Economics, 11e, Global Edition (Parkin)

Chapter 11 Output and Costs

1 Decision Time Frames

1) All the decisions made by people who operate firms have one overriding objective, which is to
________.
A) make maximum attainable profit
B) maximize the firm's total revenue
C) maximize the firm's market share
D) maximize the quantity that the firm sells
Answer: A
Topic: Goal
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

2) The short run is a period of time in which

A) the quantity of at least one factor of production is fixed.
B) the amount of output is fixed.
C) prices and wages are fixed.
D) nothing the firm does can be altered.
Answer: A
Topic: Short Run
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

3) The short run is a period of time in which

A) the quantity used of at least one factor of production is fixed.
B) the quantities used of all factors of production are fixed.
C) output prices are fixed.
D) factor of production prices are fixed.
Answer: A
Topic: Short Run
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

1
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4) A period of time in which the quantity of at least one factor of production used by a firm is fixed is
called the
A) market period.
B) intermediate run.
C) short run.
D) long run.
Answer: C
Topic: Short Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

5) Economists define the short run as a period of time so short that

A) the amount of output cannot be changed except under diminishing marginal returns.
B) the amount of output cannot be changed at all.
C) only one factor of production can be varied.
D) at least one factor of production cannot be varied.
Answer: D
Topic: Short Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

6) The short run is a time frame in which

A) at least one factor of production is fixed.
B) all factors of production can be varied.
C) all factors of production are fixed.
D) at least one factor of production can be varied.
Answer: A
Topic: Short Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

7) In the short run,

A) all factors of production are fixed.
B) at least one factor of production is fixed.
C) all factors of production are variable.
D) there are no variable costs.
Answer: B
Topic: Short Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

2
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8) In the short run,
A) all factors of production are fixed.
B) labor usage must remain fixed.
C) a firm's plant is fixed.
D) no factors of production are fixed.
Answer: C
Topic: Short Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

9) The short run is a time period during which

A) a firm can earn a normal profit.
B) all factors of production are variable.
C) at least one factor of production is fixed.
D) all factors of production are fixed.
Answer: C
Topic: Short Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

10) The short run is a time frame in which

A) the quantities of some factors of production are fixed and the quantities of other factors of production
can be varied.
B) the quantities of all factors of production can be varied.
C) the quantities of all factors of production are fixed.
D) all costs are sunk costs.
Answer: A
Topic: Short Run
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

11) An example of a variable factor of production in the short run is

A) a building.
B) capital equipment.
C) an employee.
D) land.
Answer: C
Topic: Short Run
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

3
Copyright © 2014 Pearson Education, Inc.
12) When the demand for electricity peaks during the hottest days of summer, Florida Power and Light
Company can generate more electricity by using more fuel and increasing the working hours of many of
its employees. The company cannot, however, increase electric power production by building additional
generating capacity. This means that the company is in the
A) market run.
B) short run.
C) intermediate run.
D) long run.
Answer: B
Topic: Short Run
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

13) An example of a short-run fixed factor of production is

A) capital equipment.
B) labor.
C) electricity.
D) postage for mailing.
Answer: A
Topic: Short Run
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

14) A cost that has already been made and cannot be recovered is called a
A) variable cost.
B) fixed cost.
C) sunk cost.
D) marginal cost.
Answer: C
Topic: Sunk Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

15) After constructing a new factory, the cost of building the factory is a
A) past cost.
B) sunk cost.
C) variable cost.
D) None of the above answers are correct.
Answer: B
Topic: The Long Run
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

4
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16) The long run is a time frame in which
A) the quantities of some factors of production are fixed and the quantities of other factors of production
can be varied.
B) the quantities of all factors of production can be varied.
C) the quantities of all factors of production are fixed.
D) all costs are sunk costs.
Answer: B
Topic: Long Run
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

17) A period of time in which the quantity of all factors of production used by a firm can be varied is
called the
A) market period.
B) variable run.
C) short run.
D) long run.
Answer: D
Topic: Long Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

18) In the long run, a firm has

A) no factors of production that are fixed.
B) no factors of production that are variable.
C) no factors of production that are either fixed or variable.
D) fixed factors of production but no variable resources.
Answer: A
Topic: Long Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

19) The long run

A) means a long period of time, always longer than a year.
B) is a period of time in which all factors of production can be varied.
C) is different for different firms.
D) Both answers B and C are correct.
Answer: D
Topic: Long Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

5
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20) The long run is a period of time in which
A) all factors of production are variable.
B) all factors of production are fixed.
C) some but not all factors of production are fixed.
D) some but not all factors of production are variable.
Answer: A
Topic: Long Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

21) Which of the following factors is fixed in the long run?

