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78. Refer to Figure 13-3. Assuming that the firm depicted produces cookies, which of the
statements below is most consistent with the shape of the total cost curve?
a. Producing an additional cookie is always more costly than producing the previous cookie.
b. Total production of cookies decreases with additional units of input.
c. Producing additional cookies is equally costly, regardless of how many cookies are already
being produced.
d. Producing additional cookies becomes increasingly costly only when the number of cookies
already being produced is large.
Scenario 13-14
If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he
gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12
bushels. A bag of seeds costs $120, and seeds are his only cost.
79. Refer to Scenario 13–14. Farmer Brown’s production function exhibits
a. increasing marginal product.
b. constant marginal product.
c. diminishing marginal product.
d. The production function is unrelated to the marginal product.
3284 The Costs of Production
80. Refer to Scenario 13–14. Farmer Brown’s total-cost curve is
a. increasing at an increasing rate.
b. increasing at a decreasing rate.
c. increasing at a constant rate.
d. decreasing.
Scenario 13-15
Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1
bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3
bags, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost.
81. Refer to Scenario 13-15. Joan’s production function exhibits
a. increasing marginal product.
b. decreasing marginal product.
c. constant marginal product.
d. Any of the above could be correct.
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82. Refer to Scenario 13–15. Joan’s total-cost curve is
a. increasing at an increasing rate.
b. increasing at a decreasing rate.
c. increasing at a constant rate.
d. decreasing.
83. Which of the following statements about a production function is correct for a firm that uses labor
to produce output?
a. The production function depicts the relationship between the quantity of labor and the quantity
of output.
b. The slope of the production function measures marginal product.
c. The slopes of the production function and the total cost curve are inversely related; if one is
increasing, the other is decreasing.
d. All of the above are correct.
3286 The Costs of Production
84. A total-cost curve shows the relationship between the
a. quantity of an input used and the total cost of production.
b. quantity of output produced and the total cost of production.
c. total cost of production and profit.
d. total cost of production and total revenue.
85. If the total cost curve gets steeper as output increases, the firm is experiencing
a. diseconomies of scale.
b. economies of scale.
c. diminishing marginal product.
d. increasing marginal product.
86. David’s firm experiences diminishing marginal product for all ranges of inputs. The total cost
curve associated with David’s firm
a. gets flatter as output increases.
b. gets steeper as output increases.
c. is constant for all ranges of output.
d. is unrelated to the production function.
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Multiple Choice – Section 03: The Various Measures of Cost
1. The nature of a firm’s cost (fixed or variable) depends on the
a. firm’s revenues.
b. time horizon under consideration.
c. price the firm charges for output.
d. explicit but not implicit costs.
2. One assumption that distinguishes short–run cost analysis from long–run cost analysis for a profit-
maximizing firm is that in the short run,
a. output is not variable.
b. the number of workers used to produce the firm’s product is fixed.
c. the size of the factory is fixed.
d. there are no fixed costs.
3288 The Costs of Production
3. When a factory is operating in the short run,
a. it cannot alter variable costs.
b. total cost and variable cost are usually the same.
c. average fixed cost rises as output increases.
d. it cannot adjust the quantity of fixed inputs.
4. The length of the short run
a. is different for different types of firms.
b. can never exceed 3 years.
c. can never exceed 1 year.
d. is always less than 6 months.
5. How long does it take a firm to go from the short run to the long run?
a. six months
b. one year
c. two years
d. It depends on the nature of the firm.
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6. A local playground equipment company plans to operate out of its current factory, which is
estimated to last 30 years. All cost decisions it makes during the 30-year period
a. are long–run decisions.
b. are short-run decisions.
c. involve only maintenance of the factory.
d. are zero because the cost decisions were made at the beginning of the business.
7. In the short run, a firm that produces and sells house paint can adjust
a. where to produce along its long-run average-total-cost curve.
b. the size of its factories.
c. how many workers to hire.
d. All of the above are correct.
3290 The Costs of Production
8. The total cost to the firm of producing zero units of output is
a. zero in both the short run and the long run.
b. its fixed cost in the short run and zero in the long run.
c. its fixed cost in both the short run and the long run.
d. its variable cost in both the short run and the long run.
9. In the long run, a firm that produces and sells textbooks gets to choose
a. how many workers to hire.
b. the size of its factories.
c. which short-run average-total-cost curve to use.
d. All of the above are correct.
The Costs of Production 3291
10. A firm that produces and sells furniture gets to choose
a. how many workers to hire in both the short run and the long run.
b. the size of its factories in the short run but not in the long run.
c. which short–run average-total-cost curve to use in both the short tun and the long run.
d. All of the above are correct.
11. In the long run,
a. inputs that were fixed in the short run remain fixed.
b. inputs that were fixed in the short run become variable.
c. inputs that were variable in the short run become fixed.
d. variable inputs are rarely used.
3292 The Costs of Production
12. The long-run average total cost curve is always
a. flatter than the short-run average total cost curve, but not necessarily horizontal.
b. horizontal.
c. falling as output increases.
d. rising as output increases.
