Question 1

Which of the following statements concerning the relationships among the firm's total cost functions is false?
A)TC = TFC + TVC
B)TVC = TFC - TC
C)TFC = TC - TVC
D)TC = TFC when output = 0.

Accepted Answer

The correct relationship is TVC = TC - TFC, not TFC - TC. This is because total variable cost is the portion of total cost that varies with changes in output (hence, "variable"), while total fixed cost remains constant regardless of how much output is produced. Therefore, the equation should reflect that total cost consists of the sum of total fixed cost and total variable cost.

Question 2

Refer to Scenario 3.The average variable cost of producing three units of output is:
A)$15.
B)$25.
C)$41.67 (approximate).
D)$75.

Accepted Answer

The answer of Refer to Scenario 3.The average variable cost...

Question 3

Refer to Scenario 3.The marginal cost of producing the sixth unit of output is:
A)$33.33 (approximate).
B)$55.
C)$200.
D)$250.

Accepted Answer

The answer of Refer to Scenario 3.The marginal cost of...

Question 4

Refer to Scenario 2.Diminishing marginal returns starts to occur between units:
A)2 and 3.
B)3 and 4.
C)4 and 5.
D)5 and 6.

Accepted Answer

The answer of Refer to Scenario 2.Diminishing marginal returns starts...

Question 5

Refer to Scenario 2.The marginal cost of the sixth unit of output is:
A)$1.33.
B)$7.50.
C)$8.00.
D)$45.00.

Accepted Answer

The marginal cost of the sixth unit of output can be calculated by finding the change in total cost divided by the change in quantity, which is ($69.00 - $61.00) / (6 - 5) = $8.00. Therefore, the best choice is C.

Question 6

Refer to Scenario 3.Diminishing marginal returns are incurred when output is increased from:
A)1 to 2 units of output.
B)2 to 3 units of output.
C)3 to 4 units of output.
D)4 to 5 units of output.

Accepted Answer

Diminishing marginal returns occur when adding an additional factor of production results in a smaller increase in output. In this scenario, the transition from 3 to 4 units of output represents the point where additional inputs lead to less proportional increases in output, indicating diminishing marginal returns.

Question 7

Which of the following is true of the relationship between the marginal cost function and the average total cost and average variable cost functions?
A)If MC is greater than ATC and AVC, then ATC and AVC will increase.
B)The ATC and AVC curves intersect the MC curve at minimum MC.
C)The MC curve, ATC curve, and AVC curve all intersect at the same point.
D)At each level of output, MC is equal to difference between AVC and ATC.

Accepted Answer

When the marginal cost (MC) is greater than both the average total cost (ATC) and the average variable cost (AVC), it means the cost of producing an additional unit is higher than the current average costs. This will pull the averages up, causing both ATC and AVC to increase.

Question 8

Which of the following statements is true of the relationship among the average cost functions?
A)ATC = AFC - AVC
B)AVC = AFC + ATC
C)AFC = ATC + AVC
D)AFC = ATC - AVC

Accepted Answer

The relationship among average cost functions is given by the equation ATC = AFC + AVC. When rearranged, this equation becomes AFC = ATC - AVC. Therefore, option D is the correct statement. Option A is incorrect because it is the equation for calculating ATC when given AFC and AVC. Option B is incorrect because it does not represent the relationship among average cost functions. Option C is incorrect because it is the sum of ATC and AVC, and not the relationship between the two.

Question 9

If a firm experiences constant returns to the variable input in the short run:
A)marginal cost will be greater than average variable cost, but the two will become more equal as output increases.
B)marginal cost will be less than average variable cost, but the two will become more equal as output increases.
C)marginal cost will be greater than average variable cost, and the difference between the two will become larger as output increases.
D)marginal cost and average variable cost will be equal over the range of output in question.

Accepted Answer

When a firm experiences constant returns to the variable input, it means that the marginal product of the variable input remains constant as more units of it are added. This results in a constant marginal cost, which is equal to the average variable cost (which only includes variable costs). Therefore, the answer is D, as marginal cost and average variable cost will be equal over the range of output in question.

Question 10

Marginal cost is defined as the change in ________ cost when output changes by one unit.In the short run, marginal cost can also be measured by the change in ________ cost when output changes by one unit.
A)total; fixed
B)variable; fixed
C)fixed; variable
D)total; variable

Accepted Answer

Marginal cost is defined as the change in total cost when output changes by one unit. In the short run, since fixed costs do not change with a change in output, the change in variable cost when output changes by one unit is equal to the change in total cost. Therefore, marginal cost can also be measured by the change in variable cost when output changes by one unit. This is consistent with option D, which refers to total and variable costs.

Question 11

So long as a firm is enjoying increasing marginal returns, a one unit increase in output will cause marginal costs to ________ and total costs to ________.
A)increase; increase
B)decrease; increase
C)increase; decrease
D)decrease; decrease

Accepted Answer

When a firm is enjoying increasing marginal returns, it means that the marginal cost of production is decreasing. Therefore, a one unit increase in output will cause marginal costs to decrease. However, total costs will still increase because the firm is still in the phase of increasing production, which means it is using more inputs and resources to produce the additional unit of output. Hence, total costs will increase.

Question 12

Refer to Scenario 3.The average total cost of 5 units of output is:
A)$8.
B)$10.
C)$29.
D)$39.

Accepted Answer

The answer of Refer to Scenario 3.The average total cost...

Question 13

For a particular production function, over the range of output where marginal product rises as units of the variable input are added to the fixed input, marginal cost will be:
A)increasing.
B)constant.
C)decreasing.
D)cannot be determined without additional information.

Accepted Answer

When the marginal product is increasing as units of the variable input are added to the fixed input, it means that the additional output from each additional unit of input is increasing. This indicates that the marginal cost of producing that output is decreasing, as the cost of each additional unit of input is yielding more output. Therefore, choice C is the best answer.

Question 14

Production functions A and B result in the same average total costs of production.However, production function A is twice as capital intensive as production function B.In this case, all else constant:
A)marginal costs will be higher in A than they are in B.
B)marginal costs will be higher in B than they will in A.
C)because total costs are equal, marginal costs will be equal for the two production functions as well.
D)there is no way to say anything about the relative marginal costs of production in the two production functions without additional information.

Accepted Answer

Since production function A is twice as capital intensive as production function B, it means that A requires more capital and less labor to produce the same output as B. Therefore, as the amount of capital used increases in A, the marginal productivity of capital will decrease faster than in B, which would lead to higher marginal costs in A compared to B.

Question 15

If a firm experiences constant returns to the variable input in the short run:
A)marginal product will be greater than average variable product, but the two will become more equal as output increases.
B)marginal product will be less than average variable product, but the two will become more equal as output increases.
C)marginal product will be greater than average variable product, and the difference between the two will become larger as output increases.
D)marginal product and average variable product will be equal over the range of output in question.

Accepted Answer

When a firm experiences constant returns to the variable input in the short run, it means that the marginal product and average variable product of the variable input will be equal. This occurs because the additional output generated by each additional unit of the variable input is constant, resulting in a constant ratio of marginal product to average variable product.

Question 16

Assume there is an improvement in technology that increases the marginal product of each unit of labor.This would have the effect of:
A)reducing the average total cost, average variable cost, and marginal cost of production.
B)increasing the average total cost, average variable cost, and marginal cost of production.
C)reducing the average variable cost and marginal cost of production, but average total cost would be unchanged.
D)reducing the average total cost and average variable cost of production, but marginal cost would be unchanged.

Accepted Answer

Improvements in technology that increase the marginal product of each unit of labor make it possible for a firm to produce more output with the same amount of labor, or the same output with less labor. This efficiency gain reduces the cost of production per unit, leading to a decrease in average total cost (ATC), average variable cost (AVC), and marginal cost (MC) of production.

Question 17

Refer to Scenario 2.The average fixed cost of 2 units of output is:
A)$8.00.
B)$8.50.
C)$12.00.
D)$20.50.

Accepted Answer

To find the average fixed cost, divide the total fixed cost ($24) by the quantity produced (2 units).

Average fixed cost = Total fixed cost / Quantity produced 
Average fixed cost = $24 / 2 
Average fixed cost = $12

Therefore, the average fixed cost of 2 units of output is $12. Option C is the correct answer.

Question 18

Assume a firm is currently producing 100 units of output, total fixed costs are $10,000, and average variable costs are $8.Based on this information we can conclude, with certainty, that the firm's:
A)marginal costs are $8.
B)total variable costs are $8000.
C)average fixed costs are $2.
D)total costs are $10,800.

Accepted Answer

Total costs = Total fixed costs + Total variable costs
Total variable costs = Average variable cost x Number of units produced
Total variable cost = $8 x 100 = $800
Total costs = $10,000 + $800 = $10,800. Therefore, D is the correct choice.

Question 19

Marginal cost is defined as:
A)the change in total cost due to a one unit change in output.
B)total cost divided by output.
C)the change in output due to a one unit change in an input.
D)total product divided by the quantity of input.

Accepted Answer

Marginal cost refers to the additional cost incurred to produce one more unit of output. It is calculated as the change in total cost divided by the change in output. Therefore, Option A) the change in total cost due to a one unit change in output is the correct definition of marginal cost. Options B) and D) are not correct as they do not involve the change in output. Option C) refers to the concept of marginal product of an input, which is different from marginal cost.

Question 20

Which of the following statements is correct?
A)In the short run, if a firm chooses to produce no output (i.e., shut down)its total costs of production will equal its total fixed costs.
B)If a firm decides to shut down, its short-run total costs will equal 0.
C)As a firm increases output in the short run, the change in total costs is equal to the change in total variable costs.
D)A firm minimizes its total costs of production when average variable cost is minimized.

Accepted Answer

The answer of Which of the following statements is correct?
A)In...

Quiz 5: Production and Cost Analysis in the Short Run

Which of the following statements concerning the relationships among the firm's total cost functions is false?

Refer to Scenario 3.The average variable cost of producing three units of output is:

Refer to Scenario 3.The marginal cost of producing the sixth unit of output is:

Refer to Scenario 2.Diminishing marginal returns starts to occur between units:

Refer to Scenario 2.The marginal cost of the sixth unit of output is:

Refer to Scenario 3.Diminishing marginal returns are incurred when output is increased from:

Which of the following is true of the relationship between the marginal cost function and the average total cost and average variable cost functions?

Which of the following statements is true of the relationship among the average cost functions?

If a firm experiences constant returns to the variable input in the short run:

Marginal cost is defined as the change in cost when output changes by one unit.In the short run, marginal cost can also be measured by the change in cost when output changes by one unit.

So long as a firm is enjoying increasing marginal returns, a one unit increase in output will cause marginal costs to and total costs to .

Refer to Scenario 3.The average total cost of 5 units of output is:

For a particular production function, over the range of output where marginal product rises as units of the variable input are added to the fixed input, marginal cost will be:

Production functions A and B result in the same average total costs of production.However, production function A is twice as capital intensive as production function B.In this case, all else constant:

If a firm experiences constant returns to the variable input in the short run:

Assume there is an improvement in technology that increases the marginal product of each unit of labor.This would have the effect of:

Refer to Scenario 2.The average fixed cost of 2 units of output is:

Assume a firm is currently producing 100 units of output, total fixed costs are $10,000, and average variable costs are $8.Based on this information we can conclude, with certainty, that the firm's:

Marginal cost is defined as:

Which of the following statements is correct?