A) Capital
B) Land
C) Entrepreneurship
D) None of the above because all factors are variable in the long run.
Answer: D
Topic: The Long Run
Skill: Conceptual
Status: New
A-level heading: Decision Time Frames
AACSB: Reflective Thinking

22) In the long run, a firm can vary

A) its capital but not its labor.
B) its labor but not its capital.
C) both its labor and its capital.
D) neither its labor nor its capital.
Answer: C
Topic: Long Run
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

23) The long run is distinguished from the short run because only in the long run
A) output prices can vary.
B) factor of production prices can vary.
C) the quantities of all factors of production can be varied.
D) the firm no longer maximizes its profit.
Answer: C
Topic: Long Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

6
Copyright © 2014 Pearson Education, Inc.
24) In economics, the short run is the time frame in which the quantities of ________ and the long run is
the period of time in which ________.
A) some factors of production are variable; the quantities of all factors of production are fixed
B) all factors of production are variable but technology is fixed; technology is variable
C) all factors of production are fixed; the quantities of all factors of production can be varied
D) some factors of production are fixed; the quantities of all factors of production can be varied
Answer: D
Topic: Short Run and Long Run
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

25) In the short run,

A) the size of the plant is fixed.
B) all factors of production are variable.
C) all factors of production are fixed.
D) some firms experience increasing returns to scale.
Answer: A
Topic: Study Guide Question, Short Run
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

26) The long run is a time period in which

A) one year or less elapses.
B) all factors of production are variable.
C) all factors of production are fixed.
D) there is at least one fixed factor of production and at least one variable factor of production.
Answer: B
Topic: Study Guide Question, Long Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

27) Which of the following statements is correct?

A) A firm does not need to take into account its sunk cost when making current decisions.
B) Long-run decisions are easily reversed.
C) Short-run decisions are not easily reversed.
D) In the long run, a firm can change its plant but not the quantity of its labor.
Answer: A
Topic: Short Run and Long Run
Skill: Conceptual
Status: New
A-level heading: Decision Time Frames
AACSB: Reflective Thinking

7
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2 Short-Run Technology Constraint

1) Total product is
A) the increase in output that results from a one-unit increase in the quantity of labor employed with all
other inputs remaining the same.
B) maximum output that a given quantity of labor can produce.
C) maximum amount of output produced by a given quantity of labor divided by the given quantity of
labor employed.
D) maximum amount of amount of output produced by a given quantity of labor divided by price of the
output.
Answer: B
Topic: Total Product
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

2) Points below a firm's total product curve are

A) both attainable and technologically efficient.
B) neither attainable nor technologically efficient.
C) attainable but not technologically efficient.
D) technologically efficient but not attainable.
Answer: C
Topic: Total Product Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

3) Points on a firm's total product curve are

A) both attainable and technologically efficient.
B) neither attainable nor technologically efficient.
C) attainable but not technologically efficient.
D) technologically efficient but not attainable.
Answer: A
Topic: Total Product Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

4) When the total product curve is drawn in a figure that measures employment along the horizontal axis,
it is a graph that shows the
A) minimum cost of producing a given amount of output using different techniques.
B) maximum profit attainable for each unit of output sold per unit of labor employed.
C) maximum output attainable for each quantity of labor employed.
D) minimum output attainable for each quantity of labor employed.
Answer: C
Topic: Total Product Curve
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

8
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5) All the production points that lie ________ the total product curve are attainable and ________.
A) above; efficient
B) above; inefficient
C) below; efficient
D) below; inefficient
Answer: D
Topic: Total Product Curve
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

6) A firm's total product curve shows

A) that inefficiency is not possible.
B) how the cost of the fixed resources change when output changes.
C) how the amount of output changes when the quantity of labor changes.
D) that in the long run the firm must adjust the quantity of all the resources it employs.
Answer: C
Topic: Total Product Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

