1) as output rises:
A) AFC rises
B) AFC falls
C) AFC remains the same
D) there is no way of determining what happens to AFC
2) When average total cost is declining, then:
A) marginal cost must be less than average total cost
B) marginal cost must be greater than average total cost
C) average total cost must be greater than average fixed cost
D) average variable cost must be declining
3) the law of diminishing returns:
A) is completely invalid
B) states that if units of a resource are added to a fixed proportion
of other resources, eventually marginal output will decline
C) states that if any two resources are combined, production will fall
D) states that profit margins decline as output rises
4) if fixed cost is $8,000 variable cost is $5,000 at an output of 2 and $9,000 at
an output of 3, how much is marginal cost at an output of 3?
A) $3,000
B) $4,000
C) $5,000
D) $8,000
5) which statement is true?
A) AFC declines with output
B) ATC declines with output
C) AFC - AVC = ATC
D) output divided by fixed cost = AFC
6) the average fixed cost curve:
A) is a vertical line
B) is a horizontal line
C) slopes downward to the right as output rises
D) is U-shaped (it declines as output rises, reaches a minimum, and then rises)
7) as a firm's output expands, the:
A) ATC will reach a minimum before the AVC
B) AVC will reach a minimum before the ATC
C) ATC and AVC will reach minimum at the same output
D) ATC and AVC will reach maximums at the same output
8) marginal cost may be defined as the:
A) change in average total cost that results from producing one more unit of output
B) change in average variable cost that results from producing one more unit of output
C) change in total cost that results from producing one more unit of output
D) rate of change in total fixed cost that results from producing one more unit of output
9) which is most clearly a fixed cost?
A) insurance premiums
B) wages of production workers
C) cost of raw materials
D) Shipping costs
10) fixed cost is sometimes referred to as _____ cost.
A) sunk
B) variable
C) total
D) economic
Adam Smith noted each of the following economies of scale EXCEPT:
A) specialization
B) diminishing returns
C) saving of time that would otherwise be spent going from one task to another
D) employment of expensive equipment
12) Parkinson's Law is an example of:
A) economies of scale
B) diseconomies of scale
C) Adam Smith's pin factory
D) the firm's search for its most profitable output
13) which of the following is the most likely to be a variable cost?
A) raw material costs
B) leasing payments of tour buses for rock and roll bands
C) interest on bonded indebtedness
D) real estate taxes
14) as long as there are ____ costs, we are in the short run.
A) variable
B) fixed
C) marginal
D) average
15) if price is between the break-even point and the shutdown point, in the long run the firm will:
A) operate
B) make a profit
C) stay in business
D) go out of businesss
16) Adam Smith used a pin factory to demonstate:
A) the advantages of economies of scale
B) diseconomies of scale
C) the long-run average cost curve
D) the advantage of being established
17) when output is 0, total cost equals _____ cost
A) total variable
B) total fixed
C) marginal
D) average variable
18) at an output of 1, marginal cost is:
A) 0.
B) $200
C) $300
D) $400
19) the law of diminishing marginal returns implies:
A) the more hours you spend studying economics the less you will know
B) your understanding of economics will be increased by decreasing your marginal study time
C) after a certain point, the more hours you spend studying economics per day, the less you will learn with each added hour
D) the more hours you spend studying economics per day, the more you will learn with each added hour
20) which of the following cost curves will NOT shift downward if the price of a variable input decreases?
A) total cost
B) average cost
C) marginal cost
D) average fixed cost