Deck 8: Costs and the Changes at Firms Over Time

Question 1

Fixed costs are costs paid for

A)resources that do not change with changes in output.
B)obsolete plants and equipment not used anymore.
C)plants and equipment in the long run.
D)labor and material inputs that vary with output.
E)the labor in fixing production equipment.

Answer 1

resources that do not change with changes in output.

Question 2

Exhibit 8-2
Refer to Exhibit 8-2.At an output quantity of 5 units,the fixed cost is

A)$20.
B)$100.
C)$120.
D)$185.
E)$326.

Answer 2

$100.

Question 3

Which of the following is a good example of variable costs?

A)Cost of building a factory
B)Land cost
C)Cost of heavy machinery
D)Wage payments for workers
E)Capital costs

Answer 3

Wage payments for workers

Question 4

Fixed costs never decline.

Question 5

In the long run,only fixed costs can change; variable costs cannot.

Question 6

Which of the following is the best example of fixed costs?

A)Rent for an office
B)Overtime wages for workers
C)Costs of material supplies
D)Fuel used to operate an equipment
E)Costs for product packaging

Question 7

Exhibit 8-2
Refer to Exhibit 8-2.The marginal cost of producing the sixth unit of output is

A)$12.30.
B)$37.
C)$54.30.
D)$67.
E)$74.

Question 8

Exhibit 8-2
Refer to Exhibit 8-2.The fixed cost is

A)$20.
B)$100.
C)$120.
D)$185.
E)$326.

Question 9

Exhibit 8-1
Refer to Exhibit 8-1.At 70 units of output,fixed costs equal

A)$50.
B)$100.
C)$1,000.
D)$3,500.
E)$4,000.

Question 10

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

A)fixed cost.
B)zero.
C)variable cost.
D)average variable cost.
E)marginal cost.

Question 11

The long run is a period

A)that affects larger rather than smaller firms.
B)long enough to allow firms to change plant size and capacity.
C)long enough to allow firms to make economic decisions.
D)of three years or longer.
E)long enough for firms to begin earning profits.

Question 12

Exhibit 8-2
Refer to Exhibit 8-2.At an output quantity of 3 units,the variable cost is

A)$13.
B)$20.
C)$48.
D)$148.
E)$185.

Question 13

In the short run,

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

Question 14

In the long run,

A)most of the firm's resources cannot be varied.
B)none of the firm's resources are variable.
C)new technology cannot be introduced.
D)all of a firm's resources are variable.
E)at least one of the firm's resources is fixed.

Question 15

The addition to total variable cost when one more unit of output is produced is

A)average variable cost.
B)average fixed cost.
C)total cost.
D)fixed cost.
E)marginal cost.

Question 16

If the total cost of producing 6 units is $228 and the total cost of producing 7 units is $245,what is the marginal cost of producing 7 units?

A)$35
B)$38
C)$245
D)$3
E)$17

Question 17

Which of the following does not change with the level of output?

A)Variable costs
B)Total costs
C)Fixed costs
D)Average total costs
E)Marginal cost

Question 18

Fixed costs exist in

A)both the long run and the short run.
B)only in the long run but not in the short run.
C)only in the short run but not in the long run.
D)in neither the long run nor the short run.
E)sometimes in the short run and sometimes in the long run.

Question 19

Fixed costs exist

A)in both the short run and the long run.
B)in the short run but not in the long run.
C)in the long run but not in the short run.
D)in neither the short run nor the long run.
E)sometimes in the short run and sometimes in the long run.

Question 20

Marginal cost equals

A)total costs divided by output.
B)fixed costs minus variable costs.
C)total costs minus fixed costs.
D)fixed costs plus variable costs.
E)the change in total cost given a one-unit change in output.

Question 21

Labor costs are a typical example of fixed costs.

Question 22

Fixed cost does not vary with the quantity of output that a firm produces.

Question 23

Which of the following formulas is correct?

A)AVC = ATC + AFC
B)AFC = FC $\times$ Q
C)ATC = AVC - AFC
D)MC = AVC/Q
E)TC/Q = VC/Q + FC/Q

Question 24

A production function is the relationship between

A)total costs and inputs.
B)total costs and output.
C)output and inputs.
D)one input and another input.
E)output and price.

Question 25

In the short run,total cost is zero when the firm produces nothing.

Question 26

Average total cost is average variable cost plus marginal cost.

Question 27

Average fixed cost always declines as output increases.

Question 28

Average fixed cost

A)increases as output rises.
B)remains constant as output rises.
C)equals marginal cost for the first unit of output.
D)decreases as output rises.
E)increases with rising output and then declines.

