65) When the marginal product is increasing as the quantity increases, then as the quantity
increases the
A) average product is decreasing.
B) marginal cost is decreasing.
C) total cost is decreasing.
D) total product is decreasing.
E) fixed cost is increasing.
66) If we know the amount of total cost, average total cost, average variable cost, and marginal
cost for each level of output, how can we find the level of output where the marginal product is
the greatest?
A) It is the output for which the marginal cost equals average variable cost.
B) It is the output for which the total cost is maximized.
C) It is the output for which the marginal cost is minimized.
D) It is the output for which the marginal cost equals average total cost.
E) There is no way to find where marginal product is the greatest knowing only cost data.
67) Cost curves shift if
i. technology changes.
ii. the prices of factors of production change.
iii. productivity changes.
A) only i
B) i and iii
C) only ii
D) i and ii
E) i, ii, and iii
68) An increase in the price of labor (a variable resource) shifts
A) all cost curves upward.
B) the variable cost curves upward but leaves the fixed cost curves unchanged.
C) the fixed cost curves upward but leaves the variable cost curves unchanged.
D) the marginal cost curve rightward.
E) none of the cost curves.
69) Total cost is equal to the sum of
A) total revenue and total cost.
B) total variable cost and total product.
C) total variable cost and total fixed cost.
D) total fixed cost and total product.
E) the marginal cost plus the total fixed cost plus the total variable cost.
70) Total fixed cost is the cost of
A) labor.
B) production.
C) a firm’s fixed factors of production.
D) only implicit factors of production.
E) only explicit factors of production.
71) Jay set up his hot dog stand near the business district. His total variable cost includes the
A) annual insurance for the hot dog stand.
B) cost of buying the hot dog stand.
C) cost of the hot dogs and condiments.
D) interest he pays on the funds he borrowed to pay for advertising.
E) revenue he gets when he sells his first hot dog each day.
72) Marginal cost is equal to
A) the total cost of a firm’s production.
B) total cost minus fixed cost.
C) a cost that is not related to the quantity produced.
D) the change in total cost that results from a one-unit increase in output.
E) the change in fixed cost that results from a one-unit increase in output.
73) To produce 10 shirts, the total cost is $80; to produce 11 shirts, the total cost is $99. The
marginal cost of the 11th shirt is equal to
A) $8.
B) $9.
C) $80.
D) $99.
E) $19.
74) Average total cost equals
A) marginal cost divided by output.
B) average fixed cost plus average variable cost.
C) total fixed cost plus total variable cost.
D) marginal cost plus opportunity cost.
E) marginal cost multiplied by the quantity of output.
75) To produce 10 shirts, the total cost is $80; to produce 11 shirts, the total cost is $99. The
average total cost of the 11th shirt is equal to
A) $8.
B) $9.
C) $80.
D) $99.
E) $19.
76) One of the major reasons for the U-shaped average total cost curve is the fact that
A) there are increasing returns from labor regardless of the number of workers employed.
B) there eventually are decreasing returns from labor as more workers are employed.
C) prices fall as output increases.
D) the average fixed cost increases as more output is produced.
E) the variable cost decreases as more output is produced.
1) Which of the following statements is true?
A) In the long run, the average cost curve is always downward sloping.
B) In the long run, the quantities of all inputs are fixed.
C) In the long run, the firms’ fixed costs are greater than its variable costs.
D) In the long run, all costs are variable costs.
E) In the long run, the total variable cost equals the total fixed cost.
2) Which of the following is FALSE?
A) Long-run average variable costs equal long-run average total costs.
B) Fixed costs increase in the long run.
C) As a firm produces more output, eventually it experiences diseconomies of scale.
D) In the long run, both the amount of capital and labor used by the firm can be changed.
E) In the long run, the firm has no fixed inputs.
3) In the long run,
A) all inputs can be varied.
B) all inputs are fixed.
C) some inputs are variable and other inputs are fixed.
D) output is fixed.
E) total variable cost cannot be changed.
4) When a firm’s long-run average total cost decreases as its output increases, the firm is
experiencing
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) decreasing marginal returns.
E) decreasing cost of marginal returns.
5) As output increases, economies of scale occur when the
A) long-run average cost increases.
B) long-run average cost decreases.
C) short-run average total cost decreases.
D) long-run average cost stays constant.
E) long-run fixed cost decreases.
6) A firm has economies of scale when its average total cost of production ________ as the size
of a its plant and its labor force ________.
