Question

QUESTION 21

1. In the long run

   		A. all costs become fixed.
   		B. all costs become variable.
   		C. all costs become neither fixed nor variable.

2 points   

QUESTION 22

1. Which statement is false?

   		A. The MC always intersects the ATC at its minimum point.
   		B. The MC always intersects the AVC at its minimum point.
   		C. The MC always intersects the AFC at its minimum point.
   		D. None of these statements is false.

2 points   

QUESTION 23

1. The average fixed cost curve

   		A. is a vertical line.
   		B. is a horizontal line.
   		C. slopes downward to the right as output rises.
   		D. is U-shaped (it declines as output rises, reaches a minimum, and then rises).

2 points   

QUESTION 24

1. As output rises, average fixed cost

   		A. rises.
   		B. falls.
   		C. remains the same.

2 points   

QUESTION 25

1. When the average total cost is at its minimum, it is

   		A. greater than MC.
   		B. equal to MC.
   		C. smaller than MC.

2 points   

QUESTION 26

1. When MC is rising but still below AVC, then

   		A. AVC is declining.
   		B. AVC is constant.
   		C. AVC is rising.
   		D. There is not enough information to determine what AVC is doing.

2 points   

QUESTION 27

1. As a firm's output expands, the

   		A. ATC will reach a minimum before the AVC.
   		B. AVC will reach a minimum before the ATC.
   		C. ATC and AVC will reach minimums at the same output.

2 points   

QUESTION 28

1. Which statement is true?

   		A. Going out of business is a short run option.
   		B. Operating or shutting down are long run options.
   		C. Going out of business or not going out of business are long run options.

2 points   

QUESTION 29

1. If a firm cannot cover its variable costs, it will

   		A. operate in the short run and stay in business in the long run.
   		B. operate in the short run and go out of business in the long run.
   		C. shut down in the short run and stay in business in the long run.
   		D. shut down in the short run and go out of business in the long run.

2 points   

QUESTION 30

1. Average variable cost is equal to

   		A. average cost plus average fixed cost.
   		B. marginal cost plus average fixed cost.
   		C. marginal cost.
   		D. average total cost minus average fixed cost.

2 points   

QUESTION 31

1. The long-run average total cost curve:

   		A) displays declining unit costs so long as output is increasing.
   		B) indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.
   		C) has a shape which is the inverse of the law of diminishing returns.
   		D) can be derived by summing horizontally the average total cost curves of all firms in an industry.

2 points   

QUESTION 32

1. If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then:

   		A) it is encountering diseconomies of scale.
   		B) the law of diminishing returns is taking hold.
   		C) it is encountering economies of scale.
   		D) the firm's long-run ATC curve will be rising.

2 points   

QUESTION 33

1. If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then:

   		A) it is encountering diseconomies of scale.
   		B) it is encountering constant returns to scale.
   		C) it is encountering economies of scale.
   		D) the marginal products of all inputs are falling.

2 points   

QUESTION 34

1. The ABC Corporation decreases all of its inputs by 12 percent and finds that its output falls by only 8 percent. This means that initially it was producing:

   		A) in the range of diseconomies of scale.
   		B) where AP is less than MP.
   		C) in the range of economies of scale.
   		D) at the point of minimum efficient scale.

2 points   

QUESTION 35

1. Diseconomies of scale means that:

   		A) a firm's long-run average total cost curve is declining.
   		B) a firm's long-run average total cost curve is rising.
   		C) the advantages of specialization are being more fully realized.
   		D) a given increase in inputs results in a more-than-proportionate increase in output.

2 points   

QUESTION 36

1. Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that:

   		A) the long-run average total cost curve is upsloping.
   		B) a 10 percent increase in all inputs will increase output by less than 10 percent.
   		C) a 10 percent increase in all inputs will increase output by more than 10 percent.
   		D) the firm is encountering problems of managerial bureaucracy because of its size.

2 points   

QUESTION 37

1. A cost that cannot be partly or fully recovered through any subsequent action is known as a:

   		A) variable cost.
   		B) fixed cost.
   		C) marginal cost.
   		D) sunk cost.

2 points   

QUESTION 38

1. Which of the following is an example of a sunk cost, as it relates to a firm?

   		A) an expenditure on raw materials used in the production process.
   		B) an expenditure on a nonrefundable, nontransferable airline ticket.
   		C) an expenditure to buy a delivery van.
   		D) an expenditure for a new factory.

