Economics Chapter 21—Costs and the Supply of Goods
MULTIPLE CHOICE
1. Which of the following is most likely to be an implicit cost of production?
a.
property taxes on a building owned by the firm
b.
transportation costs paid to a trucking supplier
c.
rental payments for a building utilized by the company and rented from another party
d.
interest income foregone on funds invested in the firm by the owners
2. Which of the following explains most clearly why business owners have a strong incentive to strive for
operational efficiency?
a.
They recognize that operational efficiency promotes the public interest.
b.
As residual claimants, owners will receive a higher income from increased efficiency.
c.
The owners will be able to keep production costs low by providing free managerial
services to the firm.
d.
The owners will be able to gain by paying employees below market wages, which will
improve the overall efficiency of the economy.
3. The law of diminishing returns
a.
explains why marginal cost eventually increases as output expands.
b.
implies that average fixed cost will remain unchanged as output expands.
c.
is true for physical production activities but not for activities such as studying.
d.
applies to a capitalist economy but would be irrelevant if the means of production were
owned by the state.
4. Which of the following represents a long-run adjustment?
a.
the hiring of four additional cashiers by a supermarket
b.
a cutback on purchases of coke and iron ore by a steel manufacturer
c.
construction of a new assembly-line plant by a car manufacturer
d.
the extra dose of fertilizer used by a farmer on his wheat crop
5. The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because
a.
larger firms always have lower per-unit costs than smaller firms.
b.
at low levels of output, AFC will be high, while at high levels of output, MC will be high
as the result of diminishing returns.
c.
diminishing returns will be present when output is small, and high AFC will push per-unit
cost to high levels when output is large.
d.
diseconomies of scale will be present at both small and large output rates.
6. When costs that vary with the level of output are divided by the output, you have calculated
a.
total changing cost.
b.
total fixed cost.
c.
average fixed cost.
d.
average variable cost.
7. A downward-sloping portion of a long-run average total cost curve is the result of
a.
economies of scale.
b.
diseconomies of scale.
c.
diminishing returns.
d.
the existence of fixed resources.
8. A student bought a used car for $10,000 and resold it one year later for $6,500. Insurance, license, and
operating costs for the year were $1,500. What was his economic cost of owning and operating the car
for the year if the market rate of interest was 10 percent?
a.
$3,500
b.
$5,000
c.
$6,000
d.
$8,500
9. In the short run, if average variable cost equals $50, average total cost equals $75, and output equals
100, the total fixed cost must be
a.
$25.
b.
$2,500.
c.
$5,000.
d.
$7,500.
10. Which of the following would shift a firm’s short-run cost curves downward?
a.
an advance in technology
b.
an increase in employees’ wages
c.
an increase in the demand for the firm’s product
d.
an increase in excise taxes levied on the firm’s product
11. The owners of a business
a.
are paid the market rate of return for resources they supply to the firm.
b.
are residual income claimants.
c.
have little incentive to monitor shirking on the part of employees.
d.
have little incentive to provide their employees with an incentive system that encourages
operational efficiency.
12. Automobile companies typically make some of the parts for cars (for example, the body and engine)
but not others (for example, the tires). Under what conditions would you expect an automobile
manufacturer to be most likely to buy inputs from other companies?
a.
when the specifications (size, style, etc.) of the inputs change frequently
b.
when the inputs being produced have little value
c.
when market prices have not been established for the inputs
d.
when it is relatively easy to measure the quantity and quality of the input
13. An activity known as shirking is least likely to occur when
a.
workers are not monitored.
b.
all workers are paid the same wage rate.
c.
the earnings of workers are closely tied to the worker’s output.
d.
the firm is organized as a corporation.
14. One advantage of team production over contracting out is that
a.
the cost of negotiating and enforcing contracts is generally lower with team production
than with contracting out.
b.
the principal agent problem is eliminated by team production but cannot be addressed in
contracting out.
c.
costs are always lower with team production because of the elimination of transactions
costs.
d.
efficiency is always greater with team production.
15. A disadvantage of team production compared to contracting out is that
a.
transaction costs are often higher with team production.
b.
the level of specialized knowledge required by team production is greater than with
contracting out.
c.
the problem of shirking must be more carefully addressed with team production.
d.
team production increases the cost of production in most situations.
16. Since it is costly for stockholders to monitor corporate managers, managers may be able to achieve
personal perks and pursue other policies that conflict with profit maximization. This is an example of
a.
an external benefit.
b.
economies of scale.
c.
the principal-agent problem.
d.
sunk costs.
17. If the CEO of a large corporation uses the corporate jet to fly friends to the Super Bowl at company
expense, this is most clearly an example of
a.
the duality problem.
b.
the violation of ceteris paribus conditions.
c.
a negative externality.
d.
the principal-agent problem.
18. If high-level executives of a company award themselves sizable bonuses even though the firm they
manage is making losses and performing poorly, this event is most likely to arise because of
a.
the law of diminishing marginal returns.
b.
competition among business firms for high-level executives.
c.
economies of scale.
d.
the principal-agent problem.
19. Approximately three-fourths of all U.S. firms are
a.
corporations.
b.
proprietorships.
c.
partnerships.
d.
consumer cooperatives.
20. A business owned by a single individual who is fully liable for its debts is called
a.
a corporation.
b.
a proprietorship.
c.
a partnership.
d.
an agency.
21. Which of the following is characteristic of the corporate form of ownership?
a.
unlimited liability
b.
easy transferability of ownership rights
c.
no divisible ownership rights
d.
absence of the principal-agent problem
22. Which of the following is a difference between corporations and partnerships?
a.
Partnerships are subject to double taxation; corporations are not.
b.
With partnerships, ownership rights are divisible and easily transferable; this is not true for
corporations.
c.
Corporate owners face limited liability; owners of partnerships do not.
d.
Corporations always have more owners than partnerships.
23. Which of the following is most likely to reduce the incidence of employee shirking?
a.
use of the corporate business structure, rather than an individual proprietorship
b.
closely relating the pay of workers to their productive contribution
c.
payment of identical wage rates to all workers
d.
providing workers with a year-end bonus if the business firm loses money during the year
24. Which of the following is not an advantage of the corporate structure over proprietorship and
partnership forms of business organization?
a.
Stockholders in the corporation have limited liability, whereas proprietors or partners have
unlimited liability.
b.
Ownership rights of a corporation may be transferred more easily.
c.
Large investment funds are more easily attracted by the corporation.
d.
Corporations are less likely to suffer from the principal-agent problem.
25. Profit-sharing plans, where employees receive bonuses in proportion to the company’s profits,
a.
reduce the principal-agent problem.
b.
are intended to reduce the number of employees who are residual claimants.
c.
eliminate shirking problems.
d.
are essentially gifts to employees and do not generate any benefit for the firm’s owners.
26. Which of the following provides the strongest evidence that the corporate form of business structure is
relatively efficient, particularly when business firms are large?
a.
the fact that almost 90 percent of business revenues are generated by corporations
b.
the fact that individual proprietorships are more numerous than corporations
c.
the fact that economic theory indicates corporate managers have some leeway to pursue
their own interests at the expense of the owners of the firm
d.
the high salaries of many corporate executives, including some managing firms that are
making economic losses
27. Which of the following provides the strongest evidence that the corporate form of business structure is
relatively cost efficient in many industries?
a.
the ability of the corporate business structure to compete effectively in most industries
with other forms of business structure
b.
the fact that nearly three of every four businesses in the United States is an individual
proprietorship
c.
the fact that economic theory indicates corporate managers have some leeway to pursue
their own interests at the expense of greedy capitalists
d.
the ability of some corporate managers to achieve high salaries even though the firms they
are directing are not earning economic profit
28. Takeover bids (and the potential for such bids)
a.
increase the incentive of corporate managers to perform efficiently.
b.
increase the likelihood that managers will be able to gain at the expense of stockholders.
c.
are more likely to occur when a company is producing efficiently and operating profitably.
d.
serve no useful economic purpose.
29. Suppose a professor gives up her teaching job to devote her time to writing textbooks. If salaries of
professors rise,
a.
her accounting profit will rise.
b.
her accounting profit will fall.
c.
her explicit costs will rise.
d.
her economic profit from textbooks will fall.
e.
her economic profit from textbooks will rise.
30. Normal profit is a term for
a.
explicit profit.
b.
the competitive rate of return.
c.
the accounting profit forgone.
d.
pure economic profit.
