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Name TestBank Chapter 12: Behind the Supply Curve: Inputs and Costs
Description Question pool for Chapter 12: Behind the Supply Curve: Inputs and Costs
Instructions

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In the short run:
Answer all inputs are fixed.
all inputs are variable.
some inputs are fixed and some inputs are variable.
all costs are variable.

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The ________ is the increase in output obtained by hiring an additional worker.
Answer average product
total product
marginal product
marginal cost

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Lauren has 11 people working in her tangerine grove. The marginal product of the eleventh worker
equals 13 bushels of tangerines. If she hires a twelfth worker, the marginal product of that worker will
equal:
Answer 14 bushels.
15 bushels.
12 bushels.
The answer cannot be determined with the information available.

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The total product curve:
Answer shows the relation between output and the quantity of a variable input for varying levels of
the fixed input.
will become flatter as output increases, if there are diminishing returns to the variable
input.
will be downward-sloping, if there are diminishing returns to the variable input.
will become horizontal, when the marginal product of the variable input is constant.

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Question

Reference: Ref 12-01

(Table: Labor and Output) Referring to the table, the marginal product of the fifth worker is:
Answer 8.
4.
3.
40.

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Reference: Ref 12-01

(Table: Labor and Output) Referring to the table, the average product when four workers are employed
is:
Answer 9.
36.
10.
6.

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The term diminishing returns refers to:
Answer a falling interest rate that can be expected as one's investment in a single asset
increases.
a reduction in profits caused by increasing output beyond the optimal point.
a decrease in total output due to overcrowding, when too much labor is used with too little
land or capital.

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a decrease in the extra output due to the use of an additional unit of a variable input,
when more and more of the variable input is used and all other things are held constant.

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The idea of diminishing returns to an input in production suggests that if a local college adds more and
more custodians, the marginal product of labor for the custodial staff will ________ over time.
Answer increase at an increasing rate
increase at a decreasing rate
decrease
not change

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Diminishing returns to an input set in:
Answer when all inputs are fixed.
when some inputs are fixed and some are variable.
when all inputs are variable.
only in the long run.

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If two firms are identical in all respects expect that one has more capital than another, the total product
curve for the firm with more capital:
Answer must equal the total product curve for the firm with less capital.
will lie above the total product curve for the firm with less capital.
will lie below the total product curve for the firm with less capital.
will show no diminishing marginal returns.

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If two firms are identical in all respects expect that one has more capital than another, the marginal
product curve for the firm with more capital:
Answer must equal the marginal product curve for the firm with less capital.
will lie above the marginal product curve for the firm with less capital.
will lie below the total marginal curve for the firm with less capital.
will show no diminishing marginal returns.

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Question
Malthus's predictions for disaster were humorously summarized in the anonymous verse: “To get
land's fruit in quantity/ Takes jolts of labor ever more. / Hence food will grow like one, two, three . . . /
While numbers grow like one, two, four. . . .” Population has in fact increased six-fold since Malthus's
time, and land area in the world hasn't increased, so why haven't Malthus's gloomy forecasts been
realized?
Answer Diminishing returns is a theoretical construct that is not applicable to actual farming
conditions.
Over most of the last two centuries, the average food intake per person has decreased
at a steady rate.

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Enough people were killed during the two world wars and in other twentieth-century
conflicts to stave off world starvation temporarily.
Technological improvements in farming have offset the effect of diminishing returns.

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Figure: Marginal Product of Labor

Reference: Ref 12-02

(Figure: Marginal Product of Labor) Using the marginal product of labor curve in the figure, the total
product of labor for three workers is:
Answer 51 bushels.
45 bushels.
39 bushels.
15 bushels.

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Figure: Marginal Product of Labor

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Reference: Ref 12-02

(Figure: Marginal Product of Labor) Using the marginal product of labor curve in the figure, the total
product of labor for five workers is:
Answer 11 bushels.
45 bushels.
55 bushels.
75 bushels.

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Figure: Marginal Product of Labor

Reference: Ref 12-02

(Figure: Marginal Product of Labor) Using the marginal product of labor curve in the accompanying
figure, the total product of labor for eight workers is:

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Answer 40 bushels.
35 bushels.
96 bushels.
75 bushels.

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The short run is defined as a:
Answer period of time less than 1 year.
period of time less than 6 months.
period in which some inputs are considered to be fixed in quantity.
time period in which some inputs are fixed, but it cannot exceed 1 year.

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The short run is a period that is:
Answer less than 1 week.
less than 1 month.
long enough in which to vary output but not plant capacity.
long enough in which to make all economic adjustments.

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An input whose quantity can be changed during a particular period is a(n):
Answer marginal input.
fixed input.
incremental input.
variable input.

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An input whose quantity cannot be changed during a particular period is a(n):
Answer marginal input.
fixed input.
incremental input.
variable input.

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A fixed input is one:
Answer that exists in nature and there is only so much of it.
that can be used for one thing only.
that can never produce more or less in any time period.
whose quantity cannot be changed in a particular time period.

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The long run is a planning period:
Answer over which a firm can consider all inputs as variable.
that is at least 5 years in length.
that must be over 6 months in length.
that must be between 6 months and 5 years.

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In the long run:
Answer all inputs are fixed.
inputs are neither variable nor fixed.
at least one input is variable and one input is fixed.
all inputs are variable.

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A curve that shows the quantities of output that can be obtained from different quantities of a variable
input, assuming other inputs are fixed, is called the ________ curve.
Answer total input
marginal input
total product
average total quantity

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A total product curve indicates the relationship between:
Answer a variable input and price.
a variable input and variable cost.
a variable input and output.
output and price.

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The change in total output resulting from a one-unit increase in the quantity of an input used, holding
the quantities of all other inputs constant, is:
Answer average cost.
average product.
marginal cost.
marginal product.

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The marginal product of labor is:
Answer the change in labor divided by the change in total product.
the slope of the total product of labor curve.
the change in average product divided by the change in the quantity of labor.

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the change in output that occurs when capital increases by one unit.

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A farm can produce 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per
year with three workers. The marginal product of the third worker is:
Answer 100 bushels.
300 bushels.
1,300 bushels.
2,300 bushels.

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Question
At 47 units of labor, a firm finds that average product of labor equals 39.6 and marginal product of
labor equals 32.9. We can conclude that the average product curve at 47 units of labor is:
Answer upward-sloping.
horizontal.
vertical.
downward-sloping.

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At 76 units of labor, a firm finds that average product of labor equals 39.6 and marginal product of
labor equals 42.9. We can conclude that the average product curve at 76 units of labor is:
Answer upward-sloping.
downward-sloping.
vertical.
horizontal.

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At 36 units of labor, a firm finds that both average product of labor and marginal product of labor equal
42. We can conclude that the average product curve at 36 units of labor is:
Answer upward-sloping.
downward--sloping.
vertical.
horizontal.

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Reference: Ref 12-03

(Table: Total Product and Marginal Product) The marginal product of the second worker is:
Answer 10.
15.
20.
30.

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Reference: Ref 12-03

(Table: Total Product and Marginal Product) The average product of the fourth worker is ________
units.
Answer 20
22.5
50
90

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Reference: Ref 12-03

(Table: Total Product and Marginal Product) Negative marginal returns begin when the ________
worker is added.
Answer fifth
sixth
seventh
eighth

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Figure: Total Product

Reference: Ref 12-04

(Figure: Total Product) Between points A and B the marginal product of labor is:
Answer increasing.
zero.
falling.
infinite.

