A. as we continually add variable inputs to a fixed amount of other resources, output eventually increases at a decreasing rate.
B. as plant size in increased, costs fall.
C. as fixed inputs are increased, implicit costs rise.
D. teamwork and specialization really never exist.
E. marginal costs fall as we attempt to produce more output using the same amount of fixed inputs.
5-9 In the short run, the marginal product of variable inputs, such as labor, is
A. usually increasing when the average product of the input is decreasing.
B. usually increasing when the total product of the input is increasing.
C. usually increasing when the average product of the input is at its maximum.
D. usually decreasing in the range in which we would expect a firm to operate.
E. usually increasing when total product is maximized.
5-10 A variable input, such as labor, is said to show "diminishing returns"
A. when the marginal product of the input increases as we increase the amount of the input used.
B. only when adding more input, such as labor, enables "specialization" by workers.
C. only when there are gains from "teamwork."
D. only when total product is falling.
E. only when marginal product is falling.
5-11 Diminishing marginal returns to labor mean that
A. the average product of labor is falling.
C. output is falling.
E. marginal product of labor is negative.
5-12 In the short run, if marginal product is greater than average product,
A. marginal product must be rising.
B. total product must be falling.
C. average product must be rising.
D. average product could be rising or falling.
E. marginal product of the fixed factors is positive.
5-13 In the short run, if average product of labor is less than the marginal product of labor,
A. the firm should hire more labor.
B. the firm should hire less labor.
C. the firm should change nothing.
D. the firm should buy more capital.
E. none of the above.
5-14 Which of the following is (are) true in the short run?
A. If total product is rising, average product must be rising as well.
B. If average product is maximized, marginal product equals average product.
C. If total product is maximized, marginal product equals total product.
D. If marginal product is maximized, marginal product equals average product.
E. All of the above are true.
A. must be U-shaped.
B. must be positively sloped for at least part of its length.
C. must be J-shaped.
D. must be negatively sloped for at least part of its length.
E. must be negatively sloped for its entire length.
5-16 In the time period we call the "long run"
A. all inputs are fixed.
B. "variable" inputs are fixed.
C. no inputs are fixed.
D. no inputs are variable.
E. none of the above is true.
5-17 A variable input, such as labor, is said to show "diminishing returns"
A. when the marginal product of the input increases as we increase the amount of the input used.
B. only when adding more input, such as labor, enables "specialization" by workers.
C. only when there are gains from "teamwork."
D. only when total product is falling.
E. only when marginal cost is rising.
5-18 "The long run" is defined as a period of time in which...
A. all factors (inputs) are variable.
B. all factors (inputs) are fixed.
C. inputs classified as capital are fixed, but other inputs, including labor and materials, are variable.
D. inputs classified as capital are variable, but other inputs, including labor and materials, are fixed.
E. the only factor which can be varied is materials.
5-19 If marginal product is rising
A. average product must be rising
C. average product could be rising or falling
D. total product must be falling
5-20 If average product is maximized
A. total product is also maximized
C. marginal product equals average product.
D. there are increasing returns to labor
5-21 When average product of labor is falling
A. average variable cost is rising.
C. marginal product is less than average product
D. all of the above.
5-22 The law of diminishing marginal returns indicates why
A. beyond some point, the extra utility derived from additional units of a product will yield the consumer larger and larger additional amounts of satisfaction.
B. The demand curve produced by purely competitive industries is downward-sloping.
C. a firm's total product curve is upward-sloping.
D. a firm's total product curve is downward-sloping.
E. a firm's marginal costs will eventually increase as the firm expands output in the short run.
A. the liability insurance premiums that the company must pay to protect itself against a worker or someone else being injured.
B. the cost of materials.
C. the per-hour wages paid to factory workers.
D. the costs of shipping the dog beds produced to retailers.
E. the value of the time the kids of the owner spend working in the factory (unpaid).
5-24 Which of the following is likely to be an implicit cost?
A. Interest payments on an outstanding loan of the firm.
B. Salaries paid to the firm's managers.
C. Salaries paid to the firm's assembly-line workers.
D. Transportation and shipping costs on raw materials.
E. Rental income foregone on assets owned by the firm.
5-25 When average product of labor is falling
A. average variable cost is rising.
B. marginal product is also falling.
C. marginal product is less than average product
D all of the above.
5-26 When marginal cost (MC) is greater than average variable cost (AVC)
A. MC is falling
C. AVC is falling
E. Average product is rising.
5-27 When marginal cost (MC) is greater than average total cost (ATC)
A. MC is falling
C. AVC is falling
E. Average product is rising.
5-28 Average total cost is
A. the change in total cost divided by the change in output.
B. the change in output divided by the change in total cost.
C. output divided by total cost.
D. total cost divided by output.
E. total cost divided by average product.
5-29 Which statement is true?
A. Average total cost is inversely related to average product.
B. Average variable cost is inversely related to average product.
C. Average total cost is inversely related to total product.
D. Marginal cost is inversely related to average product.
E. Average variable cost is unrelated to average product
5-30 Marginal cost is
A. the slope of the average variable cost curve.
B. the increase in variable cost resulting from increasing output by one unit.
C. equal to the wage rate divided by the average product of labor.
D. equal to the total cost when total cost is maximized.
E. equal to the variable cost when variable cost is maximized.
A. are always explicit costs.
C. are never opportunity costs.
E. are always unchanged when output changes
5-32 To the owner of a warehouse, the amount of money that could have been earned by renting the warehouse out instead of using it to store inventory from his computer business is
A. not important, since he would have had to put the inventory somewhere anyway.
B. an accounting cost.
C. marginal fixed cost
D. an explicit cost
E. an implicit cost.
5-33 Marginal cost of producing Oreo™ cookies will rise as more Oreo™ cookies are produced per week
A. because of diminishing marginal returns in the short run.
B. because marginal product eventually falls as more Oreo™ cookies are produced per week.
C. because of rising opportunity costs of variable inputs as more are used each week.
D. all of the above.
E. none of the above.
5-34. If the output of Nike® shoes (per week) is such that marginal product of the variable inputs is falling, then
A. marginal cost must be falling.
B. average fixed cost must be rising.
C. average variable cost could be falling or rising.
D. average total cost must be rising.
E. average total cost must be falling.
5-35. As output increases beyond the output that minimizes average variable cost, what happens to average variable cost?
A. It eventually equals average total cost.
B. It eventually exceeds average total cost.
C. It eventually exceeds marginal cost.
D. It continues to rise.
E. It eventually falls.
5-36. Which of the following never rises as output increases?
A. Short run average total cost.
B. Long run average total cost.
C. Short run average variable cost.
D. Short run average fixed cost.
E. Opportunity (implicit) costs of inputs.
5-37 The marginal cost curve will pass through
A. the maximum (top) of average product and the minimum (bottom) of average total cost.
B. the top of the variable cost curve and the bottom of the average product curve.
C. the minimum (bottom) of both the average variable cost and average total cost curves.
D. the minimum (bottom) of the average variable cost curve, but not of average total cost.
E. the neither the average variable cost curve nor the average total cost curve.
Questions 38-47 refer to the following relationship between the labor input and the output of a potato farm (in bushels of potatoes):
| Labor | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
| Potatoes | 3 | 3 | 6 | 10 | 15 | 21 | 25 | 28 | 27 |
5-38 Based on the table above, diminishing marginal returns to labor occur
A. when the first laborer is hired.
B. when the fifth laborer is hired.
C. when the sixth laborer is hired.
D. when the seventh laborer is hired.
E. when the ninth laborer is hired.
5-39 What is the marginal product of labor of the fifth unit of labor?
A. 5
D. 1/3
5-40 What is the average product of labor of the fifth unit of labor?
A. 5
D. 1/3
5-41 If the fifth unit of labor is hired, what is happening to average product?
A. it is neither rising nor falling
D. we cannot tell without knowing more
5-42 If the wage is $5 per unit of labor, what would be the marginal cost at an output of 15 potatoes?
A. $5
D. $1.50
5-43 If the wage is $5 per unit of labor, what would be the average variable cost at an output of 15 potatoes?
A. $5
D. $1.50
5-44 If the wage is $5 per unit of labor, what would be the marginal cost at an output of 25 potatoes?
