Chapter 11 Output and Costs

11.1 Decision Time Frames

1) The short run is a period of time in which

A) the quantities of some resources the firm uses are fixed.
B) the amount of output is fixed.
C) prices and wages are fixed.
D) nothing the firm does can be altered.
2) The short run is a period of time in which
A) the quantity used of at least one resource is fixed.
B) the quantities used of all resource are fixed.
C) output prices are fixed.
D) resource prices are fixed.
3) The short run is a time frame in which
A) the quantities of some resources are fixed and the quantities of other resources can be
varied.
B) the quantities of all resources can be varied.
C) the quantities of all resources are fixed.
D) all costs are sunk costs.
4) An example of a variable resource in the short run is
A) a building.
B) capital equipment.
C) an employee.
D) land.
5) A cost that has already been made and cannot be recovered is called a
A) variable cost.
B) fixed cost.
C) sunk cost.
D) marginal cost.

6) The long run is a time frame in which

A) the quantities of some resources are fixed and the quantities of other resources can be
varied.
B) the quantities of all resources can be varied.
C) the quantities of all resources are fixed.
D) all costs are sunk costs.
7) In the long run, a firm can vary
A) its capital but not its labor.
B) its labor but not its capital.
C) both its labor and its capital.
D) neither its labor nor its capital.
8) The long run is distinguished from the short run because only in the long run
A) output prices can vary.
B) resource prices can vary.
C) the quantities of all resources can be varied.
D) the firm no longer maximizes its profit.
9) In the short run,

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 A) the size of the plant is fixed.
B) all inputs are variable.
C) all inputs are fixed.
D) some firms experience increasing returns to scale.
10) The long run is a time period in which
A) one year or less elapses.
B) all inputs are variable.
C) all inputs are fixed.
D) there is at least one fixed input and at least one variable input.
11) All the decisions made by people who operate firms have one overriding objective, which is
to ________.
A) make maximum attainable profit
B) maximize the firm's total revenue
C) maximize the firm's market share
D) maximize the quantity that the firm sells
12) In economics, the short run is the time frame in which the quantities of ________ and the
long run is the period of time in which ________.
A) some resources are variable; the quantities of all resources are fixed
B) all resources are variable but technology is fixed; technology is variable
C) all resources are fixed; the quantities of all resources can be varied
D) some resources are fixed; the quantities of all resources can be varied
11.2 Short-Run Technology Constraint

1) The marginal product of labor is the increase in total product from a

A) one unit increase in the quantity of labor, while holding the quantity of capital
constant.
B) one unit increase in the quantity of labor, while also increasing the quantity of capital
by one unit.
C) one dollar increase in the wage rate, while holding the price of capital constant.
D) one percent increase in the wage rate, while also increasing the price of capital by one
percent.
2) The marginal product of labor is the change in total product from a one-unit increase in
A) the quantity of labor employed, holding the quantity of capital constant.
B) the quantity of capital employed, holding the quantity of labor constant.
C) both the quantity of labor and the quantity of capital employed.
D) the wage rate.
3) The marginal product of labor is the
A) change in output resulting from a one-unit increase in labor.
B) maximum output attainable with fixed factors when labor is the only variable factor.
C) output level above which the slope of the total product curve falls.
D) output level above which the rate of total product per unit of labor falls.

4) The average product of labor is

A) the inverse of the average product of capital.
B) the slope of the curve showing the marginal product of labor.
C) the slope of the curve showing the total product of labor.
D) total product divided by the total quantity of labor employed.
5) Average product is the
A) total product per unit of an input.
B) maximum output attainable with fixed factors and one variable factor.
C) change in total product due to a one unit change in input.
D) total product divided by the total cost.
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 Total Product, Marginal Product, Average Product
Total
product Margi Avera
Labor (units nal ge
(workers per produ prod
per day) day) ct uct
0 0 0 0
1 2 2 2
2 8
3 12
4 15
5 16 1
6) In the above table, the marginal product of the second worker is
A) 1.
B) 2.
C) 3.
D) 4.
7) In the above table, the marginal product of the third worker is
A) 1.
B) 2.
C) 3.
D) 4.
8) In the above table, the marginal product of the fourth worker is
A) 1.
B) 3.
C) 4.
D) 6.
9) In the above table, the marginal product is greatest when the
A) first worker is hired.
B) second worker is hired.
C) third worker is hired.
D) fourth worker is hired.
10) In the above table, the average product of three workers is
A) 1.
B) 2.
C) 3.
D) 4.
11) In the above table, the average product is less than the marginal product
A) when the first worker is hired.
B) when the second worker is hired.
C) when the third worker is hired.
D) for the entire range of output given.
12) Points below a firm's total product curve are
A) both attainable and technologically efficient.
B) neither attainable nor technologically efficient.
C) attainable but not technologically efficient.
D) technologically efficient but not attainable.

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13) Points on a firm's total product curve are
A) both attainable and technologically efficient.
B) neither attainable nor technologically efficient.
C) attainable but not technologically efficient.
D) technologically efficient but not attainable.

14) When the total product curve is drawn in a figure that measures employment along the
horizontal axis, it is a graph that shows the
A) minimum cost of producing a given amount of output using different techniques.
B) maximum profit attainable for each unit of output sold per unit of labor employed.
C) maximum output attainable for each quantity of labor employed.
D) minimum output attainable for each quantity of labor employed.

15) In the figure above, the marginal product of the second worker is
A) 10 units.
B) 5 units.
C) 2 units.
D) 1 units.
16) In the above figure, after the second worker is hired, the marginal product of labor is
A) increasing.
B) diminishing.
C) constant.
D) zero.

