Question 1

Internal economies of scale occur when:&#10;A) Costs fall over time.&#10;B) Revenue falls over time.&#10;C) Unit costs fall as the firm's scale increases.&#10;D) The price falls with more output.

Accepted Answer

Internal economies of scale occur when a company's unit costs decrease as its production scale increases. This is due to efficiencies gained within the company, such as improved production techniques, bulk purchasing of materials, or more effective use of labor.

Question 2

The Law of Diminishing Returns occurs:&#10;A) In the long run.&#10;B) When the price is lowered to sell more.&#10;C) When more units of a variable factor of production are added to a fixed factor.&#10;D) When the total output falls as more units of a variable factor of production are added.

Accepted Answer

The Law of Diminishing Returns states that if one factor of production (variable factor) is increased while other factors (fixed factors) are held constant, the additional output (marginal returns) generated from the additional input will eventually decrease. This typically occurs in the short run where at least one factor of production is fixed.

Question 3

Marginal costs:&#10;A) Equal fixed costs plus variable costs.&#10;B) Equal average costs.&#10;C) Equal total cost per unit.&#10;D) Equal the extra cost of producing a unit.

Accepted Answer

Marginal costs refer to the additional cost incurred by producing one more unit of a good or service. It is not the sum of fixed and variable costs (which would give total costs), nor is it the same as average costs or the total cost per unit.

Question 4

Fixed costs:&#10;A) Never change.&#10;B) Do not change with output.&#10;C) Do not change over time.&#10;D) Are equal to variable costs.

Accepted Answer

Fixed costs do not change with the level of output. They are expenses that have to be paid by a company, independent of any specific business activities. This contrasts with variable costs, which vary directly with the level of production.

Question 5

The short run:&#10;A) Is 1 week.&#10;B) Is when a firm has at least one fixed factor of production.&#10;C) Is when all the factors of production are variable.&#10;D) Is when losses are made.

Accepted Answer

The short run in economics refers to a period during which at least one factor of production is fixed, meaning it cannot be changed. This contrasts with the long run, where all factors of production are variable.

Question 6

Diseconomies of scale occur when:&#10;A) Marginal costs increase as output increases in the long run.&#10;B) Total costs increase as output increases in the long run.&#10;C) Fixed costs increase as output increases in the long run.&#10;D) Unit costs increase as output increases in the long run.

Accepted Answer

Diseconomies of scale occur when unit costs increase as output increases, indicating inefficiencies as a firm grows too large.

Question 7

When marginal product is positive but falling, total output (total product) is falling.

Accepted Answer

When marginal product is positive but falling, total output (total product) is still increasing, just at a decreasing rate.

Question 8

Short run marginal costs are determined mainly by the law of diminishing marginal utility.

Accepted Answer

Short run marginal costs are primarily influenced by the law of diminishing returns, not the law of diminishing marginal utility. The law of diminishing returns relates to the production side, indicating that adding more of one factor of production, while holding others constant, will eventually yield lower increments of output.

Question 9

The increase or decrease in total cost when another unit is produced is called the ________ cost.

Accepted Answer

The answer of The increase or decrease in total cost...

Question 10

The marginal cost curve:&#10;A) Is inversely related to the average cost curve.&#10;B) Crosses the marginal product at its minimum.&#10;C) Crosses the total cost curve at its maximum point.&#10;D) Crosses the average costs curve at its minimum point.

Accepted Answer

The marginal cost curve intersects the average total cost and average variable cost curves at their minimum points. This is because when marginal cost is below average cost, it pulls the average cost down, and when it is above, it pulls the average cost up.

Question 11

The marginal product curve:&#10;A) Is inversely related to the average fixed cost curve.&#10;B) Crosses the average product curve at its minimum point.&#10;C) Crosses the average product curve at its maximum point.&#10;D) Crosses the average costs curve at its minimum point.

Accepted Answer

The answer of The marginal product curve:&#10;A) Is inversely related...

Question 12

If the total product is 300 units when 10 employees are employed and 440 when 11 are employed:&#10;A) The marginal product is 30 units with 10 employees.&#10;B) The average product is 140 units.&#10;C) The average product increases from 30 units to 40 units.&#10;D) The marginal product is 10 units.

Accepted Answer

The answer of If the total product is 300 units...

Question 13

The first level of output at which average costs are minimized is called:&#10;A) The Minimum Average Scale&#10;B) The Maximum Unit Scale&#10;C) The Mean Extra Scale&#10;D) The Minimum Efficient Scale

Accepted Answer

The answer of The first level of output at which...

Deck 10: Costs: Short Run and Long Run