A) decreases; increase by the same percentage
B) does not change; increase by the same percentage
C) increases; increase by the same percentage
D) decreases; do not change
E) decreases; decrease by the same percentage
7) If a firm increases both its plant and labor by the same percentage and its average cost
decreases, the firm is experiencing which of the following?
A) increasing marginal returns
B) diseconomies of scale
C) economies of scale
D) random luck
E) decreasing cost of marginal returns
8) When a firm experiences economies of scale,
A) its short-run average total cost decreases as its output increases.
B) its marginal cost decreases as its output increases.
C) it increases the amount of labor and capital it uses by an equal percentage and its output
increases by a larger percentage.
D) its marginal cost increases as output increases.
E) it increases the amount of labor and capital it uses by an equal percentage and its average cost
increases by a larger percentage.
9) The main source of economies of scale is
A) reductions in the price of factors of production.
B) greater specialization of both labor and capital.
C) increasing average costs.
D) decreasing marginal product.
E) the ability to hire less labor.
10) The main sources of economies of scale are
A) increasing marginal cost and decreasing marginal product.
B) specialization of resources such as labor and capital.
C) caused by the difficulty of coordinating and controlling large enterprises.
D) decreasing marginal cost and increasing marginal product.
E) an increase in a firm’s bargaining power to lower the wage rate and the cost of capital as the
firm’s output increases.
11) Economies of scale can occur as a result of which of the following?
A) increasing marginal returns as the firm increases its size
B) lower fixed cost as the firm increases its size
C) management difficulties as the firm increases its size
D) greater specialization of labor and capital as the firm increases its size
E) increased total cost when the firm increases its size
12) Diseconomies of scale is
A) a short run phenomenon.
B) the result of decreasing marginal returns.
C) a long run phenomenon.
D) the result of increasing marginal returns.
E) possible only when the firm’s plant size is fixed.
13) Diseconomies of scale occurs when a firm’s average total cost of production ________ as its
size of a plant and its labor force ________.
A) decreases; increase by the same percentage
B) does not change; increase by the same percentage
C) increases; increase by the same percentage
D) decreases; do not change
E) increases; do not change
14) If a firm increases the size of its plant and its labor force by the same percentage and as a
result its average total cost increases, then the firm is experiencing
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) decreasing marginal returns.
E) increasing marginal returns.
15) When a firm ________ the size of its plant and labor force by the same percentage and, as a
result, its average total cost ________, then the firm experiences diseconomies of scale.
A) increases; increases
B) increases; does not change
C) increases; decreases
D) decreases; does not change
E) None of the above answers are correct because diseconomies of scale occur when the firm
only changes its variable inputs and leaves the fixed inputs constant.
16) A firm decreases its scale of operation and discovers that its long-run average costs decrease.
Which of the following does this indicate?
A) Labor’s marginal product has increased.
B) Diseconomies of scale were absent in the larger plant.
C) The firm’s scale initially was so large that it experienced diseconomies of scale.
D) The firm’s scale initially was too small to experience economies of scale.
E) Its long-run marginal cost was smaller with the larger plant than with the smaller plant.
17) Diseconomies of scale is a result of
A) mismanagement.
B) difficulties of coordinating and controlling a large enterprise.
C) specialization of labor, capital, and management.
D) technological progress.
E) larger fixed costs as the firm’s production increases.
18) When a firm becomes so large it is difficult to coordinate and control, it is most likely that
A) economies of scale have begun.
B) diseconomies of scale have begun.
C) average total cost begins to fall.
D) long-run average costs become negative.
E) there is increasing marginal returns to increasing the firm’s plant size.
19) Bob is an entrepreneur who hires college students to sell hot dogs in the busy downtown area
of his hometown. Each student is paid the same wage rate, given an identically supplied hot dog
cart, and assigned to a specific area. If as Bob increases his scale of operation from 3 carts to 4
carts, each cart produces and sells the same number of hot dogs per day, Bob experiences
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) decreasing total costs.
E) zero marginal cost.
20) The long run average cost curve
A) is the sum of a firm’s short run average cost curves.
B) shows the lowest average cost facing a firm as it increases output changing both its plant and
labor force.
C) initially rises when output increases and then falls when output increases.
D) always falls as output increases.
E) always rises as output increases.
21) What does the long-run average cost curve show?
A) the interaction between average fixed cost and marginal cost
B) the lowest average cost to produce each output level in the long run
C) the distinction between long-run fixed and long-run variable costs
D) the lowest average marginal cost of producing each output level at any time.
E) Answers A, B, and C are correct.
22) The long-run average cost curve is U-shaped because of which of the following?
