Question 1

Marginal cost is defined as the change in ________ cost when output changes by one unit.In the short run,marginal cost can also be measured by the change in ________ cost when output changes by one unit.
A)total; fixed
B)variable; fixed
C)fixed; variable
D)total; variable

Accepted Answer

Marginal cost is defined as the change in total cost when output changes by one unit. In the short run, since fixed costs do not change with a change in output, the change in variable cost when output changes by one unit is equal to the change in total cost. Therefore, marginal cost can also be measured by the change in variable cost when output changes by one unit. This is consistent with option D, which refers to total and variable costs.

Question 2

-Refer to Scenario 2.The average fixed cost of 2 units of output is:
A)$8.00.
B)$8.50.
C)$12.00.
D)$20.50.

Accepted Answer

The answer of 
-Refer to Scenario 2.The average fixed cost...

Question 3

Which of the following statements is true of the relationship among the average cost functions?
A)ATC = AFC - AVC
B)AVC = AFC + ATC
C)AFC = ATC + AVC
D)AFC = ATC - AVC

Accepted Answer

The relationship among the average cost functions can be expressed as:
ATC = AFC + AVC
or
ATC = (AFC x Q) + (AVC x Q)/Q
which simplifies to:
ATC = AFC + AVC
or
ATC - AVC = AFC
Therefore, option D is the correct statement as it shows the relationship between AFC and ATC in terms of AVC.

Question 4

-Refer to Scenario 3.Diminishing marginal returns are incurred when output is increased from:
A)1 to 2 units of output.
B)2 to 3 units of output.
C)3 to 4 units of output.
D)4 to 5 units of output.

Accepted Answer

Diminishing marginal returns occur when adding an additional factor of production results in a smaller increase in output. In this scenario, the transition from 3 to 4 units of output represents the point where additional inputs lead to less proportional increases in output, indicating diminishing marginal returns.

Question 5

-Refer to Scenario 3.The marginal cost of producing the sixth unit of output is:
A)$33.33 (approximate).
B)$55.
C)$200.
D)$250.

Accepted Answer

The answer of 
-Refer to Scenario 3.The marginal cost of...

Question 6

For a particular production function,over the range of output where marginal product rises as units of the variable input are added to the fixed input,marginal cost will be:
A)increasing.
B)constant.
C)decreasing.
D)cannot be determined without additional information.

Accepted Answer

As the marginal product of the variable input is increasing, it means the additional input is adding more output, which lowers the average fixed cost. Therefore, the marginal cost will decrease.

Question 7

Which of the following statements is correct?
A)In the short run, if a firm chooses to produce no output (i.e., shut down)its total costs of production will equal its total fixed costs.
B)If a firm decides to shut down, its short-run total costs will equal 0.
C)As a firm increases output in the short run, the change in total costs is equal to the change in total variable costs.
D)A firm minimizes its total costs of production when average variable cost is minimized.

Accepted Answer

The answer of Which of the following statements is correct?
A)In...

Question 8

Assume a firm is currently producing 100 units of output,total fixed costs are $10,000,and average variable costs are $8.Based on this information we can conclude,with certainty,that the firm's:
A)marginal costs are $8.
B)total variable costs are $8000.
C)average fixed costs are $2.
D)total costs are $10,800.

Accepted Answer

Total costs can be calculated as follows:
Total Costs = Total Fixed Costs + Total Variable Costs
Total Variable Costs = Average Variable Cost x Units of Output
Given that the firm is currently producing 100 units of output, we can calculate the total variable costs as:
Total Variable Costs = $8 x 100 = $800
Therefore, Total Costs = $10,000 + $800 = $10,800. 
Hence, option (D) is the correct answer.

Question 9

Marginal cost is defined as:
A)the change in total cost due to a one unit change in output.
B)total cost divided by output.
C)the change in output due to a one unit change in an input.
D)total product divided by the quantity of input.

Accepted Answer

Marginal cost is the additional cost of producing one more unit of output. It is calculated as the change in total cost due to a one-unit change in output. Option A correctly defines marginal cost.

Question 10

If a firm experiences constant returns to the variable input in the short run:
A)marginal cost will be greater than average variable cost, but the two will become more equal as output increases.
B)marginal cost will be less than average variable cost, but the two will become more equal as output increases.
C)marginal cost will be greater than average variable cost, and the difference between the two will become larger as output increases.
D)marginal cost and average variable cost will be equal over the range of output in question.

Accepted Answer

When a firm experiences constant returns to the variable input, it means that each additional unit of input leads to an equal increase in output. As a result, the marginal cost of producing each additional unit of output is the same as the average variable cost of producing each unit. Therefore, option D is correct, and marginal cost and average variable cost will be equal over the range of output in question.

Question 11

Which of the following statements concerning the relationships among the firm's total cost functions is false?
A)TC = TFC + TVC
B)TVC = TFC - TC
C)TFC = TC - TVC
D)TC = TFC when output = 0.

Accepted Answer

TVC is the difference between TC and TFC, therefore TVC = TC - TFC.

Question 12

-Refer to Scenario 2.The marginal cost of the sixth unit of output is:
A)$1.33.
B)$7.50.
C)$8.00.
D)$45.00.

Accepted Answer

The marginal cost is the additional cost of producing one more unit. If the cost of producing the sixth unit is $8.00, then the marginal cost of the sixth unit is $8.00.

