost.
C)marginal cost.
D)average total cost minus average fixed cost.

Question 36

If average variable cost of production falls as output grows

A)marginal cost must also be declining.
B)fixed cost must also be declining.
C)total cost must also be declining.
D)marginal cost must be below average variable cost.

Question 37

Which is most clearly a variable cost?

A)Rent
B)Insurance premiums
C)Salaries of employees under long-term contract
D)Interest payments
E)Wages of production workers

Question 38

Jimmy, Walter, Mike, and Bill run a school for political candidates. The school has fixed costs of $10 million, variable costs of $4 million, and total revenue of $15 million. In the short run the school will _____ and in the long run the school will ___.

A)operate; stay in business
B)operate; go out of business
C)shut down; stay in business
D)shut down; go out of business

Question 39

Which is most clearly a fixed cost?

A)Insurance premiums
B)Wages of production workers
C)Advertising
D)Shipping costs
E)Cost of raw materials

Question 40

Both Jill and John own toothpick factories. Jill's factory has low fixed costs and high variable costs. John's factory has high fixed costs and low variable costs. Currently each factory is producing 1,000 boxes of toothpicks at the same total cost. Complete the following statement with the correct answer. If each produces

A)more, their costs will be equal.
B)less, their costs will be equal.
C)less, the costs of Jill's factory will exceed those of John's factory.
D)more, the costs of Jill's factory will exceed those of John's factory.

Question 41

https://storage.examlex.com/TB5854/.
Use the above table and assume a fixed cost of $1000.
At an output of 0, total cost is

A)0.
B)$400.
C)$1,000.
D)$1,400.
E)cannot be determined.

Question 42

Firms taking advantage of ___________ accounts for the downward slope in the long-run average cost curve.

A)diseconomies of scale
B)the production function
C)economies of scale
D)marginal cost

Question 43

In the long run, all costs are _____________.

A)fixed
B)variable
C)equal to zero
D)None of the choices are correct.

Question 44

In the long run,

A)a firm can shut down, but it cannot exit the industry.
B)there are no fixed factors of production.
C)a firm can vary all inputs, but it cannot change the mix of inputs it uses.
D)None of the choices are correct.

Question 45

https://storage.examlex.com/TB5854/.
Use the above table and assume a fixed cost of $1000.
At an output of 1, marginal cost is

A)0.
B)$200.
C)$300.
D)$400.

Question 46

Which of the following cost curves will NOT shift downward if the price of a variable input decreases?

A)Total cost
B)Average cost
C)Marginal cost
D)Average fixed cost

Question 47

At an output of zero, total cost is

A)zero.
B)equal to fixed cost.
C)equal to variable cost.
D)cannot be found.

Question 48

George and Dan's political consulting firm is losing money, but it is more than covering its fixed costs. What is the most accurate statement we can make about it?

A)It will stay in business in the long run.
B)It will go out of business in the long run.
C)It will shut down in the short run.
D)None of these statements are correct.

Question 49

Which statement is false?

A)A firm will shut down when variable cost is greater than total revenue.
B)In the long run all costs become variable costs.
C)When the firm shuts down, output is zero.
D)None of the statements are false.

Question 50

https://storage.examlex.com/TB5854/.
Use the above table and assume a fixed cost of $1000.
At an output of 4, AFC is

A)$200.
B)$250.
C)$500.
D)$1,000.
E)cannot be determined.

Question 51

Fixed costs are best defined as costs ____________ with the firm's output level over some period.

A)that will not vary
B)which vary directly
C)which vary inversely

Question 52

Use the above table and assume a fixed cost of $200.
At an output of 0, total cost is

A)0.
B)$100.
C)$200.
D)$300.
E)$400. F.cannot be found.

Question 53

Use the above table and assume a fixed cost of $200.
At an output of 4, AFC is

A)$50.
B)$100.
C)$200.
D)$400.
E)cannot be found.

Question 54

Which statement is false?

A)Total cost rises with output because variable cost rises.
B)A firm will operate when prospective sales are greater than variable cost.
C)When output falls, variable costs fall.
D)None of the statements are false.

Question 55

Average total cost is found by dividing

A)variable cost by output.
B)output by variable cost.
C)total cost by output.
D)output by total cost.