7) Most total product curves have

A) first increasing and then decreasing marginal returns to labor.
B) output first increasing and then decreasing as labor is added.
C) first decreasing and then increasing marginal returns to labor.
D) output increasing at an increasing rate as labor is added.
Answer: A
Topic: The Marginal Product Curve
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

8) The marginal product of labor is equal to the

A) total product divided by the total number of workers hired.
B) increase in the total product that results from hiring one more worker with all other inputs remaining
the same.
C) slope of the marginal product of labor curve.
D) None of the above answers are correct.
Answer: B
Topic: Marginal Product of Labor
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

9
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9) Marginal product is
A) the increase in output that results from a one-unit increase in the quantity of labor employed with all
other inputs remaining the same.
B) total amount of output produced.
C) total amount of output produced divided by the quantity of labor employed.
D) total amount of output produced divided by price of the output.
Answer: A
Topic: Marginal Product of Labor
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

10) The marginal product of labor is the increase in total product from a
A) one unit increase in the quantity of labor, while holding the quantity of other inputs constant.
B) one unit increase in the quantity of labor, while also increasing the quantity of other inputs by one
unit.
C) one dollar increase in the wage rate, while holding the price of other inputs constant.
D) one percent increase in the wage rate, while also increasing the price of other inputs by one percent.
Answer: A
Topic: Marginal Product of Labor
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

11) The marginal product of labor is the change in total product from a one-unit increase in
A) the quantity of labor employed, holding the quantity of other inputs constant.
B) the quantity of capital employed, holding the quantity of labor constant.
C) both the quantity of labor and the quantity of other inputs employed.
D) the wage rate.
Answer: A
Topic: Marginal Product of Labor
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

12) The marginal product of labor is the

A) change in output resulting from a one-unit increase in labor with all other inputs remaining the same.
B) maximum output attainable with fixed factors of production when labor is the only variable factor of
production.
C) output level above which the slope of the total product curve falls.
D) output level above which the rate of total product per unit of labor falls.
Answer: A
Topic: Marginal Product of Labor
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

10
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13) The total output produced with any quantity of labor is equal to the sum of the
A) marginal products of each of the workers hired.
B) average products of each of the workers hired.
C) total wages the firm pays its workers.
D) Both answers A and B are correct.
Answer: A
Topic: Marginal Product of Labor
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

14) The average product of labor is equal to the

A) total product divided by the total number of workers hired.
B) total number of workers hired divided by the total product.
C) slope of the marginal product of labor curve.
D) Both answers B and C are correct.
Answer: A
Topic: Average Product of Labor
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

15) Average product equals the

A) increase in output that results from a one-unit increase in the quantity of labor employed with all
other inputs remaining the same.
B) total amount of output produced.
C) total amount of output produced divided by the quantity of labor employed.
D) total amount of output produced divided by price of the output.
Answer: C
Topic: Average Product of Labor
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

16) Average product of labor is equal to ________.

A) total product multiplied by the quantity of labor employed.
B) the total product produced
C) the quantity of labor employed divided by total product
D) total product divided by the quantity of labor employed
Answer: D
Topic: Average Product of Labor
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

11
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17) The average product of labor is
A) the inverse of the average product of capital.
B) the slope of the curve showing the marginal product of labor.
C) the slope of the curve showing the total product of labor.
D) total product divided by the total quantity of labor employed.
Answer: D
Topic: Average Product of Labor
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

Pizza Hut
Total product
Labor (workers)
(pizzas produced per hour)
0 0
1 5
2 9
3 12
4 14
5 15

18) Using the data in the above table, what is the marginal product of the second worker?
A) 4.5 pizzas per hour
B) 4 pizzas per hour
C) 5 pizzas per hour
D) The marginal product is undefined.
Answer: B
Topic: Total Product
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

19) Using the data in the above table, what is the marginal product of the third employee?
A) 2 pizzas per hour
B) 3 pizzas per hour
C) 4 pizzas per hour
D) 12 pizzas per hour
Answer: B
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

12
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20) Using the data in the above table, what is the average product of three employees?
A) 2 pizzas per hour
B) 3 pizzas per hour
C) 4 pizzas per hour
D) 12 pizzas per hour
Answer: C
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Labor Total product

