Question

63)

Which of the following would NOT usually be a short-run decision for the firm?

Select one:

a. recalling workers who were previously laid off

b. having labour work two hours overtime each day in order to expand output

c. building another wing on the plant in order to add a new assembly line

d. placing an order with a supplier for additional raw materials

Which of the firms below would we expect might typically have the longest short run?

Select one:

a. Sears

b. McDonald's

c. A law firm

d. General Motors

Fixed costs are

Select one:

a. costs that never change.

b. the costs that a firm must pay when output is zero.

c. the costs that don't change when the firm doubles output.

d. costs that increase at a constant rate when output increases.

A firm's average fixed costs will always

Select one:

a. rise continuously as output rises.

b. fall then rise as output rises.

c. rise then fall as output rises.

d. fall continuously as output rises.

In the range of output with diminishing marginal returns, a firm will experience

Select one:

a. constant average total costs.

b. increasing average fixed costs.

c. increasing marginal costs.

d. decreasing average variable costs.

Table 8.3

Output (balloons per hour)	Total Cost ($ per hour)	Average Total Costs	Average Variable Costs
0	4.00
1	7.00
2	8.00
3	12.50
4	17.20
5	22.00
6	29.00

Using Table 8.3, determine the Total Fixed Cost?

Select one:

a. $4.00

b. $25.00

c. $7.00

d. $99.70

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Using Table 8.3, calculate the Average Total Cost of producing 4 units.

Select one:

a. $5.50

b. $68.80

c. $17.20

d. $4.30

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Using Table 8.3, what is the Marginal Cost of producing the 5th unit?

Select one:

a. $4.00

b. $4.80

c. $7.00

d. $3.00

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Using Table 8.3:

Calculate the Average Variable Cost of producing 2 units:

Select one:

a. $2.00

b. $8.00

c. $16.00

d. $4.00

82)

A single-plant firm trying to select the appropriate sized plant for a particular rate of output will choose the size plant

Select one:

a. for which the minimum point of the short-run average total cost curve is at that rate of output.

b. for which the minimum point of the short-run average variable cost curve is at that rate of output.

c. for which the short-run average total cost curve is lowest at that rate of output.

d. with the lowest fixed costs.

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A firm's long-run average cost curve is

Select one:

a. the set of points representing the minimum unit cost of producing any given rate of output.

b. the set of points made up of the minimum point on each short-run average total cost curve.

c. the envelope of the firm's variable cost curves.

d. identical to the lowest short-run average cost curve the firm has.

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Economies of scale exist when the long-run average cost curve is

Select one:

a. horizontal.

b. decreasing.

c. increasing.

d. vertical.

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Minimum efficient scale is defined as the

Select one:

a. lowest output level at which long-run average costs are at their minimum.

b. amount of labour that maximizes the marginal product of labour.

c. point at which marginal cost, average variable cost, and average fixed cost are all equal.

d. point at which economies of scale are at their maximum.

Answer 1

1. A firm cannot build a new plant in shortrun. The change in fixed factors occurs only in longrun. But a firm can recall the laid off workers to use the capacity which were not used in shortrun. It may use the workers overtime for the intensive use of existing plant. It may use more raw materials for the expansion of output if it is within capacity of the existing plant.

Answer: c. building another wing on the plant in order to add a new assembly line.

2. d. General motors

3. Fixed costs are those cost that the firm incur when output is zero. When output is zero the total cost is equal to total fixed cost.

Answer: b. The costs that a firm must pay when output is zero.

4. The average fixed cost continuously falls as output increase.

Answer: d. fall continuously as output rises.

5. Diminishing marginal return is a situation where output from additional variable input diminishes. The marginal cost is cost on additional variable input. If the return from additional variable input diminishes the marginal cost increases.

Answer: c. increasing marginal costs.

6.

Output	Total Cost	Average Total Cost	Total Variable Costs	Average Variable Cost	Marginal Costs
0	4.00	--	--	--	--
1	7.00	7.00	3.00	3.00	7.00
2	8.00	4.00	4.00	2.00	1.00
3	12.50	4.16	8.50	2.83	4.50
4	17.20	4.3	13.20	3.3	4.70
5	22.00	4.4	18	3.6	4.80
6	29.00	4.83	25	4.16	7.00

When output is zero total cost is equal to total fixed cost. It does not change when output changes. At zero output the total cost is $4.00. Then total fixed cost is $4.00.

Answer: a. $4.

7. ATC=TC/Q, when 4^th unit is produced the total cost is $17.20, then ATC=$17.20/4=$4.30.

Answer: d. $4.30

8. MC= ΔTC/Q. when 5^th unit is produced the change in total cost is $4.80. Then marginal cost on 5^th unit is $4.80.

Answer: b. $4.80

9. Average variable cost = TVC/Q. TVC= TC-TFC. Total variable cost for producing when output is 2 is $4. Then AVC=$4.00/2= $2.00

Answer: a. $2.00

10. A firm chooses a plant size in shortrun where the average total cost curve is the lowest at that rate of output.

Answer: c. for which the shortrun average total cost curve is lowest at that rate of output.

11. The longrun average total cost curve is a set of shortrun average total cost curves which indicate each plant size having minimum points.

Answer: b. the set of points made up of the minimum point on each shortrun average total cost curves.

12. Economies of scale is a situation where the average cost diminishing continuously.

Answer: b. decreasing.

13. Minimum efficient scale is the level of output where the longrun average cost is minimum.

Answer: a. lowest output at which longrun average costs are at their minimum.