Question 56

https://storage.examlex.com/TB5854/.
Use the above table and assume a fixed cost of $1000.
At an output of 3, AVC is

A)$250.
B)$300.
C)$333.
D)$400.
E)$667.

Question 57

Use the above table and assume a fixed cost of $200.
At an output of 1, MC is

A)0.
B)$100.
C)$200.
D)$300.
E)cannot be determined.

Question 58

Use the above table and assume a fixed cost of $200.
At an output of 2, ATC is

A)$150.
B)$200.
C)$250.
D)$300.
E)$500.

Question 59

Use the above table and assume a fixed cost of $200.
At an output of 4, ATC is

A)$200.
B)$225.
C)$250.
D)$400.
E)$500.

Question 60

Use the above table and assume a fixed cost of $200.
At an output of 3, AVC is

A)$133.
B)$167.
C)$200.
D)$500.
E)$800.

Question 61

As diseconomies of scale begin to outweigh the economies of scale,

A)the long-run average cost curve begins to slope upward.
B)the long-run average cost curve begins to slope downward.
C)the long-run average cost curve becomes horizontal and continues this way into infinity.
D)the long-run average cost curve is unaffected.

Question 62

If marginal cost is less than average total cost,

A)average total cost is falling.
B)average total cost is constant.
C)average total cost is rising.
D)there is no way to determine if average total cost is falling, constant, or rising.

Question 63

Use the following figure to answer the question :
The ATC curve is curve

A)W.
B)X.
C)Y.
D)Z.

Question 64

Use the following figure to answer the question :
The AFC curve is

A)J.
B)K.
C)L.
D)M.

Question 65

Statement I: Average variable cost can be found by dividing output by variable cost. Statement II: At an output of zero, total cost is always equal to fixed cost.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 66

If a firm has a fixed cost of $200,000, and a variable cost of $130,000 at an output of one, how much is marginal cost at an output of one?

A)$70,000
B)$130,000
C)$200,000
D)$270,000
E)There is insufficient information to answer the question.

Question 67

Statement I: Shutting down and going out of business mean exactly the same thing. Statement II: A firm will shut down if variable cost is greater than total revenue.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 68

Use the following figure to answer the question :
The ATC curve is

A)J.
B)K.
C)L.
D)M.

Question 69

If marginal cost is less than average variable cost,

A)average variable cost is falling.
B)average variable cost is constant.
C)average variable cost is rising.
D)there is no way to determine if average variable cost is falling, constant, or rising.

Question 70

If variable cost is $15 million, fixed cost is $14 million, and total revenues are $13 million, in the short run the firm will _____ and in the long run the firm will ____.

A)shut down; go out of business
B)shut down; stay in business
C)operate; go out of business
D)operate; stay in business

Question 71

https://storage.examlex.com/TB5854/.
Use the above table and assume a fixed cost of $1000.
At an output of 4, ATC is

A)$250.
B)$400.
C)$600.
D)$800.
E)$1,000.

Question 72

Use the following figure to answer the question :
The AVC curve is curve

A)W.
B)X.
C)Y.
D)Z.

Question 73

https://storage.examlex.com/TB5854/.
Use the above table and assume a fixed cost of $1000.
Statement I: In the short run, output can be varied by changing the size of factories. Statement II: The MC curve intersects the AVC and ATC curves at their minimum points most of the time.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 74

Use the following figure to answer the question :
The AFC curve is curve

A)W.
B)X.
C)Y.
D)Z.

Question 75

Use the following figure to answer the question :
The MC curve is

A)J.
B)K.
C)L.
D)M.

Question 76

Statement I: In the short run a firm has two options: stay in business or go out of business. Statement II: In the short run there are no fixed costs.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 77

Use the following figure to answer the question :
The AVC curve is curve

A)J.
B)K.
C)L.
D)M.

Question 78

https://storage.examlex.com/TB5854/.
Use the above table and assume a fixed cost of $1000.
At an output of 2, ATC is

A)$350.
B)$700.
C)$850.
D)$1,000.
E)$1,700.

Question 79

Use the following figure to answer the question :
The MC curve is curve

A)W.
B)X.
C)Y.
D)Z.

Question 80

Statement I: Average total cost can be found by dividing output by total cost. Statement II: At one unit of output marginal cost is always zero.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.