Question 1

Assume that the units of variable input in a coal-production process are 1, 2, 3, 4, and 5 and the corresponding total outputs (in tons)are 10, 19, 26, and 31, respectively.The marginal product of the third unit of input must be 7 tons.

Accepted Answer

The marginal product of the third unit of input is calculated as the change in total output when the third unit of input is added. From the data, adding the third unit of input increases total output from 19 tons to 26 tons, which is an increase of 7 tons.

Question 2

The long-run average cost curve is, in principle, tangent to an infinite number of short-run average cost curves.

Accepted Answer

This is because the long-run average cost curve represents the lowest possible average cost for any given level of output, achieved through the optimal combination of inputs. In the short run, the firm is operating with at least one fixed input, meaning that its average cost curve will be different. However, as the firm adjusts its inputs and output over time in response to changing market conditions, it can eventually achieve the same average cost as it would in the long run, resulting in tangency between the two curves.

Question 3

In the short run, at least one input is variable and one input is fixed.

Accepted Answer

In the short run, a firm is typically unable to adjust all of its inputs, meaning that at least one input will be fixed in the short run while others may be variable. Therefore, in the short run, at least one input is fixed and one input is variable.

Question 4

In the range of diminishing marginal returns total product is still increasing.

Accepted Answer

In the range of diminishing marginal returns, total product continues to increase, but at a decreasing rate. This means that the addition of each unit of input leads to less and less additional output, eventually leading to a point where adding more input actually leads to a decrease in total product (known as negative marginal returns).

Question 5

Marginal cost rises over the range of increasing marginal returns and falls over the range of diminishing marginal returns.

Accepted Answer

Marginal cost falls over the range of increasing marginal returns and rises over the range of diminishing marginal returns.

Question 6

If the total costs per day of producing 96, 97, 98, 99, and 100 T-shirts are $200, $217, $237, $255, and $280, respectively, the marginal cost of the 100th T-shirt is $280.

Accepted Answer

The marginal cost of the 100th T-shirt is the difference between the total cost of producing 100 T-shirts and the total cost of producing 99 T-shirts. Based on the given information, the total cost of producing 99 T-shirts is $255 and the total cost of producing 100 T-shirts is $280, thus the marginal cost of the 100th T-shirt is $25, not $280.

Question 7

Marginal cost is the slope of the average total cost curve.

Accepted Answer

Marginal cost is the slope of the total cost curve, not the average total cost curve. It represents the change in total cost that arises from producing one additional unit of a good or service.

Question 8

The total product curve indicates the quantity of inputs needed to produce a given level of output.

Accepted Answer

The answer of The total product curve indicates the quantity...

Question 9

Diminishing marginal returns occurs when marginal product is falling and below zero.

Accepted Answer

Diminishing marginal returns occurs when marginal product is falling but remains positive, not below zero.

Question 10

If marginal product is greater than average product, then average product must be rising.

Accepted Answer

This is because when marginal product is greater than average product, it pulls up the average. It means that the additional output generated by the marginal unit is greater than the current average output, leading to an increase in the average.

Question 11

If marginal cost is above average total cost, average total cost must be falling, whether marginal cost is rising or falling.

Accepted Answer

If marginal cost is above average total cost, it must be pulling the average total cost up, not down.

Question 12

Total cost is equal to the quantity of output multiplied by the sum of fixed cost and variable cost.

Accepted Answer

Total cost is equal to the sum of fixed cost and variable cost, but it is not calculated by multiplying the quantity of output by the sum of fixed and variable costs. Total cost is directly the sum of fixed and variable costs without considering the quantity of output in the calculation.

Question 13

In the long run all costs are variable.

Accepted Answer

In the long run, a business has the flexibility to adjust all types of costs, including fixed costs, making them variable in the long run. This is because in the long run the business can make strategic decisions to change its operations, such as relocating, refurbishing or replacing assets, which will change the nature of its costs.

Question 14

A firm becomes more capital intensive if it increases the ratio of capital to labor.

Accepted Answer

A higher ratio of capital to labor means that the firm is using more capital (such as machinery or equipment) relative to the amount of labor it employs. This makes the firm more capital intensive, as opposed to labor intensive.

Question 15

Diminishing marginal returns are responsible for the positive slope of the marginal product curve.

Accepted Answer

Diminishing marginal returns actually cause the marginal product curve to slope downwards, not upwards, as each additional unit of input results in a smaller increase in output.

Question 16

Marginal cost must cross average variable cost at its minimum.

Accepted Answer

This is because when the marginal cost is less than the average variable cost, the average variable cost decreases. When the marginal cost is greater than the average variable cost, the average variable cost increases. Therefore, the minimum point of the average variable cost curve must be where the marginal cost cuts the average variable cost curve.

Question 17

If marginal cost is rising, average variable cost must be rising.

Accepted Answer

Marginal cost can rise while average variable cost is falling, as long as the marginal cost is below the average variable cost. This is because the average variable cost will continue to decrease until the marginal cost equals the average variable cost, at which point the average variable cost will start to rise if the marginal cost continues to increase.

Question 18

Total cost is constant because fixed cost is constant.

Accepted Answer

Total cost varies with the level of output because it includes both fixed costs, which remain constant, and variable costs, which change with the level of production.

Question 19

Firms are organizations that produce goods and services.

Accepted Answer

Firms are organizations that produce goods and services, so the statement is true.

Question 20

If marginal cost is less than average total cost, then average total cost is decreasing.

Accepted Answer

When marginal cost is lower than average total cost, it brings the average cost down since the marginal cost is contributing less and less to the overall average cost. Thus, average total cost is decreasing.

Quiz 8: Economic Growth