31. The costs of a firm indicate the desire of consumers for
a.
the product produced by the firm.
b.
other goods that might have been produced with the same resources.
c.
goods that can be easily substituted for the good produced by the firm.
d.
goods that are complementary with the good produced by the firm.
32. When total revenue minus total economic cost is equal to zero, the firm is
a.
earning above-average economic profit.
b.
earning the normal profit rate.
c.
losing too much money to stay in business.
d.
earning abnormally low profits.
33. When total revenue minus total economic cost is greater than zero, the firm is
a.
earning higher than normal profits.
b.
earning the normal profit rate.
c.
making economic losses.
d.
earning economic profit but accounting losses.
34. Which of the following items is most likely to be an implicit cost of production?
a.
the “competitive rate” salary the owner of the business pays herself for services provided
b.
property taxes on a building owned by the firm
c.
rental payments for a building utilized by the company and rented from another party
d.
the interest income foregone on the equity capital invested by owners
35. The opportunity costs associated with the use of resources owned by a firm are usually
a.
externalities.
b.
implicit costs.
c.
explicit costs.
d.
sunk costs.
36. The sum of the explicit and implicit costs incurred in the production process is called
a.
fixed cost.
b.
sunk cost.
c.
marginal cost.
d.
total cost.
37. The most important implicit cost generally omitted from the accounting statement of a firm is the
a.
rental cost of machinery.
b.
cost of compliance with government regulations.
c.
opportunity cost of the equity capital invested by the owners.
d.
accounting cost incurred as the result of tax compliance.
38. The implicit rate of return that must be paid to induce investors to continue to supply the funds
necessary to maintain a firm’s capital assets is called
a.
the investors’ rate of return.
b.
the opportunity cost of labor.
c.
the opportunity cost of capital.
d.
equity capital.
39. Accounting costs are often unsatisfactory from the economist’s point of view because
a.
they fail to allow for depreciation, the wearing out of capital assets during a period.
b.
they often exclude the opportunity costs of the firm’s equity capital.
c.
accountants attempt to minimize costs in order to make profits look good.
d.
accounting procedures are designed to overstate costs in order to minimize business tax
liability.
40. Interest foregone on financial capital invested in a firm represents an economic cost
a.
only if the firm borrows to finance capital investments.
b.
only when the funds are used to buy machinery.
c.
because funds invested in the firm could be earning interest elsewhere.
d.
because accountants have traditionally input an interest cost for this item.
41. The normal rate of return on equity capital is also known as
a.
the explicit cost of capital.
b.
the marginal cost of capital.
c.
economic profit.
d.
the opportunity cost of capital.
42. The rate of return that owners of capital must receive in order to induce them to continue supplying the
capital is often referred to as
a.
accounting profit.
b.
the normal or market rate of return.
c.
economic profit.
d.
the accounting rate of return.
43. Which of the following is most likely to be true of economic and accounting profits?
a.
Economic profits are less than accounting profits.
b.
Accounting profits are less than economic profits.
c.
Economic profits plus accounting profits equal zero.
d.
Accounting profits minus economic profits equal zero.
44. For most firms, the major difference between accounting profit and economic profit is that
a.
explicit and implicit costs are included in the accounting profit while only explicit costs
are included in economic profit.
b.
accounting profit omits the salaries of managers, and therefore, it is generally greater than
economic profit.
c.
accounting profit is based on opportunity cost, whereas economic profit is based on
market transactions.
d.
accounting profit does not consider the opportunity cost of the firm’s equity capital and,
therefore, generally overstates economic profit.
45. Economic profit is
a.
total revenues minus variable costs.
b.
total revenues minus private costs.
c.
total revenues minus explicit costs.
d.
total revenues minus total costs.
46. The difference between a firm’s total revenues and total costs when all explicit and implicit costs are
included is the firm’s
a.
economic profit.
b.
accounting profit.
c.
opportunity cost of capital.
d.
long-run average total cost.
47. If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is
earning 23 percent, your rate of economic profit is
a.
zero.
b.
10 percent.
c.
23 percent.
d.
36 percent.
48. When an economist says a firm is earning zero economic profit, this implies that the firm
a.
will be forced out of business in the near future unless market conditions change.
b.
is earning a zero rate of return on its assets.
c.
is earning as high a rate of return now as could be earned in other industries.
d.
has an accounting profit of zero.
