Question 1

The marginal cost curve intersects the minimum of the average total cost curve and also the minimum of the average variable cost curve.

Accepted Answer

This statement is true. The point where the marginal cost curve intersects the minimum of the average total cost curve and the minimum of the average variable cost curve is known as the efficient scale. At this point, the firm is producing at the lowest possible cost per unit.

Question 2

Total output may continue to rise even though marginal physical product is negative.

Accepted Answer

When the marginal physical product is negative, it means that adding more units of the input actually decreases total output, not increases it.

Question 3

The total cost at a zero level of output is always equal to the variable cost.

Accepted Answer

The total cost at a zero level of output is equal to the fixed cost, not the variable cost, because variable costs change with the level of output, while fixed costs do not.

Question 4

According to the World View article titled "United States Gains Cost Advantage," during the last decade, unit labor costs in the United States declined

Accepted Answer

The article states that "productivity advances were greater than wage increases," leading to a decline in unit labor costs in the United States. This means that the United States was able to produce goods and services more efficiently, making it more cost competitive in world markets. The article does not mention any upward shift in cost curves, nor does it suggest that the United States was less competitive in world markets due to declining unit labor costs.

Question 5

Marginal physical product is the change in total output associated with one additional unit of input.

Accepted Answer

Marginal physical product is the additional output produced by adding one more unit of an input, so it is the change in total output associated with one additional unit of input. Therefore, the statement is true.

Question 6

The creation of the World Wide Web has contributed to all of the following except

Accepted Answer

The creation of the World Wide Web has reduced information and transaction costs, and increased productivity through easier access to information and communication. However, it has not increased marginal costs.

Question 7

When a firm is able to achieve the output indicated by a production function, it is producing with technical efficiency.

Accepted Answer

Technical efficiency refers to a firm's ability to produce the maximum output possible with a given set of inputs. When a firm achieves the output indicated by a production function, it is producing with technical efficiency.

Question 8

Total output may continue to rise even though marginal physical product is declining.

Accepted Answer

Marginal physical product is the change in output as a result of one additional unit of input. As inputs are increased, it is expected that marginal physical product will eventually begin to decline due to the principle of diminishing marginal returns. However, total output can continue to rise as long as each additional unit of input adds more to total output than the previous unit. Therefore, it is possible for total output to rise even though marginal physical product is declining.

Question 9

Total revenue plus total cost equals profit.

Accepted Answer

Profit is calculated by subtracting total cost from total revenue, not by adding them together.

Question 10

The productivity of any input is independent and is not affected by the other resources that are used.

Accepted Answer

The productivity of any input can be affected by other resources that are used in the production process, such as the quality of machinery, the skills of workers, and the availability of raw materials. The interaction between these resources can lead to either an increase or decrease in overall productivity.

Question 11

The In The News article "Ford Pumps $400 Million into Kansas City Plant" says that

Accepted Answer

The article states that this investment by Ford is a long-run production decision, indicating that the company plans to enjoy economies of scale in the future. This suggests that the investment is not a short-run decision and will not be a variable expense. Additionally, there is no information in the article to suggest that the new plant will result in diseconomies of scale.

Question 12

Total cost refers to the market value of all resources used in producing a good or service.

Accepted Answer

Total cost consists of all the expenses incurred in producing a good or service, including the cost of labor, materials, equipment, rent or lease, as well as any other expenses required to generate the final product.

Question 13

The law of diminishing returns indicates that the marginal physical product of a variable input declines as more of it is employed, ceteris paribus.

Accepted Answer

The law of diminishing returns states that as more of a variable input is added while holding all other inputs constant, the increase in output will eventually decrease. This means that the marginal physical product, which is the additional output that results from adding one more unit of the variable input, will decline.

Question 14

Short-run choices imply that at least one factor of production is fixed.

Accepted Answer

This is a basic principle of short-run production, where at least one input (often capital) is fixed and cannot be adjusted in the short term, while the other inputs (such as labor) are variable.

Question 15

The World View article titled "United States Gains Cost Advantage" says productivity advances have contributed to U.S.competitiveness in world markets.When improvements in productivity reduce costs, the production function shifts

Accepted Answer

When productivity improves, it means more output can be produced with the same amount of inputs, effectively reducing the cost per unit of output. This results in the production function shifting upward (indicating increased efficiency or output) and cost curves shifting downward (indicating lower costs).

Question 16

Marginal cost always reflects the cost of variable factors.

Accepted Answer

Marginal cost is the cost of producing one additional unit of output. As such, it reflects the additional cost of using variable factors of production such as labor and raw materials. Fixed costs, on the other hand, do not vary with the level of output and are not included in marginal cost calculations.

Question 17

When the marginal cost curve is below the average total cost curve, the average total cost curve must be falling.

Accepted Answer

When the marginal cost curve is below the average total cost curve, it means that each additional unit of production is costing less than the previous unit. This causes the average total cost to decrease, resulting in a falling average total cost curve.

Question 18

One In the News article titled "Funeral Giant Moves In on Small Rivals" reports that profit for a Houston-based funeral giant is 31 cents on every dollar versus a profit of 12 cents for the funeral industry in general.Such profits are most likely the result of

Accepted Answer

The higher profits for the Houston-based funeral giant are most likely due to economies of scale, which arise when larger firms are able to produce more output at a lower average cost than smaller firms. This allows the larger firm to offer lower prices or higher quality than their smaller rivals, leading to greater market share and higher profits.

Question 19

Actual output will always equal the limit described in the production function.

Accepted Answer

The actual output can be less than the limit described in the production function due to factors such as inefficiencies, equipment breakdowns, or labor shortages.

Question 20

If MPP declines with greater output, then MC must increase.

Accepted Answer

If MPP (marginal physical product) declines with greater output, then it means that each additional unit of input is producing less output. This implies that the marginal cost (MC) of producing each additional unit of output is increasing. Therefore, MC must increase.

Quiz 7: The Costs of Production