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Figure: Total Product

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Reference: Ref 12-04

(Figure: Total Product) Units of labor added after L and up to L are:

1 2
Answer subject to diminishing marginal returns.
adding increasing amounts to total product.
adding positive amounts to total product.
adding positive amounts to total product and are subject to diminishing marginal returns.

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Figure: Total Product

Reference: Ref 12-04

(Figure: Total Product) As units of labor are hired between quantities L and L , ________ is
1 2
________ and ________ is ________.
Answer total product; rising; marginal product; positive
marginal product; zero; total product; falling
total product; rising; marginal product; negative
total product; rising; average product; negative

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Figure: Total Product

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Reference: Ref 12-04

(Figure: Total Product) When hiring units of labor between zero and L units of labor, which of the
1
following statements is true?
Answer The marginal product of labor is increasing.
The marginal product of labor is decreasing.
Total product is increasing at a diminishing rate.
Average product is decreasing.

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Figure: Total Product

Reference: Ref 12-04

(Figure: Total Product) After hiring L units of labor and producing at point B on the total product curve,
2
hiring more units of labor would result in which of the following statements being true?
Answer The marginal product of labor is rising.
The marginal product of labor is negative.
Total product is negative.
Average product is negative.

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Figure: Total Product

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Reference: Ref 12-04

(Figure: Total Product) Hiring L units of labor results in total product attaining a ________and the
2
marginal product of labor ________.
Answer minimum; being equal to zero
maximum; being equal to zero
maximum; being positive
minimum; falling, but still being positive

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Figure: Total Product

Reference: Ref 12-04

(Figure: Total Product) If after hiring L units of labor, the firm hires more labor, total product will
2
________ because the marginal product of labor is ________.
Answer decrease; positive
increase; positive
decrease; negative
increase; negative

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When an additional unit of a variable input adds less to total product than the previous unit, the firm
must be experiencing:
Answer increasing returns.
diminishing marginal returns.

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diminishing average returns.

diminishing marginal returns and diminishing average returns.

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Diminishing marginal returns occur when:
Answer each additional unit of a variable factor adds more to total output than the previous unit.
an additional variable factor adds less to total output than the previous unit.
the marginal product of a variable factor is increasing, but at a decreasing rate.
total product decreases.

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The costs associated with variable inputs are ________ costs and the costs associated with
________ inputs are ________costs.
Answer variable; fixed; fixed
fixed; fixed; variable
variable; fixed; variable
fixed; fixed; fixed

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Question
You own a small deli that produces sandwiches, soups, and other items for customers in your town.
Which of the following is a fixed input in the production function at your deli?
Answer the dining room where customers eat their meals
loaves of bread used to make sandwiches
cans of tomato sauce used to make soups
employees hired to help make the food

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A ________ is an organization that produces goods or services for sale.
Answer production function
firm
variable input
fixed input

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You own a small deli that produces sandwiches, soups, and other items for customers in your town.
Which of the following is a decision most likely to be made in the long run at your deli?
Answer You order more breadsticks from the local bakery.
You ask your beverage distributor to deliver more soft drinks next week.
You renovate the second floor of your building to increase the size of the dining room.
You place a newspaper advertisement to attract part-time workers from the local
college.

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Figure: Unknown Curve

Reference: Ref 12-05

(Figure: Unknown Curve) You are a cabinetmaker who employs several workers to produce kitchen
and bathroom cabinets. Your summer intern has created a graph showing a relationship between the
number of cabinetmakers you employ and the number of cabinets produced. Unfortunately, your intern
has failed to identify this curve. It is likely the ________ curve:
Answer total cost
total product
marginal product
total variable cost

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Reference: Ref 12-06

(Table: Production of Cabinets) The table shows how many cabinets your firm can make with a
variable quantity of labor hired. After which worker does the firm begin to experience diminishing
returns to labor?
Answer first
second
third
fourth

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Question

Reference: Ref 12-06

(Table: Production of Cabinets) If each cabinetmaker could be hired at no cost, how many workers
would your firm employ?
Answer two
six
seven
eight

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Figure: Change in Total Product

Reference: Ref 12-07

(Figure: Change in Total Product) The figure shows a production function changing from TP to TP .
1 2
Which of the following choices is a likely cause of this shift?
Answer Workers in the firm are less productive on average.
The firm employed more of a variable input in the short run.
The firm has suffered a decrease in available technology.
The firm employed more of a fixed input in the long run.

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Figure: Change in Total Product

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Reference: Ref 12-07

(Figure: Change in Total Product) The figure shows a production function changing from TP to TP .
1 2
Based upon this change, what has happened to the marginal product of labor curve?
Answer Marginal product has shifted upward and become flatter.
Marginal product has shifted downward and become steeper.
Marginal product has shifted upward and become steeper.
Marginal product has shifted downward and become flatter.

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Question
Which of the following cost concepts is correctly defined?
Answer

ATC = VC + FC
ATC = AVC + AFC
TC = AVC + AFC

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A cost that does not depend on the quantity of output produced is called a:
Answer marginal cost.
fixed cost.
variable cost.
average cost.

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Reference: Ref 12-08

(Table: Cost Data) The table shows some cost data for a firm currently operating in the short run.
What is the value of the total fixed cost for this firm?
Answer $40
$50
$100
$70

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Reference: Ref 12-08

(Table: Cost Data) The table shows some cost data for a firm currently operating in the short run.
What is the value of the total variable cost for this firm when the firm is producing five units of output?
Answer $50
$240
$60
$190

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A factor of production whose quantity can be changed during a particular period is a(n):
Answer marginal factor of production.
fixed factor of production.
incremental factor of production.
variable factor of production.

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A factor of production whose quantity cannot be changed during a particular period is a(n):
Answer marginal factor of production.
fixed factor of production.
incremental factor of production.
variable factor of production.

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For a restaurant:
Answer labor and food would be variable resources.
a building would be a fixed resource in the short run.
cheese and other wholesale food items would be considered fixed resources in the short
run.
labor and food would be variable resources and a building would be a fixed resource in
the short run.

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As defined in the text, the long run is a planning period:
Answer in which a firm can adjust all resources.
that is at least 5 years in length.
that must be over 6 months in length.
that must be between 6 months and 5 years.

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A planning period during which all of a firm's resources are variable is the:
Answer long run.
fixed run.
short run.
nominal run.

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In the long run:
Answer the firm has time to change the level of all inputs.
inputs are neither variable nor fixed.
at least one input is free.
all inputs are more expensive.

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The long run is a period that is:
Answer long enough in which to vary the quantities of all factors of production.
more than one week.
more than one month.
at least one year.

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Reference: Ref 12-09

(Table: Production of Bagels) The marginal product of the third worker is:
Answer 9,000.
10,000.
12,000.
15,000.

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Reference: Ref 12-09

(Table: Production of Bagels) The marginal product of the fifth worker is:
Answer 5,000.
9,000.
10,000.
12,000.

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Reference: Ref 12-09

(Table: Production of Bagels) Diminishing marginal returns begin with the addition of the ________
worker.
Answer third
fourth
fifth
sixth

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Diminishing marginal returns means that:
Answer each additional unit of an input used will cause output to decrease.
each additional unit of an input used will increase output, but by smaller and smaller
amounts.
each additional unit of an input used will increase output by larger and larger amounts.
the firm is maximizing profit.

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Assuming that all other factors of production are held constant, marginal product is the change in
________ output resulting from a one-unit change in ________ .
Answer total; a variable input
total; a fixed input
total; average product
per unit; a fixed input

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The marginal product of labor is the change in:
Answer labor divided by the change in total product.
total output divided by the change in the quantity of labor.
average output divided by the change in the quantity of labor.
total costs divided by the change in the quantity of labor.

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A farm can produce 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per
year with four workers. The marginal product of the fourth worker is:
Answer 100 bushels.
300 bushels.
1,300 bushels.
150 bushels.

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The marginal product of labor is all of the following except:
Answer is the change in output resulting from a one-unit change in labor.
is the slope of the total product curve.
can be positive at some levels of input and negative at others.
total product divided by labor.

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Suppose that the first four units of a variable input generate corresponding total outputs per period of
200, 350, 450, and 500, respectively. The marginal product of the second unit of input is:
Answer 50.
100.
150.
200.

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Suppose that the units of variable input in a coal-production process are 1, 2, 3, 4, and 5, and the
corresponding total outputs per period are 10, 15, 19, 22, and 24 tons, respectively. The marginal
product of the third unit of input is ________ tons per period.
Answer 3
4
15
19

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When a firm experiences diminishing marginal returns:
Answer its output is falling.
marginal product is falling, yet it is still positive.
total product is going down, as marginal product is falling.
marginal product is negative.

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Oscar has negotiated a lease for his sporting goods store in which he is required to pay $2,500 per

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month in rent. Oscar pays his staff $9 per hour to sell sporting goods and his monthly electricity bill
averages $700, depending on his total hours of operation. Oscar's fixed costs of production equal:
Answer $2,500 per month.
$3,200 per month.
$9 per hour multiplied by total hours of work plus $700.
$9 per hour multiplied by total hours of work plus $3,200.

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Austin's total fixed cost is $3,600. Austin employs 20 workers and pays each worker $60. The average
product of labor is 30, and the marginal product of the twentieth worker is 12. What is the marginal
cost of the last unit produced by the last worker Austin hired?
Answer $0.20
$5
$240
$720

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Suppose Cyd knows the average cost of producing 9 scones is $5, while the average cost of
producing 10 scones is $5.20. What is the marginal cost of the 10th unit?
Answer $7
$5.20
$0.20
$5

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Reference: Ref 12-10

(Table: Workers and Output) After graduation you achieve your dream of opening your own art shop
that specializes in selling mud statues. You pay $10 per day on a loan from your uncle, and you pay
$10 per day to each of your workers (who make the mud statues). After careful study, you determine
the information in the table. How many workers should you hire to minimize your marginal costs?
Answer two
three
four
five

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Question
For Heidi, the marginal cost of producing one additional photograph equals the change in ________
divided by the change in the ________.
Answer total cost; number of photographs
marginal cost; number of photographs
total cost; marginal product of photographs
average cost; number of photographs

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When a cherry orchard in Oregon adds an additional worker, the total cost of production increases by
$24,000. Adding the worker increases total cherry output by 600 pounds. Therefore, the marginal cost
of the last pound of cherries produced is:
Answer $40.
$19.
$4,000.
$24,000.

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Marginal cost can be calculated as:
Answer ∆TC/∆Q, where TC is total cost and Q is output.
∆VC/∆Q, where VC is variable cost and Q is output.
the slope of the total cost curve.
∆TC/∆Q, where TC is total cost and Q is output; ∆VC/∆Q, where VC is variable cost and
Q is output; and as the slope of the total cost curve.

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If Jakob knows the marginal cost of producing the seventh sports jersey is $21, then the total cost of
seven sports jerseys is:
Answer $21.
$60.
$147.
The answer cannot be determined from the information provided.

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If Marie Marionettes is operating under conditions of diminishing marginal product, the marginal costs
will be:
Answer equal to ATC.
decreasing.
increasing.
constant.

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Question
Buford Bus Manufacturing installs a new assembly line. As a result, the output produced per worker
increases. The marginal cost of output at Buford:

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Answer will increase (the MC curve will shift left).

will decrease (the MC curve will shift right).
will be unchanged.
is at its maximum.

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If Jakob knows the marginal cost of the first sports jersey is $21, the marginal cost of the second
sports jersey is $40, and the marginal cost of the third jersey is $17, what is the total variable cost of
producing three jerseys?
Answer $26
$78
$17
$61

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The marginal cost curve is the mirror image of the:
Answer total product curve.
average product curve.
marginal product curve.
average total cost curve.

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Question

Reference: Ref 12-11

(Table: Output and Costs) Using the information in the table, when quantity increases from one to two,
marginal cost equals:
Answer 13.
10.
8.
17.

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Reference: Ref 12-11

(Table: Output and Costs) Using the information in the table, when quantity equals four, total variable
cost equals:
Answer 48.
38.
58.
28.

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Reference: Ref 12-11

(Table: Output and Costs) Using the information in the table, when quantity equals three, average total
cost equals:
Answer 13.
10.
8.
17.

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Krista operates a dry-cleaning business in Tampa that incurs $900 per month in fixed costs. Last
month her total output equaled 3,000 pounds of clothes. This month her total output fell to 2,700
pounds. This means her average fixed cost ________ by a little more than ________.
Answer fell; 3.33 cents
increased; 3.33 cents
fell; 2.50 cents
increased; 2.50 cents

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Darren runs a barbershop with average fixed costs equal to $60 per day and a total output of 50
haircuts per day. What is his weekly total fixed cost if he is open six days per week?
Answer $18,000
$3,000
$60
The answer cannot be determined with the information available.

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Reference: Ref 12-12

(Table: Output and Marginal Cost) After graduation you achieve your dream of opening your own art
shop that specializes in selling mud statues. After careful study, you determine the information in the
table. How many workers should you hire to minimize your average variable costs?
Answer two
three
four
five

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Kaile Cakes is currently producing 10 cakes per day. The marginal cost of the tenth cake is $24, and
average total cost of 10 cakes is $6. The average total cost of 9 cakes is:
Answer $4.
$5.
$6.
$8.

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The average total cost of producing cell phones in a factory is $20 at the current output level of 100
units per week. If fixed cost is $1,200 per week:
Answer average fixed cost is $20.
total cost is $3,200.
variable cost is $2,000.
average variable cost is $8.

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Austin's total fixed cost is $3,600. Austin employs 20 workers and pays each worker $60. If labor is his
only variable cost, what is Austin's total cost?
Answer $3,600
$3,660
$4,800
$400

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Average variable cost equals all the following except:
Answer variable cost divided by output.
(total cost – fixed cost) divided by output.
average total cost minus average fixed cost.
variable cost times output.

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You run a business producing picture frames. This month your total cost of production is $10,000, your
variable cost of production is $6,000, and you produce 3,000 picture frames. It follows that:
Answer average variable cost is $2.
average total cost is $3.
average total cost is $1.
average fixed cost is $1.

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The total cost curve for a snowmobile dealership shows how ________ cost depends on the quantity
of ________.
Answer total; fixed inputs
average; variable
total; output
marginal; output

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For every restaurant in Cleveland, the average total cost curve ________ at ________ levels of
output, then ________ at ________ levels.
Answer falls; low; rises; higher
rises; low; falls; higher
rises; higher; rises; low
falls; higher; falls; low

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The average total cost curve in the short run slopes upward due to:

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Answer economies of scale.

diseconomies of scale.
increasing returns.
diminishing returns.

