Question

- The average total cost of production

a) equals total cost of production multiplied by the level of output.

b) equals total cost of production divided by the level of output.

c) equals the explicit cost of production.

d) is the extra cost required to produce one more unit.

- The law of diminishing marginal returns

a) ultimately explains why production displays diseconomies of scale.

b) sets in because not all workers are equally productive

c) applies only in the short run.

d) holds even when there are no fixed factors.

- The law of diminishing marginal returns

a) causes the difference between average total cost and average variable cost to get smaller as output increases.

b) explains why the average total cost and marginal cost curves are U-shaped in the short run.

c) explains why the average total cost, average fixed cost, and the marginal cost curves are U-shaped in the short run.

d) causes average total cost to rise at a decreasing rate as output increases.

Answer 1

Q1

Option b

The average cost is a cost per unit so it is

ATC=TC/Q=total cost of production divided by the level of output

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Q2

Option c

c) applies only in the short run.

The variable input's marginal product decreases because some of the inputs are fixed and reduces the full output from the variable input. Short-run is a time where one of the factors of production is fixed and in long run, there is no input is fixed so diminishing marginal product applies in the short run only.

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Q3

Option b

b) explains why the average total cost and marginal cost curves are U-shaped in the short run.

The diminishing return means first the MP increases then decreases

When MP increases then ATC and MC decrease and when MP decreases then ATC and MC increase so the curve is U-shaped.