A. $5
D. $1.50
5-45 If the wage is $5 per unit of labor, what would be the average variable cost at an output of 25 potatoes?
A. $5
D. $1.50
5-46 If the wage is $5 per unit of labor, what would be the marginal cost at an output of 28 potatoes?
A. $1.33
D. $1.50
5-47 If the wage is $5 per unit of labor, what would be the average variable cost at an output of 28 potatoes?
A. $1.33
D. $1.50
5-48 Based on the diagram above, if output is 40 units, average fixed cost is
A. 6
5-49 Based on the diagram above, diminishing marginal returns begin when output reaches the level of
A. 15
5-50 Based on the diagram above, the average product of labor declines at an output level of
A. 15
5-51 Based on the diagram above, average fixed costs
A. fall until output reaches 15, then rise.
B.fall until output reaches 40, then rise.
C. fall until output reaches 50, then rise.
D. rise until output reaches 50, then fall.
E. none of the above.
5-52 Based on the diagram above and assuming the firm is a price taker, the firm will choose to operate in the short run if price is just above
A. 3
5-53 Based on the diagram above and assuming the firm is a price taker, the firm will make a profit in the short run if price is just above
A. 3
5-54 If consumers suddenly increase their demand for oranges, the average total cost curve would probably shift upward for the producers of
A. bananas, if bananas are frequently consumed with oranges.
B. grapefruit, since grapefruit growers use the same land and labor as orange growers do.
C. apples, which consumers often substitute for oranges.
D. hogs, which eat discarded orange peels.
E. al l of the above
A. the marginal cost curve intersects the average total cost curve at its minimum.
B. the marginal cost curve intersects the average variable cost curve at its minimum.
C. average fixed costs are constant as output rises.
D. the difference between them (average fixed cost) declines.
E. outputs are rising more rapidly than inputs are being increased.
5-56 Economies of scale
A. deal with what happens if all of the inputs are increased by some proportion.
B. can be shown using a total product curve.
C. imply falling marginal costs in the long run.
D. require that at least one factor be fixed.
E. can only be spoken about in the short run.
5-57 Economies of scale
A. exist if average costs fall as bigger factories are built.
B. can be shown using a total product curve.
C. can best be shown using a marginal product curve.
D. require that at least one input be fixed in its amount.
E. can only be spoken about in the short run.
5-58 According to the law of diminishing returns, eventually, if all inputs in a firm are increased by a given proportion
A. output will increase by more than that proportion.
B. output will decrease.
C. output will increase by less than the proportion.
D. output will stay the same.
E. we cannot tell, since the law of diminishing returns does not deal with increasing all inputs.
5-59 As output increases beyond (to the right of) the minimum point of the SRATC curve, the SRATC and the AVC curves
A. cross each other.
B. eventually are tangent to each other.
C. approach each other.
D. both cross the marginal cost curve.
E. get so conservative that no one can stand to be around them.
5-60 The long-run average (total) cost curve
A. falls if there are economies of scale and rises if there are diseconomies of scale.
B. falls if there are diseconomies of scale and rises if there are economies of scale.
C. falls if there are increasing returns to the variable input and rises if there are decreasing returns to the variable input.
D. falls if there are decreasing returns to the variable input and rises if there are increasing returns to the variable input.
E. is something I forgot to study because I was watching David Letterman last night.
5-61. If we draw a curve to show fixed cost in the short run, what does it look like?
A. A horizontal (laying-down) line.
B. We cannot represent fixed costs in the short run at all.
C. A downward-sloping curve.
D. An upward-sloping curve.
E. An upside-down U.
A. when the marginal product of the labor increases as more labor is used.
B. only when adding more labor enables "specialization" by hair cutters/stylists.
C. only when there are gains from "teamwork" in giving haircuts.
D. only when total product is falling.
E. only when marginal product is falling.
5-63 Economies of scale are said to exist if...
A.. the long run ATC of producing output is increased as firm size is increased.
B. the short run ATC of producing output is increased as firm size is increased.
C. the short run ATC of producing output is decreased as firm size is increased.
D. the long run ATC of producing output is decreased as firm size is increased.
E. you get on a scale to weigh yourself after Thanksgiving, and you think of economics.
5-64 Constant returns to scale are said to exist if...