Question 29

Which of the following statements about average costs is false?

A)The difference between average total cost and average variable cost does not change as output increases.
B)Average fixed cost decreases as output increases.
C)Average variable cost first decreases and then increases as output increases.
D)Average total cost first decreases and then increases as output increases.
E)The difference between average total cost and average variable cost is average fixed cost.

Question 30

The vertical distance between average total cost and average variable cost curves decreases as output increases because

A)it is traditional to draw the curves that way.
B)marginal cost first falls and then rises.
C)in geometry,both curves must reach their minimums on the marginal cost curve.
D)marginal product first rises and then falls.
E)average fixed cost decreases as output increases.

Question 31

If a firm is experiencing diminishing returns to labor,

A)marginal product of labor must be decreasing.
B)it must be producing in the long run.
C)marginal cost must be decreasing.
D)the firm must be experiencing diseconomies of scale.
E)the firm is apparently hiring less-qualified units of labor.

Question 32

Average fixed cost is the difference between average total cost and average variable cost.

Question 33

When diminishing returns to labor begins,

A)average total cost starts to rise.
B)total costs start to rise.
C)variable costs start to rise.
D)marginal cost starts to rise.
E)average variable costs start to rise.

Question 34

Fixed costs do not exist in the long run.

Question 35

Marginal cost is total costs divided by output.

Question 36

Exhibit 8-3
Refer to Exhibit 8-3.The average variable cost at 3 units of output is

A)$49.33.
B)$16.
C)$13.33.
D)$29.33.
E)$25.

Question 37

Exhibit 8-3
Refer to Exhibit 8-3.At an output of 5 units,the average total cost is

A)$16.40.
B)$20.
C)$30.40.
D)$50.40.
E)$252.

Question 38

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

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

Question 39

Exhibit 8-3
Refer to Exhibit 8-3.At an output of 5 units,the average fixed cost is

A)$50.40.
B)$252.
C)$68.
D)$100.
E)$20.

Question 40

Both fixed cost and average fixed cost do not decline as the quantity of output increases.

Question 41

Average product

A)is a standard unit of measure for output.
B)tells us how much output changes when input changes.
C)equals Q/L.
D)is another name for marginal product.
E)is constant.

Question 42

Increasing marginal product of labor results in

A)increasing marginal cost.
B)decreasing marginal cost.
C)decreasing average fixed cost.
D)increasing average cost.
E)decreasing average cost.

Question 43

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

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

Question 44

Increasing returns occur when

A)marginal cost is increasing.
B)marginal cost is decreasing.
C)average total cost is falling.
D)average variable cost is falling.
E)marginal product is decreasing.

Question 45

If marginal cost is at its minimum,

A)total output is at its maximum.
B)average total cost is at its minimum.
C)total cost is at its maximum.
D)marginal product is at its maximum.
E)average variable cost is at its minimum.

Question 46

Marginal product of labor is the change in output divided by a change in labor input.

Question 47

A production function relates output to its price.

Question 48

Exhibit 8-4

-Refer to Exhibit 8-4.Calculate the average variable cost for the fifth unit of output.

Question 49

When a one-unit increase in input increases output more than the previous unit of input,we say that there are

A)increasing returns.
B)increasing costs.
C)diseconomies of scale.
D)decreasing returns.
E)constant returns to scale.

Question 50

Marginal cost

A)is usually zero in the short run.
B)equals total costs plus total fixed costs.
C)will fall with output until the onset of diminishing marginal returns.
D)does not vary with the quantity of output that a firm produces.
E)is usually zero in the long run.

Question 51

Marginal product and marginal cost are not related in any particular way.

Question 52

Define average total cost,average variable cost,and average fixed cost,respectively,using letter symbols.

Question 53

Exhibit 8-4

-Refer to Exhibit 8-4.Calculate the marginal cost for the third unit of output.

Question 54

Which curve passes through the minimum point of the average total cost curve?

A)The fixed cost curve
B)The average variable cost curve
C)The long-run average total cost curve
D)The marginal cost curve
E)The demand curve

Question 55

Why can't economists identify a definite time period that constitutes the short run?

Question 56

When marginal cost is less than average cost,

A)marginal cost is rising.
B)average cost is rising.
C)marginal cost is falling.
D)average cost is falling.
E)both marginal cost and average cost are rising.

Question 57

Marginal product is at its maximum when marginal cost is at its minimum.

Question 58

Exhibit 8-4
Refer to Exhibit 8-4.Calculate the average fixed cost for 4 units of output.

