Question 1

"As I add more workers to the factory line, the additional output produced by each additional worker seems to decline.Eventually, the workers just get in each others' way." This statement by a factory supervisor refers to:

Accepted Answer

The statement describes the concept of diminishing marginal returns, which states that as more units of a variable input, such as workers, are added to a fixed input, such as equipment or space, the additional output produced by each additional unit of the variable input will eventually decrease. This is because the fixed input becomes a bottleneck, limiting the ability of additional units of the variable input to increase output. Eventually, adding more units of the variable input will lead to negative marginal returns, where output actually decreases.

Question 2

After hiring a new employee, a manager finds that the total output has increased.When the manager hires another employee however, he realizes that although the total production has increased, the increment is less than the previous case.This is the result of:

Accepted Answer

This is due to diminishing marginal returns, which means that as more units of a variable input (in this case, employees) are added to a fixed input (such as a certain amount of capital or equipment), the marginal product of that variable input will eventually decrease. The first new employee may have filled a gap in production, but adding a second employee may have resulted in some redundancy or inefficiency.

Question 3

Marginal cost equals:

Accepted Answer

Marginal cost is the change in total cost divided by the change in total output. This means that as more units are produced, the additional cost of producing each unit (i.e. the marginal cost) can be found by dividing the change in total cost by the change in total output.

Question 4

The law of diminishing returns applies:

Accepted Answer

The law of diminishing returns states that as additional units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decline. This applies in the short run because some inputs are fixed and cannot be changed, while others are variable and can be adjusted. In the long run, all inputs can be adjusted, so the law of diminishing returns may still apply but it will be less directly linked to the fixed input in question.

Question 5

If the total cost of producing 2 pounds of cheese is $6 and the total cost of producing 4 pounds of cheese is $8, then:

Accepted Answer

To find the average total cost, we need to divide the total cost by the amount of cheese produced.

Average total cost of producing 2 pounds of cheese = Total cost / Amount of cheese = $6 / 2 = $3 per pound
Average total cost of producing 4 pounds of cheese = Total cost / Amount of cheese = $8 / 4 = $2 per pound

As we can see, the average total cost is declining as we increase the amount of cheese produced. Therefore, the correct answer is B.

Question 6

Fixed costs are costs paid for:

Accepted Answer

The answer of Fixed costs are costs paid for:
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Question 7

At its minimum point, the average-total-cost curve is intersected by the:

Accepted Answer

At its minimum point, the average total cost curve is intersected by the marginal cost curve. This is because when marginal cost is below average total cost, it pulls the average down, and when it is above, it pulls the average up. The intersection point represents the minimum average total cost.

Question 8

Diminishing marginal returns means that as you combine more units of a variable resource with a set of fixed resources:

Accepted Answer

Diminishing marginal returns means that as you add more units of a variable resource to a set of fixed resources, the marginal physical product (the additional output produced by each additional unit of the variable resource) decreases. This is because the fixed resources are limited and become increasingly scarce as more units of the variable resource are added.

Question 9

If labor is the only variable input, an increase in the quantity of labor:

Accepted Answer

When labor is the only variable input and capital and other inputs are kept constant, the law of diminishing marginal returns applies. As more labor is added, output initially increases at an increasing rate because there are more workers to perform tasks. However, as more labor is added, the marginal product of each additional worker eventually diminishes, causing output to increase at a decreasing rate until it eventually decreases.

Question 10

Marginal fixed cost:

Accepted Answer

The answer of Marginal fixed cost:
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Question 11

If average variable cost is falling, then:

Accepted Answer

The answer of If average variable cost is falling, then:
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Question 12

When more and more units of a variable factor are combined with constant amount of fixed factor, such that the variable factor becomes abundant compared to the fixed factor, the output will eventually:

Accepted Answer

This is known as the law of diminishing marginal returns, which states that as an increasing number of units of a variable factor are combined with a fixed factor, the additional output will eventually decrease. This happens because the fixed factor becomes a bottleneck for the variable factor and hinders its productivity. Therefore, the output will increase at a diminishing rate.

Question 13

Assume that one laborer produces 6 units of output, two laborers produce 14 units, three laborers 22 units, four laborers 24 units, and five laborers 25 units.Diminishing returns set in when the firm hires:

Accepted Answer

Diminishing returns set in when the output increase is less than proportionate to the increase in inputs. In this case, we can see that the marginal product of labor (the increase in output when one more laborer is hired) goes from 6 to 8 to 8 to 2 to 1 units. The marginal product goes from increasing to decreasing after the third worker is hired, and the fourth worker actually reduces output, indicating that the firm is experiencing diminishing returns at this point. Therefore, the best choice is option D - the fourth laborer.

Question 14

If a firm is experiencing diminishing returns, then:

Accepted Answer

Diminishing returns occur when adding additional units of a variable input results in a decreasing marginal physical product. This means that each additional unit of the variable input is adding less to total output than the previous unit, making it less efficient and resulting in diminishing returns. The other choices may also be factors in a firm's decreasing output, but they are not directly related to diminishing returns.

Question 15

Which of the following reflects the correct relationship between average total cost (ATC)and marginal cost (MC)?

Accepted Answer

When MC<ATC, it means that producing an additional unit is cheaper than the average cost of all previously produced units, so the total cost per unit is decreasing, leading to a falling ATC.

Question 16

If an average cost curve is U-shaped, then:

Accepted Answer

The answer of If an average cost curve is U-shaped,...

Question 17

Suppose that the total fixed cost of producing five sailboats is $4, 000, total variable cost is $4, 000, and the total cost of producing six sailboats is $10, 000.The marginal cost of the sixth sailboat is:

Accepted Answer

The marginal cost of producing the sixth sailboat is the additional cost incurred by producing one more sailboat, which is calculated by subtracting the total cost of producing five sailboats from the total cost of producing six sailboats. The total cost of producing five sailboats is the sum of total fixed cost ($4,000) and total variable cost ($4,000), which equals $8,000. The total cost of producing six sailboats is $10,000. Therefore, the marginal cost of the sixth sailboat is $10,000 - $8,000 = $2,000.

Question 18

Short run refers to a period of time during which:

Accepted Answer

In short run, there are some factors which are fixed in quantity, for example, land, capital, and some labor. While some factors like raw materials, variable labor, etc., can be changed. Therefore, in the short run, some factors are fixed while some others are variable.

Question 19

When average total cost is minimum, it is:

Accepted Answer

When average total cost is minimum, it means that marginal cost is equal to average total cost. Therefore, the answer is choice D.

Question 20

Average total cost is calculated by dividing:

Accepted Answer

Average total cost is calculated by dividing total cost by total output.

Quiz 41: Supply: the Costs of Doing Business