13. When comparing short-run average total cost with long–run average total cost at a given level of
output,
a. short-run average total cost is typically above long-run average total cost.
b. short-run average total cost is typically the same as long–run average total cost.
c. short-run average total cost is typically below long-run average total cost.
d. the relationship between short-run and long-run average total cost follows no clear pattern.
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14. Which of the following explains why long-run average cost at first decreases as output increases?
a. diseconomies of scale
b. less-efficient use of inputs
c. fixed costs becoming spread out over more units of output
d. gains from specialization of inputs
15. The most likely explanation for economies of scale is
a. coordination problems.
b. specialization of labor.
c. increasing marginal cost.
d. decreasing marginal cost.
16. When a firm is experiencing economies of scale, long–run
a. average total cost is minimized.
b. average total cost is greater than long-run marginal cost.
c. average total cost is less than long-run marginal cost.
d. marginal cost is minimized.
3294 The Costs of Production
17. Economies of scale occur when a firm’s
a. marginal costs are constant as output increases.
b. long-run average total costs are decreasing as output increases.
c. long–run average total costs are increasing as output increases.
d. marginal costs are equal to average total costs for all levels of output.
18. Economies of scale occur when
a. long–run average total costs rise as output increases.
b. long-run average total costs fall as output increases.
c. average fixed costs are falling.
d. average fixed costs are constant.
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19. A firm that wants to achieve economies of scale could do so by
a. assigning limited tasks to its employees, so they can master those tasks.
b. employing a smaller number of workers.
c. producing a smaller quantity of output.
d. producing an output level higher than the efficient scale.
20. Economies of scale arise when
a. an economy is self–sufficient in production.
b. individuals in a society are self-sufficient.
c. fixed costs are large relative to variable costs.
d. workers are able to specialize in a particular task.
3296 The Costs of Production
21. If long-run average total cost decreases as the quantity of output increases, the firm is
experiencing
a. economies of scale.
b. diseconomies of scale.
c. coordination problems arising from the large size of the firm.
d. fixed costs greatly exceeding variable costs.
22. In the long run a company that produces and sells popcorn incurs total costs of $1,050 when
output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits
a. diseconomies of scale because total cost is rising as output rises.
b. diseconomies of scale because average total cost is rising as output rises.
c. economies of scale because total cost is rising as output rises.
d. economies of scale because average total cost is falling as output rises.
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23. In the long run a company that produces and sells candy bars incurs total costs of $1,200 when
output is 2,400 candy bars and $1,400 when output is 2,900 candy bars. The candy bar company
exhibits
a. diseconomies of scale because total cost is rising as output rises.
b. diseconomies of scale because average total cost is rising as output rises.
c. economies of scale because total cost is rising as output rises.
d. economies of scale because average total cost is falling as output rises.
24. Suppose that a firm’s long-run average total costs of producing televisions decreases as it
produces between 10,000 and 20,000 televisions. For this range of output, the firm is experiencing
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. coordination problems.
3298 The Costs of Production
25. Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-
Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal–Mart also locates its
stores where land prices are low, usually outside of the community business district. Many
customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug
store, often go out of business because they lose customers. This story demonstrates that
a. consumers do not react to changing prices.
b. there are diseconomies of scale in retail sales.
c. there are economies of scale in retail sales.
d. there are diminishing returns to producing and selling retail goods.
26. Which of the following statements is not correct?
a. In the long run, there are no fixed costs.
b. Marginal cost is independent of fixed costs.
c. Economies of scale is a short-run concept.
d. Diminishing marginal product explains increasing marginal cost.
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27. In the long run a company that produces and sells laundry detergent incurs total costs of $2,500
when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the
laundry detergent company exhibits
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. efficient scale.
28. At low levels of production, the firm
a. benefits from increased size because it can take advantage of greater specialization.
b. has the potential for economies of scale.
c. is unlikely to experiences acute problems with coordination.
d. All of the above are correct.
3300 The Costs of Production
29. The Big Blue Sky jet company has long–run total costs of $20 million if it produces 5 jets and
long-run total costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is
experiencing
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. negative profits.
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30. When a firm experiences constant returns to scale,
a. long-run average total cost is unchanged, even when output increases.
b. long-run marginal cost is greater than long–run average total cost.
c. long-run marginal cost is less than long–run average total cost.
d. the firm is likely to experience coordination problems.
31. In the long run the local coffee shop incurs total costs of $625 when output is 1,250 cups of coffee
and $750 when output is 1,500 cups of coffee. For this range of output, the coffee shop exhibits
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. efficient scale.
3302 The Costs of Production
32. Constant returns to scale occur when a firm’s
a. marginal costs are constant as output increases.
b. long-run average total costs are decreasing as output increases.
c. long–run average total costs are increasing as output increases.
d. long-run average total costs do not vary as output increases.
33. Constant returns to scale occur when the firm’s long-run
a. total costs are constant as output increases.
b. average total costs are constant as output increases.
c. average cost curve is falling as output increases.
d. average cost curve is rising as output increases.