Question 1

Economies and diseconomies of scale are associated with the:
A) long-run average total cost curve and the long run.
B) short-run average total cost curve and the short run.
C) marginal cost curve and both the long and short run.
D) average fixed cost curve and the short run.

Accepted Answer

Economies and diseconomies of scale are both long-run concepts, as they involve changes in a firm's production processes and technology over time as it expands. These changes are reflected in the long-run average total cost curve.

Question 2

Use the following to answer questions : $\text {Table: Bonnie's Production Function for Good Z}$
$\text {The table describes Bonnie's production function for }$
$\text {Good Z. Assume labour is the only variable input that}$
$\text { Bonnie uses to produce Good Z.}$

$ \begin{array}{lr}
\hline \text {Quantity of}&\text {Quantity of}\
\text {Labour Hired}&\text {Good Z Produced}\
\text {(workers)}&\text {(per time period)}\
\hline 0 & 0 \ 1 & 75 \ 2 & 150 \ 3 & 250 \ 4 & 325 \ 5 & 375\end{array} $

-(Table: Bonnie's Production Function for Good Z)Use Table: Bonnie's Production Function for Good Z.The marginal product of labour of the second worker is _____ units of good Z.
A) 150
B) 225
C) 75
D) 250

Accepted Answer

The marginal product of labor for the second worker is the additional output produced when the second worker is hired. It is calculated as the difference in output between hiring two workers and one worker: 150 - 75 = 75 units.

Question 3

As production increases and the fixed cost is divided by larger quantities of output,average fixed cost drops.This is referred to as the _____ effect.
A) diminishing returns
B) spreading
C) constant cost
D) increasing returns

Accepted Answer

Spreading effect refers to the decrease in average fixed cost as production increases and fixed cost is spread out over larger quantities of output.

Question 4

Use the following to answer questions : $\text {Table: Bonnie's Production Function for Good Z}$
$\text {The table describes Bonnie's production function for }$
$\text {Good Z. Assume labour is the only variable input that}$
$\text { Bonnie uses to produce Good Z.}$

$ \begin{array}{lr}
\hline \text {Quantity of}&\text {Quantity of}\
\text {Labour Hired}&\text {Good Z Produced}\
\text {(workers)}&\text {(per time period)}\
\hline 0 & 0 \ 1 & 75 \ 2 & 150 \ 3 & 250 \ 4 & 325 \ 5 & 375\end{array} $

-(Table: Bonnie's Production Function for Good Z)Use Table: Bonnie's Production Function for Good Z.Diminishing returns to labour begin to kick in after Bonnie hires the _____ worker.
A) second
B) third
C) fourth
D) fifth

Accepted Answer

The answer of Use the following to answer questions :...

Question 5

Use the following to answer questions : $\text {Table: Bonnie's Production Function for Good Z}$
$\text {The table describes Bonnie's production function for }$
$\text {Good Z. Assume labour is the only variable input that}$
$\text { Bonnie uses to produce Good Z.}$

$ \begin{array}{lr}
\hline \text {Quantity of}&\text {Quantity of}\
\text {Labour Hired}&\text {Good Z Produced}\
\text {(workers)}&\text {(per time period)}\
\hline 0 & 0 \ 1 & 75 \ 2 & 150 \ 3 & 250 \ 4 & 325 \ 5 & 375\end{array} $

-(Table: Bonnie's Production Function for Good Z)Use Table: Bonnie's Production Function for Good Z.Suppose Bonnie spends $300 per month to rent the building,$100 per month on insurance,and $100 per worker per month.Given this information,Bonnie's monthly fixed costs equal:
A) $400.
B) $300.
C) $500.
D) $100.

Accepted Answer

Bonnie's monthly fixed costs include the rent for the building ($300) and insurance ($100), totaling $400. The cost per worker is a variable cost, not a fixed cost.

Question 6

When all of a firm's inputs are doubled,input prices do not change,and this results in the firm's level of production more than doubling,a firm is operating:
A) on the upward-sloping portion of its long-run average total cost curve.
B) on the downward-sloping portion of its long-run average total cost curve.
C) at the minimum of its long-run average total cost curve.
D) on the upward-sloping portion of its marginal cost curve.

Accepted Answer

If a firm's production more than doubles when all inputs are doubled, it indicates that the firm is experiencing economies of scale. In other words, the firm is benefiting from efficiencies in production that result in a lower cost per unit of output as it increases production. This is typically represented by the downward-sloping portion of the long-run average total cost curve, as the firm can spread its fixed costs over a larger output and benefit from lower average variable costs. Thus, the best choice is B, on the downward-sloping portion of its long-run average total cost curve.

