Introduction to ECON Study Guide
Test Bank: I Topic: Short-Run Production Relationships
The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product,respectively. Therefore, we can concludethat
marginal product of the third worker is 9.
the third worker has to work with poorer-quality tools and raw materials.
the firm will not want to hire more than three workers.
the first worker puts forth more effort than the second and third workers.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes
economies and diseconomies of scale.
X-inefficiency.
C. the law of diminishing returns.
D. the law of diminishing marginal utility.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
If in the short run a firm's total productis increasing, then its
marginal product must alsobe increasing.
marginal product must be decreasing.
C. marginal productcould be either increasing or decreasing.
D. average product must also be increasing.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
The law of diminishing returns results in
an eventually risingmarginal productcurve.
B. a total productcurve that eventually increases at a decreasing rate.
an eventually falling marginal cost curve.
a total product curve that rises indefinitely.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
The law of diminishing returns describesthe
relationship between total costs and total revenues.
profit-maximizing position of a firm.
C. relationship between resource inputsand product outputs in the short run.
D. relationship between resource inputs and product outputs in the long run.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Which of the following is correct?
When total product is rising, both average product and marginalproduct must also be rising.
When marginal product is falling, total product must be falling.
When marginal product is falling, average product must also be falling.
D. Marginalproduct rises faster than average product and also falls faster than average product.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Which of the following is not correct?
Where marginal product is greater than average product, average product is rising.
B. Where total productis at a maximum, average product is also at a maximum.
Where marginal product is zero, total product is at a maximum.
Marginal product becomes negative before average product becomes negative.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
49.
In the diagram, curves 1, 2, and 3 represent the
A. average, marginal, and total product curves respectively.
B. marginal, average, and total product curves respectively.
total, average, and marginal product curves respectively.
total, marginal, and averageproduct curves respectively.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Type: Graph
50.
The diagram suggests that
A. when marginal product is zero, total product is at a minimum.
B. when marginal product lies above average product, average product is rising.
when marginal product lies below average product, average product is rising.
when total product is at a maximum, so are marginal product and average product.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Type: Graph
The total output of a firm will be at a maximum where
MP is at a maximum.
AP is at a minimum.
C. MP is zero.
D. AP is at a maximum.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
52.
Answer the question on the basis of the following information.
Number of Workers
Total Product
Marginal Product
0
0
---
1
8
8
2
10
3
25
4
30
5
3
6
34
When two workers are employed,
A. total product is 20.
B. total product is 18.
average product is 10.
total product cannot be determined from the information given.
Answer the question on the basis of the following information.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Type: Table
Number of Workers
Total Product
Marginal Product
0
0
---
1
8
8
2
10
3
25
4
30
5
3
6
34
The marginal product of the fourth worker
is 5.
B. is 7. C. is 71/2.
D. cannot be calculated from the information given.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Type: Table
54.
In the diagram, the range of diminishing marginal returns is
0Q3.
0Q2.
Q1Q2.
D. Q1Q3.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Type: Graph
55.
In the diagram,total product will be at a maximumat
A. Q3 units of labor.
Q2 unitsoflabor.
Q1 units of labor.
some point that cannot be determined with the provided information.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Type: Graph
Use the following data to answerthe question.
Inputs of Labor
Total Product
0
0
1
8
2
18
3
25
4
30
5
33
6
34
7
32
The average product (AP) when two units of labor are hired is
8.
B. 9. C. 10. D. 18.
Use the following data to answerthe question.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Type: Table
Inputs of Labor
Total Product
0
0
1
8
2
18
3
25
4
30
5
33
6
7
32
Diminishing returns begin to occur with the hiring of the unit of labor.
first
second
C. third
D. seventh
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Type: Table
Use the following data to answerthe question.
Inputs of Labor
Total Product
0
0
1
8
2
18
3
25
4
30
5
33
6
34
7
32
Marginal product becomes negative with the hiringof the unit of labor.
third
fourth
sixth
D. seventh
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Type: Table
When total product is increasing at an increasing rate, marginal product is
positive and increasing.
positive and decreasing.
constant.
negative.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
When total product is increasing at a decreasing rate, marginal product is
positive and increasing.
B. positiveand decreasing.
constant.
negative.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: I Topic: Short-Run Production Relationships
Fixed cost is
the cost of producingone more unit of capital, for example, machinery.