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Which of the following curves is not affected by the existence of diminishing returns?
Answer the average fixed cost curve
the average variable cost curve
the average total cost curve
the marginal cost curve

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When marginal cost is rising:
Answer average variable cost must be rising.
average total cost must be rising.
average variable cost and average total cost must be falling.
both average variable cost and average total cost may be rising or falling.

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Cindy operates Birds-R-Us, a small store manufacturing and selling 100 bird feeders per month.
Cindy's monthly total fixed costs are $500, and her monthly total variable costs are $2,500. If for some
reason Cindy's fixed cost fell to $400, then her:
Answer average fixed costs would increase.
average total costs would decrease.
marginal costs would decrease.
average variable costs would decrease.

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When Aishe's Bar-B-Que produces 10 pork sandwiches, the total cost is $5.00. When 11 pork
sandwiches are produced, the total cost rises to $6.00. From this we know that the marginal cost of
the eleventh pork sandwich:
Answer is equal to the average cost of 11 pork sandwiches.
is greater than the average cost of 11 pork sandwiches.
is less than the average cost of 11 pork sandwiches.
can't be calculated without more information.

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The ________ curve continually declines as more output is produced in the short run.
Answer marginal cost
average variable cost
average fixed cost
average total cost

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Ashley Bakery expects its marginal cost curve will eventually slope upward, because in baking there
is(are):
Answer constant opportunity costs.
a maximum efficient scale.
diminishing marginal returns.
decreasing opportunity costs.

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Suppose the marginal cost curve in the short run first decreases, then reaches a minimum, and then
increases. If we are at an output where marginal cost is decreasing, then:
Answer marginal product must be increasing.
average variable cost must be decreasing.
average total cost must be increasing.
marginal product must be increasing and average variable cost must be decreasing.

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Suppose the marginal cost curve in the short run first decreases, then reaches a minimum, and then
increases. If we are at an output where marginal cost is increasing, then:
Answer marginal product must be increasing.
average variable cost must be increasing.
average total cost must be increasing.
marginal product must be decreasing.

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Rebecca knows that Becca Furniture's marginal cost curve is above the average total cost curve. This
means Becca Furniture's average total cost curve:
Answer must be rising.
must be flat.
must be falling.
may be rising, falling, or flat depending on other things.

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In the short run, as output gets larger and larger:
Answer fixed cost gets smaller.
the average variable cost curve gets closer and closer to the average total cost curve.
marginal cost gets smaller.
average total cost decreases after the point of diminishing returns.

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A fixed cost:
Answer will exist only in the long run.
depends on the level of output.
will be positive, even if the firm doesn't produce any output in the short run.
decreases after the point of diminishing returns is reached.

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The long run refers to the period of time for which:
Answer a fixed input exists.
all inputs are variable.
marginal costs are decreasing.
diminishing returns causes marginal cost to increase

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The long-run average cost curve will be upward sloping when the firm is experiencing:
Answer economies of scale.
diseconomies of scale.
constant returns to scale.
diminishing returns.

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Figure and Table: Variable, Fixed, and Total Costs

Reference: Ref 12-13

(Figure and Table: Variable, Fixed, and Total Costs) In the figure, the marginal cost of increasing
production from 19 to 36 bushels of wheat is:

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Answer $23.53.
$11.76.
$22.22.
$11.11.

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Figure and Table: Variable, Fixed, and Total Costs

Reference: Ref 12-13

(Figure and Table: Variable, Fixed, and Total Costs) In the figure, the marginal cost of increasing
production from 51 to 64 bushels of wheat is:
Answer $16.
$15.38.
$12.50.
$18.75.

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Figure and Table: Variable, Fixed, and Total Costs

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Reference: Ref 12-13

(Figure and Table: Variable, Fixed, and Total Costs) In the figure, the marginal cost of increasing
production from 84 to 91 bushels of wheat is:
Answer $13.
$19.78.
$22.22.
$28.57.

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Figure and Table: Variable, Fixed, and Total Costs

Reference: Ref 12-13

(Figure and Table: Variable, Fixed, and Total Costs) In the figure, when 51 bushels of wheat are
produced, average fixed cost is ________, average variable cost is ________, and average total cost
is ________.
Answer $7.84; $11.76; $19.60
$133.33; $200; $333.33
$400; $600; $1,000
$5.33; $13.33; $18.67

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Figure and Table: Variable, Fixed, and Total Costs

Reference: Ref 12-13

(Figure and Table: Variable, Fixed, and Total Costs) In the figure, when 96 bushels of wheat are
produced, average fixed cost is ________, average variable cost is ________, and average total cost
is ________.
Answer $7.84; $11.76; $19.60
$133.33; $200; $333.33
$4.17; $16.67; $20.83
$5.33; $13.33; $18.67

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Figure: Average Total Cost Curve

Reference: Ref 12-14

(Figure: Average Total Cost Curve) In the figure, the total cost of producing three pairs of boots is
approximately:

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Answer $24.
$72.
$75.
$216.

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Figure: Average Total Cost Curve

Reference: Ref 12-14

(Figure: Average Total Cost Curve) In the figure, the total cost of producing five pairs of boots is
approximately:
Answer $408.
$82.
$108.
$17.

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Figure: Average Total Cost Curve

Reference: Ref 12-14

(Figure: Average Total Cost Curve) In the figure, the total cost of producing 10 pairs of boots is
approximately:
Answer $13.
$54.
$131.
$1,308.

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The curve that shows the additional cost of each additional unit of output is called the:
Answer average cost curve.
total cost curve.
marginal product curve.
marginal cost curve.

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Marginal cost is the change in:
Answer total cost resulting from a one-unit change in a variable input.
total cost resulting from a one-unit change in output.
total cost resulting from a one-unit change in average cost.
average cost resulting from a one-unit change in output.

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Reference: Ref 12-15

(Table: Costs of Producing Bagels) The total cost of producing six bagels is:
Answer $0.10.
$0.20.
$0.80.
$0.90.

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Reference: Ref 12-15

(Table: Costs of Producing Bagels) The marginal cost of producing the sixth bagel is:
Answer $0.10.
$0.15.
$0.20.
$0.80.

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Reference: Ref 12-15

(Table: Costs of Producing Bagels) Marginal cost reaches its minimum value for the ________ bagel.
Answer first
third
fourth
fifth

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Reference: Ref 12-15

(Table: Costs of Producing Bagels) Average total cost reaches its minimum value for the ________
bagel.
Answer first
third
fourth
fifth

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Reference: Ref 12-15

(Table: Costs of Producing Bagels) The average total cost of producing six bagels is:
Answer $0.10.
$0.15.
$0.20.
$0.80.

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Reference: Ref 12-15

(Table: Costs of Producing Bagels) The total cost of producing two bagels is:
Answer $0.10.
$0.20.
$0.40.
$0.50.

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Reference: Ref 12-15

(Table: Costs of Producing Bagels) The average total cost of producing two bagels is:
Answer $0.05.
$0.10.
$0.20.
$0.40.

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Reference: Ref 12-15

(Table: Costs of Producing Bagels) The marginal cost of producing the second bagel is:
Answer $0.05.
$0.10.
$0.30.
$0.40.

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A firm's marginal cost is:
Answer the ratio of the change in total cost to the change in the quantity of output.
the change in total cost divided by the change in labor input.
the slope of the average fixed cost curve.
total cost divided by output.

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Marginal cost ________ over the range of increasing marginal returns and ________ over the range
of diminishing marginal returns.
Answer increases; falls
falls; increases
is constant; rises
increases; is constant

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Average total cost is:
Answer the change in cost divided by the change in output.
total cost divided by output.
the change in output divided by the change in costs.
total cost times output.

