Questions:
Question 1
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 2
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 3
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 4
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
Question 5
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 6
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 7
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.
D. ATC and AVC will reach maximums at the same output.
Question 8
Marginal cost may be defined as the __________ cost that results from producing one more unit of output.
A. change in average total
B. change in average variable
C. change in total
D. rate of change in total fixed
Question 9
Which is most clearly a fixed cost?
A. Insurance premiums
B. Wages of production workers
C. Cost of raw materials
D. Shipping costs
Question 10
Fixed cost is sometimes referred to as __________ cost.
A. sunk
B. variable
C. total
D. economic
Question 11
Adam Smith noted each of the following economies of scale EXCEPT:
A. specialization.
B. diminishing returns.
C. saving of time that would otherwise be spent going from one task to another.
D. employment of expensive equipment.
Question 12
Parkinson's Law is an example of:
A. economies of scale.
B. diseconomies of scale.
C. Adam Smith's pin factory.
D. the firm's search for its most profitable output.
Question 13
Which of the following is the most likely to be a variable cost?
A. Raw material costs
B. Leasing payments of tour buses for rock and roll bands
C. Interest on bonded indebtedness
D. Real estate taxes
Question 14
As long as there are __________ costs, we are in the short run.
A. variable
B. fixed
C. marginal
D. average
Question 15
If price is between the break-even point and the shutdown point, in the long run the firm will:
A. operate.
B. make a profit.
C. stay in business.
D. go out of business.
Question 16
Adam Smith used a pin factory to demonstrate:
A. the advantages of economies of scale.
B. diseconomies of scale.
C. the long-run average cost curve.
D. the advantage of being established.
Question 17
When output is 0, total cost equals __________ cost.
A. total variable
B. total fixed
C. marginal
D. average variable
Question 18
At an output of 1, marginal cost is:
A. $0.
B. $200.
C. $300.
D. $400.
Question 19
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 20
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