Question 7

The eventual increase in AVC as output increases is the _____ effect.
A) diminishing returns
B) spreading
C) constant cost
D) increasing returns

Accepted Answer

This is known as the law of diminishing returns or the law of variable proportions, which states that as more and more units of a variable input (in this case, labor) are added to a fixed input (such as capital and land), the marginal product (output per unit of the variable input) will eventually decrease. This leads to an increase in Average Variable Cost (AVC) as output increases, reflecting the increasing cost of additional units of output as diminishing returns set in.

Question 8

Use the following to answer questions : $\text {Table: Lindsay's Farm}$
$\text {The table provides information about the production}$
$\text { function for Lindsay's Farm, which uses labour and land}$
$\text { to produce its produce. The price of labour is $\$ 50$ per}$
 $\text {worker per week and the price of land is $\$ 20$ per hectare.}$
$\begin{array}{lcc}
\begin{array}{l}
\text { Quantity } \
\text { of Land } \
\text { (hectares) }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Labour } \
\text { (workers) }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Produce } \
\text { (bushels) }
\end{array} \
\hline 10 & 0 & 0 \
10 & 1 & 50 \
10 & 2 & 100 \
10 & 3 & 140 \
10 & 4 & 170 \
10 & 5 & 190
\end{array}$ 
-(Table: Lindsay's Farm)Use Table: Lindsay's Farm.Lindsay's variable costs of production:
A) stay constant.
B) are equal to 10.
C) are zero when she produces no crops.
D) fall as soon as she starts producing.

Accepted Answer

Lindsay's variable costs of production are zero when she produces no crops.

Question 9

Use the following to answer questions : $\text {Table: Bonnie's Production Function for Good Z}$
$\text {The table describes Bonnie's production function for }$
$\text {Good Z. Assume labour is the only variable input that}$
$\text { Bonnie uses to produce Good Z.}$

$ \begin{array}{lr}
\hline \text {Quantity of}&\text {Quantity of}\
\text {Labour Hired}&\text {Good Z Produced}\
\text {(workers)}&\text {(per time period)}\
\hline 0 & 0 \ 1 & 75 \ 2 & 150 \ 3 & 250 \ 4 & 325 \ 5 & 375\end{array} $

-(Table: Bonnie's Production Function for Good Z)Use Table: Bonnie's Production Function for Good Z.The costs that vary with Bonnie's level of production are her:
A) fixed costs.
B) variable costs.
C) rent and insurance.
D) costs that remain the same regardless of what she produces.

Accepted Answer

Variable costs change with the level of production, such as costs for labor, which is the only variable input in this scenario.

Question 10

If ATC is equal to MC,then the firm is operating:
A) at the minimum point of ATC.
B) on the downward-sloping portion of ATC.
C) on the upward-sloping portion of ATC.
D) with increasing returns to scale.

Accepted Answer

When ATC is equal to MC, it means that the firm is producing at the point where the cost of producing one additional unit (MC) is the same as the average cost per unit (ATC). This point is the minimum point of the average total cost curve, where the slope of the curve is zero. Therefore, the firm is operating at the minimum point of ATC.

Question 11

Use the following to answer questions : $\text {Table: Lindsay's Farm}$
$\text {The table provides information about the production}$
$\text { function for Lindsay's Farm, which uses labour and land}$
$\text { to produce its produce. The price of labour is $\$ 50$ per}$
 $\text {worker per week and the price of land is $\$ 20$ per hectare.}$
$\begin{array}{lcc}
\begin{array}{l}
\text { Quantity } \
\text { of Land } \
\text { (hectares) }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Labour } \
\text { (workers) }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Produce } \
\text { (bushels) }
\end{array} \
\hline 10 & 0 & 0 \
10 & 1 & 50 \
10 & 2 & 100 \
10 & 3 & 140 \
10 & 4 & 170 \
10 & 5 & 190
\end{array}$ 
-(Table: Lindsay's Farm)Use Table: Lindsay's Farm.When Lindsay produces 50 units of produce,her total cost is:
A) $250.
B) $50.
C) $200.
D) $350.

Accepted Answer

The cost of land is $20 per hectare for 10 hectares, totaling $200. The cost of labor for 1 worker is $50. Therefore, the total cost is $200 + $50 = $250.

Question 12

The curve that illustrates the relationship between output and average total cost when the fixed cost has been chosen to minimize the average total cost for each level of output is the _____ curve.
A) short-run average total cost
B) long-run average total cost
C) marginal cost
D) total product

Accepted Answer

The curve that illustrates the relationship between output and average total cost when fixed cost has been chosen to minimize the average total cost for each level of output is the long-run average total cost curve. This curve shows the lowest possible average total cost that can be achieved for each level of output in the long-run, after all inputs can be varied.