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Total cost divided by the quantity of output produced is:
Answer average total cost.
average fixed cost.
average product.
marginal cost.

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The marginal cost curve intersects the average variable cost curve at:
Answer its lowest point.
its maximum.
its endpoint.
no point; the curves don't intersect.

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Average variable cost is:
Answer the firm's variable cost per unit multiplied by the output.
total variable cost divided by output.
the difference between average total cost and total variable cost.
the difference between total cost and total variable cost.

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Average variable cost is the ratio of:
Answer total cost to the marginal cost.
total cost to the amount of variable input.
variable cost to the quantity of output.
marginal cost to the quantity of output.

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If a firm produces 10 units of output and incurs $30 in average variable cost and $5 in average fixed
cost, average total cost is:
Answer $30.
$35.
$50.
$300.

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If a firm produces 10 units of output and incurs $35 in average total cost, and $5 in average fixed cost,
average variable cost is:
Answer $30.
$35.
$50.

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$300.

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If a firm produces 10 units of output and incurs $30 in average variable cost and $5 in average fixed
cost, total cost is:
Answer $35.
$50.
$300.
$350.

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If a firm produces 10 units of output and incurs $30 in average variable cost and $35 in average total
cost, total fixed cost is:
Answer $3.
$35.
$50.
$300.

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Figure: Short-Run Costs

Reference: Ref 12-16

(Figure: Short-Run Costs) A is the ________ cost curve.

Answer average total
average variable
marginal
total

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Figure: Short-Run Costs

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Reference: Ref 12-16

(Figure: Short-Run Costs) B is the ________ cost curve.

Answer average total
average variable
marginal
total

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Figure: Short-Run Costs

Reference: Ref 12-16

(Figure: Short-Run Costs) C is the ________ cost curve.

Answer average total
total
marginal
average variable

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Figure: Short-Run Costs

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Reference: Ref 12-16

(Figure: Short-Run Costs) The vertical difference between curve B and curve C at any quantity of
output is:
Answer marginal cost.
fixed cost.
average fixed cost.
average variable cost.

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Figure: Short-Run Costs

Reference: Ref 12-16

(Figure: Short-Run Costs) At seven units of output, average fixed cost is approximately ________,
and average variable cost is approximately ________.
Answer $100; $100
$10; $135
$40; $100
$140; $140

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Figure: Short-Run Costs II

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Reference: Ref 12-17

(Figure: Short-Run Costs II) Curve 1 is the ________ cost curve.

Answer average total
average variable
marginal
total

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Figure: Short-Run Costs II

Reference: Ref 12-17

(Figure: Short-Run Costs II) Curve 2 is the ________ cost curve.

Answer average total
average variable
marginal
total

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Figure: Short-Run Costs II

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Reference: Ref 12-17

(Figure: Short-Run Costs II) Curve 3 is the ________ cost curve.

Answer average total
total
marginal
average variable

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Figure: Short-Run Costs II

Reference: Ref 12-17

(Figure: Short-Run Costs II) Curve 1 crosses the average variable cost curve at:
Answer 3 units of output.
approximately 5.3 units of output.
the minimum value of Curve 2.
the level of output at which diminishing marginal returns begin.

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Figure: Short-Run Costs II

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Reference: Ref 12-17

(Figure: Short-Run Costs II) Curve 1 crosses the average total cost curve at:
Answer the minimum value of Curve 2.
approximately 4.3 units of output.
approximately 2.8 units of output.
Point A.

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Figure: Short-Run Costs II

Reference: Ref 12-17

(Figure: Short-Run Costs II) At six units of output, marginal cost is approximately:
Answer $100.
$120.
$250.
$200.

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Figure: Short-Run Costs II

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Reference: Ref 12-17

(Figure: Short-Run Costs II) At six units of output, average total cost is approximately:
Answer $100.
$120.
$170.
$250.

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Figure: Short-Run Costs II

Reference: Ref 12-17

(Figure: Short-Run Costs II) At six units of output, average variable cost is approximately:
Answer $100.
$120.
$200.
$250.

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When marginal cost is below average variable cost, average variable cost must be:
Answer at its minimum.
at its maximum.
falling.
rising.

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When marginal cost is above average variable cost, average variable cost must be:
Answer at its minimum.
at its maximum.
falling.
rising.

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If marginal cost is greater than average total cost, then:
Answer average total cost is increasing.
average total cost is decreasing.
average total cost is unchanged.
marginal cost is decreasing.

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If marginal cost is equal to average total cost, then:
Answer average total cost is increasing.
average total cost is at its maximum.
average total cost is at its minimum.
marginal cost is increasing.

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If an increase in output results in a decrease in average total cost, the corresponding marginal cost is:
Answer less than average total cost.
greater than average total cost.
equal to average total cost.
negative.

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At 30 units of output, a firm's marginal cost and average variable cost each equal $10. Therefore,
assuming normally shaped cost curves, at 29 units of output its marginal cost:
Answer is greater than $10 and its average variable cost is less than $10.
is less than $10 and its average variable cost is more than $10.
and its average variable cost are each greater than $10.
and its average variable cost are each equal to $10.

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Reference: Ref 12-18

(Table: Cost Data) The table shows some cost data for a firm currently operating in the short run.
When the firm produces five units of output, which of the following holds true about the firm's cost
curves?
Answer Marginal cost is greater than average total cost and average total cost is rising.
Average total cost is greater than average variable cost and average variable cost is
falling.
Marginal cost is below average variable cost and average variable cost is falling.
Marginal cost is above average variable cost and below average total cost and average
total cost is rising.

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Which of the following statements is false?
Answer When the marginal product of labor is upward-sloping, the marginal cost curve is upward-
sloping.
The average fixed cost curve is downward-sloping and approaches the horizontal axis.
The marginal cost curve intersects the average variable cost curve at the minimum of
average variable cost.
When the marginal cost curve is above the average cost curve, the average cost curve is
upward-sloping.

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The sum of fixed and variable costs is:
Answer total cost.
marginal cost.
variable cost.
average cost.

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The curve that shows the additional cost of each additional unit of output is called the:
Answer average cost curve.
total cost curve.
marginal product curve.
marginal cost curve.

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Marginal cost is the change in:
Answer total product resulting from a one-unit change in a variable input.
total cost resulting from a one-unit change in quantity of a variable input.
total cost divided by the change in output.
average cost resulting from a one-unit change in quantity of output.

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Question
The change in total cost resulting from a one-unit change in quantity is:
Answer average cost.
average product.
marginal cost.
marginal product.

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Average total cost is:
Answer the change in variable cost divided by the change in quantity.
total cost divided by quantity.
the change in quantity divided by the change in labor costs.
total cost times quantity.

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Average variable cost is:
Answer the firm's variable cost per unit multiplied by the quantity.
total variable cost divided by quantity.
the difference between average total cost and total cost.
the difference between total cost and total fixed cost.

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A firm's marginal cost is:
Answer the ratio of the change in fixed cost to the change in the quantity of output.
the slope of the total cost curve.
the slope of the average variable cost curve.
the ratio of the change in total output to the change in the quantity of labor.

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Average total cost is the ratio of:
Answer total cost to the marginal cost.
total cost to the quantity of output.
total cost to the amount of variable input.

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marginal cost to the amount of variable input.

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Total cost divided by the quantity of output produced is:
Answer always increasing.
always decreasing.
average total cost.
marginal cost.