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17) At point d in the above figure, the average product of labor equals
A) 15.
B) 4.
C) 3.75.
D) approximately 1.
18) In the above figure, the average product of labor at point c is
A) 10.
B) 5.
C) 2.
D) None of the above answers is correct.
19) In the figure above,
A) d is an efficient point.
B) f is an efficient point.
C) g is an efficient point.
D) there are no efficient points.
20) In the above figure, an inefficient point is
A) a.
B) e.
C) g.
D) f.
21) In the above figure, an unattainable point is
A) a.
B) e.
C) g.
D) f.
22) In the above figure, the most efficient way to produce 10 units is to hire
A) 1 worker.
B) 2 workers.
C) 3 workers.
D) 5 workers.

23) In the above figure, the most efficient way to produce 15 units is to hire
A) 2 workers.
B) 3 workers.
C) 4 workers.
D) 5 workers.
24) In the above figure, the maximum number of units that 4 workers can produce is
A) 5 units.
B) 10 units.
C) 15 units.
D) more than 15 units.
25) In the above figure, the marginal product of labor is zero at point
A) a.
B) c.
C) e.
D) f.

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26) At point e in the above figure, the marginal product of labor definitely
A) is less than the average product of labor.
B) equals the average product of labor.
C) is greater than the average product of labor.
D) is at its maximum.
27) The steeper the slope of the total product curve, the
A) larger is the marginal product of labor.
B) smaller is the marginal product of labor.
C) higher is the level of the total cost curve.
D) more efficient is the technology employed.
28) Increasing marginal returns to labor might occur at low levels of labor input because of
A) increasing average costs.
B) differing factor proportions.
C) increasing specialization of tasks.
D) decreasing use of machinery and increasing use of technology.

29) In general, increasing marginal returns occur

A) as output expands at low levels of production.
B) through the entire range of production.
C) as output expands at high levels of production.
D) whenever the slope of the total product curve is positive.
30) "Diminishing marginal returns" refer to a situation in which the
A) marginal cost of the last worker hired is less than the marginal cost of the previous
worker hired.
B) average cost of the last worker hired is less than the average cost of the previous
worker hired.
C) marginal product of the last worker hired is less than the marginal product of the
previous worker hired.
D) average product of the last worker hired is less than the average product of the
previous worker hired.
31) The law of diminishing returns implies that, with the use of capital fixed, as the use of labor
rises,
A) total product will fall eventually.
B) the marginal product of labor will fall eventually.
C) the total product of labor will fall below the marginal product of labor.
D) the production process will become technologically inefficient eventually.
32) The law of diminishing returns states that as
A) the size of a plant increases, the firm's fixed cost decreases.
B) the size of a plant increases, the firm's fixed cost increases.
C) a firm uses more of a variable input, given the quantity of fixed inputs, the marginal
product of the variable input eventually diminishes.
D) a firm uses more of a variable input, given the quantity of fixed inputs, the firm's
average total cost will decrease eventually.

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 Labor Total
(worker product
s) (units)
0 0
5 1000
10 3000
15 4000
20 4500
33) In the above table, between what two levels of output does one first observe the law of
diminishing returns?
A) 0 and 1000
B) 1000 and 3000
C) 3000 and 4000
D) 4000 and 4500

Labor Total
(worker product
s) (shirts)
0 0
1 50
2 120
3 180
4 220
5 250
34) The table above shows the short-run product schedule for Virginia's Tee-Shirts. What is the
marginal product associated with the hiring the fifth worker?
A) 30 shirts
B) 50 shirts
C) 235 shirts
D) 250 shirts
35) The table above shows the short-run product schedule for Virginia's Tee-Shirts. What is the
average product associated with hiring the fourth worker?
A) 40 shirts
B) 55 shirts
C) 50 shirts
D) 220 shirts

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36) The table above shows the short-run product schedule for Virginia's Tee-Shirts. The worker
for whom the law of diminishing returns initially occurs is the ________ worker.
A) 5th
B) 4th
C) 3rd
D) 2nd

Total
product
(books
Labor sold
(worker per
s) hour)
0 0
1 10
2 24
3 40
4 58
5 73
6 83
7 87
8 89
9 90
10 90
37) The above table shows the short-run total product schedule for the campus book store. What
is the marginal product (MP) of the 6th employee at the book store?
A) 83 books sold
B) 13.83 books sold
C) 10 books sold
D) between 11 and 14 books sold
38) The above table shows the short-run total product schedule for the campus book store.
Which employee has the highest marginal product (MP)?
A) the 10th employee
B) the 5th employee
C) the 4th employee
D) the 1st employee
39) The above table shows the short-run total product schedule for the campus book store. What
is the average product (AP) of the 4th employee?
A) 58 books sold
B) 14.5 books sold
C) 18 books sold
D) 13.3 books sold
40) The above table shows the short-run total product schedule for the campus book store.
When the fifth employee is hired, the marginal product is ________ and is ________ the
average product.
A) increasing; greater than
B) increasing; less than
C) decreasing; greater than
D) decreasing; less than

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41) The above table shows the short-run total product schedule for the campus book store. At
what levels of books sold per hour will the marginal product of labor be greater than the
average product of labor?
A) 40 books sold per hour
B) 73 books sold per hour
C) Both A and B are correct.
D) Neither A nor B is correct.
42) The above table shows the short-run total product schedule for the campus book store.
When the book store hires the 3rd employee,
A) the bookstore is still experiencing increasing marginal returns.
B) the book store has already begun to experience diminishing marginal returns, but
average product is still rising.
C) both marginal and average product have already begun to decline.
D) marginal product is at its maximum.
43) The above table shows the short-run total product schedule for the campus book store. With
which employee do diminishing marginal returns set in?
A) the 9th employee
B) the 6th employee
C) the 5th employee
D) the 2nd employee

Total
product
Labor (units
(worker per
s) hour)
0 0
1 8
2 20
3 34
4 46
5 56
6 64
7
8 74
9 75
44) In the above table, the marginal product of the 7th worker is 6. What is the total product
when 7 workers are employed?
A) 68
B) 70
C) 72
D) 76
45) In the above table, what is marginal product of labor for the 2nd worker?
A) 20
B) 8
C) 10
D) 12
46) In the above table, what is marginal product of labor for the 5th worker?