Question 13

Diminishing returns are a reason that:
A) the marginal cost curve is downward sloping.
B) fixed costs remain constant.
C) the marginal cost curve is upward sloping.
D) the average fixed cost curve is downward sloping.

Accepted Answer

Diminishing returns occur when adding more of one input while holding other inputs constant leads to a proportionally smaller increase in output. As a result, the marginal cost of producing additional units of output increases, leading to an upward-sloping marginal cost curve. Therefore, the correct choice is C.

Question 14

When a firm produces a small amount of output,the spreading effect:
A) is stronger than the diminishing returns effect.
B) is weaker than the diminishing returns effect.
C) and the diminishing returns effect are equal.
D) is zero.

Accepted Answer

When a firm produces a small amount of output, the marginal product of each additional unit of input is likely to be increasing. As a result, the spreading effect (increased output due to adding more inputs) is likely to be stronger than the diminishing returns effect (decreased output due to each additional input being less productive). Therefore, choice A is the best answer.

Question 15

A firm's long-run average total costs increase as it produces more output.This firm has:
A) economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) a spreading effect.

Accepted Answer

If a firm's long-run average total costs increase as it produces more output, it implies that the firm faces increasing costs of production, such as higher costs of raw materials or labor as output increases. This indicates that the firm has diseconomies of scale.

Question 16

Use the following to answer questions : $\text {Table: Lindsay's Farm}$
$\text {The table provides information about the production}$
$\text { function for Lindsay's Farm, which uses labour and land}$
$\text { to produce its produce. The price of labour is $\$ 50$ per}$
 $\text {worker per week and the price of land is $\$ 20$ per hectare.}$
$\begin{array}{lcc}
\begin{array}{l}
\text { Quantity } \
\text { of Land } \
\text { (hectares) }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Labour } \
\text { (workers) }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Produce } \
\text { (bushels) }
\end{array} \
\hline 10 & 0 & 0 \
10 & 1 & 50 \
10 & 2 & 100 \
10 & 3 & 140 \
10 & 4 & 170 \
10 & 5 & 190
\end{array}$ 
-(Table: Lindsay's Farm)Use Table: Lindsay's Farm.When Lindsay produces 140 units of produce,her total cost is:
A) $200.
B) $150.
C) $350.
D) $500.

Accepted Answer

The total cost includes the cost of land and labor. For 140 bushels, Lindsay uses 10 hectares of land and 3 workers. The cost is (10 hectares * $20) + (3 workers * $50) = $200 + $150 = $350.

Question 17

Use the following to answer questions : $\text {Table: Lindsay's Farm}$
$\text {The table provides information about the production}$
$\text { function for Lindsay's Farm, which uses labour and land}$
$\text { to produce its produce. The price of labour is $\$ 50$ per}$
 $\text {worker per week and the price of land is $\$ 20$ per hectare.}$
$\begin{array}{lcc}
\begin{array}{l}
\text { Quantity } \
\text { of Land } \
\text { (hectares) }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Labour } \
\text { (workers) }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Produce } \
\text { (bushels) }
\end{array} \
\hline 10 & 0 & 0 \
10 & 1 & 50 \
10 & 2 & 100 \
10 & 3 & 140 \
10 & 4 & 170 \
10 & 5 & 190
\end{array}$ 
-(Table: Lindsay's Farm)Use Table: Lindsay's Farm.Lindsay's fixed cost of production is:
A) $200.
B) $450.
C) $2 500.
D) $2 700.

Accepted Answer

The fixed cost of production is the cost of land, which is $20 per hectare. With 10 hectares, the fixed cost is 10 * $20 = $200.

Quiz 11: Behind the Supply Curve- Inputs and Costs

Economies and diseconomies of scale are associated with the:

As production increases and the fixed cost is divided by larger quantities of output,average fixed cost drops.This is referred to as the _____ effect.

When all of a firm's inputs are doubled,input prices do not change,and this results in the firm's level of production more than doubling,a firm is operating:

The eventual increase in AVC as output increases is the _____ effect.

If ATC is equal to MC,then the firm is operating:

The curve that illustrates the relationship between output and average total cost when the fixed cost has been chosen to minimize the average total cost for each level of output is the _____ curve.

Diminishing returns are a reason that:

When a firm produces a small amount of output,the spreading effect:

A firm's long-run average total costs increase as it produces more output.This firm has: