Question 1

The firm's short-run marginal-cost curve is increasing when

Accepted Answer

When marginal product is decreasing, it means that each additional unit of input is producing a smaller amount of output. This typically happens when the firm is experiencing diminishing marginal returns. As a result, the firm must increase its inputs at an increasing rate to produce the same amount of additional output, leading to higher marginal costs. Therefore, the firm's short-run marginal-cost curve is increasing when marginal product is decreasing.

Question 2

A firm with fixed costs produces at the lowest point on its U-shaped average variable cost curve.If it raises output by 1 unit, then average

Accepted Answer

At the lowest point on the U-shaped average variable cost curve, any increase in output will result in an increase in variable costs, which will cause the average variable cost to increase. However, since the fixed costs remain constant, the total cost will also increase, but not as much as the increase in variable costs. Therefore, the total cost will decrease with a one-unit increase in output.

Question 3

If the price of labor or some other variable resource decreased, the

Accepted Answer

If the price of labor or some other variable resource decreased, it would cause a decrease in marginal cost (MC) for producing goods and services. This is because the cost of using variable resources would be lower, leading to a lower cost per unit of output. Therefore, the MC curve would shift downward. The other options are incorrect because the price of labor or variable resources would not directly affect the average fixed cost (AFC) or average variable cost (AVC) curves.

Question 4

If the total cost of 20 units of a product is $20, and the total cost of 21 units is $21, then from 20 to 21 units of product the

Accepted Answer

Marginal cost is the additional cost incurred when producing one more unit of a product. In this case, the cost of producing the 21st unit is $1 ($21 - $20), indicating that the marginal cost of the 21st unit is equal to the average cost of producing each unit, which is $1 / 21 = $0.0476 per unit. Therefore, the answer is B - marginal cost equals average total cost.

Question 5

If a more efficient technology was discovered by a firm, there would be

Accepted Answer

If a firm discovers a more efficient technology, it will decrease their costs of production. This implies a downward shift in the MC (Marginal Cost) curve, as the cost of producing an additional unit of output will be lower with the new technology. The AFC (Average Fixed Cost) and AVC (Average Variable Cost) curves are not affected by changes in technology, as they represent fixed and variable costs per unit of output, respectively. Therefore, the correct answer is D.

Question 6

Over the range of output where the slope of the short-run total cost curve becomes steeper,

Accepted Answer

The slope of the short-run total cost curve represents the marginal cost. As the slope becomes steeper, it indicates that marginal cost is increasing. This is typically due to diminishing marginal returns as more units of input are added. Therefore, choice B is the correct answer.

Question 7

The following statements about the "sunk cost fallacy" are true, except

Accepted Answer

The statement "it refers to the fact that average fixed costs are not a major part of production costs" is incorrect. The sunk cost fallacy refers to the tendency to consider past costs when making current decisions, regardless of whether those costs are fixed or variable. The other statements correctly describe the concept of the sunk cost fallacy.

Question 8

A firm encountering economies of scale over some range of output will have a

Accepted Answer

When a firm experiences economies of scale, it means that as output increases, the cost per unit of output decreases. This leads to a falling long-run average cost curve.

Question 9

When a firm doubles its inputs and finds that its output has more than doubled, this is known as

Accepted Answer

Economies of scale occur when a firm increases its inputs and experiences a more than proportional increase in output. This means that the firm is able to take advantage of efficiencies in production, such as spreading fixed costs over a larger output or achieving cost savings through bulk purchases of inputs. Doubling inputs and obtaining more than double the output is an example of economies of scale. Constant returns to scale would occur if doubling inputs led to exactly double the output, and diseconomies of scale would occur if doubling inputs led to less than double the output.

Question 10

When average variable cost is at a minimum,

Accepted Answer

When average variable cost is at a minimum, it means that each unit of variable input (such as labor) is being used efficiently to produce output. In other words, the average product of labor (amount of output per unit of labor) is at a maximum.

