Chapter 20

Question 1

In the short run, the ATC curve is _______________________ above the AVC curve

• always
• sometimes
• never

Answer 1

Always

Question 2

As output rises,

• AFC rises
• AFC falls
• AFC remains the same
• there is no way of determining what happens to the AFC

Answer 2

AFC falls

Question 3

If fixed cost is $5000.00 and at an output of 3 variable cost is $4000.00 how much is the average total cost of an output of 3?

• 1,333.33
• 3,000
• 4,500.00
• 9,000.00
• there is not enough information to determine ATC at an output of 3.

Answer 3

3,000.00

Question 4

If fixed cost is $8000, variable cost is $5000 at an output of 2 and $9000 at an output of 3, how much is marignal cost at an output of 3?

• 3,000
• 4,000
• 5,000
• 8,000
• there is not enough information to determine marginal cost at an output of 3

Answer 4

4,000

Question 5

Which statement is true?

• AFC declines with output
• ATC declines with output
• AFC-AVC= ATC
• Output divided by fixed cost = AFC

Answer 5

AFC declines with output

Question 6

The phrase “speading the overhead” refers to:

• the decrease in total cost that occurs as a firm reduces the size of its work force
• the decrease in average fixed cost that occurs as a firm increases its output
• the decrease in average variable cost that occurs as a firm increases its output
• the decrease in total fixed cost that occurs as a firm increases its output

Answer 6

the decrease in average fixed cost that occurs as a firm increases its output

Question 7

A firm has a fixed cost of $2000.00 and at an output of one, variable cost is $1500. How much is marginal cost at an output of 1?

• 1,000.00
• 1500.00
• 2000.00
• 3500.00
  *

Answer 7

$1500.00

Question 8

Which statement is false?

• The AFC curve is U-shaped
• the AVC curve is U-shaped
• The ATC curve is U-shaped
• None is false

Answer 8

The AFC curve is U-shaped

Question 9

Which statement is true?

• Fixed costs and variable costs vary with output
• Neither fixed costs nor variable costs vary with output
• only fixed cost varies with output
• only variable cost varies with output

Answer 9

only variable varies with ouput

Question 10

In the long run

• all costs become fixed
• all costs become variable
• all cost become neither fixed nor variable

Answer 10

all costs become variable

Question 11

The average fixed cost curve

• is a vertical line
• is a horizontal line
• slopes downward to the right as output rises
• is U-shpaed (it declines as output rises, reaches a minimum, and then rises)

Answer 11

slopes downward to the right as ouput rises

Question 12

As output rises, average fixed cost

• rises
• falls
• remains the same

Answer 12

Falls

Question 13

Which statement is true?

• Going out of business is a short run option
• Operating or shutting down are long run options
• Going out of business or not going out of business are long run options

Answer 13

Going out of business or not going out of business are long run options

Question 14

If a firm cannot cover its variable costs, it will

• operate in the short run and stay in business in the long run
• operate in the short run and go out of business in the long run
• shut down in the short run and stay in business in the long run
• shut down in the short run and go out of business in the long run

Answer 14

shut down in the short run and go out of business in the long run

Question 15

Average variable cost is equal to

• average cost plus average fixed cost
• marginal cost plus average fixed cost
• marginal cost
• average total cost minus average fixed cost

Answer 15

average total cost minus average fixed cost

Question 16

Both Jill and John own toothpick factories. Jill’s factory has low fixed cost and high variable costs. John’s factory has high fixed costs and low variable costs. Currently each factory is producing 1,000 boxes of toothpicks at the same total cost. Complete the following statement with the correct answer. If each produces:

• more, their costs will be equal
• less, their costs will be equal
• less, the costs of Jill’s factory will exceed those of John’s factory
• more, the costs of Jill’s factory will exceed those of John’s factory.

Answer 16

more, the costs of Jill’s factory will exceed those of John’s factory

Question 17

Fixed costs are best defined as:

• costs that will not vary with the firm’s output level over some period of time.
• costs that are paid on a yearly basis rather than a weekly or monthly basis
• costs of inputs that cannot be moved, such as real estate
• costs that will last as long as the firm exists

Answer 17

costs that will not vary with the firm’s output level over some period of time

Question 18

A variable input is an input that can change

• in the short run but not in the long run
• in the long run but not in the short run
• in both the long run and the short run
• without changing the level of output

Answer 18

in both the long run and the short run

Question 19

What is most clearly a variable cost?

• Rent
• Insurance premiums
• Salaries of employees under long-term contract
• Interest payment
• Wages of production worker

Answer 19

Wages of production workers

Question 20

Fixed cost is sometimes referred to as

• sunk cost
• variable cost
• total cost
• economic cost
• accounting cost

Answer 20

sunk cost

Question 21

Jimmy, Walter, Mike and Bill run a school for political candidates. The school has fixed cost of $10 million, variable cost of $4 million, and total revene of $15 million. In the short run the school will ____________________ and in the long run the school will

• operate, stay in business
• operate, go out of business
• shut down, stay in business
• shut down, go out of business

Answer 21

operate, stay in business

Question 22

The basic characteristic of the short run is that:

• a firm does not have sufficient time to change the amount of any of the resources it employs
• the firm does not have sufficient time to cut its rate of output to zero.
• the firm does not have sufficient time to change the size of its plant
• the time frame is sufficient to allow new firms to enter the industry

Answer 22

the firm does not have sufficient time to change the size of its plant

Question 23

In the short run

• all costs are fixed
• all costs are variable costs
• some costs are fixed costs
• all costs are marginal costs

Answer 23

some costs are fixed costs

Question 24

Average total cost is found by dividing

• varable cost by output
• output by variable cost
• total cost by output
• output by total cost

Answer 24

total cost by output

Question 25

Average variable cost is found by dividing

• total cost by output
• output by total cost
• variable cost by output
• output by variable cost

Answer 25

variable cost by output