49. The difference between zero accounting profit and zero economic profit is that
a.
economists include opportunity cost in zero economic profit, while accountants do not
include opportunity cost in zero accounting profit.
b.
economists do not include opportunity cost in zero economic profit, while accountants do
include opportunity cost in zero accounting profit.
c.
economists include opportunity cost in zero accounting profit, while accountants do not
include opportunity cost in zero economic profit.
d.
economists do not include opportunity cost in zero accounting profit, while accountants do
include opportunity cost in zero economic profit.
50. The short run is the time period during which
a.
all of the firm’s costs are fixed.
b.
the value of the firm’s assets starts to decay.
c.
the firm can adjust all inputs freely.
d.
some of the firm’s input decisions are constrained by previous commitments.
51. Bart operates a lemonade stand in front of his house. His father works at the Springfield Nuclear
Power Plant. Which of the following is most likely to be true?
a.
The long run is the same for the power plant as it is for the lemonade stand.
b.
The long run is longer for the power plant than it is for the lemonade stand.
c.
The long run is shorter for the power plant than it is for the lemonade stand.
d.
We cannot compare the long runs because these are different businesses.
e.
It’s impossible for the power plant short run to be shorter than the lemonade stand’s long
run.
52. During the short-run period of the production process, a firm will be
a.
unable to vary any of its factors of production.
b.
able to vary only some of its factors of production.
c.
able to vary all of its factors of production.
d.
able to vary the size of its plant.
53. The short run is a time period such that
a.
the existing firms in the market do not have sufficient time to change the amounts of any
of the inputs that they employ.
b.
the existing firms in the market do not have sufficient time to either increase or decrease
their current rate of output.
c.
the existing firms in the market do not have sufficient time to increase the size of their
existing plant or build a new factory.
d.
new firms may build plants and enter the industry.
54. The long run is a period of
a.
at least one year.
b.
sufficient length to allow a firm to expand output by hiring additional workers.
c.
sufficient length to allow a firm to alter its plant size and capacity and all other factors of
production.
d.
sufficient length to allow a firm to transform economic losses into economic profits by
hiring better workers.
55. If fixed cost at quantity (Q) = 100 is $130, then
a.
fixed cost at Q = 0 is $0.
b.
fixed cost at Q = 0 is less than $130.
c.
fixed cost at Q = 200 is $260.
d.
fixed cost at Q = 200 is $130.
e.
it is impossible to calculate fixed costs at any other quantity.
56. If variable cost at each output level doubles,
a.
ATC doubles.
b.
AFC doubles.
c.
MC remains unchanged.
d.
MC doubles.
e.
MC less than doubles.
57. Fixed costs are best defined as
a.
costs that do not vary with output.
b.
costs that are at a minimum when output approaches the firm’s capacity.
c.
the amount that one more unit of output adds to total costs.
d.
costs that decline as output increases.
58. Costs that a firm remaining in business will still incur even if it halts current production are called
a.
fixed costs.
b.
variable costs.
c.
implicit costs.
d.
explicit costs.
59. A fruit packing plant usually shuts down for three months each year. During that period, what happens
to its costs?
a.
Its fixed costs are greater than zero.
b.
Its variable costs are greater than zero.
c.
Its total costs are zero.
d.
Its fixed costs are zero.
60. Which of the following will become smaller and smaller as the firm expands output?
a.
average total cost
b.
average fixed cost
c.
marginal cost
d.
total fixed cost
61. Average fixed costs
a.
will remain unchanged as output expands.
b.
are defined as the change in total costs divided by the change in output.
c.
will always increase as output increases.
d.
will always decrease as output expands.
62. The average fixed costs of a firm equal
a.
implicit costs divided by output.
b.
explicit costs divided by output.
c.
total cost minus variable cost.
d.
(total cost minus variable cost) divided by output.
63. Liam notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his
marginal cost (MC) is $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC
when output is 20 pairs of shoes per day?
a.
$5
b.
$7
c.
$8
d.
$15
64. For a firm that wants to remain in business, which of the following costs could be avoided if it halted
current production?
a.
fixed costs
b.
variable costs
c.
sunk costs
d.
implicit costs
65. If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total
variable cost must be
a.
$40.
b.
$60.
c.
$6,000.
d.
$8,000.
66. If fixed costs are $200,000 and variable costs are $30 per unit over the relevant range of output, when
10,000 units are produced, the average total cost will be
a.
