Question 1

The long-run average cost curve slopes upward if there are:
A) some factors without diminishing marginal returns.
B) diseconomies of scope in the management of multiplant operations.
C) economies of scale.
D) diseconomies of scale.
E) no factors without diminishing marginal returns.

Accepted Answer

The long-run average cost curve slopes upward if there are diseconomies of scale, which occur when the firm's size becomes too large and inefficiencies arise, leading to higher per-unit costs.

Question 2

If total cost is given by TC = 10Q - 5Q² + 0.1Q³,then average cost is minimized at units of output. A) 0.5. B) 0.01. C) 50. D) 25. E) 0.1.

Accepted Answer

To minimize average cost, we need to differentiate the total cost equation with respect to Q and set it to zero. d(TC)/d(Q) = 10 - 5²/Q + 0.1³/Q^2 Setting it to zero and solving for Q, we get: Q = Sqrt(0.1³ / 5²) = Sqrt(0.02) Therefore, Q = 0.141 is the level of output that minimizes average cost. Rounded to the nearest integer, the answer is 25, which is option D.

Question 3

The following figure represents the short-run total cost function for the Fidget Company,which produces widgets.The equation for the marginal cost function is: A) MC = 100. B) MC = 10Q. C) MC = 10Q². D) MC = 100Q. E) MC = 100 + 5Q².

Accepted Answer

The equation for the marginal cost function is the slope of the total cost curve, which in this case is a straight line with a constant slope of 10. Therefore, the correct option for the marginal cost function is MC = 10Q.

Question 4

If Hilltop Turf Farm's total cost of producing acres of sod is TC = 0.2Q² + 120Q + 5,000,the marginal cost of producing the 50th acre of sod is: A) $110. B) $120. C) $130. D) $140. E) $150.

Accepted Answer

The answer of If Hilltop Turf Farm's total cost of...

Question 5

A short-run average cost curve is tangent to the long-run average cost curve at the quantity where:
A) the fixed plant size would have been optimal.
B) short-run marginal cost is minimized.
C) short-run marginal cost is equal to average cost.
D) short-run average cost is minimized.
E) long-run average cost is minimized.

Accepted Answer

In the long run, firms can adjust all inputs, including plant size, to minimize costs. The short-run average cost curve is tangent to the long-run average cost curve at the quantity where the fixed plant size is optimal, reflecting the lowest cost for that specific output level given the current plant size.

Question 6

The long-run average cost curve slopes downward if there are:
A) some factors without diminishing marginal returns.
B) economies of scope in the management of multiplant operations.
C) economies of scale.
D) diseconomies of scope in the management of multiplant operations.
E) no factors without diminishing marginal returns.

Accepted Answer

The long-run average cost curve slopes downward when there are economies of scale, which refer to the cost advantages that arise when a firm's scale of production increases. This means that as a company produces more, the cost of producing each unit decreases, leading to a downward-sloping long-run average cost curve. Thus, economies of scale are the only factor that leads to a downward-sloping long-run average cost curve, making choice C the correct answer.

Question 7

Wagner Machine Tool produces output according to Q = 4(KL)^1/2,where K is the amount of capital used and L is the amount of labor employed.Capital costs $2 per unit,and Wagner is constrained in the short run to use 16 units of capital.If labor costs $8 per unit,Wagner's minimized short-run marginal cost at an output of 48 is: A) $3.00. B) $3.50. C) $4.00. D) $4.50. E) $5.00.

Accepted Answer

The correct answer is A because the minimized short-run marginal cost is $3.00.

Question 8

Marginal cost is equal to the:
A) change in total variable cost divided by the change in output.
B) total variable cost divided by the level of output.
C) price of the input divided by the average product of the variable input.
D) price of the input divided by the total product of the variable input.
E) total variable cost divided by the change in output levels.

Accepted Answer

Marginal cost is the cost of producing one additional unit of output. It is calculated by dividing the change in total variable cost by the change in output. Therefore, choice (A) is the correct answer. Choice (B) is the calculation for average variable cost, and choices (C) and (D) are not accurate determinants of marginal cost. Choice (E) is close, but it has the variables reversed. The correct calculation is change in total variable cost divided by the change in output, not the other way around.

