Deck 10: Cost Curves

Question 1

Fixed costs

A) increase with the level of output
B) do not change with the level of output
C) decrease with the level of output

Answer 1

do not change with the level of output

Question 2

The short-run total cost function describes the total cost of producing any given level of output with a given fixed amount of capital.

Answer 2

True

Question 3

The short-run average fixed cost function gives the average fixed cost associated with any level of output.

Answer 3

True

Question 4

Costs that change with the level of output are

A) variable costs
B) fixed costs
C) constant returns to scale

Question 5

A function describing the marginal cost of producing units of output when no factor of production is fixed so that each can vary accordingly is called the long-run marginal cost function.

Question 6

A short-run total _____________ function can be deduced from the _______-run _____________ function.

A) cost, short, production
B) production, short, cost
C) cost, long, production

Question 7

Refer to Exhibit 10-2. This graph most likely illustrates a short-run

A) total cost function
B) production function
C) average cost function

Question 8

When an entrepreneur produces only a few units of output, much of the cost of each unit must be used to pay fixed costs and, therefore, average cost is

A) high
B) low
C) zero

Question 9

The long-run total cost function describes the total cost of producing units of output when no factor of production is fixed so that each can vary accordingly.

Question 10

Refer to Exhibit 10-1. This graph is most likely a

A) short-run cost function
B) short-run production function
C) long-run production function

Question 11

The short-run average cost curve is

A) U-shaped
B) W-shaped
C) S-shaped

Question 12

The short-run average variable cost function indicates the incremental cost of producing the q + 1st unit of output given that we have already produced q units.

Question 13

The long-run average cost function describes the average cost of producing units of output when no factor of production is fixed so that each can vary accordingly.

Question 14

Fixed costs are the costs of the fixed factors of production.

Question 15

A function describing the average cost of producing units of output counting only the cost of those factors of production that can vary in the short run is known as the short-run average variable cost function.

Question 16

For most goods, production will involve

A) both fixed costs and variable costs
B) only fixed costs
C) only variable costs

Question 17

The costs of variable factors of production are variable costs.

Question 18

The short-run expansion path is the curve containing the tangency points between the isocost curves and the isoquants, presenting the set of input combinations that produces any given output level at the least cost.

Question 19

Even if a jam maker does not attempt to produce any jam and therefore does not hire any labor, the producer still must pay for

A) variable costs
B) extra-normal profits
C) the fixed cost of capital

Question 20

Producers need to focus on

A) both the long run and the short run
B) only the long run
C) only the short run

Question 21

The vertical sum of the short-run average fixed and variable curves must be a point on the

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

Question 22

The _______-run total cost of producing any quantity of output is simply the ___________ possible ________-run total cost of producing that quantity.

A) short, smallest, long
B) long, smallest, short
C) long, greatest, short

Question 23

When SRMC is greater than SRAC, the average cost curve must be

A) horizontal
B) falling
C) rising

Question 24

Because the fixed costs of production do not change in the short run, the total fixed cost divided by the number of units is known as the short-run

A) average variable cost function
B) marginal cost function
C) average fixed cost function

Question 25

When SRMC is lower than SRAC, the average cost curve must be

A) horizontal
B) falling
C) rising

Question 26

Explain why a long-run production function is three-dimensional and a short-run production function is two-dimensional.

Question 27

For every quantity of output, there is an optimal short-run

A) total cost curve, but not a short-run average cost curve
B) total cost curve and a short-run average cost curve
C) average cost curve, but not a short-run total cost curve

Question 28

The _______ curve is the ________ boundary of a series of _______ curves.

A) SRAC, lower, LRAC
B) LRAC, lower, SRAC
C) LRAC, upper, SRAC

Question 29

In the long run, the total cost of producing any given quantity of output can never be greater than the cost of producing that amount in the short run; therefore, the long-run total cost curve lies _______________________ the short-run total cost curve.

A) below
B) above
C) sometimes above and sometimes below

Question 30

At quantities larger than the quantity where the SRAC of production is equal to the LRAC of production, the LRMC of production __________________ the SRMC of production.

A) is greater than
B) equals
C) is less than

Question 31

Producers can vary the capital they use in order to choose the SRAC that they want to be on in the

A) immediate run
B) short run
C) long run

Question 32

At that quantity where the SRAC of production is equal to the LRAC of production, the LRMC of production __________________ the SRMC of production.

A) is greater than
B) equals
C) is less than

Question 33

At quantities smaller than the quantity where the SRAC of production is equal to the LRAC of production, the LRMC of production __________________ the SRMC of production.

A) is greater than
B) equals
C) is less than

Question 34

Given the technology, SRAC is _______________ SRMC at that level of output where SRAC is minimized.

A) greater than
B) less than
C) equal to

Question 35

Describe the difference between the short-run average fixed cost function and the short-run average variable cost function.

Question 36

Refer to Exhibit 10-4. Which curve represents LRMC?

A) (a)
B) (b)
C) (c)

Question 37

What can short-run marginal cost tell us about short-run average cost?

Question 38

How should a producer decide how much capital to use in the long run?

Question 39

Refer to Exhibit 10-3. The graph shown is most likely a(n)

A) average variable cost function
B) marginal cost function
C) average fixed cost function

Question 40

Describe the relationship between the short-run production function and the short-run total cost function.