$20.
b.
$30.
c.
$50.
d.
$70.
67. Which of the following about costs is true?
a.
The difference between the ATC and AVC curves will decline as output expands.
b.
The AFC will remain constant as output increases.
c.
If ATC is increasing, then AVC must be greater than ATC.
d.
Implicit costs and fixed costs are always the same.
68. Marginal cost is best defined as
a.
a cost that does not vary with the rate of output.
b.
the difference between fixed and variable cost at any level of output.
c.
the amount added to total cost when one more unit of output is produced.
d.
the difference between price and average total cost at the profit-maximizing level of
output.
69. The marginal cost of a good is
a.
lower for competitive firms than for monopolists.
b.
the cost of an additional unit.
c.
equal to fixed cost at high output levels.
d.
equal to variable cost when the firm is maximizing profit.
70. Use the table below to answer the following question.
Units
Total Fixed Cost
Total Variable
of Output
(dollars)
Cost (dollars)
1
150
25
2
150
48
3
150
70
4
150
100
What is the marginal cost of producing the third unit of output?
a.
$22
b.
$23.33
c.
$73.33
d.
This cannot be determined from the data.
71. Use the table below to answer the following question.
Units of Output
Total Fixed Cost
Total Variable
(dollars)
(dollars)
Cost
1
150
50
2
150
96
3
150
140
4
150
180
What is the marginal cost of producing the third unit of output?
a.
$20
b.
$44
c.
$70
d.
This cannot be determined from the data.
72. If a firm produces nothing, which of the following costs will be zero?
a.
total cost
b.
fixed cost
c.
opportunity cost
d.
variable cost
73. The minimum points of the average variable cost and average total cost curves occur where
a.
the marginal cost curve lies below the average variable cost and average total cost curves.
b.
the marginal cost curve intersects those curves.
c.
the average variable cost and average total cost curves intersect.
d.
the slope of total cost is the smallest.
74. In the short run, which are most important in determining changes in output?
a.
marginal costs and marginal revenue.
b.
total costs and total revenue.
c.
average costs and total revenue.
d.
fixed costs.
75. As a company adds the first four workers to its production process in the short run, its output rises
from 0 to 12 to 25 to 35 to 43. Addition of the fifth worker will most likely lead to an output rate
a.
greater than 51.
b.
equal to 51.
c.
less than 51.
d.
greater than 51 if the firm experiences diseconomies of scale.
e.
none of the above.
76. As output rises, marginal product eventually diminishes and
a.
marginal cost increases.
b.
total cost falls.
c.
fixed cost increases.
d.
average product becomes negative.
77. When the marginal product of labor diminishes,
a.
average fixed cost rises.
b.
average variable cost is constant.
c.
marginal cost rises.
d.
average total cost must rise.
e.
total cost rises at a diminishing rate.
78. If the firm’s fixed costs double while variable costs are unchanged, then
a.
marginal cost more than doubles.
b.
marginal cost doubles.
c.
marginal cost remains unchanged.
d.
average total cost remains unchanged.
e.
average variable cost doubles.
79. The relationship between average and marginal variables can be stated as follows: if the marginal is
greater than the average,
a.
the average is increasing.
b.
the average is decreasing.
c.
the marginal is increasing.
d.
the marginal is decreasing.
e.
the total is decreasing.
80. With respect to the average cost curves, the marginal cost curve
a.
intersects average total cost, average fixed cost, and average variable cost at their
minimum points.
b.
intersects average total cost, average fixed cost, and average variable cost at their
maximum points.
c.
intersects both average total cost and average variable cost at their minimum points.
d.
intersects average total cost where it is increasing and average variable cost where it is
decreasing.
e.
intersects only average total cost at its minimum point.
81. In order for the law of diminishing returns to be present, we must have
a.
at least one factor of production to be fixed.
b.
output decreasing as more laborers are hired.
c.
the price of labor increasing as more workers are hired.
d.
simultaneous changes in labor and capital.
e.
double the output when labor input is doubled.
82. The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because
a.
larger firms always have lower per-unit costs than smaller firms.
b.
at small output rates, average fixed costs (AFC) will be high, while at large output rates,
marginal cost (MC) will be high.
c.
diminishing returns will be present when output is small, while high AFC will push
average total cost to high levels when output is large.
d.
diseconomies of scale will be present at both small and large output rates.
