Chapter 7 pt. 2 (most questions of exam 1)

Question 1

The law of diminishing marginal returns implies that in the short run

Answer 1

the marginal product of the variable input must eventually decrease

Question 2

As a fishing firm hires it first, second, and third workers, it could find that marginal product actually rises. The reason for this is

Answer 2

the division of labor creates greater productivity

Question 3

In the short run, if average variable cost equals $50, average total costs equals $75 and output equals 100. The total fixed cost must be

Answer 3

$2,500

Question 4

The total fixed cost curve

Answer 4

remains constant regardless of output

Question 5

Which of the following statements is true?

Answer 5

TFC=TC-TVC

Question 6

Which of the following is true if the average variable cost is rising?

Answer 6

Marginal cost is increasing

Question 7

Which of the following will become smaller and smaller as the firm expands output?

Answer 7

Average fixed cost

Question 8

Marginal cost is best defined as

Answer 8

the amount added to total cost when one more unit of output is produced

Question 9

When marginal cost is below average total cost the

Answer 9

average total cost is falling

Question 10

A firm estimates that when output is 10, its total costs are $900. It also finds that when output is 11, its total costs are $920. The marginal cost of the eleventh unit of output is

Answer 10

$20

Question 11

A downward-sloping portion of a long-run average total cost curve is the result of

Answer 11

economies of scale

Question 12

Long-run economies of scale exist when the long-run average cost curve

Answer 12

falls

Question 13

Economies of scale imply that within some range, one can increase the size of operation and

Answer 13

average total cost will decrease

Question 14

Since the 1980’s, Walmart stores have appeared in almost every community in America. Walmart buys their goods in large quantities and therefore are at cheaper prices. Walmart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Walmart because of low prices and free parking. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates

Answer 14

economies of scale exist at Walmart

Question 15

Diseconomies of scale exist over the range of output for which the long-run average cost curve is

Answer 15

rising

Question 16

If a firm enlarges its factory size and realizes higher average (per unit) costs of production then

Answer 16

it has experienced diseconomies of scale

Question 17

Constant returns to scale cause the long-run average cost curve to be

Answer 17

horizontal