Question 1

If decreasing long-run average cost is inherent in an industry's technology, then only one supplier can satisfy the entire market.

Accepted Answer

If an industry's technology leads to decreasing long-run average costs, it implies economies of scale, where a single supplier can produce at a lower cost than multiple suppliers, potentially leading to a natural monopoly.

Question 2

You decide that it is time to buy a big family car.The opportunity cost you consider is:
A)the cost of the car.
B)the increase in comfort for your family while traveling.
C)the return this money would have earned if it was invested otherwise.
D)the inconvenience you and your family are bearing on account of your old car.

Accepted Answer

The opportunity cost to consider is the return that the money could have earned if invested otherwise. This means that if you choose to buy a big family car, you are giving up the potential return that you could have earned if you had invested the money elsewhere. Therefore, it is important to consider the financial implications of the purchase and the potential return that could have been earned.

Question 3

An isoquant is the locus of the different combinations of inputs that produce the same level of output.

Accepted Answer

An isoquant is a graphical representation of the production function which shows all the possible combinations of inputs that would produce a given level of output. Therefore, it is true that an isoquant is the locus of the different combinations of inputs that produce the same level of output.

Question 4

Burkes Inc.should stop production in the short run if the market price of its product is less than its average total cost of production.

Accepted Answer

Burkes Inc. should consider stopping production in the short run if the market price of its product is less than its average variable cost, not its average total cost, because as long as the price covers the average variable cost, the firm can cover some portion of its fixed costs.

Question 5

The production function shows:
A)the total cost incurred to produce a certain level of output.
B)the changes in cost incurred as output level varies.
C)the relationship between inputs used and output produced.
D)the impact of a change in production on the firm's revenues.

Accepted Answer

The production function shows the relationship between inputs used (such as labor and capital) and output produced. It does not directly relate to cost or revenue.

Question 6

Gemma and Emily expect investments A and B to yield an annual return of 15 percent and 10 percent respectively.While Gemma invests in A, Emily invests in B.This implies that Gemma has a higher risk tolerance than Emily.

Accepted Answer

Gemma's decision to invest in option A, which has a higher annual return (15%) than option B (10%), implies that she is willing to take on a higher level of risk in pursuit of potentially higher returns. Therefore, Gemma has a higher risk tolerance than Emily.

Question 7

The increased participation of married women in the work force reflects the increasing opportunity cost of not working.

Accepted Answer

Opportunity cost refers to the cost or sacrifice of choosing one option over another. In this case, the increasing opportunity cost of not working means that more and more women are choosing to participate in the workforce because they perceive the benefits of working to be greater than the benefits of not working. This may include financial benefits, career advancement, personal fulfillment, or simply the opportunity to contribute to society. As a result, there has been an increase in the number of married women in the workforce.

Question 8

Which of the following statements is true about the total product curve?
A)If input usage expands uniformly throughout the stages of production, then the slope of the total product curve is one.
B)The total product curve is inverted U-shaped.
C)As input usage gradually expands from low levels, total output begins to rise at an increasing pace.
D)If the use of inputs is too high at the initial stage of production, then the total prod-uct curve becomes horizontal.

Accepted Answer

The statement "As input usage gradually expands from low levels, total output begins to rise at an increasing pace" is true about the total product curve. Option A is incorrect because the slope of the total product curve depends on the marginal product of the input, which is not necessarily one. Option B is incorrect because the shape of the total product curve can vary depending on the specific production function. Option D is incorrect because if input usage is too high at the initial stage, it may lead to diminishing marginal returns, but it does not necessarily make the total product curve horizontal.

Question 9

If a firm is minimizing the cost of producing its chosen level of output, the marginal product of the last dollar spent on each input should be equal.

Accepted Answer

When a firm is minimizing the cost of producing its chosen level of output, it should allocate its spending so that the marginal product of the last dollar spent on each input should be equal. This is based on the principle of diminishing marginal returns, which states that as a firm adds more units of a variable input (such as labor or capital), the marginal product of each additional unit will eventually decrease. Therefore, to minimize costs, a firm should allocate its spending across inputs so that the last dollar spent on each input provides the same marginal product.

