Ch 7 Flashcards
Which of the following statements is NOT true?
A) AC = AFC + AVC
B) C = F + VC
C) AVC = wage/MPL
D) AFC = AC - AVC
C) AVC = wage/MPL
Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. Which of the
following statements is TRUE at all levels of production?
A) MC = AVC
B) MC = AC
C) MC > AFC
D) All of the above.
A) MC = AVC
Suppose the short-run production function is q = 10 ∗ L. If the wage rate is $10 per unit of
labor, then MC equals
A) q.
B) q/10.
C) 10/q.
D) 1.
D) 1.
If average cost is decreasing,
A) marginal cost equals average cost.
B) marginal cost exceeds average cost.
C) marginal cost is less than average cost.
D) Not enough information is given
C) marginal cost is less than average cost.
If the marginal cost of producing a good is increasing as a firm produces more of the good,
then which of the following must be TRUE?
A) AFC is rising.
B) AVC is rising.
C) MC > AVC.
D) MPL is falling.
D) MPL is falling.
In the short run, average variable costs are minimized when
A) MPL equals APL.
B) APL is maximized.
C) MPL is maximized and APL is increasing.
D) Both A and B.
D) Both A and B.
At what output level, q, is average cost minimized if the short-run costs for a company are
C = 40 + 4q + q2?
A) q = 2 √10
B) q = 0
C) q = 40
D) q = 2
A) q = 2 √10
Suppose the current market wage rate (w) is $4. In the short run, a firm’s marginal cost at the
current output level is $2. What is this firm’s marginal product of labor?
A) MPL = 0.5
B) MPL = 1
C) MPL = 2
D) MPL = 8
C) MPL = 2
What are the functions for MC and AC if TC = 40 + 10q + 5q2?
A) MC = 10q; AC = 10 + 5q
B) MC = 10 + 10q; AC = 40/q + 10 + 10q
C) MC = 10 + 10q; AC = 40/q + 10q2
D) MC = 20 + 10q; AC = 40/q + 10q
B) MC = 10 + 10q; AC = 40/q + 10 + 10q
In the long run, fixed costs are
A) sunk.
B) avoidable.
C) larger than in the short run.
D) not included in production decisions.
B) avoidable.
11) When the isocost line is tangent to the isoquant, then
A) MPL = MPK.
B) the firm is producing that level of output at minimum cost.
C) the firm has achieved the right economies of scale.
D) All of the above.
B) the firm is producing that level of output at minimum cost.
Which of the following statements best explains why long-run average cost is never greater
than short-run average cost?
A) In the long run, tangency of the isocost and isoquant is attainable. This is not necessarily true
in the short run.
B) In the long run, diseconomies of scale might not occur, but in the short run diminishing
marginal returns do.
C) In the long run, the cost of capital declines because the firm is able to pay down some of its
debts.
D) In the long run, the average cost curve need not be U-shaped, but in the short run it is.
B) In the long run, diseconomies of scale might not occur, but in the short run diminishing
marginal returns do.
Suppose MPL = 0.5 ∗ (q/L) and MPK = 0.5 ∗ (q/K). In the long run, the firm will hire equal
amounts of capital and labor
A) all of the time.
B) only when w = r.
C) only when w = 0.5 ∗ r.
D) at no point in time.
A) all of the time.
Learning by doing is represented by
A) a decrease in the average total cost curve.
B) an increase in the average total cost curve.
C) no change in the average total cost curve.
D) an increase in the average total cost curve and a decrease in the marginal cost curve.
A) a decrease in the average total cost curve.
15) Economies of scope
A) is a situation in which it is more expensive to produce goods separately than jointly.
B) are the opposite of economies of scale.
C) occur whenever only one good is produced at a time.
D) are an example of the gains from specialization.
A) is a situation in which it is more expensive to produce goods separately than jointly.