Question 11

If long-run average total cost decreases as output increases, this is due to

Accepted Answer

If long-run average total cost decreases as output increases, it is due to economies of scale, which refer to a situation where long-run average costs decrease as output increases due to factors such as specialization of labor, increased use of technology, and bulk purchasing of materials. This allows firms to produce at lower cost and potentially price their products lower than their competitors. The other options (declining average fixed costs, the law of diminishing returns, and externalities) do not necessarily lead to a decrease in long-run average total cost as output increases.

Question 12

The phrase "don't cry over spilt milk" could be rephrased in economic terms by saying,

Accepted Answer

The phrase "don't cry over spilt milk" essentially means that it's not worth getting upset over something that has already happened and cannot be changed. In economic terms, this concept is related to the idea of sunk costs, which are costs that have already been incurred and cannot be recovered. The best choice among the given options is A, which states that sunk costs are irrelevant to a decision. This means that in making a decision, one should only consider the costs and benefits that will occur going forward, and not worry about costs that have already been incurred.

Question 13

The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles.This is an example of one reason for

Accepted Answer

This scenario shows economies of scale, where a larger size (diameter) of the natural gas pipeline leads to lower average costs of transmitting gas over a longer distance (1,000 miles). This is because bigger pipelines can transport more gas and require less maintenance, resulting in lower per-unit costs of transmission.

Question 14

If the price of a fixed factor of production increases by 50 percent, what effect would this have on the marginal-cost schedule facing a firm?

Accepted Answer

Fixed costs do not affect marginal cost because marginal cost is concerned with the cost of producing one more unit of a good or service, which involves variable costs, not fixed costs.

Question 15

Round Things, Inc.'s production process exhibits economies of scale.Currently their long-run average cost is $12/unit.If Round Things doubles its use of all inputs, its new long-run average total cost will be

Accepted Answer

Economies of scale mean that as production increases, the long-run average cost decreases. If Round Things doubles its use of all inputs, it will likely experience even lower costs per unit, resulting in a long-run average cost that is less than the current $12/unit cost. Therefore, the correct answer is B.

Question 16

If the price of a variable resource increased for the typical firm, there would be

Accepted Answer

An increase in the price of a variable resource would increase the marginal cost (MC) of production, leading to an upward shift in the MC curve. This is because the cost of producing each additional unit of output would increase as the price of the resource used in its production has increased. Options A and C are incorrect because they deal with the average variable cost (AVC) and average fixed cost (AFC) curves, which are not directly affected by changes in the price of a variable resource. Option B is also incorrect as it refers to the AFC curve, which is not related to changes in the price of a variable resource.

Question 17

Which of the following statements is true, given the total cost function: Total cost = 10Q + 5Q2 + 100?

Accepted Answer

The total cost at Q = 10 is 10(10) + 5(10)^2 + 100 = 600. The average total cost is 600/10 = 60, not 70. However, this is the closest to being correct among the options provided.

Question 18

Which of the following would contribute most to a firm experiencing "economies of scale"?

Accepted Answer

Economies of scale refers to the phenomenon where a firm's average cost of production decreases as the firm's scale of operation increases. Specialization of labor and management within the firm is one of the key drivers of economies of scale, as it allows for more efficient use of resources and increased productivity.

Question 19

If marginal cost exceeds average total cost in the short run, then which is likely to be true?

Accepted Answer

If marginal cost exceeds average total cost in the short run, it means that each additional unit of production is costing more than the average cost of all units produced so far. This indicates that the average total cost is increasing, as the overall cost of production is going up.

Question 20

Which statement is correct?

Accepted Answer

The marginal cost curve intersects the average variable cost (AVC) and average total cost (ATC) curves at their lowest points. This is because when marginal cost is below either average, it pulls the average down, and when it is above, it pushes the average up. Therefore, the point where MC equals AVC or ATC is the minimum point of those curves.

Quiz 9: Businesses and the Costs of Production