B. any cost that does not change when the firm changes its output.
average cost multiplied by the firm's output.
usually zero in the short run.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Which of the following is most likely to be a fixed cost?
shipping charges
B. property insurance premiums
wages for unskilled labor
expenditures for raw materials
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
If you owned a small farm, which of the following would most likely be a fixed cost?
harvest labor
B. hail insurance
fertilizer
seed
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Which of the following is most likely to be a variable cost?
fuel and power payments
interest on business loans
rental payments on IBM equipment
real estate taxes
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
If you operated a small bakery,which of the followingwould be a variable cost in the short run?
baking ovens
interest on business loans
annual leasepayment for use of the building
D. baking supplies(flour, salt, etc.)
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Marginal cost is the
rate of change in total fixed cost that results from producingone more unit of output.
B. change in total cost that resultsfrom producing one more unit of output.
change in average variable cost that results from producing one more unit of output.
change in averagetotal cost that resultsfrom producing one more unit of output.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
For most producing firms,
marginal cost rises as output is carried to a certainlevel, and then begins to decline.
total costs rise as outputis carried to a certainlevel, and then begin to decline.
C. average total costs decline as output is carried to a certain level, and then begin to rise.
D. average total costs rise as output is carried to a certain level,and then begin to decline.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Average fixed cost
equals marginal cost when averagetotal cost is at its minimum.
may be found for any outputby adding averagevariable cost and average total cost.
graphs as a U-shaped curve.
D. declines continually as outputincreases.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Which of the followingis correct as it relatesto cost curves?
Average variable cost intersects marginal cost atthelatter's minimum point.
B. Marginal cost intersects average total cost at the latter's minimum point.
Average fixed cost intersects marginal cost at the latter's minimum point.
Marginal cost intersects average fixed cost at the latter's minimum point.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
70.
Refer to the diagram. At output level Q, total variable cost is
A. 0BEQ.
BCDE.
0CDQ.
0AFQ.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Type: Graph
71.
Refer to the diagram. At output level Q, totalfixed cost is
A. 0BEQ.
B. BCDE.
0BEQ −0AFQ.
0CDQ.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Type: Graph
72.
Refer to the diagram. At output level Q, total cost is
0BEQ.
BCDE.
C. 0BEQ + BCDE.
D. 0AFQ + BCDE.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Type: Graph
73.
Refer to the diagram. At output level Q, average fixed cost
is equal to EF.
is equal to QE.
C. is measured by both QF and ED.
D. cannot be determinedfrom the information given.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Type: Graph
74.
Refer to the diagram. At output level Q,
A. marginal product is falling.
marginal product is rising.
marginal product is negative.
one cannot determine whether marginal productis falling or rising.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs. Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Topic: Short-RunProduction Relationships
Type: Graph
75.
Refer to the diagram. The vertical distance between ATC and AVC reflects
A. the law of diminishing returns.
B. the average fixed cost at each levelof output.
marginal cost at each level of output.
the presence of economiesof scale.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Type: Graph
Marginal cost
equals both average variable cost and average total cost at their respectiveminimums.
is the difference between total cost and total variable cost.
rises for a time but then begins to decline when diminishing returns set in.
declines continuously as outputincreases.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Which of the following statements is correct?
Average total cost is the differencebetween average variablecost and average fixed cost.
Marginal cost measures the cost per unit of output associated with any level of production.
When marginal product rises, marginal cost must also rise.
D. Marginal cost is the price or cost of an extra variable input (for example,an additional worker or machine) divided by its marginalproduct.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs. Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Topic: Short-RunProduction Relationships
Assume that in the short run a firm is producing 100 units of output, has averagetotal costs of $200, and has average variablecosts of $150. The firm's total fixed costs are
A. $5,000. B. $500. C. $0.50. D. $50.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Other things equal, if the prices of a firm's variable inputs were to fall,
one could not predicthow unit costs of production would be affected.
marginal cost, average variablecost, and average fixed cost would all fall.
C. marginalcost, average variablecost, and average total cost would all fall.
D. average variablecost would fall, but marginal cost would be unchanged.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Other things equal,if the fixed costs of a firm were to increaseby $100,000 per year, which of the following would happen?
Marginal costs and average variablecosts would both rise.
Average fixed costs and average variable costs would rise.
C. Averagefixed costs and average total costs wouldrise.
D. Average fixed costs would rise,but marginal costs would fall.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
If a firm decides to produce no output in the short run, its costs will be
its marginalcosts.
its variable costs.
C. its fixed costs.
D. zero.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-03 Describe the distinctions between fixedand variable costs and among total, average, and marginalcosts.
Test Bank: I Topic: Short-Run Production Costs
Answer the questionon the basis of the following cost data.