Question 59

Increasing marginal product of labor results in increasing marginal cost.

Question 60

Marginal product increases over some range because of specialization that takes place within a firm.

Question 61

The shapes of firms' cost curves are important because

A)they tell us whether a firm is profitable or not.
B)they help us determine how much a firm will produce and even how it will produce it.
C)cost curves tell us the profitability of the firm.
D)cost curves give us an idea of what a firm's total revenues will be at different output levels
E)they help us understand the market that the firm is in.

Question 62

Exhibit 8-5
Refer to Exhibit 8-5.The curve marked I is the firm's

A)marginal cost curve.
B)average fixed cost curve.
C)total cost curve.
D)average total cost curve.
E)average variable cost curve.

Question 63

Which of the following statements is true?

A)If AVC is increasing,ATC must be increasing,too.
B)If MC is increasing,then AVC is increasing.
C)ATC reaches minimum before AVC.
D)If AVC and AFC are decreasing,ATC must be decreasing.
E)None of these.

Question 64

Exhibit 8-5

-Refer to Exhibit 8-5.At an output level of L,average fixed cost is

A)$D - $B.
B)$B.
C)$D - $C.
D)$E - $C.
E)$A.

Question 65

If marginal cost is increasing,you know that average variable cost is increasing.

Question 66

Exhibit 8-5

-Refer to Exhibit 8-5.At an output level of K,

A)TC is area AEHF.
B)ATC exceeds MC by amount $G - $F.
C)AFC is amount $D - $I.
D)ATC and AVC are both falling because MC is less than both.
E)AVC exceeds MC by amount $H - $F.

Question 67

If average variable cost is falling with increasing output,then

A)marginal cost must be less than average variable cost.
B)marginal cost must be greater than average variable cost.
C)average fixed cost is rising.
D)marginal cost must be rising.
E)marginal cost must be falling.

Question 68

Which of the following is characteristic of short-run costs associated with increasing levels of output?

A)The difference between average total cost and average variable cost decreases.
B)Average variable cost typically increases.
C)Average total cost is equal to the difference between average variable cost and average fixed cost.
D)Average fixed cost is constant.
E)Marginal cost is equal to the difference between total cost and total variable cost.

Question 69

Average total cost is equal to marginal cost when

A)average fixed cost is rising.
B)average variable cost is falling.
C)marginal cost is at its minimum.
D)average total cost is at its minimum.
E)average variable cost is also equal to marginal cost.

Question 70

The marginal cost curve intersects the average total cost curve at the lowest point of the average total cost curve.

Question 71

If average variable cost is falling,then marginal cost must also be falling.

Question 72

What will happen to the average of 40,65,and 70 when the number 50 is included and averaged?

A)It will rise because 50 is greater than the previous average.
B)It will fall because 50 is less than the previous average.
C)There is not enough information to know what will happen to the average.
D)It will remain constant because it is equal to the average.
E)It will either rise or fall depending on the next number to be included.

Question 73

Exhibit 8-5
Refer to Exhibit 8-5.The curve marked II is the firm's

A)marginal cost curve.
B)average fixed cost curve.
C)total cost curve.
D)average total cost curve.
E)average variable cost curve.

Question 74

If average fixed cost is falling with increasing output,then

A)marginal cost must be increasing.
B)average total cost must be decreasing.
C)average variable cost must be decreasing.
D)total fixed cost must be constant.
E)marginal cost must be decreasing.

Question 75

When marginal cost is greater than average variable cost but less than average total cost,

A)average total cost is rising.
B)marginal cost is falling.
C)average fixed cost is minimized.
D)average variable cost is falling.
E)marginal cost is rising.

Question 76

Average total cost increases as long as marginal cost

A)is greater than average cost.
B)is less than average cost.
C)increases faster than average cost.
D)increases more slowly than average cost.
E)increases.

Question 77

Consider the following string of numbers: 20,18,14,8,2.Given the average of these numbers,what happens when the number 6 is included?

A)The average falls because 6 is less than 20,the first number in the set.
B)The average does not change because 6 is insignificant.
C)The average rises because 6 is greater than the last number in the set,2.
D)The average rises because 6 is greater than the previous average.
E)The average falls because 6 is less than the previous average.

Question 78

Which of the following typically has a U-shaped curve?

A)Average total cost
B)Average fixed cost
C)Fixed cost
D)Total cost
E)A production function

Question 79

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

Question 80

Exhibit 8-5
Refer to Exhibit 8-5.At an output level of L,average total cost is

A)$E.
B)$D.
C)$C.
D)$A.
E)$B.