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Average variable cost is the ratio of:
Answer total cost to the marginal cost.
variable to fixed inputs.
variable cost to the quantity of output.
fixed costs to variable cost.

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Question
Variable cost divided by the quantity of output produced is:
Answer marginal cost.
average total cost.
average fixed cost.
average variable cost.

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Question
At 20 units of output, a firm finds that its average variable cost is $5 per unit and its average total cost
is $8 per unit. Therefore, its:
Answer marginal cost is less than $3 per unit.
marginal cost is $3 per unit.
average fixed cost is $3 per unit.
marginal cost is equal to its average fixed cost.

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At 50 units of output, a firm's average variable cost is $30. Therefore, its:
Answer average total cost is $30.
average total cost is greater than $30.
average total cost is less than $30.
marginal cost is $30.

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Marginal cost is the:
Answer increase in total cost when one more unit of output is produced.
reduction in cost from economies of scale.
ratio of average total cost to total cost.
increase in output from the addition of one unit of labor.

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When marginal cost is below average variable cost, average variable cost must be:
Answer above average total cost.
below average total cost.
falling.
rising.

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When marginal cost is above average variable cost, average variable cost must be:
Answer at its minimum.
at its maximum.
greater than average total cost.
greater than average fixed cost.

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If marginal cost is greater than average total cost, then:
Answer average total cost is at its maximum.
average total cost is at its minimum.
average total cost is increasing.
average total cost is decreasing.

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If marginal cost is less than average total cost, then:
Answer average total cost is increasing.
average total cost is decreasing.
marginal cost is necessarily increasing.
marginal cost is necessarily decreasing.

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Question
Figure: A Firm's Cost Curves

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Reference: Ref 12-19

(Figure: A Firm's Cost Curves) The curve labeled V represents the firm's ________ curve.
Answer total cost
average total cost
marginal cost
average variable cost

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Question
Figure: A Firm's Cost Curves

Reference: Ref 12-19

(Figure: A Firm's Cost Curves) The curve labeled W represents the firm's ________ curve.
Answer average fixed cost
average total cost
average variable cost
total variable cost

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Question
Figure: A Firm's Cost Curves

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Reference: Ref 12-19

(Figure: A Firm's Cost Curves) The curve X represents the firm's ________ curve.
Answer marginal cost
average total cost
average fixed cost
average variable cost

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Question

Reference: Ref 12-20

(Table: Long-Run Total Cost) Over what range of output does this soybean grower experience
constant returns to scale?
Answer the first and second bushels
the third and fourth bushels
the fourth and fifth bushels
the fifth and sixth bushels

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The long-run average total cost curve is tangent to an infinite number of:
Answer short-run total cost curves.
short-run marginal cost curves.
short-run average variable cost curves.
short-run average total cost curves.

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Question
At the long-run quantity of output, where the LRATC curve is at its lowest point, it is tangent to the
________ of the corresponding short-run average total cost curve.
Answer minimum
maximum
right of the minimum
left of the minimum

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At quantities less than the long-run least per-unit cost quantity of output, the long-run average total
cost curve is tangent to the ________ of the corresponding short-run average total cost curve.
Answer minimum
maximum
right of the minimum
left of the minimum

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At quantities greater than the long-run least per-unit cost quantity of output, the long-run average total
cost curve is tangent to the ________ of the corresponding short-run average total cost curve.
Answer minimum
maximum
right of the minimum
left of the minimum

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Question
When an increase in the firm's output reduces its long-run average total cost, it experiences:
Answer economies of scale.
diseconomies of scale.
constant returns to scale.
variable returns to scale.

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A university that benefits from lower costs per unit as it grows is an example of:
Answer economies of scale.
diseconomies of scale.
increasing opportunity costs.
scale reduction.

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The slope of a long-run average total cost curve exhibiting diseconomies of scale is:
Answer zero.
infinite.
positive.

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negative.

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When diseconomies of scale outweigh economies of scale, the:
Answer long-run average cost curve rises.
marginal cost curve declines.
average total cost curve declines.
average variable cost curve declines.

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Question
Figure: Long-Run Average Cost

Reference: Ref 12-21

(Figure: Long-Run Average Cost) Output per period in the region from 0 to A indicates that a firm is
experiencing:
Answer diseconomies of scale.
constant returns to scale.
economies of scale.
negative costs of production.

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Figure: Long-Run Average Cost

Reference: Ref 12-21

(Figure: Long-Run Average Cost) Output per period in the region A to B indicates that a firm is
experiencing:
Answer constant returns to scale.
economies of scale.
diseconomies of scale.

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constant total cost as output increases.

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Figure: Long-Run Average Cost

Reference: Ref 12-21

(Figure: Long-Run Average Cost) Output per period in the region B to C indicates that a firm is
experiencing:
Answer constant returns to scale.
diseconomies of scale.
economies of scale.
falling marginal cost.

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Figure: Long-Run Average Cost

Reference: Ref 12-21

(Figure: Long-Run Average Cost) Output per period in the region from 0 to A indicates that a firm is
experiencing:
Answer decreasing returns to scale.
constant returns to scale.
increasing returns to scale.
negative costs of production.

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Figure: Long-Run Average Cost

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Reference: Ref 12-21

(Figure: Long-Run Average Cost) Output per period in the region B to C indicates that a firm is
experiencing:
Answer constant returns to scale.
decreasing returns to scale.
increasing returns to scale.
falling marginal cost.

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Question
A firm that is able to more efficiently utilize by-products as it increases production in the long run is an
example of:
Answer economies of scale.
diseconomies of scale.
labor-intensive production.
capital-intensive production.

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A firm that is experiencing diminishing returns in management's ability to use and disseminate
information as it increases production in the long run is an example of:
Answer economies of scale.
diseconomies of scale.
being too small for the relevant market.
not having enough managers.

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Question
For large beer breweries, it is common for long-run average total cost to decline as output increases.
This indicates that many breweries achieve:
Answer diseconomies of scale.
diminishing marginal returns.
economies of scale.
constant returns to scale.

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Question
Buffalo Aircraft doubles the amount of all the inputs it uses—the factory doubles in size and twice as
many workers are hired. After this expansion, the number of aircraft produced triples. This means that
Buffalo Aircraft is experiencing:

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Answer increasing marginal cost.

economies of scale.
increasing average total cost.
decreasing average variable cost.

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The long-run average total cost of producing 100 units of output is $4, while the long-run average cost
of producing 110 units of output is $4. These numbers suggest that the firm producing this output is
experiencing:
Answer economies of scale.
diseconomies of scale.
constant returns to scale.
diminishing returns.

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Question
The U-shape of the long-run average total cost curve is primarily due to:
Answer technological change.
economies and diseconomies of scale.
increasing and then diminishing returns.
diminishing returns.

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Question
Figure: Cost Curves

Reference: Ref 12-22

(Figure: Cost Curves) If a firm faced a long-run average total cost curve as shown in the figure, and it
expected to produce 100,000 units of the good in the long run, the firm should build the plant
associated with:
Answer ATC1.
ATC2.
ATC3.
ATC1 or with ATC2.

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Question
Figure: Cost Curves

Reference: Ref 12-22

(Figure: Cost Curves) If a firm currently was producing at point C on the ATC in the figure but
2
anticipates increasing output to 225,000 units in the long run, the firm will build a ________ plant and
experience ________.
Answer smaller; economies of scale
smaller; diseconomies of scale
larger; economies of scale
larger; diseconomies of scale

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Question
In the long run, all costs are:
Answer fixed.
constant.
variable.
marginal.