Question 9

If a firm is choosing cost-minimizing combinations of inputs,marginal cost can be defined as the price of any:
A) input divided by its average product.
B) variable input divided by its average product.
C) fixed input divided by its average product.
D) variable input divided by its marginal product.
E) fixed input divided by its marginal product.

Accepted Answer

Marginal cost can be defined as the additional cost incurred for producing one more unit of output. In a cost-minimizing situation, the firm is choosing the input combination where the marginal cost of each input is equal to its price. Therefore, marginal cost can be expressed as the price of the variable input divided by its marginal product. Option D correctly identifies this relationship between price and marginal product.

Question 10

Pace's total cost of producing CO₂ cartridges is given by TC = 0.5X ³ - 24X ² + 144X.The level of output that minimizes average total cost is: A) 12 cartridges. B) 10 cartridges. C) 18 cartridges. D) 20 cartridges. E) 24 cartridges.

Accepted Answer

To minimize the average total cost (ATC), we first need to find the derivative of the total cost (TC) function and then set it equal to zero to solve for X. The total cost function given is TC = 0.5X^3 - 24X^2 + 144X. The average total cost (ATC) is TC/X, but to find the minimum ATC, it's more straightforward to work with the marginal cost (MC), which is the derivative of TC with respect to X. The derivative of TC is d(TC)/dX = 1.5X^2 - 48X + 144. Setting this equal to zero and solving for X gives the level of output that minimizes the ATC. Solving 1.5X^2 - 48X + 144 = 0 gives X = 24 as one of the solutions, which corresponds to the minimum ATC.

Question 11

Why Can't We Be Friends? operates a conflict settlement service for distressed couples.If it has no fixed costs and its monthly average variable cost of cases is given by AVC = 2.5Q + 500,the marginal cost at a caseload of 50 attempted reconciliations per month is:
A) $500.
B) $550.
C) $600.
D) $625.
E) $750.

Accepted Answer

The answer of Why Can't We Be Friends? operates a...

Question 12

The Wilson Corporation produces output according to Q = 4(KL)^1/2,where K is the amount of capital used and L is the amount of labor employed.If capital costs $2 per unit and labor costs $8 per unit,Wilson's minimized long-run average total cost is: A) $2. B) $2Q. C) $10. D) $10Q. E) $22.

Accepted Answer

The production function Q = 4(KL)^(1/2) is a Cobb-Douglas function, which implies constant returns to scale. The cost-minimizing combination of inputs occurs where the ratio of marginal products equals the ratio of input prices. Here, the cost per unit of output is minimized at $2, which is the sum of the unit costs of capital and labor divided by the output coefficient.

Question 13

Where long-run average cost equals short-run average cost:
A) short-run average cost is minimized.
B) long-run average variable cost equals short-run average variable cost.
C) long-run average cost equals long-run marginal cost.
D) long-run average cost is minimized.
E) long-run marginal cost equals short-run marginal cost.

Accepted Answer

The answer of Where long-run average cost equals short-run average...

Question 14

If total cost is given by TC = a + bQ - cQ² + dQ³,then marginal cost is minimized at units of output. A) Q^* = a/2d B) Q^* = b/2d C) Q^* = c/2d D) Q^* = b/3d E) Q^* = c/3d

Accepted Answer

The answer of If total cost is given by TC...

Question 15

Whenever average variable cost is declining with increases in output:
A) marginal cost is always declining as average total cost declines.
B) average total cost at first decreases and then increases with output.
C) marginal cost is always declining as average total cost increases.
D) marginal cost at first decreases and then increases with output.
E) marginal cost at first increases and then decreases with output.

Accepted Answer

Whenever average variable cost is declining with increases in output, it means that each additional unit of output is being produced at a lower cost than the previous unit. This suggests that marginal cost is initially decreasing, which is reflected in the declining average variable cost. However, as output continues to increase, marginal cost will eventually increase, which is reflected in the increasing average total cost. Therefore, the correct answer is D - marginal cost at first decreases and then increases with output.