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 A) 10
B) 14
C) 9
D) 11.2
47) In the above table, what is average product when 4 workers are employed?
A) 12
B) 10
C) 11.5
D) 9.5

48) In the above table, diminishing marginal returns start to occur when the
A) 3rd worker is employed.
B) 4th worker is employed.
C) 5th worker is employed.
D) 6th worker is employed.
49) When the marginal product equals the average product, the
A) average product curve is downward sloping.
B) average product curve is upward sloping.
C) marginal product is at its maximum.
D) average product is at its maximum.
50) Which of the following statements is true for any marginal and average?
A) When the marginal is greater than the average, the average rises.
B) When the marginal is less than the average, the average rises.
C) When the marginal is rising, the average is rising.
D) When the marginal is equal to the average, the average falls.
51) Which of the following statements is true?
A) The marginal and average product curves intersect at the maximum level of output.
B) At every output level the marginal product curve lies above the average product curve.
C) The marginal product and average product curves intersect when average product is at
its maximum.
D) The marginal product curve always has a positive slope.
52) The marginal product and average product curves
A) never intersect.
B) intersect at the maximum point of the marginal product curve.
C) intersect at the maximum point of the average product curve.
D) do not intersect at any predictable point.

53) When the marginal product curve is downward sloping, the average product curve
A) must also be downward sloping.
B) might be either upward or downward sloping.
C) must be upward sloping.
D) must be horizontal.
54) If a firm's marginal product of labor is less than its average product of labor, then an increase
in the quantity of labor it employs definitely will
A) decrease its total product.
B) decrease its average product of labor.
C) increase its marginal product of labor.
D) not change its average product of labor.

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55) With a technological change that increases productivity, the average product curve ________
and the marginal product curve ________.
A) shifts upward; is unchanged
B) is unchanged; is unchanged
C) is unchanged; shifts upward
D) shifts upward; shifts upward
56) Total product divided by the total quantity of labor employed equals the
A) average product of labor.
B) marginal product of labor.
C) average total cost.
D) average variable cost.
57) Diminishing marginal returns occurs when
A) all inputs are increased and output decreases.
B) all inputs are increased and output increases by a smaller proportion.
C) a variable input is increased and output decreases.
D) a variable unit is increased and its marginal product falls.

58) The average product of labor exceeds the marginal product of labor
A) when the average product of labor is falling.
B) when the average product of labor is rising.
C) when the marginal product of labor is at its maximum.
D) when the average product of labor is at its maximum.
59) When the marginal product of labor exceeds the average product of labor,
A) the average product of labor is increasing.
B) the average product of labor is decreasing.
C) the total product curve is negatively sloped.
D) the firm is experiencing decreasing returns to scale.

Total
product
Labor (units
(worker per
s) day)
0 0
1 3
2 12
3 19
4 23
5 25
60) Using the data in the above table, if the firm employs 3 workers, total product (measured in
units per day) and average product and marginal product of the third worker (measured in
units per worker) are
A) 19, 6 1/3, and 9 respectively.
B) 3, 19, and 6 1/3 respectively.
C) 19, 3, and 9 respectively.
D) 19, 6 1/3, and 7 respectively.

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61) Using the data in the above table, if the firm employs 5 workers, total product (measured in
units per day) and average product and marginal product of the fifth worker (measured in
units per worker) are
A) 23, 5.00, and 4 respectively.
B) 23, 5.75, and 4 respectively.
C) 25, 5.00, and 2 respectively.
D) 25, 5.75, and 4 respectively.

62) Average product of labor is equal to ________.

A) total product multiplied by the quantity of labor employed.
B) the total product produced
C) the quantity of labor employed divided by total product
D) total product divided by the quantity of labor employed
63) The law of diminishing marginal returns says that as the firm uses more of ________, with a
given quantity of ________, the ________ product of the variable input eventually
diminishes.
A) a fixed input; variable inputs; marginal
B) all inputs; capital; average
C) a variable input; fixed inputs; average
D) a variable input; fixed inputs; marginal
64) As more and more of the ________ input is used, the total product curve increases quickly at
first because ________ product increases and then more slowly because ________.
A) fixed; average; average product decreases
B) variable; average; average product reaches a maximum
C) variable; marginal; marginal product diminishes
D) fixed; marginal; marginal product reaches a maximum
65) Which of the following statements is true?
A) When marginal product is less than average product, average product is rising.
B) When marginal product is less than average product, average product is falling.
C) When marginal product is falling, average product is falling.
D) When marginal product is rising, average product is falling.
66) Diminishing marginal returns start when as output increases,
A) total product reaches a maximum.
B) average product begins to decrease.
C) average product reaches a maximum.
D) marginal product begins to decrease.

67) Which of the following statements is true?

A) If average product equals marginal product, average product falls.
B) If marginal product equals average product, average product is a maximum.
C) If marginal product equals average product, marginal product is a maximum.
D) If marginal product exceeds average product, marginal product rises.

Labor Quantity
(workers (T shirts
per day) per day)
0 0
1 10
2 22
3 30
4 34

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 5 35
68) The table above shows some data that describe Tom's T-Shirts' total product when Tom has
1 sewing machine. An increase in the number of workers from 1 to 2 a day increases average
product of labor from ________ T shirts per worker and marginal product of labor is
________ T shirts per worker.
A) 10 to 11; 22
B) 10 to 22; 12
C) 10 to 22; 22
D) 10 to 11; 12
69) The table above shows some data that describe Tom's T-Shirts' total product when Tom's has
1 sewing machine. Diminishing marginal returns begin when the ________ is employed.
A) second worker
B) fifth worker
C) fourth worker
D) third worker
70) When marginal product of labor is a maximum, average product of labor is ________.
A) a maximum
B) increasing
C) decreasing
D) equal to marginal product

Labor Quantity
(workers (T shirts
per day) per day)
0 0
1 10
2 22
3 30
4 34
5 35
71) The table shows some data that describes Tom's T-Shirts' total product when Tom's has 1
sewing machine. When 4 workers are employed, ________.
A) average product of labor is a maximum
B) marginal product of labor is less than average product of labor
C) marginal product of labor exceeds average product of labor
D) marginal product of labor equals average product of labor
72) Diminishing marginal returns occur when ________.
A) the average product of the variable input eventually diminishes
B) the marginal product of an additional worker is less than the marginal product of the
previous worker hired
C) the firm hires cheap less-skilled workers in place of expensive high-skilled workers
D) total product eventually diminishes
11.3 Short-Run Cost

1) Total cost is the sum of fixed costs and

A) accounting costs.
B) explicit costs.
C) implicit costs.
D) variable costs.

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 2) A firm has fixed costs
A) in the short run and in the long run.
B) in the short run but not in the long run.
C) in the long run but not in the short run.
D) neither in the long run nor in the short run.

3) Total fixed cost is the sum of all

A) costs of the firm's fixed inputs.
B) costs associated with the production of goods.
C) costs that rise as output increases.
D) explicit costs.
4) Total variable cost is the sum of all
A) costs of the firm's fixed inputs.
B) costs associated with the production of goods.
C) costs that rise as output increases.
D) implicit costs.
5) A firm's marginal cost is the increase in its total cost divided by the increase in its
A) quantity of labor.
B) average cost.
C) output.
D) average revenue.
6) Marginal cost is
A) all the costs of the fixed inputs.
B) all the costs of production of goods.
C) all the costs that vary with output.
D) the change in the total cost resulting from a one-unit change in output.
7) Marginal cost is calculated as
A) total cost divided by output.
B) the increase in total cost divided by the increase in output.
C) the increase in total cost divided by the increase in labor, given the amount of capital.
D) total cost minus total fixed cost.

8) A company could produce 99 units of a good for $316 or produce 100 units of the same good
for $320. The marginal cost of the 100th unit
A) is $3.20.
B) is $4.00
C) is $320.
D) cannot be calculated with this information.
9) A company could produce 100 units of a good for $320 or produce 101 units of the same
good for $324. The $4 difference in costs is
A) the marginal benefit of producing the 101st unit.
B) the marginal cost of producing the 101st unit.
C) both the marginal benefit and the marginal cost of producing the 101st unit.
D) neither the marginal benefit nor the marginal cost of producing the 101st unit.
10) As output increases, marginal cost will eventually
A) increase because of the law of increasing returns.
B) increase because of the law of diminishing returns.
C) decrease because of the law of diminishing returns.
D) decrease because of the law of increasing returns.

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11) By using more labor to produce more output, a firm can always reduce its
A) marginal cost.
B) average variable cost.
C) average total cost.
D) average fixed cost.
12) Average total costs are total costs divided by
A) total output.
B) total fixed costs.
C) total variable costs.
D) the total number of workers employed.

13) Average total costs are

A) total costs divided by total output.
B) total output divided by total costs.
C) the change in total costs divided by the change in output.
D) the change in output divided by the change in total costs.

Cost schedule
Total Total
Output
Labor fixed variabl
(units
(worker cost e cost
per
s) (dollars (dollars
day)
) )
0 0 20 0
1 4 20 25
2 9 20 50
3 13 20 75
4 16 20 100
5 18 20 125
14) In the above table, the total cost of producing 9 units of output is
A) $20.
B) $30.
C) $50.
D) $70.
15) The above table shows a firm's
A) long-run costs.
B) short-run costs.
C) short-run and long-run costs.
D) More information is needed to determine if the costs are long-run costs or short-run
costs.
16) In the above table, the total variable cost of producing 16 units of output is
A) $20.
B) $60.
C) $100.
D) $120.

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17) Using the data in the above table, when output increases from 4 to 9 units, the marginal cost
of one of those 5 units is
A) $4.00.
B) $4.25.
C) $5.00.
D) $6.25.
18) Using the data in the above table, the average fixed cost of producing 9 units per day is
A) $2.22.
B) $5.00.
C) $5.55.
D) $20.00.
19) Using the data in the above table, the average total cost of producing 16 units per day is
A) $1.25.
B) $6.25.
C) $7.00
D) $7.50.

Total
Total
variabl
Output cost
e cost
(pies) (dollars
(dollars
)
)
0 0 300
100 400
200 1,000
300 1,800
400 2,800
20) The above table gives some of the costs of the Delicious Pie Company. What is the total fixed
cost of producing 100 pies?
A) $300
B) $400
C) $700
D) More information is needed to calculate the total fixed cost.

21) The above table gives some of the costs of the Delicious Pie Company. The marginal cost of
increasing pie output from 200 to 300 pies equals ________ per pie.
A) $1.800
B) $1,000
C) $8
D) $6
22) The above table gives some of the costs of the Delicious Pie Company. What is the average
variable cost of producing 300 pies?
A) $1,800
B) $6
C) $5
D) More information is needed to calculate the average variable cost.

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23) The above table gives some of the costs of the Delicious Pie Company. What is the average
total cost of producing 200 pies?
A) $5.00
B) $650
C) $6.50
D) More information is needed to calculate the average variable cost.

Averag
Total e Margin
Output cost variabl al cost
(units) (dollars e cost (dollars
) (dollars )
)
0 10
3 80
9 20
14 290
17 380
24) The above (incomplete) table provides information about the relationships between output
and various cost measures. The total fixed cost (TFC) for the firm is
A) zero.
B) $45.
C) $10.
D) None of the above answers is correct.

25) The above (incomplete) table provides information about the relationships between output
and various cost measures. The total cost (TC) of producing 9 units of output is
A) $180.
B) $190.
C) $20.
D) None of the above answers is correct.
26) The above (incomplete) table provides information about the relationships between output
and various cost measures. The marginal cost per unit when increasing output from 14 to 17
units is
A) $20.
B) $30.
C) $380.
D) None of the above answers is correct.

Total Total
Total
fixed variabl
Output cost
cost e cost
(tents) (dollars
(dollars (dollars
)
) )
0 50 0 50
1 50 25 75
2 50 45 95
3 50 70 120
4 50 115 165

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27) The above table shows some cost data for Tracey's Tents. What is the marginal cost of the
3rd tent?
A) $25
B) $20
C) $70
D) $120
28) The above table shows some cost data for Tracey's Tents. What is the average total cost when
output is 3?
A) $120
B) $30
C) $40
D) $50

29) The above table shows some cost data for Tracey's Tents. What is the average fixed cost
when 4 tents are produced?
A) $50.00
B) $12.50
C) $25.00
D) $37.50

Quantit Total
y variabl
(barrels e cost
of (dollars
pickles) )
0 0
1 20
2 35
3 50
4 75
5 110
6 160
30) The above table gives some cost data for Peter's Pickles. Peter's fixed cost is $20. His total
cost of producing 6 barrels of pickles is
A) $160.
B) $180.
C) $450.
D) There is not enough information to answer the question.
31) The above table gives some cost data for Peter's Pickles. Peter's fixed cost is $20. The
marginal cost of increasing output from 3 to 4 barrels of pickles is
A) $25.
B) $75.
C) $20.
D) $50.
32) The above table gives some cost data for Peter's Pickles. Peter's fixed cost is $20. The average
total cost (ATC) when 5 barrels of pickles are produced is
A) $22.
B) $26.
C) $35.
D) There is not enough information to answer the question.

18
33) The above table gives some cost data for Peter's Pickles. Peter's fixed cost is $20. Average
variable cost (AVC) is lowest when output is equal to
A) 1 barrel of pickles.
B) 2 barrels of pickles.
C) 3 barrels of pickles.
D) 4 barrels of pickles.

Cost schedule
Total
Output Total
Labor variabl
(units cost
(worker e cost
per (dollars
s) (dollars
day) )
)
0 0 0 30
1 3 20 50
2 8 40 70
3 12 60 90
4 14 80 110
5 15 100 130
34) In the above table, the total fixed cost is
A) $0.
B) $20.
C) $30.
D) $50.
35) In the above table, the total fixed cost at 3 units of output is
A) $0.
B) $30.
C) $60.
D) $90.
36) In the above table, when output increases from 8 to 12 units, the marginal cost of one of
those 4 units is
A) $1.20.
B) $2.00.
C) $5.00.
D) $15.00.

37) In the above table, the average fixed cost of producing 15 units of output is
A) $0.50.
B) $2.00.
C) $6.66.
D) $8.66.
38) In the above table, the average variable cost of producing 14 units of output is
A) $0.175.
B) $5.71.
C) $7.86.
D) $10.00.
39) In the above table, the average total cost of producing 14 units of output is
A) $5.71.
B) $6.75.
C) $7.00.
D) $7.86.

19
40) A firm's average total cost is $100, its average variable cost is $90, and its total fixed cost is
$1,000. Its output is
A) less than 70 units.
B) between 70 and 120 units.
C) between 120 and 170 units.
D) more than 170 units.
41) A firm's average total cost is $80, its average variable cost is $75, and its output is 50 units. Its
total fixed cost is
A) less than $100.
B) between $100 and $200.
C) between $200 and $300.
D) more than $300.
42) A firm's average variable cost is $60, its total fixed cost is $3,000, and its output is 600 units.
Its average total cost is
A) less than $58.
B) between $58 and $62.
C) between $62 and $64.
D) more than $64.
43) A firm's average variable cost is $90, its total fixed cost is $10,000, and its output is 1,000
units. Its total cost is
A) less than $85,000.
B) between $85,000 and $95,000.
C) between $95,000 and $105,000.
D) more than $105,000.
44) A firm's average total cost is $80, its fixed cost is $1000, and its output is 100 units. Its
average variable cost
A) is less than $40.
B) is between $40 and $60.
C) is more than $60.
D) cannot be determined without more information.
45) A firm's marginal cost is $30, its average total cost is $50, and its output is 800 units. Its total
cost of producing 801 units is
A) less than $40,000.
B) between $40,000 and $40,050.
C) between $40,050 and $40,080.
D) greater than $40,080.
46) A firm's marginal cost is $82, its average total cost is $50, and its output is 800 units. Its total
cost of producing 801 units is
A) less than $40,000.
B) between $40,000 and $40,050.
C) between $40,050 and $40,080.
D) greater than $40,080.

20
47) The vertical distance between a firm's total cost (TC) and its total variable cost (TVC) curves
A) decreases as output decreases.
B) is equal to the average variable cost, AVC.
C) is equal to the total fixed cost, TFC.
D) is equal to the marginal cost, MC.

48) In the above figure, the total fixed cost curve is curve
A) A.
B) B.
C) C.
D) none of the curves in the figure
49) In the above figure, the total variable cost curve is curve
A) A.
B) B.
C) C.
D) none of the curves in the figure
50) In the above figure, the total cost curve is curve
A) A.
B) B.
C) C.
D) none of the curves in the figure
51) In the above figure, the relationship between costs indicates that the distance between curves
A) A and B is equal to the fixed cost.
B) A and B is equal to the variable cost.
C) B and C is equal to the fixed cost.
D) B and C is equal to the average total cost.
52) As output increases, the slope of the curve showing the firm's average fixed cost is
A) first negative then positive.
B) first positive then negative.
C) always negative.
D) always positive.

21
53) The vertical distance between a firm's average total cost curve, ATC, and its average variable
cost curve, AVC,
A) decreases as output increases.
B) is equal to its marginal cost, MC.
C) is equal to its total fixed cost, TFC.
D) is equal to its average product.
54) The marginal cost (MC) curve intersects the
A) ATC, AVC, and AFC curves at their minimum points.
B) ATC and AFC curves at their minimum points.
C) AVC and AFC curves at their minimum points.
D) ATC and AVC curves at their minimum points.

55) In the above figure, the marginal cost curve is curve

A) A.
B) B.
C) C.
D) D.
56) In the above figure, the average fixed cost curve is curve
A) A.
B) B.
C) C.
D) D.
57) In the above figure, the average variable cost curve is curve
A) A.
B) B.
C) C.
D) D.

22
58) In the above figure, the average total cost curve is curve
A) A.
B) B.
C) C.
D) D.
59) In the above figure, as output increases, the distance between curves B and C decreases
because
A) total cost decreases as output increases.
B) average fixed cost decreases as output increases.
C) there are diminishing returns to average total cost.
D) there are increasing marginal costs as output increases.
60) In the above figure, curve D slopes downward because
A) average fixed costs decrease as output increases.
B) all costs decrease as output increases.
C) there are diminishing returns.
D) there are decreasing marginal costs.
61) In the above figure, the intersection of curves A and C is the point at which
A) average total cost is minimized.
B) average variable cost is minimized.
C) average fixed cost is minimized.
D) total product is maximized.
62) In the above figure, the intersection of curves A and B is the point at which
A) average total cost is minimized.
B) average variable cost is minimized.
C) average fixed cost is minimized.
D) total product is maximized.
63) Average variable cost is at a minimum at the same amount of output at which
A) average product is at a maximum.
B) marginal product is at a maximum.
C) average product is at a minimum.
D) marginal product is at a minimum.

64) The range of output over which a firm's average variable cost is decreasing is the same as the
range over which its
A) marginal cost is increasing.
B) average fixed cost is decreasing.
C) average product is increasing.
D) average product is decreasing.
65) A change in technology that shifts the firm's total product curve upward without changing
the quantity of capital used
A) shifts the average total cost curve upward.
B) shifts the average total cost curve downward.
C) does not change the cost curves.
D) shifts the marginal cost curve upward.
66) Which cost always increases as output increases?
A) total cost
B) marginal cost
C) average total cost
D) average fixed cost
67) Pat's Catering finds that when it caters 20 meals a week, its total cost is $6,000. If Pat has total
variable cost of $5,000, what is Pat's total fixed cost?

23
 A) $50
B) $250
C) $1,000
D) $6,000
68) The change in total cost from producing another unit of output equals the
A) average total cost.
B) variable cost.
C) average variable cost.
D) marginal cost.

69) A farmer discovers that the total cost of growing 50 acres of eggplant is $50,000 and that the
total cost of growing 51 acres of eggplant is $52,000. The marginal cost of the 51st acre of
eggplant is
A) $52,000.
B) $50,000.
C) $2,000.
D) $1,000.
70) Which curve intersects the AVC curve at its minimum point?
A) the MC curve
B) the ATC curve
C) the AFC curve
D) the MP curve
71) If the ATC curve has a positive slope, then the MC curve must be
A) horizontal.
B) vertical.
C) above the ATC curve.
D) below the ATC curve.
72) The average variable cost curve shifts downward if
A) there is a decrease in fixed costs.
B) there is a technological advance.
C) the cost of a variable input increases.
D) the price of output decreases.
73) The cost of a variable input, such as the wage paid to workers, decreases. This decrease shifts
the
A) total fixed cost curve downward.
B) marginal product of labor curve downward.
C) average variable cost curve downward.
D) marginal product of labor curve upward.

24
 Total Total
fixed variabl Total
Labor
Output cost, e cost, cost, TC
(worker
(units) TFC TVC (dollars
s)
(dollars (dollars )
) )
0 0 20 0 20
1 4 20 25 45
2 9 20 50 70
3 13 20 75 95
4 16 20 100 120
5 18 20 125 145
74) Using the data in the above table, the average fixed cost of producing 16 units is
A) $1.11 a unit.
B) $1.25 a unit.
C) $1.54 a unit.
D) $2.22 a unit.
75) Using the data in the above table, when the firm increases its output from 4 to 9 units, the
marginal cost of a unit is
A) $4.00 a unit.
B) $5.00 a unit.
C) $6.00 a unit.
D) $7.00 a unit.

76) In the above figure, which of the following statements is FALSE?

A) The total fixed cost curve is curve C.
B) Total variable cost and total cost both increase as output increases.
C) Marginal cost is equal to the slope of curve A.
D) The vertical gap between curves A and B is equal to average fixed cost.
25
77) In the above figure, which of the following statements is FALSE?
A) Average fixed cost decreases as output decreases.
B) The vertical gap between curves B and C equals marginal fixed cost.
C) The vertical gap between curves B and C gets smaller as AFC decreases.
D) Curve A is the marginal cost curve.
78) Poppy Lipstick is a lipstick producer. A decrease in the rent paid by Poppy Lipstick
A) shifts its TFC curve downward but not its TVC curve.
B) shifts both its TFC curve and its TVC curve downward.
C) does not shift its TFC curve but shifts its TVC curve upward.
D) does not shift its TFC curve but shifts its TVC curve downward.
79) Sticky Cakes is a bakery. A decrease in the wage rate that Sticky Cakes pays its workers
A) does not shift its MC curve or its ATC curve.
B) shifts its MC curve downward but not its ATC curve.
C) shifts both its MC curve and its ATC curve downward.
D) does not shift its MC curve but shifts its ATC curve downward.
80) Which of the following statements is correct?
A) As output increases, total cost and total fixed cost increase by the same amount.
B) As output increases, total cost and total fixed cost increase but not necessarily by the
same amount.
C) As output increases, total cost increases and total fixed cost decreases.
D) Total fixed cost plus total variable cost equals total cost.
81) Marginal cost is the increase in total ________ that results from a one-unit increase in
________.
A) fixed cost; the fixed input
B) cost; output
C) variable cost; the variable input
D) fixed cost; output