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Question
In the long run:
Answer the firm considers all factors as fixed.
the firm considers all factors as variable.
production choices are more limited than in the short run.
production is always greater than zero.

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Question
When an increase in the firm's output reduces its long-run average total cost, it experiences:
Answer increasing returns to scale.
decreasing returns to scale.
constant returns to scale.
variable returns to scale.

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Question
If your firm is operating in the negatively sloped portion of a long-run average total cost curve, then
your production exhibits:
Answer higher wages.
increasing returns to scale.
decreasing returns to scale.
increased input prices.

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Question
A manufacturing company that benefits from lower costs per unit as it grows is an example of a firm
experiencing:
Answer increasing returns to scale.
decreasing returns to scale.
increasing opportunity costs.
scale reduction.

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Question
If a firm experiences lower costs per unit as it increases production in the long run, this is an example
of:
Answer increasing returns to scale.
decreasing returns to scale.
increasing opportunity costs.
scale reduction.

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Question
The slope of a long-run average total cost curve exhibiting decreasing returns to scale is:
Answer zero.
infinite.
positive.
negative.

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Question
Decreasing and increasing returns to scale account for the shape of the:
Answer short-run average total cost curve.
short-run average variable cost curve.
long-run average total cost curve.
marginal cost curve in both the short run and the long run.

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The slope of a long-run average total cost curve exhibiting increasing returns to scale is:
Answer zero.
infinite.
positive.

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negative.

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True/False 0 points

Question
Farmers in the United States grow about three times as much wheat per acre as farmers in Western
Europe do.
Answer True
False

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Question
Scott operates a business that takes people on boat tours in Crystal River, Florida. The amount of fuel
Scott uses each day is a variable input.
Answer True
False

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Question
In the long run, every input available to a television manufacturer is a fixed input.
Answer True
False

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Question
Joan adds one more employee to her construction company. The additional quantity of output
produced by this employee represents the average product of this employee.
Answer True
False

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Question
The total product curve for the Wallmark Greeting Card Company shows how the quantity of output
depends on the quantity of the variable input, for a given amount of the fixed inputs associated with
producing greeting cards.
Answer True
False

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The slope of the total product curve is equal to the average product of labor.
Answer True
False

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Question
As more labor is added to a fixed amount of capital, eventually the marginal product of labor
decreases.
Answer True
False

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Question
When diminishing returns exist, then the marginal cost curve is upward-sloping.
Answer True
False

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Question
As a firm increases production in the short run, the marginal cost of output increases because the
marginal product of the variable input decreases.
Answer True
False

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Question
If the ATC and the AVC curves are both U-shaped, then the minimum point of the ATC curve must lie
vertically above the minimum point of the AVC curve.
Answer True
False

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Question
If average total cost is declining, marginal cost cannot be increasing.
Answer True
False

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The short-run average total cost curve is U-shaped because at low output levels the spreading effect
of falling average fixed costs dominates the diminishing returns effect, while at high output levels the
reverse is true.
Answer True
False

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In the short run, the average total cost curve always lies above the average variable cost curve.
Answer True
False

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Question
In the short run, if marginal cost is greater than average total cost, producing an extra unit of output
must raise average total cost.
Answer True
False

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Question
In the short run, the average total cost curve reaches its minimum point at a smaller level of output
than the short-run marginal cost curve reaches its minimum.
Answer True
False

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Question
Any production function that is characterized by economies of scale will not be subject to the operation
of diminishing returns.
Answer True
False

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Question
One of the reasons for diseconomies of scale is diminishing returns.
Answer True
False

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Question
If a firm builds a larger plant and does not experience a change in long-run average total cost, the firm
is experiencing constant returns to scale.
Answer True
False

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Question
The advantage of specialization in production is one of the primary reasons that a firm experiences
decreasing returns to scale.
Answer True
False

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Question
In some complex production processes (such as nuclear power plants), some inputs have to be
treated as being fixed even in the long run.

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Answer True
False

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In the short run, why is it believed that the total product curve increases at a decreasing rate when
more labor is added to the production function?
Answer The principle of diminishing marginal returns is at work. In the short run there is at least one
fixed input. When more of a variable input is added to the fixed input, total product rises, but
at a slower and slower rate. Each additional worker is working with a smaller and smaller
share of the fixed input so the marginal product of that additional worker falls.
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Some people use the phrase, “There's too many cooks in the kitchen” to describe any chaotic scene
where nothing gets done. Relate this phrase to short-run production functions.
Answer The idea is that, for a while, you can add more cooks (a variable input) to a kitchen (a fixed
input) and create more and more food. The total product in this case is rising. However, there
is a point where one more cook is added to the same kitchen and less production is done,
because now each cook has a very limited amount of capital equipment with which to work.
In other words, the total product has fallen, or the marginal product has become negative.
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Question
Suppose a short-run production function always increases at a constant rate of three units of output
for every unit of labor. What does this imply about the marginal product of labor? Is this realistic?
Explain.
Answer This implies that the marginal product of labor is always equal to three units of output.
Graphically, this would be a horizontal line at three units per worker. This is unrealistic in the
short run because there will be at least one fixed input in the production function. Hiring more
units of labor should produce diminishing marginal returns at some point.
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Question
You have rented a one-room apartment and it is time to pay the bills. You pay the rent, the basic cable
bill, the electricity bill, and your grocery bill. Which of these are good examples of fixed costs and
which are variable costs? Explain your reasoning.
Answer Fixed costs are the rent and the basic cable bill, because they are the same payment every
month, no matter how much television you watch or how many hours you are actually in the
apartment. The electricity and grocery bills are variable costs. These two bills are different
every month because your consumption of electricity and food differs every month. If you are
always in the apartment, these payments will be higher. If you are never in the apartment,
these two payments will be lower.
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Reference: Ref 12-23

(Table: Marie's Textbook Company) Marie has a small publishing company that produces textbooks.
She has fixed costs of $500 per month and hires workers for $2,000 per month. The table shows
Marie's monthly production function. With as much precision as possible, calculate the following:
a) total cost of production when four workers are employed
b) the output level that produces the lowest average total cost
c) the price that Marie must charge in order to break even on the production of 130 textbooks
Answer a) When four workers are employed, Marie has VC = 4*$2,000 = $8,000, plus FC = $500,
for a total of $8,500.
b) Average total cost is equal to $50 at output levels of 130 and 170 textbooks. Somewhere
between 130 and 170, the ATC would have reached a minimum value, before beginning to
rise.
c) At 130 textbooks, total cost amounts to $6,500. To break even, 130*P must equal $6,500,
so Marie must charge $50.
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Reference: Ref 12-24

(Table: Marie's Production and Costs) Marie has a small publishing company that produces textbooks.
She has fixed costs of $500 per month and hires workers for $2,000 per month. Some of Marie's
monthly production and cost information is in the accompanying table. Your job is to complete the
table by calculating the missing information.
Answer