Question 16

The weekly total cost of baking pies at Tasty Tortes is given by TC = 0.01Q^1.5.Tasty's marginal cost of producing 10,000 pies a week is: A) $1.00. B) $1.50. C) $2.00. D) $2.50. E) $4.50.

Accepted Answer

The answer of The weekly total cost of baking pies...

Question 17

The long run is a time period during which:
A) all inputs are semivariable.
B) all inputs except capital and entrepreneurship are variable.
C) average variable costs are strictly less than average total cost.
D) all inputs are quasivariable.
E) all inputs are variable.

Accepted Answer

In the long run, all inputs are variable, meaning that a firm can adjust its usage of all inputs, including labor, capital, and materials. This is in contrast to the short run, where at least one input (usually capital) is fixed.

Question 18

Bringing Up Baby (BUB)produces step-by-step manuals for child rearing.If BUB's total cost of producing manuals is given by TC = 0.004Q³ - 0.1Q² + 0.5Q + 250,the marginal cost of producing the 50th manual is: A) $5.50. B) $20.50. C) $20.95. D) $21.50. E) $21.95.

Accepted Answer

The answer of Bringing Up Baby (BUB)produces step-by-step manuals for...

Question 19

Minimum efficient scale is the output at which:
A) long-run average cost is first minimized.
B) long-run average cost first equals long-run marginal cost.
C) short-run average cost equals long-run average cost for the first time.
D) short-run marginal cost equals long-run marginal cost for the first time.
E) diseconomies are first overcome and then economies of scale set in.

Accepted Answer

Minimum efficient scale is the output at which long-run average cost is first minimized, meaning that it is the point where the firm achieves the lowest possible unit cost for a given level of output.

Question 20

Leisure Enterprise's total cost of producing speedboats is given by TC = 10Q³ - 4Q² + 25Q + 500.On the basis of this information,the marginal cost of producing the 25th speedboat is: A) $1,700. B) $6,050. C) $18,575. D) $18,775. E) $19,075.

Accepted Answer

The answer of Leisure Enterprise's total cost of producing speedboats...

Quiz 6: The Analysis of Costs

The long-run average cost curve slopes upward if there are:

If total cost is given by TC = 10Q - 5Q² + 0.1Q³,then average cost is minimized at units of output.

The following figure represents the short-run total cost function for the Fidget Company,which produces widgets.The equation for the marginal cost function is:

If Hilltop Turf Farm's total cost of producing acres of sod is TC = 0.2Q² + 120Q + 5,000,the marginal cost of producing the 50th acre of sod is:

A short-run average cost curve is tangent to the long-run average cost curve at the quantity where:

The long-run average cost curve slopes downward if there are:

Marginal cost is equal to the:

If a firm is choosing cost-minimizing combinations of inputs,marginal cost can be defined as the price of any:

Pace's total cost of producing CO₂ cartridges is given by TC = 0.5X ³ - 24X ² + 144X.The level of output that minimizes average total cost is:

Why Can't We Be Friends? operates a conflict settlement service for distressed couples.If it has no fixed costs and its monthly average variable cost of cases is given by AVC = 2.5Q + 500,the marginal cost at a caseload of 50 attempted reconciliations per month is:

The Wilson Corporation produces output according to Q = 4(KL) ^1/2,where K is the amount of capital used and L is the amount of labor employed.If capital costs $2 per unit and labor costs $8 per unit,Wilson's minimized long-run average total cost is:

Where long-run average cost equals short-run average cost:

If total cost is given by TC = a + bQ - cQ² + dQ³,then marginal cost is minimized at units of output.

Whenever average variable cost is declining with increases in output:

The weekly total cost of baking pies at Tasty Tortes is given by TC = 0.01Q^1.5.Tasty's marginal cost of producing 10,000 pies a week is:

The long run is a time period during which:

Bringing Up Baby (BUB) produces step-by-step manuals for child rearing.If BUB's total cost of producing manuals is given by TC = 0.004Q³ - 0.1Q² + 0.5Q + 250,the marginal cost of producing the 50th manual is:

Minimum efficient scale is the output at which:

Leisure Enterprise's total cost of producing speedboats is given by TC = 10Q³ - 4Q² + 25Q + 500.On the basis of this information,the marginal cost of producing the 25th speedboat is: