If total cost equals $2,000 and quantity produced is 100 units, then

Select one:
a. fixed cost is $200 and average variable cost is $18.
b. fixed cost is $600 and average variable cost is $14.
c. fixed cost is $500 and marginal cost is $15.
d. Either A or B can be correct.

Question 2
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In economic theory, if an additional worker adds less to the total output than previous
workers hired, it is because
Select one:
a. there may be less that this person can do, given the fixed capacity of the firm.
b. he/she is less skilled than the previously hired workers.
c. everyone is getting in each other's way.
d. the firm is experiencing diminishing returns to scale.

Question 3
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In the long run, a firm is said to be experiencing decreasing returns to scale if a 10 percent
increase in inputs results in:
Select one:
a. an increase in output from 100 to 110.
b. a decrease in output from 100 to 90.
c. an increase in output from 100 to 105.
d. a decrease in output from 100 to 85.

Question 4
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MC increases because
Select one:
a. MC naturally increases as the firm nears capacity.
b. labor is paid overtime wages when volume increases.
c. in the short run, MC always increases.
d. the law of diminishing returns takes effect.

Question 5
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Suppose that total cost is given by TC = 200 + 5Q – 0.4Q2 + 0.001Q3
Select one:
a. Fixed cost is 200
b. Variable cost (VC) is 5Q – 0.4Q2 + 0.001Q3
c. Average variable cost (AVC) is 5 – 0.4Q + 0.001Q2
d. Marginal cost (MC) is 5 – 0.8Q +.003Q2
e. All of the above are correct

Question 6
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The following Cobb-Douglas production function, Q = 1.8L0.74-K0.36, exhibits
Select one:
a. increasing returns.
b. constant returns.
c. decreasing returns.
d. Both A and B

Question 7
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The law of diminishing returns begins first to affect a firm's short-run cost structure when
Select one:
a. average variable cost begins to increase.
b. marginal cost begins to increase.
c. average cost begins to increase.
d. average fixed cost begins to decrease.

Question 8
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When a firm increased its output by one unit, its AC rose from $45 to $50. This implies that
its MC is
Select one:
a. $5.
b. between $45 and $50.
c. greater than $50.
d. Cannot be determined from the above information

Question 9
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When a firm increased its output by one unit, its AFC decreased. This is an indication that
Select one:
a. the law of diminishing returns has taken effect.
b. MC < AFC.
c. AVC < AFC.
d. the firm is spreading out its total fixed cost.

Question 10
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Which of the following actions has the best potential for experiencing economies of scope?
Select one:
a. producing a product that has appeal to a wider segment of the market
b. producing computers and software
c. producing spaghetti and soft drinks
d. producing cars and trucks

Question 11
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Which of the following conditions is true when a producer minimizes the cost of producing a
given level of output?
Select one:
a. The MRTS is equal to the ratio of input prices.
b. The marginal product per dollar spent on all inputs is equal.
c. The marginal products of all inputs are equal.
d. The MRTS is equal to the ratio of input prices and the marginal product per dollar spent on
all inputs is equal.

Question 12
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Which of the following cost relationships is not true?
Select one:
a. AFC = AC - MC
b. TVC = TC - TFC
c. The change in TVC/the change in Q = MC
d. The change in TC/ the change in Q = MC

Question 13
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Which of the following holds true?
Select one:
a. When the Marginal Product (MP) is rising, Marginal cost (MC) is rising; and when MP is
falling, MC is falling.
b. When MP is rising, MC is falling, and when MP is falling, MC is rising.
c. When MP is rising, MC is constant, and when MP is falling, MC is negative.
d. There is no relationship between MP and MC.

Question 14
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Which of the following indicates when Stage I ends and Stage II begins in the short-run
production?
Select one:
a. when AP = 0
b. when MP = 0
c. when MP = AP
d. when MP starts to diminish

Question 15
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Which of the following indicates when Stage II ends and Stage III begins in the short-run
production function?
Select one:
a. when AP = 0
b. when MP = 0
c. when MP = AP
d. when MP starts to diminish

Question 16
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Which of the following is not one of the strengths of the Cobb-Douglas production function?
Select one:
a. Both marginal product and returns to scale can be estimated from it.
b. It can be converted into a linear function for ease of calculation.
c. It shows a production function passing through increasing returns to constant returns and
then to decreasing returns.
d. The sum of the exponents indicates whether returns to scale are increasing, constant or
decreasing.

Question 17
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Which of the following is not true about the law of diminishing returns?
Select one:
a. It is a short-run phenomenon.
b. It refers to diminishing marginal product.
c. It will have an impact on the firm's marginal cost.
d. It divides Stage I and II of the production process.
e. All of the above are true.

Question 18
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Which of the following statements about the short-run production function is true?
Select one:
a. MP always equals AP at the maximum point of MP.
b. MP always equals zero when TP is at its maximum point.
c. TP starts to decline at the point of diminishing returns.
d. When MP diminishes, AP is at its minimum point.
e. None of the above is true.

Question 19
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Which of the following statements best represents a difference between short-run and long-
run cost?
Select one:
a. Less than one year is considered the short run; more than one year the long run.
b. There are no fixed costs in the long run.
c. In the short-run labor must always be considered the variable input and capital the fixed
input.
d. All of the above are true.

Question 20
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Question text
Which of the following statements is incorrect?
Select one:
a. Fixed costs do not vary with output.
b. Sunk costs are those costs that are forever lost after they have been paid.
c. Fixed costs are always greater than sunk costs.
d. Fixed costs could be positive when sunk costs are zero.
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