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Which of the following is most likely to be a fixed cost for a business?


A) payment for raw materials used in manufacturing goods
B) interest payments on a loan used to finance the construction of a building
C) wages paid to temporary workers
D) shipping charges for the delivery of products

E) A) and D)
F) All of the above

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When does diminishing marginal product of labour occur?


A) when adding another unit of labour increases output by a larger margin than the last unit of labour employed
B) when the average product of labour begins to rise
C) when all inputs are varied simultaneously in the same proportion
D) when adding another unit of labour increases output, but not by as large a margin as the last unit of labour employed

E) A) and D)
F) B) and C)

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A firm's total product of labour curve is represented by the following data: one worker can produce 4 units of output; two workers, 10 units; three workers, 17 units; four workers, 25 units; five workers, 30 units; six workers, 35 units; seven workers, 38 units; eight workers, 39 units; and nine workers, 38 units. What is the marginal product of the seventh worker? When does the law of diminishing marginal product set in? Under these circumstances would you ever choose to employ nine workers?

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The marginal product of the seventh work...

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If average variable cost exceeds marginal cost, then what can we conclude about the average variable and average total costs?


A) The average variable cost is decreasing, and the average total cost is increasing.
B) Both the average variable and average total cost are decreasing.
C) The average variable cost is decreasing, and the average total cost may be increasing or decreasing.
D) The average variable cost is increasing, and the average total cost is decreasing.

E) C) and D)
F) A) and B)

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Luke Spacewalker realizes that his space taxi service is operating in the region of diminishing marginal product. As he provides more taxi service in the short run, what will happen to the marginal cost of providing the additional service?


A) Marginal cost will increase.
B) Marginal cost will be zero.
C) Marginal cost will stay the same.
D) Marginal cost will decrease.

E) All of the above
F) C) and D)

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When calculating total production costs, what kind of cost is the crucial difference between how economists and accountants analyze the profitability of a business?


A) sunk costs
B) explicit costs
C) implicit costs
D) cash payments

E) None of the above
F) C) and D)

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In the long run, firms can vary all inputs in the production process.

A) True
B) False

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What will an increase in wage rates cause in the long run?


A) Without more information, the effect on MC and ATC cannot be determined.
B) They will cause an increase in MC and a decrease in AC
C) They will cause an increase in both MC and AC
D) They will cause an increase in MC, AVC and ATC

E) B) and D)
F) B) and C)

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Which of the following best describes economies of scale?


A) They refer to the increase in output that results from the increased utilization of a single input.
B) They pertain to the long run only.
C) They imply that the average total cost curve will fall continuously as output increases in the short run.
D) They are the result of a diminishing marginal product.

E) A) and C)
F) B) and D)

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If AVC is subtracted from the ATC, what is the result?


A) accounting profit
B) marginal cost
C) average fixed cost
D) economic profit

E) A) and C)
F) C) and D)

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Typically, what is the shape of the average total cost curve for a firm in the short run?


A) An average total cost curve is U-shaped.
B) An average total cost curve slopes downward as output expands and approaches the X-axis when output is very large.
C) An average total cost curve constantly slopes upward as output expands and eventually approaches an infinite dollar amount at high rates of output.
D) An average total cost curve is a vertical line.

E) A) and B)
F) B) and C)

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When the marginal cost curve lies below the average variable cost curve, what is happening to the average variable cost?


A) The average variable cost is zero.
B) The average variable cost is increasing.
C) The average variable cost is decreasing.
D) The average variable cost does not change.

E) B) and D)
F) A) and D)

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When average total cost is decreasing as output expands, what can we conclude?


A) that total fixed costs must be increasing
B) that average variable cost must be falling
C) that average fixed cost must be increasing
D) that marginal cost must be less than average total cost

E) B) and C)
F) All of the above

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If average fixed cost and average variable cost are summed together, what is the result?


A) average total cost
B) total revenue
C) total cost
D) total profit

E) C) and D)
F) A) and B)

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What do constant returns to scale indicate that a firm is experiencing?


A) an increasing marginal product
B) per unit costs of production that are decreasing as the scale of output expands
C) per unit costs of production that remain stable as the scale of output expands
D) per unit costs of production that are increasing as the scale of output expands

E) All of the above
F) A) and B)

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What short-run curve typically declines continuously as output expands?


A) marginal cost
B) average total cost
C) average variable cost
D) average fixed cost

E) B) and D)
F) All of the above

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What is the term for costs that vary with output?


A) marginal product
B) fixed costs
C) variable costs
D) overhead costs

E) B) and D)
F) None of the above

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The total fixed cost of operating a lumberyard equals $12 000 this year. The average fixed cost of the lumberyard will not be affected by the quantity of lumber that is sold.

A) True
B) False

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What are diseconomies of scale associated with?


A) a vertical long-run average total cost curve
B) an upward-sloping long-run average total cost curve
C) a horizontal long-run average total cost curve
D) a downward-sloping long-run average total cost curve

E) None of the above
F) B) and D)

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What is the marginal product of capital equal to?


A) the increase in capital necessary to generate a one-unit increase in output
B) the incremental cost of employing one more unit of physical or human capital
C) the increase in output obtained from a one-unit increase in capital, holding other factors constant
D) the incremental profit associated with selling one more unit of output

E) B) and C)
F) All of the above

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