11
33) Refer to Table 8.1. Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per
unit, which of the following statements is true?
A) The firm will use production technique A to produce all three units of output.
B) The firm will use production technique B to produce all three units of output.
C) The firm will use production technique B to produce the first two units of output and production
technique A to produce the third unit of output.
D) The firm will use production technique A to produce the first unit and production technique B to
produce the second and third units of output.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
34) Marginal cost
A) is the increase in total cost resulting from producing one more unit.
B) is the average cost of production divided by output.
C) equals the increase in AVC resulting from producing one more unit.
D) always equals average cost.
Topic: Costs in the Short Run
Skill: Definition
Learning Outcome: Micro–20
35) A firm will begin to experience diminishing returns at the point where
A) marginal cost increases.
B) marginal cost decreases.
C) marginal product increases.
D) Both B and C are correct.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
36) Diminishing marginal returns implies
A) decreasing average variable costs.
B) decreasing marginal costs.
C) increasing marginal costs.
D) decreasing average fixed costs.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–20
12
37) Marginal cost is ________ average variable cost when ________.
A) equal to; average total cost is minimized
B) less than; total cost is maximized
C) greater than; average fixed cost is minimized
D) equal to; average variable cost is minimized.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–20
38) The explanation for why marginal cost is positive and rising in the short run is ________ marginal
product of labor in the production process.
A) a zero
B) a constant
C) an increasing
D) a diminishing
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–20
39) In the short run when the marginal product of labor ________, the marginal cost of an additional unit
of output ________.
A) rises; rises
B) falls; falls
C) rises; falls
D) falls; doesn’t change
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–20
40) Total variable costs
A) initially increase as output increases, and then decrease.
B) always decrease with output.
C) always increase with output.
D) initially decrease and then increase with output.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
13
41) The formula for MC is
A) TVC/q.
B) q/TVC.
C) ΔTVC/q.
D) ΔTVC/Δq.
Topic: Costs in the Short Run
Skill: Definition
Learning Outcome: Micro–12
42) The formula for AVC is
A) q/TVC.
B) TVC/q.
C) ΔTVC/Δq.
D) Δq/ΔTVC.
Topic: Costs in the Short Run
Skill: Definition
Learning Outcome: Micro–12
43) In the short run, as output increases,
A) the difference between average total cost and average variable cost decreases.
B) the difference between total cost and average variable cost decreases.
C) marginal cost eventually decreases.
D) All of the above are correct.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
44) Because marginal cost is always ________ in the short run, total variable cost always ________ when
output increases.
A) positive; increases
B) positive; decreases
C) negative; increases
D) negative; decreases
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
14
45) In the short run where total variable cost is ________ at a(n) ________ rate, marginal cost is positive
and decreasing.
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
46) In the short run where total variable cost is ________ at a(n) ________ rate, marginal cost is positive
and increasing.
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
15
Refer to the information provided in Figure 8.3 below to answer the question(s) that follow.
Figure 8.3
47) Refer to Figure 8.3. The marginal cost of the 10th basketball is
A) $2.
B) $3.
C) $3.05.
D) $5.80.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-2
48) Refer to Figure 8.3. If the total fixed cost is $50, then average total cost of producing 10 basketballs is
A) $3.
B) $5.
C) $8.
D) $80.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-2
49) Refer to Figure 8.3. The marginal cost of the ninth basketball is
A) less than $2.
B) $2.
C) $3.
D) greater than $3.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-2
16
50) Refer to Figure 8.3. The marginal cost of the 9th basketball is
A) < $2.
B) $2.
C) > $2.
D) $28.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-2
51) Refer to Figure 8.3. If total fixed costs are $100, then average total cost of producing 10 basketballs is
A) $2.
B) $10.
C) $13.
D) $130.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-2
52) Refer to Figure 8.3. The marginal cost of the eleventh basketball is
A) less than $1.
B) $1.
C) $2.
D) greater than $2.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-2
53) For Elliot’s dog–walking service, the only variable input is labor. Elliot’s labor costs are $300 a day and
his service walks 30 dogs per day. To walk 31 dogs per day, his labor costs increase to $305 a day. The
marginal cost of walking that 31st dog is
A) $5.
B) $9.83.
C) $19.52.
D) indeterminate from the information given.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–20
17
Refer to the information provided in Table 8.2 below to answer the question(s) that follow.
Table 8.2
54) Refer to Table 8.2. If Sherry produces zero earrings, her total fixed costs are
A) $0.
B) $50.
C) $100.
D) indeterminate from this information.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
55) Refer to Table 8.2. If Sherry produces one pair of earrings, her total variable costs are
A) $50.
B) $100.
C) $150.
D) indeterminate from this information.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
56) Refer to Table 8.2. If Sherry produces two pairs of earrings, her marginal cost is
A) $40.
B) $45.
C) $72.50.
D) $122.50.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–20
18
57) Refer to Table 8.2. If Sherry produces three pairs of earrings, her total variable costs are
A) $26.67.
B) $140.
C) $175.
D) $225.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
58) Refer to Table 8.2. If Sherry produces five pairs of earrings, her total costs are
A) $320.
B) $360.
C) $370.
D) $400.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
59) Refer to Table 8.2. If Sherry produces four pairs of earrings, her average fixed costs are
A) $4.
B) $20.
C) $25.
D) $100.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
60) Refer to Table 8.2. Assume that Sherry’s Earrings is producing in a perfectly competitive market and
the market price for earrings is $60. To maximize profits Sherry should produce ________ pairs of
earrings.
A) two
B) three
C) four
D) five
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–13
19
Refer to the information provided in Table 8.3 below to answer the question(s) that follow.
Table 8.3
61) Refer to Table 8.3. What is the total cost of producing zero units of output?
A) $0
B) $30
C) $60
D) indeterminate from the given information
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
62) Refer to Table 8.3. The marginal cost of the fourth unit is ________ and the average total cost of four
units is ________.
A) $10; $30
B) $20; $45
C) $30; $35
D) indeterminate from the given information
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
63) Refer to Table 8.3. From the information in the given table,
A) the firm is in the long run.
B) the firm eventually experiences diminishing returns to its variable input.
C) the marginal cost curve intersects the average total cost curve between 3 and 4 units of output.
D) the difference between total cost and total variable cost decreases as output increases.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
20
64) Refer to Table 8.3. If the firm is in a perfectly competitive industry with a market price of $30 per unit,
the firm will produce ________ units and earn a profit of ________.
A) three; $20
B) four; $20
C) four; –$20
D) five; $30
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–13
65) If we know average total cost and the amount of output, then we can always calculate total cost by
A) adding average total cost and the amount of output.
B) subtracting the amount of output from average total cost.
C) multiplying average total cost by the amount of output.
D) dividing average total cost by the amount of output.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
66) If marginal cost is above average variable cost, then
A) average variable cost is increasing.
B) marginal cost must be decreasing.
C) average variable cost is constant.
D) average variable cost is decreasing.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–20
67) The marginal cost curve intersects the ________ at its minimum.
A) average variable cost curve
B) average total cost curve
C) average fixed cost curve
D) A and B are both correct.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–20