Question 1

Draw typical average total cost,average variable cost,and marginal cost curves for a competitive firm with price at the shutdown point.Show that total revenue equals variable costs at this quantity.Also show the firm's losses at this quantity.

Accepted Answer

If total revenue is equal to total variable cost for a price-taking firm,then price is equal to average variable cost,as shown in the diagram below.Economic profit is equal to the difference between total revenue and total cost.This difference is illustrated by the shaded rectangle in the diagram below.The firm is earning a negative economic profit because price,which also equals average variable cost,is less than average total cost.The difference between variable cost and total cost is the fixed cost,so the area of the shaded rectangle also equals total fixed cost.

Question 2

Which of the following is a good example of variable costs?

Accepted Answer

A)  Cost of building a factory
B)  Land cost
C)  Cost of heavy machinery
D)  Wage payments for workers
E)  Capital costs

Question 3

Exhibit 8-4 
-Refer to Exhibit 8-4.Calculate the average variable cost for the fifth unit of output.

Accepted Answer

$30.40 AVC = (TC - F...

Question 4

Exhibit 8-5 
-Refer to Exhibit 8-5.The curve marked II is the firm's

Accepted Answer

A)  marginal cost curve.
B)  average fixed cost curve.
C)  total cost curve.
D)  average total cost curve.
E)  average variable cost curve.

Question 5

The breakeven point is the point where price equals a firm's average total cost.

Accepted Answer

A) True 
 B)False

Question 6

If a firm is experiencing diminishing returns to labor,

Accepted Answer

A)  marginal product of labor must be decreasing.
B)  it must be producing in the long run.
C)  marginal cost must be decreasing.
D)  the firm must be experiencing diseconomies of scale.
E)  the firm is apparently hiring less-qualified units of labor.

Question 7

The minimum efficient scale of a firm is the

Accepted Answer

A)  largest scale of production for which the marginal cost is at a minimum.
B)  largest scale of production for which the long-run average total cost is at a minimum.
C)  largest scale of production for which the long-run average variable cost is at a minimum.
D)  smallest scale of production for which the long-run average total cost is at a minimum.
E)  smallest scale of production for which the long-run average variable cost is at a minimum.

Question 8

Some competitive firms are willing to operate at a loss in the short run because their revenues are at least able to cover their fixed costs.

Accepted Answer

A) True 
 B)False  False

Question 9

The firm expands its capital up to the point that

Accepted Answer

A)  long-run average costs are minimized.
B)  fixed costs are minimized.
C)  average variable costs are minimized.
D)  profits are maximized.
E)  average total costs are minimized.

Question 10

Average total cost is average variable cost plus marginal cost.

Accepted Answer

A) True 
 B)False

Question 11

If a profit-maximizing,competitive firm is producing at a loss in the short run,then

Accepted Answer

A)  P 
B)  P 
C)  P = AVC + AFC.
D)  average revenue is less than price.
E)  P  AVC.

Question 12

If a firm is currently producing zero output in the short run,total cost equals

Accepted Answer

A)  fixed cost.
B)  zero.
C)  variable cost.
D)  average variable cost.
E)  marginal cost.

Question 13

The slope of the average fixed curve is always negative.

Accepted Answer

A) True 
 B)False

Question 14

Exhibit 8-1 
-Refer to Exhibit 8-1.At 70 units of output,fixed costs equal

Accepted Answer

A)  $50.
B)  $100.
C)  $1,000.
D)  $3,500.
E)  $4,000.

Question 15

Minimum efficient scale is the largest output size for which the long-run average total cost is at a minimum.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 8-6 
-Refer to Exhibit 8-6.At an output of 100 units,fixed costs equal

Accepted Answer

A)  $550.
B)  $200.
C)  $450.
D)  $1,000.
E)  $350. C

Question 17

Marginal cost

Accepted Answer

A)  is usually zero in the short run.
B)  equals total costs plus total fixed costs.
C)  will fall with output until the onset of diminishing marginal returns.
D)  does not vary with the quantity of output that a firm produces.
E)  is usually zero in the long run.

Question 18

In the long run,

Accepted Answer

A)  most of the firm's resources cannot be varied.
B)  none of the firm's resources are variable.
C)  new technology cannot be introduced.
D)  all of a firm's resources are variable.
E)  at least one of the firm's resources is fixed.

Question 19

Economies of scope occur when

Accepted Answer

A)  two firms producing different products merge and average total cost declines.
B)  a firm increases output and long-run average total cost declines.
C)  an increase in capital shifts the short-run average total cost curve down.
D)  one firm spins off and average total cost declines.
E)  average total cost increases along with firm expansion.

Question 20

Marginal product of labor is the change in output divided by a change in labor input.

Accepted Answer

A) True 
 B)False

Exam 8: Costs and the Changes at Firms Over Time

Draw typical average total cost,average variable cost,and marginal cost curves for a competitive firm with price at the shutdown point.Show that total revenue equals variable costs at this quantity.Also show the firm's losses at this quantity.

Which of the following is a good example of variable costs?

Correct Answer
verified

Exhibit 8-4 -Refer to Exhibit 8-4.Calculate the average variable cost for the fifth unit of output.

Correct Answer
verified
$30.40 AVC = (TC - F...
View Answer

Exhibit 8-5 -Refer to Exhibit 8-5.The curve marked II is the firm's

Correct Answer
verified

The breakeven point is the point where price equals a firm's average total cost.

Correct Answer
verified

If a firm is experiencing diminishing returns to labor,

Correct Answer
verified

The minimum efficient scale of a firm is the

Correct Answer
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Some competitive firms are willing to operate at a loss in the short run because their revenues are at least able to cover their fixed costs.

Correct Answer
verified
False

The firm expands its capital up to the point that

Correct Answer
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Average total cost is average variable cost plus marginal cost.

Correct Answer
verified

If a profit-maximizing,competitive firm is producing at a loss in the short run,then

Correct Answer
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If a firm is currently producing zero output in the short run,total cost equals

Correct Answer
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The slope of the average fixed curve is always negative.

Correct Answer
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Exhibit 8-1 -Refer to Exhibit 8-1.At 70 units of output,fixed costs equal

Correct Answer
verified

Minimum efficient scale is the largest output size for which the long-run average total cost is at a minimum.

Correct Answer
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Exhibit 8-6 -Refer to Exhibit 8-6.At an output of 100 units,fixed costs equal

Correct Answer
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C

Marginal cost

Correct Answer
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In the long run,

Correct Answer
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Economies of scope occur when

Correct Answer
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Marginal product of labor is the change in output divided by a change in labor input.

Correct Answer
verified

Exam 8: Costs and the Changes at Firms Over Time

Draw typical average total cost,average variable cost,and marginal cost curves for a competitive firm with price at the shutdown point.Show that total revenue equals variable costs at this quantity.Also show the firm's losses at this quantity.

Which of the following is a good example of variable costs?

Correct AnswerverifiedShow Answer

Exhibit 8-4 -Refer to Exhibit 8-4.Calculate the average variable cost for the fifth unit of output.

Correct Answerverified$30.40 AVC = (TC - F...View AnswerShow Answer

Exhibit 8-5 -Refer to Exhibit 8-5.The curve marked II is the firm's

Correct AnswerverifiedShow Answer

The breakeven point is the point where price equals a firm's average total cost.

Correct AnswerverifiedShow Answer

If a firm is experiencing diminishing returns to labor,

Correct AnswerverifiedShow Answer

The minimum efficient scale of a firm is the

Correct AnswerverifiedShow Answer

Some competitive firms are willing to operate at a loss in the short run because their revenues are at least able to cover their fixed costs.

Correct AnswerverifiedFalse

The firm expands its capital up to the point that

Correct AnswerverifiedShow Answer

Average total cost is average variable cost plus marginal cost.

Correct AnswerverifiedShow Answer

If a profit-maximizing,competitive firm is producing at a loss in the short run,then

Correct AnswerverifiedShow Answer

If a firm is currently producing zero output in the short run,total cost equals

Correct AnswerverifiedShow Answer

The slope of the average fixed curve is always negative.

Correct AnswerverifiedShow Answer

Exhibit 8-1 -Refer to Exhibit 8-1.At 70 units of output,fixed costs equal

Correct AnswerverifiedShow Answer

Minimum efficient scale is the largest output size for which the long-run average total cost is at a minimum.

Correct AnswerverifiedShow Answer

Exhibit 8-6 -Refer to Exhibit 8-6.At an output of 100 units,fixed costs equal

Correct AnswerverifiedC

Marginal cost

Correct AnswerverifiedShow Answer

In the long run,

Correct AnswerverifiedShow Answer

Economies of scope occur when

Correct AnswerverifiedShow Answer

Marginal product of labor is the change in output divided by a change in labor input.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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$30.40 AVC = (TC - F...
View Answer

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False

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C

Correct Answer
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