26
82) Which of the following statements is true?
A) Average fixed cost equals average total cost plus average variable cost.
B) Average variable cost is always greater than average fixed cost.
C) Average fixed cost equals total fixed cost divided by total output.
D) Average total cost always falls as output increases.
83) If marginal cost is less than average total cost, then ________ is ________.
A) average total cost; falling
B) average variable cost; falling
C) marginal cost; falling
D) marginal cost; rising
84) If marginal cost exceeds average variable cost, then ________ cost is ________.
A) average total; at a maximum
B) average total; falling
C) average variable; rising
D) average fixed; at a maximum
85) The marginal cost curve passes through the ________ points of the ________ cost curve and
the ________ cost curve.
A) minimum; average total; average variable
B) minimum; average total; average fixed
C) maximum; total cost; total variable
D) minimum; average variable; average fixed

Total Total
Output cost variable
(T shirts (dollars cost
per hour) ) (dollars)
4 42 22
5 50 30
6 60 40
86) The table above gives the cost of producing T-shirts. The total fixed cost is ________ and the
marginal cost of increasing production from 5 to 6 T shirts is ________.
A) $20; $6
B) $20; $10
C) $10.40; $8
D) unable to be determined; $8
87) The table above gives the cost of producing T-shirts. When 5 T-shirts are produced, the
average fixed cost is ________ and the average variable cost is ________.
A) $4; $10
B) $10; $6
C) $5; $3
D) $4; $6
88) If total fixed cost increases, then the average total cost curve ________ and the marginal cost
curve ________.
A) does not shift; shifts upward
B) shifts upward; shifts upward
C) does not shift; does not shift
D) shifts upward; does not shift

27
89) If as output increases average product increases, then ________.
A) average total cost decreases
B) average fixed cost decreases
C) marginal cost decreases
D) average variable cost decreases
90) An increase in the quantity of fixed inputs shifts the average total cost curve ________ if
________ exist.
A) downward; diseconomies of scale
B) upward; constant returns to scale
C) downward; economies of scale
D) upward; economies of scale
91) Average total cost minus average variable cost ________ as output increases because
________ as output increases.
A) decreases and then increases; marginal cost initially decreases and then increases
B) decreases; average fixed cost decreases
C) decreases; marginal returns diminish
D) decreases; economies of scale are present
92) The output at which average product is a maximum is the same output at which ________ is
a minimum.
A) average fixed cost
B) average variable cost
C) average total cost
D) marginal cost
93) The output at which average variable cost is a minimum is ________ than the output at
which ________ is a minimum.
A) the same as; average total cost
B) the same as; marginal cost
C) less than; average total cost
D) less than; marginal cost
94) If marginal cost is less than average variable cost and output increases, average total cost
________ and average variable cost ________.
A) increases; increases
B) decreases; decreases
C) decreases; increases
D) increases; decreases
95) If as output increases marginal cost exceeds average variable cost but is less than average
total cost, average total cost ________ and average variable cost ________.
A) increases; decreases
B) decreases; decreases
C) increases; increases
D) decreases; increases
96) The vertical distance between the total variable cost curve and the total cost curve ________
as output increases; the vertical distance between the average variable cost curve and the
average total cost curve ________ as output increases.
A) decreases; remains the same
B) is constant; becomes smaller
C) increases; becomes smaller at first but then increases
D) increases; remains the same
97) As output increases, total cost ________, total fixed cost ________, and total variable cost
________.
A) increases; increases; increases

28
 B) increases; increases; does not change
C) increases; does not change; increases
D) does not change; increases; increases
11.4 Long-Run Cost

1) Which of the following is FALSE?

A) Long-run average variable costs equal long-run average total costs.
B) Fixed costs increase in the long run.
C) As a firm produces more output, eventually it experiences diseconomies of scale.
D) In the long run, both the amount of capital and labor used by the firm can be changed.

2) The average total cost curves for plants A, B, C and D are shown in the above figure. Which
plant is best to use to produce 20 units per day?
A) plant A
B) plant B
C) plant C
D) plant D
3) The average total cost curves for plants A, B, C and D are shown in the above figure. Which
plant is best to use to produce 60 units per day?
A) plant A
B) plant B
C) plant C
D) plant D
4) The average total cost curves for plants A, B, C and D are shown in the above figure. Which
plant is best to use to produce 80 units per day?
A) plant A
B) plant B
C) plant C
D) plant D