Question 10

The slope of the total variable cost curve gives the average cost of production.

Accepted Answer

The slope of the total variable cost curve gives the marginal cost of production, not the average cost. The average cost is calculated by dividing the total cost by the quantity produced.

Question 11

You withdraw some of your savings to invest in a new business venture.Which of the following statements is true?
A)The return you will earn from this new investment is your opportunity cost.
B)The interest rate you would have earned in the bank is higher than the return from this investment.
C)The return you expect to earn from this new investment must exceed your opportunity cost.
D)The return you expect to earn from this new investment must equal your opportunity cost.

Accepted Answer

Opportunity cost is the next best alternative forgone when a choice is made. In this case, the opportunity cost is the return you would have earned if you had left your savings in the bank. Therefore, the return you expect to earn from the new investment must exceed the interest rate you would have earned in the bank, which represents your opportunity cost. Option C correctly states this requirement. Option A is incorrect because the return from the new investment is not the opportunity cost but the result of making the investment. Option B is incorrect because it assumes that the interest rate in the bank is always higher, which may not be true. Option D is incorrect because it suggests that the return from the new investment should be the same as opportunity cost, which is not necessary.

Question 12

The relationship between inputs used by a firm and output produced is given by the cost function.

Accepted Answer

The relationship between inputs used by a firm and output produced is given by the production function, not the cost function. The cost function relates input costs to output levels.

Question 13

The expansion path shows the lowest cost combinations of inputs for producing different levels of output.

Accepted Answer

The statement is true. The expansion path is a graphical representation that shows the optimal combination of inputs to produce various levels of output while minimizing the total cost of production. It is a downward sloping curve reflecting the inverse relationship between the cost of production and the level of output.

Question 14

When average variable cost is at its minimum, it is equal to the marginal cost of production at that level of output.

Accepted Answer

This statement is true according to the law of diminishing returns, which indicates that when AVC is at its minimum, MC is equal to AVC. This is because any additional unit of production will have a cost equal to the marginal cost, which is equal to the AVC at that level of output.

Question 15

A tax accountant categorizes costs in conformity with rules of the Securities and Exchange Commission and the Financial Accounting Standards Board so that investors can better compare the records and prospects of different companies.

Accepted Answer

The answer of A tax accountant categorizes costs in conformity...

Question 16

The cost of two inputs A and B are $100 and $200 per unit per month.A firm can afford to invest $10,000 per month on these inputs.The firm uses 30 units of A.Given a linear isocost such that the entire budget is exhausted, the firm will use 10 units of B.

Accepted Answer

The answer of The cost of two inputs A and...

Question 17

The downward-sloping portion of the marginal cost curve is the only portion that matters in production.

Accepted Answer

Both the upward-sloping and downward-sloping portions of the marginal cost curve matter in production. The upward-sloping portion represents diminishing returns, which can limit production and increase cost, while the downward-sloping portion represents economies of scale, which can increase production and decrease cost.

Question 18

The marginal cost curve intersects the average total cost and average variable cost curves at their minimum points.

Accepted Answer

This is a fundamental concept in microeconomics. At the minimum point of the average total cost and average variable cost curves, the slope of the curve is equal to the slope of the marginal cost curve. This means that the marginal cost curve intersects these curves at their minimum points.

Question 19

If all inputs are raised by equal percentages and output increases by a larger percentage, there are decreasing returns to scale.

Accepted Answer

When all inputs are raised by equal percentages, there is constant returns to scale, which means that the increase in output will be proportional to the increase in inputs. If output increases by a larger percentage, it implies increasing returns to scale. Decreasing returns to scale occur when the increase in inputs leads to a proportionally smaller increase in output.

Question 20

Investments with _____ risk usually carry a _____ return.
A)higher; lower
B)lower; higher
C)zero; high
D)higher; higher

Accepted Answer

Investments with higher risk typically offer the potential for higher returns to compensate investors for taking on more risk.

Quiz 4: Cost and Production