A.. the long run average cost of producing output is increased as firm size is increased.
B. the short run average cost of producing output is increased as firm size is increased.
C. the short run average cost of producing output is decreased as firm size is increased.
D. the long run average cost of producing output is decreased as firm size is increased.
E. none of the above
5-65 If wages (the amount per hour that must be paid to workers) rise, which would not be affected?
A. Marginal cost.
B. Average variable cost.
C. Average total cost.
D. Average fixed cost.
E. Variable cost.
5-66 A homeowner wishes to rent his house while he is on summer vacation. His mortgage payment is $500 per month. If the house is occupied, utilities cost $250 per month but if the house is vacant, they cost only $100. If he can find a tenant, the homeowner will pay all utilities. Assume that there is no additional wear and tear on the house if it is occupied, and that the homeowner experiences no non-money benefits or costs from having someone occupy the house while he is on vacation. The homeowner will rent his house as long as he can find a tenant who is willing to pay any amount greater than
A. $0
D. $600
5-67 Average fixed cost
A. is falling for all levels of output.
C. is constant for all levels of output
E. is above AVC if AVC is rising and is below AVC if AVC is falling.
5-68 Sunk or "historical" costs are
A. costs associated with current operational decisions.
B. costs that have already been incurred as a result of past decisions.
C. costs that add to the firm's marginal costs.
D. costs that are the major component of a firm's average variable cost.
E. none of the above.
"Scalp 'em" is a new, popular hair grooming establishment whose slogan promises "You'll look like you've been sheared!" Suppose that labor is the only variable input and the following table represents the firm's production, measured in haircuts per day. The table basically represents a "snapshot" of a single point in time (the short run), as labor is changed. The marginal cost is equal to the wage divided by the marginal product and the average variable cost is the wage divided by the average product. Suppose the wage rate is $100 per unit of labor. Each unit of labor is one day's work by a hair "stylist". Fill in the firm's blanks, if needed, to answer 6-69 through 6-78. The completed table is at the end of the question set for your reference.
| Units of Labor | Total Product | Marginal Product | Average Product | Marginal Cost | Average Variable Cost |
| 0 | 0 | -- | -- | -- | -- |
| 1 | 10 | 10 | 10 | ||
| 2 | 30 | ||||
| 3 | 60 | ||||
| 4 | 40 | ||||
| 5 | 30 | ||||
| 6 | $4 | ||||
| 7 | 23 | ||||
| 8 | 168 | ||||
| 9 | 171 | ||||
| 10 | 1 |
5-69 Diminishing returns to labor first appears when which unit of labor is hired?
A. 2
5-70 At an output of 150, the marginal cost of output is
A. $3.00
5-71 The marginal product of the seventh unit of labor is
A. 7
5-72 The marginal cost of the 100th unit of output is
A. $5.00
5-73 The marginal product of the ninth unit of labor is
A. 3
5-74 The average variable cost of producing 161 units is
A.$4.00
5-75 The marginal cost at an output of 130 units is
A. $2.50
5-76 The marginal cost at an output of 60 units is
A. $2.50
5-77 The average variable cost at an output of 130 units is
A.$4.00
5-78 The average variable cost at an output of 100 units is
A. $2.50
5-79. An economist leaves his $25,000 a year teaching job to open a consulting service. The first year, his service makes revenues of $125,000. The service runs explicit costs (such as transportation, office rent, and taxes) of $40,000 in the first year. What can you say about the service?
A. It is not making an economic profit.
B. It is not making an accounting profit.
C. Accounting profit will be more than economic profit.
D. Economic profit is the same as accounting profit.
E. The economist would have been financially better off if he had kept his job.
5-80 Suppose the photocopy machine in the library cost $1200 to buy. After every 10,000 copies, a new toner cartridge must be put into the copier, at a cost of $400. After every 50,000 copies, a new drum must be put into the copier, at a cost of $500. Paper for the copier costs $20 for 5000 sheets. The machine must be serviced after every 50,000 copies, at a cost of $250. What is the average variable cost per page of copies made on the library copy machine?
A. less than three cents
B. more than three cents but less than five cents
C. more than five cents but less than seven cents
D. more than seven cents
E. we cannot tell without more information.