A) decreasing marginal returns as more labor is hired
B) constant fixed costs as output is increased
C) economies and diseconomies of scale
D) increasing marginal returns as more labor is hired
E) decreasing average fixed costs as output is increased
23) The long-run average cost curve
A) is an upside down U-shape.
B) is constructed using the short-run marginal cost curves.
C) shows economies and diseconomies of scale.
D) Both answer A and answer B are correct.
E) Both answer A and answer C are correct.
24) The portion of the long-run average cost curve in which economies of scale are experienced
shows that as plant size increases, the
A) average total cost decreases.
B) average total cost increases.
C) marginal cost increases.
D) marginal cost decreases.
E) average variable cost is constant and the average fixed cost decreases.
25) If a company triples its plant size and its average cost decreases, then the firm is definitely
experiencing
A) diseconomies of scale.
B) decreasing marginal returns.
C) increasing marginal returns.
D) economies of scale.
E) Both answer C and answer D are correct.
26) When the long-run average cost curve is downward sloping,
A) economies of scale are present.
B) diseconomies of scale are present.
C) the firm experiences constant returns to scale.
D) the average fixed cost curve must be upward sloping.
E) The premise of the question is wrong because long-run average cost curves never slope
downward.
27) Which of the following is true in the long run?
A) Total cost equals fixed cost.
B) Total cost is constant.
C) All costs are variable.
D) Marginal cost equals zero.
E) None of the above are true in the long run.
28) Economies of scale occur whenever
A) marginal cost decreases as production increases.
B) total cost increases as production is increased by increasing all inputs by the same percentage.
C) marginal product increases as labor increases and capital decreases.
D) a firm increases its plant size and labor employed, and its output increases by a larger
percentage.
E) marginal product decreases as labor increases and capital increases.
29) The main source of economies of scale is
A) better management.
B) constant returns to plant size.
C) specialization.
D) long-run cost curves eventually sloping downward.
E) increases in the labor force not matched by increases in the plant size.
30) Diseconomies of scale can occur as a result of which of the following?
A) increasing marginal returns as the firm increases its size
B) lower total fixed cost as the firm increases its size
C) management difficulties as the firm increases its size
D) greater specialization of labor and capital as the firm increases its size
E) increases in the labor force not matched by increases in the plant
31) Constant returns to scale occur when an equal percentage increase in plant size and labor
A) increases total cost.
B) does not change total cost.
C) increases long-run average cost.
D) does not change long-run average cost.
E) does not change production.
32) A firm’s long-run average cost curve shows the ________ average cost at which it is possible
to produce each output when the firm has had ________ time to change both its labor force and
its plant.
A) highest; sufficient
B) lowest; sufficient
C) lowest; insufficient
D) highest; insufficient
E) average; sufficient
33) Economies of scale and diseconomies of scale explain
A) cost behavior in the short run.
B) profit maximization in the long run.
C) the U-shape of the long-run average cost curve.
D) the U-shape of the short-run average total cost curve.
E) the U-shape of the marginal cost curves.
13.5 Chapter Figures
The figure above shows a firm’s total product curve.
1) Which of the points show efficient production points?
A) All points above the TP curve
B) All points on the TP curve
C) All the darkened points below the TP curve
D) All the points above and on the TP curve
E) All the darkened points below and on the TP curve
The figure above shows some of a firm’s cost curves.
2) Curve A is the firm’s
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) total variable cost curve.
E) total fixed cost curve.
3) Curve B is the firm’s
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) total variable cost curve.
E) total fixed cost curve.
4) Curve C is the firm’s
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) total variable cost curve.
E) total fixed cost curve.
The figure above shows some of a firm’s cost curves.
5) Based on the figure above, curve A is the firm’s
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) average variable cost curve.
E) average fixed cost curve.
6) Based on the figure above, curve B is the firm’s
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) average variable cost curve.
E) average fixed cost curve.
7) Based on the figure above, curve C is the firm’s
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) average variable cost curve.
E) average fixed cost curve.
8) Based on the figure above, curve D is the firm’s
A) marginal cost curve.
B) total cost curve.
C) average total cost curve.
D) average variable cost curve.
E) average fixed cost curve.
9) A firm’s rent is a fixed cost. If the rent increases, then in the figure above ________ upward.
A) only curve A shifts
B) only curve B shifts
C) only curve C shifts
D) both curves A and C shift
E) both curves B and C shift
10) A firm’s utility bill is a variable cost. If the cost of utilities increases, then in the figure above
________ upward.
A) only curve A shifts
B) only curve B shifts
C) only curve C shifts
D) both curves A and C shift
E) both curves B and C shift