83. In the short run, the firm’s average fixed costs
a.
always increase as output increases.
b.
always decline as output increases.
c.
equal zero.
d.
remain constant as output expands.
84. In the short run, a firm will eventually experience rising average total costs because of
a.
economies of scale.
b.
diseconomies of scale.
c.
the law of supply.
d.
the law of diminishing returns.
85. Which of the following is an implication of the law of diminishing returns?
a.
Total output will decline as more workers are hired.
b.
In the long run, average total cost will eventually decline as output is expanded.
c.
In the short run, expansion of output will eventually lead to increases in marginal cost and
average total cost.
d.
A doubling of all inputs will lead to more than a doubling of output.
86. The law of diminishing marginal returns explains the general shape of the firm’s
a.
long-run cost curves.
b.
short-run cost curves.
c.
both short-run and long-run cost curves.
d.
The law of diminishing returns has nothing to do with cost curves.
87. The increase in total output that results from a unit increase in the employment of a variable input is
equal to the input’s
a.
total product.
b.
marginal product.
c.
average product.
d.
marginal cost.
88. If two workers can produce 22 units of output, and the addition of a third worker increases output to 30
units, the marginal product of the third worker is
a.
8 units.
b.
10 units.
c.
22 units.
d.
30 units.
89. Where marginal cost is less than average total cost,
a.
opportunity cost must have been excluded from the calculation of marginal cost.
b.
marginal cost must be falling.
c.
marginal cost must be rising.
d.
marginal cost may be rising, falling, or constant.
90. Whenever average total cost exceeds marginal cost,
a.
average total cost is rising.
b.
average total cost is falling.
c.
marginal cost is rising.
d.
marginal cost is falling.
91. Marginal cost is defined as the increase in total cost resulting from an increase in
a.
one unit of output.
b.
output of 100 units.
c.
a firm’s plant size.
d.
one unit of labor.
92. Which of the following must be true if average variable costs are decreasing?
a.
Average fixed cost exceeds average total cost.
b.
Marginal cost exceeds average variable cost.
c.
Marginal cost is less than average variable cost.
d.
Marginal cost is less than average total cost.
93. Which of the following about costs is always true?
a.
When marginal costs are less than average total costs, average total costs will be
decreasing.
b.
When average fixed costs are falling, marginal costs must be less than average fixed costs.
c.
When average fixed costs are rising, marginal costs must be greater than average total
costs.
d.
When marginal costs are greater than average total costs, average total costs will be
decreasing.
94. If a firm increases its output and finds that its average total cost decreases as a result, this implies that
a.
marginal cost exceeds average total cost.
b.
the cost of producing an additional unit of output is more than the average total cost.
c.
average fixed cost is increasing.
d.
average total cost exceeds marginal cost.
95. As output is expanded, if marginal cost (MC) is less than average total cost (ATC),
a.
ATC must be at its minimum.
b.
ATC must be at its maximum.
c.
ATC must be decreasing.
d.
the firm must be earning economic profit.
96. Which of the following must be true if average total costs are declining?
a.
Marginal cost is less than average total cost.
b.
Marginal cost is less than average variable cost.
c.
Marginal cost is greater than average total cost.
d.
Marginal cost equals average total cost.
97. Which of the following must be true if average total costs are rising?
a.
Average fixed costs must be rising.
b.
Total fixed costs must be rising.
c.
Average variable costs must be falling.
d.
Marginal costs must be greater than average total costs.
98. Which of the following explains most accurately why the firm’s short-run marginal cost curve will
eventually rise?
a.
As more of the variable factor is used, its price will rise.
b.
When diminishing marginal returns set in, it will take ever-larger quantities of the variable
resources to produce an additional unit of output.
c.
As the variable factor is used more intensely, its marginal product will rise, causing an
increase in marginal costs.
d.
As the size of the firm increases, the operational efficiency of the firm declines, causing an
increase in marginal costs.
99. In the short run, if average variable costs equal $45, average total costs equal $50, and output equals
100, the total fixed costs will equal
a.
$5.
b.
$500.
c.
$1,000.
d.
$5,000.
100. If a firm has a U-shaped long-run average cost curve,
a.
its fixed cost rises as output rises.
b.
it must have increasing returns to scale at low levels of production and decreasing returns
to scale at high levels of production.