29
 5) The average total cost curves for plants A, B, C, and D are shown in the above figure. The
plant size that is the most economically efficient
A) is plant A.
B) is plant B.
C) is plant C.
D) depends on the desired level of output.
6) The average total cost curves for plants A, B, C, and D are shown in the above figure. It is
possible that the long-run average cost curve runs through points
A) a, b, and c.
B) b, d, and e.
C) d, e, and f.
D) c and d.
7) A firm is operating in its range of economies of scale and is on both its LRAC curve and its
short-run ATC curve. At that level of output, the slope of its LRAC curve is
A) zero and the slope of its ATC curve is zero.
B) zero and the slope of its ATC curve is negative.
C) negative and the slope of its ATC curve is zero.
D) negative and the slope of its ATC curve is negative.
8) When economies of scale are present, the LRAC curve touches each short-run ATC curve
A) to the left of the ATC curve's minimum point.
B) to the right of the ATC curve's minimum point.
C) at the ATC curve's minimum point.
D) at no points.
9) Economies to scale refer to
A) the point at which marginal cost equals average cost.
B) the fact that in the long run, fixed costs remain constant as output increases.
C) the range of output over which the long-run average cost falls as output increases.
D) a feature of short-run production functions but not long-run production functions.
10) In the short run
A) all inputs are variable.
B) all firms experience increasing returns to scale.
C) some firms experience economies of scale.
D) no firm experiences economies of scale.
11) When long-run average costs decrease as output increases, there are
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) constant marginal costs.
12) "Diseconomies of scale" occur in
A) the long run, but not the short run.
B) the short run, but not the long run.
C) both the short run and the long run.
D) neither the short run nor the long run.
13) When long-run average costs increase as output increases, there are
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) constant marginal costs.
14) A common source of diseconomies of scale is the
A) diminishing marginal returns to capital.
B) diminishing marginal returns to labor.

30
 C) diminishing marginal returns to land.
D) growing complexity of management and organizational structure.

15) In the above figure, the long-run average cost curve exhibits economies of scale
A) between 5 and 10 units per hour.
B) between 10 and 20 units per hour.
C) between 20 and 25 units per hour.
D) along the entire curve.
16) In the above figure, between 5 and 10 units per hour, the firm experiences
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) decreasing total fixed costs.
17) In the above figure, the long-run average cost curve exhibits constant returns to scale
A) between 5 and 10 units per hour.
B) between 10 and 20 units per hour.
C) between 20 and 25 units per hour.
D) along the entire curve.
18) In the above figure, the long-run average cost curve exhibits diseconomies of scale
A) between 5 and 10 units per hour.
B) between 10 and 20 units per hour.
C) between 20 and 25 units per hour.
D) along the entire curve.
19) In the above figure, between 20 and 25 units per hour, the firm experiences
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) increasing total fixed costs.

31
20) In the above figure, economies of scale are present up to an output level of
A) 5,000 pounds of coffee.
B) 10,000 pounds of coffee.
C) 13,000 pounds of coffee.
D) 15,000 pounds of coffee.
21) In the above figure, the minimum efficient scale of output is
A) 5,000 pounds of coffee.
B) 10,000 pounds of coffee.
C) 13,000 pounds of coffee.
D) 15,000 pounds of coffee.
22) The LRAC curve
A) is the minimum points on all the short-run ATC curves.
B) shows the lowest possible marginal cost of producing the different levels of output.
C) shows the lowest attainable average total cost for all levels of output when all inputs
can be varied.
D) generally lies above the short-run ATC curves.
23) The LRAC curve generally is
A) shaped as an upside-down U.
B) U-shaped.
C) upward sloping.
D) downward sloping.
24) When a firm is experiencing economies of scale,
A) the MP curve slopes upward.
B) the LRAC curve slopes downward.
C) diminishing returns to labor have been suspended.
D) the MC curve slopes downward.
25) Constant returns to scale means that as all inputs are increased,
A) total output remains constant.
B) average total cost rises.
C) average total cost rises at the same rate as do the inputs.
D) total output increases in the same proportion as do the inputs.

32
26) When a firm is experiencing diseconomies of scale,
A) the MP curve has a negative slope.
B) the LRAC curve has a positive slope.
C) it must also experience diminishing returns to labor.
D) the MC curve has a negative slope.
27) Which of the following statements is true?
A) In the long run, the average cost curve is always downward sloping.
B) In the long run, the quantities of all inputs are fixed.
C) In the long run, the firms' fixed costs are greater than its variable costs.
D) In the long run, all costs are variable costs.
28) In the long run, the average cost curve ________.
A) is the same as the short-run average variable cost curves because in the long run all
costs are variable costs
B) is made up of the average total cost curves for which that quantity of capital has the
lowest average total cost
C) is vertical
D) touches all the short-run average total cost curves at their minimum points
29) With given input prices, increasing returns to scale are present when the percentage increase
in output ________.
A) is zero
B) exceeds the percentage increase in all inputs
C) is positive
D) equals the percentage increase in all inputs
30) When a firm experiences economies of scale, its ________ cost curve slopes ________.
A) long-run average; downward
B) short-run average total; downward
C) short-run marginal cost; downward
D) long-run average; upward
31) A firm experiences ________ when its ________ downward at larger outputs.
A) diseconomies of scale; average total cost curve slopes
B) economies of scale; long-run average cost curve slopes
C) diminishing marginal returns; long-run average cost curve slopes
D) diminishing marginal returns; average total cost curve shifts
32) The firm's production function is the relationship between the ________ and ________.
A) output produced; the quantities of all inputs
B) maximum output attainable; the quantity of variable inputs
C) possible range of maximum output; the quantity of variable inputs
D) maximum output attainable; the quantities of both labor and capital
33) If all inputs are increased by 5 percent and output increases by 8 percent, then the
A) firm experiences constant returns to scale.
B) long-run average cost curve slopes downward.
C) long-run average cost curve shifts downward.
D) firm experiences diseconomies of scale.
34) If the average total cost of producing 20 sweaters an hour falls when the firm doubles all its
inputs, then the
A) short-run average total cost curve shifts upward because all inputs have increased.
B) firm moves along its short-run average total cost curve.
C) firm experiences economies of scale.
D) long-run average cost curve shifts downward.

33
35) If diseconomies of scale are present and the firm ________ all its inputs, its output ________.
A) doubles; more than doubles
B) doubles; less than doubles
C) increases; increases by the same percentage
D) halves; doubles

34