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A firm employs capital as a fixed input and labor as a variable input in the short run. If the cost of
capital falls, what will happen to the AVC, ATC, and MC curves? Explain.
Answer Because ATC = AVC + AFC, the ATC will shift downward. However, nothing will happen to
AVC or to MC, because these two curves are unrelated to the fixed cost of capital.
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Describe the shape of the AFC curve and explain why it takes this shape. Can AFC ever intersect the
x-axis?
Answer At low levels of output, the AFC curve is very high because FC is being divided by a small
number. However, when output levels rise, AFC gets smaller and smaller, because the same
FC is being divided by larger and larger numbers. No, AFC can never intersect the x-axis. In
order to do this, the AFC would have to take a value of zero, but the numerator of FC in the
short run is never zero.
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Question
Consider the statement, “When the marginal cost is rising, the average total cost must also be rising.”
Is this statement true or false? Explain your reasoning.
Answer This statement is sometimes true, but sometimes untrue. When marginal cost is rising and
above average total cost, average total cost is definitely rising. But when marginal cost is
rising and still below average total cost, average total cost is falling.
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Question
What are some factors that contribute to a firm experiencing increasing returns to scale (or economies
of scale) in the long run?
Answer Larger firms have more opportunities to specialize both labor and capital to certain tasks. A
worker, if allowed to specialize in a task, gets more skilled at performing that task as he or
she produces more units of output. More skill translates to fewer mistakes and lower average
cost. Other factors include spreading a very large initial setup cost over many units of output
and network externalities.
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The production function provides information about:
Answer a firm's profit level.
the transformation of inputs into outputs.
the location of the firm's production.

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a firm's market structure.

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The level of inputs will determine a firm's:
Answer ability to produce outputs.
profitability.
stock price.
location of production.

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Question

Reference: Ref 12-25

(Table: Tonya's Production Function for Apples) The information provided tells you that Tonya is
operating:
Answer in the long run.
in the short run.
in a very expensive location.
at a loss.

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Question

Reference: Ref 12-25

(Table: Tonya's Production Function for Apples) For Tonya, her fixed input(s) is(are):
Answer land.
labor.
both land and labor.
neither land nor labor.

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Reference: Ref 12-25

(Table: Tonya's Production Function for Apples) For Tonya, her variable input(s) is(are):
Answer land.
labor.
both land and labor.
neither land nor labor.

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Reference: Ref 12-25

(Table: Tonya's Production Function for Apples) As she hires more labor, Tonya's production function
shows that the number of apples picked increases at a decreasing rate because of:
Answer diminishing returns.
increasing returns.
constant returns.
workers becoming lazier.

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Reference: Ref 12-25

(Table: Tonya's Production Function for Apples) The marginal product of the fourth worker equals:
Answer 7.
26.
5.
21.

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Reference: Ref 12-26

(Table: Bonnie's Production Function for Good Z) The marginal product of labor from hiring the second
worker is ________ units of Good Z.
Answer 150
225
75
250

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Question

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Reference: Ref 12-26

(Table: Bonnie's Production Function for Good Z) Diminishing returns to labor occurs when Bonnie
hires the ________ worker.
Answer second
third
fourth
fifth

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Reference: Ref 12-26

(Table: Bonnie's Production Function for Good Z) Suppose Bonnie spends $300 per month to rent the
building, $100 per month to pay for insurance for her business, and $100 per worker per month for
every worker she hires. Given this information, Bonnie's fixed costs equal:
Answer $400.
$300.
$500.
$100.

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Reference: Ref 12-26

(Table: Bonnie's Production Function for Good Z) The costs that vary with Bonnie's level of production
are her:
Answer fixed costs in the long run.
variable costs in the short and long run.
fixed costs in the short run.
costs that remain the same regardless of what she produces.

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Question
With one input fixed, a firm will find that as it attempts to produce more, the total product curve will
increase at a decreasing rate and its marginal product curve will be:
Answer downward-sloping.
upward-sloping.
constant and horizontal at the marginal product axis.
constant and vertical at the quantity axis.

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Question
Linda runs a copy shop that has the following production function table:

Linda's production runs into diminishing returns to her variable input when she employs the ________
unit.
Answer second
third
fourth
fifth

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2
Janet's poodle grooming salon has a total cost curve expressed by the equation TC = 100 + 3Q
where Q is the quantity of dogs groomed. Given this expression, one can determine that Janet is
operating in the:
Answer long run.
short run and her fixed costs are equal to $100.
long run and her fixed costs are equal to $100.
short run and there are no fixed costs.

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2
Janet's poodle grooming salon has a total cost curve expressed by the equation TC = 100 + 3Q
where Q is the quantity of dogs groomed. Given this expression, if Janet grooms five dogs her total
costs will be:
Answer $100.
$175.
$225.
$75.

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2
Janet's poodle grooming salon has a total cost curve expressed by the equation TC = 100 + 3Q
where Q is the quantity of dogs groomed. Janet notices that as she grooms more dogs her total cost
curve:
Answer becomes steeper.
becomes flatter.
stays constant.
becomes steeper, and then becomes horizontal.

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Reference: Ref 12-27

(Table: Lindsay's Farm) Lindsay's fixed cost of production equals:

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Answer $200.
$450.
$2,500.
$2,700.

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Question

Reference: Ref 12-27

(Table: Lindsay's Farm) Lindsay's variable costs of production:

Answer stay constant.
are equal to 10.
equal zero when she produces zero bushels of produce.
fall as soon as she starts producing.

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Reference: Ref 12-27

(Table: Lindsay's Farm) When Lindsay decides to produce 140 units of produce, she finds her total
cost is equal to:

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Answer $200.
$150.
$350.
$500.

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Question

Reference: Ref 12-27

(Table: Lindsay's Farm) When Lindsay decides to produce 50 units of produce she finds her total cost
is equal to:
Answer $250.
$50.
$200.
$350.

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Question
When a firm produces a small amount of output, the spreading effect:
Answer is stronger than the diminishing returns effect.
is weaker than the diminishing returns effect.
and diminishing returns effect are equal.
will be zero.

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A firm's total fixed cost:
Answer stays constant in the short run.
falls as the firm produces more output in the short run.
falls as the firm produces more output in the long run.
increases as the firm produces more output.

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Question
As production increases and the fixed cost is divided by larger quantities of output, this leads to lower
average fixed cost. This is referred to as the ________ effect.
Answer diminishing returns
spreading
constant cost
increasing returns

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Question
When AVC eventually increases as output increases, this is referred to as the ________ effect.
Answer diminishing returns
spreading
constant cost
increasing returns

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Question
Diminishing returns is a reason why:
Answer the marginal cost curve is downward-sloping.
fixed costs remain constant.
the marginal cost curve is upward-sloping.
the average fixed cost curve is downward-sloping.

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If ATC is equal to MC, then one is operating:
Answer at the minimum point of ATC.
on the downward-sloping portion of ATC.
on the upward-sloping portion of ATC.
at a profitable level of output.

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Question
The curve that illustrates the relationship between output and average total cost when fixed cost has
been chosen to minimize average total cost for each level of output is the:
Answer short-run average total cost curve.
long-run average total cost curve.
marginal cost curve.
total product curve.

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When all of a firm's inputs are doubled and this results in the firm's level of production more than
doubling, a firm will notice that it is operating:
Answer on the upward-sloping portion of its LRATC curve.
on the downward-sloping portion of its LRATC curve.
at the minimum of its LRATC curve.

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on the upward-sloping portion of its MC curve.

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Question
A firm finds that as it produces more, its long-run average total costs increase. This firm is
experiencing:
Answer economies of scale.
constant returns to scale.
diseconomies of scale.
a spreading effect.

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Question
Economies and diseconomies of scale are associated with the:
Answer long-run average total cost curve and the long run.
short-run average total cost curve and the short run.
marginal cost curve and both the long and short run.
average fixed cost curve and the short run.

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