Question

1. A firm’s cost of production is equal to A. its monetary outlay for inputs. B. explicit costsC. the implicit cost of not renting its own resources.D. the opportunity cost of its resources and the explicit costs.

2. The most important implicit cost facing large, modern firms is typically the cost of A. labor servicesB. capital.C. energyD. land

3. A firm’s costs are determined by A. it's production technology or production functionB. the interest rateC. labor negotiationsD. the weather

4. If the production function is such that the total product curve's slope is continually increasing then it means A. an infinite amount of labor is needed to make a given level of outputB. no diminishing marginal returns to laborC. no increasing marginal returns to laborD. labor is the only input

5. In the short-run, diminishing marginal returns are associated with A. falling average variable costB. rising marginal cost C. falling average cost curveD. all of the above

6. Which of the following statements about marginal cost is incorrect? A. A U-shaped marginal cost curve implies the existence of diminishing returns over all ranges of output.B. When marginal cost equals average cost, average cost is at its minimum.C. In the short-run, the marginal cost curve is parallel to the average fixed cost curve.D. When marginal cost is falling, total cost is rising at a decreasing rate.

7. Which of the following statements about the relationship between marginal cost and average cost is correct?A. When MC is falling, AC is falling.B. ACequals MC at MC's lowest point.C. When MC exceeds AC, AC must be risingD. When AC exceeds MC, MC must be rising.

8. Which of the following statements about costs in the long-run is correct? A. Fixed costs are equal to or less than variable costs. B. The U shape of the LAC is due to the law of diminishing returns.C. Marginal costs tend to exceed fixed costs.D. With increasing returns to scale LAC falls.

9. The slope of the total variable cost curve equalsA. average variable cost.B. marginal cost.C. average cost.D. marginal physical product.

10. The monetary cost of the space a restaurant rents to produce meals is what type of cost? A. Variable costB. Marginal costC. Fixed costD. Opportunity cost

11. Total fixed cost is the same regardless of how much A. money a firm borrowsB. labor a firm hires.C. capital a firm rentsD. output the firm produces

12. If fixed costs are $10,000 and variable costs are constant at $1.00 per unit over the relevant range of output, what will the average total cost be when 10,000 units are produced?A. $0.20B. $2.00C. $5.00D. $1.00

13. If fixed costs are $1,000 and variable costs are constant at $1.00 per unit over the relevant range of output, what will the average total cost be when 2,000 units are produced?A. $0.50B. $1.00C. $1.50D. $2.00

14. If total fixed costs are $1,000, variable costs are constant at $5.00 per unit over the relevant A. $100B. $1000C. $5000 D. $6000

15. Once diminishing returns have set in, each additional unit of the variable inputA. decreases total output. B. adds less to total output.C. adds more to total output. D. does not affect total output.

Answer 1

Question 1) correct answer is (D) the opportunity cost of its resources and the explicit costs

A firm’s cost of production includes all the opportunity costs of making its output of goods and services. A firm’s cost of production include explicit costs and implicit costs. Explicit costs are input costs that require a direct outlay of money by the firm. Implicit costs are input costs that do not require an outlay of money by the firm.

Question 2) correct answer is (B) capital

It is importatn know where else a person could invest instead of present activity

Question 3) correct answer is (A) A. it's production technology or production

Given the prices of its inputs, a firm’s lowest attainable cost of production for each output level is deter­mined by its technology constraint.

Question 4) correct answer is (B) no diminishing returns to labor

The law of diminishing marginal returns states that as successive amounts of the variable input, i.e., labor, are added to a fixed amount of other resources, i.e., capital, in the production process the marginal contribution of the additional variable resource will eventually decline. As the marginal product begins to fall but remains positive, total product continues to increase but at a decreasing rate. As long as the marginal product of a worker is greater than the average product, computed by taking the total product divided by the number of workers, the average product will rise.

Question 5) correct answer is (B) rising marginal cost

The U shape of the MC curve follows directly from the law of variable proportions. Initially there it too little of a variable input in comparison to the fixed input resulting in the underutilization of the fixed input. Thus as the quantity of variable input is initially increased, the fixed input is being better utilized, resulting in an increase in efficiency and thus the MC initially falls. However as more variable input is added beyond a point this leads to overcrowding and inefficiencies an thus it leads to falling productivity which leads to rising MC.

Question 6) correct answer is (C)  In the short-run, the marginal cost curve is parallel to the average fixed cost

The AFC curve is downward sloping because the fixed costs are spread over output. As output increases, the AFC decreases. Marginal cost is a reflection of marginal product and diminishing returns. When diminishing returns begin, the marginal cost will begin its rise. The MC is related to AVC and ATC. These costs will fall as long as the marginal cost is less than either average cost. As soon as the MC rises above the average, the average will begin to rise. C is at its minimum at the same output for which MP is at its maximum; AVC is at its minimum at the same output for which AP is at its maximum.

Question 7) correct answer is option (C) When MC exceeds AC, AC must be rising

When the average cost declines, the marginal cost is less than the average cost. When the average cost increases, the marginal cost is greater than the average cost. When the average cost stays the same (is at a minimum or maximum), the marginal cost equals the average cost.

Question 8) correct answer is (D) With increasing returns to scale LAC falls.

The typical LRAC curve is also U-shaped, reflecting increasing returns of scale where negatively-sloped, constant returns to scale where horizontal and decreasing returns where positively sloped.

Question 9) correct answer is (B) marginal cost

total fixed cost is constant for all output levels

Question 10) correct answer is (C) fixed cost

person has to pay the rent for restaurant space even in case of no sales

Question 11) correct answer is (D) output the firm produces

Total fixed cost is the opportunity cost incurred in the short-run production that does not depend on the quantity of output. As the name clearly implies, total fixed cost is fixed. A firm can produce a little output or a lot, increase or decrease production, or even stop producing altogether, but fixed cost remains unchanged.

Question 12) correct answer is (B) $2.00

Question13) correct answer is (C) $1.5

Question 14) correct answer is (C) $5000

Question 15) correct answer is (B) adds less to total output

The law of diminishing marginal returns states that adding an additional factor of production results in smaller increases in output. After some optimal level of capacity utilization, the addition of any larger amounts of a factor of production will inevitably yields decreased per-unit incremental returns, the law says.