Question 1

The short-run average total cost curve gets its U-shape as a result of

Accepted Answer

A)  constant returns to scale.
B)  diminishing marginal returns.
C)  economies of scale.
D)  total fixed costs.
E)  diseconomies of scale.F) D) and E)
G) C) and E)

Question 2

If a firm is currently producing zero output in the short run, total cost equals

Accepted Answer

A)  fixed cost.
B)  zero.
C)  variable cost.
D)  average variable cost.
E)  marginal cost.F) A) and E)
G) All of the above

Question 3

When marginal cost is greater than average variable cost, average variable cost must be rising.

Accepted Answer

A) True 
 B)False

Question 4

Average total cost equals marginal cost when

Accepted Answer

A)  MC is declining.
B)  AFC is increasing.
C)  ATC is at its lowest point.
D)  MC is at its lowest point.
E)  ATC is zero.F) A) and B)
G) A) and C)

Question 5

When average total cost decreases,

Accepted Answer

A)  marginal cost must be decreasing.
B)  marginal cost must be increasing.
C)  average variable cost must be decreasing.
D)  average variable cost must be increasing.
E)  marginal cost and average variable cost can be increasing or decreasing.F) All of the above
G) B) and D)

Question 6

In the short run,

Accepted Answer

A)  none of the firm's resources are variable.
B)  at least one of the firm's resources cannot be varied.
C)  the time period always covers one year.
D)  all of the firm's resources are variable.
E)  technically efficient production is not possible.F) None of the above
G) B) and D)

Question 7

Explain the similarities and differences between consumer choice theory and producer theory. More specifically, explain how a budget line and indifference curve are related to an isocost line and isoquant, and explain the importance of the tangency point.

Accepted Answer

In consumer choice theory, consumer choi...

Question 8

The minimum efficient scale of a firm is the

Accepted Answer

A)  largest scale of production for which the marginal cost is at a minimum.
B)  largest scale of production for which the long-run average total cost is at a minimum.
C)  largest scale of production for which the long-run average variable cost is at a minimum.
D)  smallest scale of production for which the long-run average total cost is at a minimum.
E)  smallest scale of production for which the long-run average variable cost is at a minimum.F) All of the above
G) A) and B)

Question 9

Consider the following string of numbers: 20, 18, 14, 8, 4. Given the average of these numbers, what happens when the number 6 is included?

Accepted Answer

A)  The average falls because 6 is less than 20, the first number in the set.
B)  The average does not change because 6 is insignificant.
C)  The average rises because 6 is greater than the last number in the set, 4.
D)  The average rises because 6 is greater than the previous average.
E)  The average falls because 6 is less than the previous average.F) A) and B)
G) A) and C)

Question 10

Fill in the table below about the cost structure of a firm.

Accepted Answer

The answer of Fill in the table below about the...

Question 11

Assume that 1 laborer produces 6 units of output, 2 laborers produce 14 units, 3 laborers produce 20 units, and 4 laborers produce 24 units. Diminishing returns to labor set in

Accepted Answer

A)  when the firm hires the first laborer.
B)  never; diminishing returns have not set in, and total output is still increasing.
C)  when the firm hires the second laborer.
D)  when the firm hires the third laborer.
E)  when the firm hires the fourth laborer.F) D) and E)
G) B) and E)

Question 12

Constant returns to scale occur when

Accepted Answer

A)  the marginal cost curve lies below the average cost curve.
B)  the marginal cost curve is increasing at a decreasing rate.
C)  an increase in all resources results in exactly proportionate increases in output.
D)  the long-run average cost curve is declining.
E)  an increase in all resources causes no change in output.F) A) and C)
G) B) and D)

Question 13

Exhibit 8-9 
-Refer to Exhibit 8-9. Calculate the profit of the firm when it is maximizing profit given a market price of $10.

Accepted Answer

$1,200
Profit-maximizing outpu...

Question 14

Explain why average cost is not necessarily rising when marginal cost is rising.

Accepted Answer

Marginal cost first falls, pulling down ...

Question 15

Economies of scale are the same as

Accepted Answer

A)  decreasing returns to scale.
B)  increasing returns to scale.
C)  constant returns to scale.
D)  diminishing marginal returns.
E)  increasing marginal product of labor.F) B) and E)
G) A) and D)

Question 16

Fixed costs do not exist in the long run.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the average total cost curves for a firm for three different amounts of capital are as shown in the table below:

Accepted Answer

The long-run average total cos...

Question 18

Economies of scope occur when

Accepted Answer

A)  two firms producing different products merge and average total cost declines.
B)  a firm increases output and long-run average total cost declines.
C)  an increase in capital shifts the short-run average total cost curve down.
D)  one firm spins off and average total cost declines.
E)  average total cost increases along with firm expansion.F) B) and E)
G) B) and D)

Question 19

The distance between the average total cost curve and the average variable cost curve decreases as output increases.

Accepted Answer

A) True 
 B)False

Question 20

A firm is at the breakeven point if its economic profits are greater than zero.

Accepted Answer

A) True 
 B)False

Exam 8: Costs and the Changes at Firms Over Time

Consider the following string of numbers: 20, 18, 14, 8, 4. Given the average of these numbers, what happens when the number 6 is included?

Correct AnswerverifiedShow Answer

Explain the similarities and differences between consumer choice theory and producer theory. More specifically, explain how a budget line and indifference curve are related to an isocost line and isoquant, and explain the importance of the tangency point.

Correct AnswerverifiedIn consumer choice theory, consumer choi...View AnswerShow Answer

The distance between the average total cost curve and the average variable cost curve decreases as output increases.

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Suppose the average total cost curves for a firm for three different amounts of capital are as shown in the table below:

Correct AnswerverifiedThe long-run average total cos...View AnswerShow Answer

When average total cost decreases,

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Economies of scope occur when

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Fixed costs do not exist in the long run.

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If a firm is currently producing zero output in the short run, total cost equals

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Fill in the table below about the cost structure of a firm.

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A firm is at the breakeven point if its economic profits are greater than zero.

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Explain why average cost is not necessarily rising when marginal cost is rising.

Correct AnswerverifiedMarginal cost first falls, pulling down ...View AnswerShow Answer

Constant returns to scale occur when

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Exhibit 8-9 -Refer to Exhibit 8-9. Calculate the profit of the firm when it is maximizing profit given a market price of $10.

Correct Answerverified$1,200Profit-maximizing outpu...View AnswerShow Answer

Economies of scale are the same as

Correct AnswerverifiedShow Answer

In the short run,

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The minimum efficient scale of a firm is the

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The short-run average total cost curve gets its U-shape as a result of

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Assume that 1 laborer produces 6 units of output, 2 laborers produce 14 units, 3 laborers produce 20 units, and 4 laborers produce 24 units. Diminishing returns to labor set in

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Average total cost equals marginal cost when

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When marginal cost is greater than average variable cost, average variable cost must be rising.

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In consumer choice theory, consumer choi...
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The long-run average total cos...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Marginal cost first falls, pulling down ...
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Correct Answer
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Correct Answer
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$1,200
Profit-maximizing outpu...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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