Question 13

If a firm experiences constant returns to the variable input in the short run:
A)marginal product will be greater than average variable product, but the two will become more equal as output increases.
B)marginal product will be less than average variable product, but the two will become more equal as output increases.
C)marginal product will be greater than average variable product, and the difference between the two will become larger as output increases.
D)marginal product and average variable product will be equal over the range of output in question.

Accepted Answer

Constant returns to the variable input mean that marginal product does not change as the quantity of the variable input is increased. Since average variable product is simply total output divided by the quantity of the variable input, it will also remain constant. Therefore, marginal product and average variable product will be equal over the range of output in question.

Question 14

-Refer to Scenario 2.Diminishing marginal returns starts to occur between units:
A)2 and 3.
B)3 and 4.
C)4 and 5.
D)5 and 6.

Accepted Answer

The answer of 
-Refer to Scenario 2.Diminishing marginal returns starts...

Question 15

-Refer to Scenario 3.The average variable cost of producing three units of output is:
A)$15.
B)$25.
C)$41.67 (approximate).
D)$75.

Accepted Answer

The answer of 
-Refer to Scenario 3.The average variable cost...

Question 16

-Refer to Scenario 3.The average total cost of 5 units of output is:
A)$8.
B)$10.
C)$29.
D)$39.

Accepted Answer

The answer of 
-Refer to Scenario 3.The average total cost...

Question 17

So long as a firm is enjoying increasing marginal returns,a one unit increase in output will cause marginal costs to ________ and total costs to ________.
A)increase; increase
B)decrease; increase
C)increase; decrease
D)decrease; decrease

Accepted Answer

According to the law of diminishing marginal returns, as output increases, eventually the marginal product of the last unit of input decreases. This means that the cost of producing an additional unit of output (marginal cost) will increase. Therefore, a one unit increase in output will cause marginal costs to increase. However, since the firm is still enjoying increasing marginal returns, the increase in total costs will be less than the increase in output, resulting in a net increase in total costs but at a decreasing rate (i.e. total costs will still increase, but at a decreasing rate). Therefore, total costs will increase. Option B correctly captures this relationship.

Question 18

Which of the following is true of the relationship between the marginal cost function and the average total cost and average variable cost functions?
A)If MC is greater than ATC and AVC, then ATC and AVC will increase.
B)The ATC and AVC curves intersect the MC curve at minimum MC.
C)The MC curve, ATC curve, and AVC curve all intersect at the same point.
D)At each level of output, MC is equal to difference between AVC and ATC.

Accepted Answer

When the marginal cost (MC) is greater than both the average total cost (ATC) and the average variable cost (AVC), it means the cost of producing an additional unit is higher than the current average costs. This will pull the averages up, causing both ATC and AVC to increase.

Question 19

Production functions A and B result in the same average total costs of production.However,production function A is twice as capital intensive as production function B.In this case,all else constant:
A)marginal costs will be higher in A than they are in B.
B)marginal costs will be higher in B than they will in A.
C)because total costs are equal, marginal costs will be equal for the two production functions as well.
D)there is no way to say anything about the relative marginal costs of production in the two production functions without additional information.

Accepted Answer

A more capital-intensive production function typically has lower marginal costs due to economies of scale and the ability to spread fixed capital costs over a larger output.

Question 20

Assume there is an improvement in technology that increases the marginal product of each unit of labor.This would have the effect of:
A)reducing the average total cost, average variable cost, and marginal cost of production.
B)increasing the average total cost, average variable cost, and marginal cost of production.
C)reducing the average variable cost and marginal cost of production, but average total cost would be unchanged.
D)reducing the average total cost and average variable cost of production, but marginal cost would be unchanged.

Accepted Answer

Improvements in technology that increase the marginal product of each unit of labor make it possible for a firm to produce more output with the same amount of labor, or the same output with less labor. This efficiency gain reduces the cost of production per unit, leading to a decrease in average total cost (ATC), average variable cost (AVC), and marginal cost (MC) of production.

Quiz 5: Production and Cost Analysis in the Short Run

Marginal cost is defined as the change in cost when output changes by one unit.In the short run,marginal cost can also be measured by the change in cost when output changes by one unit.

-Refer to Scenario 2.The average fixed cost of 2 units of output is:

Which of the following statements is true of the relationship among the average cost functions?

-Refer to Scenario 3.Diminishing marginal returns are incurred when output is increased from:

-Refer to Scenario 3.The marginal cost of producing the sixth unit of output is:

For a particular production function,over the range of output where marginal product rises as units of the variable input are added to the fixed input,marginal cost will be:

Which of the following statements is correct?

Assume a firm is currently producing 100 units of output,total fixed costs are $10,000,and average variable costs are $8.Based on this information we can conclude,with certainty,that the firm's:

Marginal cost is defined as:

If a firm experiences constant returns to the variable input in the short run:

Which of the following statements concerning the relationships among the firm's total cost functions is false?

-Refer to Scenario 2.The marginal cost of the sixth unit of output is:

If a firm experiences constant returns to the variable input in the short run:

-Refer to Scenario 2.Diminishing marginal returns starts to occur between units:

-Refer to Scenario 3.The average variable cost of producing three units of output is:

-Refer to Scenario 3.The average total cost of 5 units of output is:

So long as a firm is enjoying increasing marginal returns,a one unit increase in output will cause marginal costs to and total costs to .

Which of the following is true of the relationship between the marginal cost function and the average total cost and average variable cost functions?

Production functions A and B result in the same average total costs of production.However,production function A is twice as capital intensive as production function B.In this case,all else constant:

Assume there is an improvement in technology that increases the marginal product of each unit of labor.This would have the effect of: