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Chapter 20 focuses on various aspects of cost in economics, including average total cost (ATC), average variable cost (AVC), and marginal cost (MC). It presents multiple-choice questions that test understanding of concepts such as the law of diminishing returns, the relationship between fixed and variable costs, and the behavior of cost curves. The chapter emphasizes the importance of these concepts in determining optimal production levels and business decisions.

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8 views6 pages

Test

Chapter 20 focuses on various aspects of cost in economics, including average total cost (ATC), average variable cost (AVC), and marginal cost (MC). It presents multiple-choice questions that test understanding of concepts such as the law of diminishing returns, the relationship between fixed and variable costs, and the behavior of cost curves. The chapter emphasizes the importance of these concepts in determining optimal production levels and business decisions.

Uploaded by

demro channel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter 20 - Cost

Chapter 8
Cost

Multiple Choice Questions

1. In the short run, the ATC curve is _____ above the AVC curve.
A. always
B. sometimes
C. never

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

3. When average total cost is declining, then


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

4. Which statement is true?


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

20-1
Chapter 20 - Cost

5. The law of diminishing returns states that as output rises, eventually _____ output will
decline.
A. total
B. average
C. fixed
D. marginal

6. The law of diminishing marginal returns implies


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

7. The law of diminishing returns


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

8. If marginal output is rising it is possible to have


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

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Chapter 20 - Cost

9. If fixed cost is $5,000, and, at an output of 3 variable cost is $4,000, how much is average
total cost at an output of 3?
A. $1,333.33
B. $3,000
C. $4,500
D. $9,000
E. There is not enough information to determine ATC at an output of 3.

10. If fixed cost is $8,000, variable cost is $5,000 at an output of 2 and $9,000 at an output of
3, how much is marginal cost at an output of 3?
A. $3,000
B. $4,000
C. $5,000
D. $8,000
E. There is not enough information to determine marginal cost at an output of 3.

11. _______ is (are) the relationship between the maximum amounts of output a firm can
produce and various quantities of inputs.
A. A production function
B. The law of diminishing returns
C. Economies of scale
D. Diseconomies of scale

12. The MC curve intersects the AVC and ATC curves at their minimum points
A. none of the time.
B. some of the time.
C. most of the time.
D. all of the time.

20-3
Chapter 20 - Cost

13. Which statement is true?


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

14. The phrase "spreading the overhead" refers to


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

15. A firm has a fixed cost of $2,000, and at an output of one, variable cost is $1,500. How
much is marginal cost at an output of 1?
A. $1,000
B. $1,500
C. $2,000
D. $3,500
E. There is insufficient information to find marginal cost at an output of 1.

16. Which statement is false?


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

17. In the short run, output


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

20-4
Chapter 20 - Cost

18. Which statement is true?


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

19. Which statement is true?


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

20. In the long run


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

21. Which statement is false?


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

22. The average fixed cost curve


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

20-5
Chapter 20 - Cost

23. As output rises, average fixed cost


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

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


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

25. When MC is rising but still below AVC, then


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

26. As a firm's output expands, the


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

27. Which statement is true?


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

28. If a firm cannot cover its variable costs, it will


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

20-6

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