2 points   

QUESTION 39

1. Which of the following sayings relates most closely to the idea of sunk costs:

   		A) Don't cry over spilt milk.
   		B) He who hesitates is lost.
   		C) A bird in the hand is worth two in the bush.
   		D) Show me the money.

2 points   

QUESTION 40

1. The real opportunity cost of producing product X is the amounts of products Y, Z, and so forth, that might have been produced if resources had not been used to produce X.

   True

   False

2 points   

QUESTION 41

1. The short run is a period of time during which all costs are fixed costs.

   True

   False

2 points   

QUESTION 42

1. Variable costs are costs that vary directly with output.

   True

   False

2 points   

QUESTION 43

1. The law of diminishing returns explains why the long-run average total cost curve is U-shaped.

   True

   False

2 points   

QUESTION 44

1. Diseconomies of scale stem primarily from the difficulties in managing and coordinating a large-scale business enterprise.

   True

   False

2 points   

QUESTION 45

1. At zero units of output a firm's variable costs are zero.

   True

   False

2 points   

QUESTION 46

1. Average fixed costs diminish continuously as output increases.

   True

   False

2 points   

QUESTION 47

1. If the marginal-cost curve lies below the average-variable-cost curve, the average-variable-cost curve must be

   True

   False

2 points   

QUESTION 48

1. Economic profit is found by subtracting accounting costs from total revenue.

   True

   False

2 points   

QUESTION 49

1. A firm's economic profit is usually higher than its accounting profit.

   True

   False

2 points   

QUESTION 50

1. In economics, a firm earns a normal profit when its total revenue equals its total economic costs.

   True

   False

2 points   

QUESTION 51

1. The law of diminishing returns explains why short-run marginal cost curves are upward sloping.

   True

   False

2 points   

QUESTION 52

1. The law of diminishing returns explains diseconomies of scale. F

   True

   False

2 points   

QUESTION 53

1. Minimum efficient scale varies by industry.

   True

   False

2 points   

QUESTION 54

1. Accounting profits are typically:

   		A) greater than economic profits because the former do not take explicit costs into account.
   		B) equal to economic profits because accounting costs include all opportunity costs.
   		C) smaller than economic profits because the former do not take implicit costs into account.
   		D) greater than economic profits because the former do not take implicit costs into account.

2 points   

QUESTION 55

1. Economic profits are calculated by subtracting:

   		A) explicit costs from total revenue.
   		C) implicit costs from normal profits.
   		B) implicit costs from total revenue.
   		D) explicit and implicit costs from total revenue.

Answer 1

Answer 21.

In the long Run, all the cost becomes variable. Since, in the long run, all firms are able to adjust all costs, whereas, in the short run, firms are only able to influence prices through adjustments made to production levels.

Answer 22 ( figure given below)

marginal cost curve always intersects the average total cost curve at its lowest point because the marginal cost of making the next unit of output will always affect the average total cost.

marginal cost curve always intersects the average variable cost curve at its lowest point.

here statement C, MC always cut AFC at lowest is false.

Answer 23 (figure given below)

C. slopes downward to the right as output increases.

Answer 24.

B. AFC falls with an increase in output. (refer to the figure)

Answer 25

(B) ATC at its minimum is equal to the MC

Answer 26

(A). AVC is declining. (refer the figure)

Answer 27

(C) ATC and AVC will reach minimums at the same output

Answer 28

A. Going out of business is a short run option. shutting down the business is a short run decision.

Answer 29

A. operate in the short run and stay in business in the long run.

Answer 30

D. average total cost minus average fixed cost.

ATC = AFC + AVC

Answer 31

(B) indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.

Answer 32

C. it is encountering economies of scale.

Answer 33

B. it is encountering constant returns to scale

Answer 34

A. in the range of diseconomies of scale.

Answer 35

B. a firm's long-run average total cost curve is rising.

Answer 36

C .  a 10 percent increase in all inputs will increase output by more than 10 percent.

37. D . sunk cost

38. an expenditure on a nonrefundable, nontransferable airline ticket​ ( here the cost cannot be recovered)

39.    Don't cry over spilt milk. ( a sunk cost cannot be covered back, it is already incurred.)

40. true

41. true

42. true

43. true

44. true

45. false

46. true

47. * question not cleared

48. false ( economic profit = accounting profit - implicit cost )

49. true

50. false ( normal profit = total revenue - implicit cost )

51. true

52. False

53. False

54. A  greater than economic profits because the former do not take explicit costs into account

55. D  explicit and implicit costs from total revenue.