(workers per day) (hats per day)
0 0
1 4
2 10
3 18
4 25
5 30

21) The above table shows the total product of producing baseball hats. The marginal product of the 4th
worker is equal to
A) 25 baseball hats.
B) 21 baseball hats.
C) 7 baseball hats.
D) 6.25 baseball hats.
Answer: C
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

22) The above table shows the total product of producing baseball hats. The average product of 3 workers
is equal to
A) 1.67 baseball hats.
B) 6.00 baseball hats.
C) 12.78 baseball hats.
D) 18.00 baseball hats.
Answer: B
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

13
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 Total product Marginal Average
Labor (workers)
(units) product product
0 0
1 3
2 4.5
3 14
4 3
5 19
6 1

23) The above (incomplete) table provides information about the relationships between labor and various
product measures. The total product that can be produced with 6 units of labor is
A) 20.
B) 19.
C) More information is needed to answer the question.
D) None of the above answers is correct.
Answer: A
Topic: Total Product
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

24) The above (incomplete) table provides information about the relationships between labor and various
product measures. The amount of labor that maximizes the marginal product of labor is
A) 2 units of labor.
B) 3 units of labor.
C) 4 units of labor.
D) 5 units of labor.
Answer: A
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

25) The above (incomplete) table provides information about the relationships between labor and various
product measures. The average product of the fourth unit of labor
A) exceeds the marginal product of the fourth unit of labor.
B) is less than the marginal product of the fourth unit of labor.
C) is equal to the marginal product of the fourth unit of labor.
D) is equal to 4.0.
Answer: A
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

14
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 Total Product, Marginal Product, Average Product
Labor Total product Marginal Average
(workers per day) (units per day) product product
0 0 0 0
1 2 2 2
2 8
3 12
4 15
5 16 1

26) In the above table, the marginal product of the second worker is
A) 1.
B) 2.
C) 3.
D) 4.
Answer: D
Topic: Total Product
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

27) In the above table, the marginal product of the third worker is
A) 1.
B) 2.
C) 3.
D) 4.
Answer: D
Topic: Marginal Product of Labor
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

28) In the above table, the marginal product of the fourth worker is
A) 1.
B) 3.
C) 4.
D) 6.
Answer: B
Topic: Marginal Product of Labor
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

15
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29) In the above table, the marginal product is greatest when the
A) first worker is hired.
B) second worker is hired.
C) third worker is hired.
D) fourth worker is hired.
Answer: B
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

30) In the above table, the average product of three workers is

A) 1.
B) 2.
C) 3.
D) 4.
Answer: D
Topic: Average Product of Labor
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

31) In the above table, the average product is less than the marginal product
A) when the first worker is hired.
B) when the second worker is hired.
C) when the third worker is hired.
D) for the entire range of output given.
Answer: B
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

16
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 Labor Quantity
(workers per day) (T shirts per day)
0 0
1 10
2 22
3 30
4 34
5 35

32) The table shows some data that describes Tom's T-Shirts' total product when Tom's has 1 sewing
machine. When 4 workers are employed, ________.
A) average product of labor is a maximum
B) marginal product of labor is less than average product of labor
C) marginal product of labor exceeds average product of labor
D) marginal product of labor equals average product of labor
Answer: B
Topic: Average Product of Labor and Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Labor Total product

(workers per day) (pizzas per day)
0 0
1 10
2 25
3 37
4 45
5 50

33) Based on the production data for Pat's Pizza Parlor in the above table, the marginal product of the 4th
worker is ________ pizzas.
A) 5
B) 8
C) 10
D) 45
Answer: B
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

17
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34) Based on the production data for Pat's Pizza Parlor in the above table, which worker has the largest
marginal product?
A) Worker 1
B) Worker 2
C) Worker 3
D) Worker 4
Answer: B
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

35) Based on the above production data table for Ken's Pizza Parlor, we know that the average product of
labor curve begins to decrease after hiring worker ________.
A) 1
B) 2
C) 3
D) 4
Answer: B
Topic: Average Product of Labor
Skill: Analytical
Status: New 10th edition
AACSB: Analytical Skills

36) Based on the production data for Pat's Pizza Parlor in the above table, the average product of labor
when 4 workers are hired is ________ pizzas.
A) 8
B) 10
C) 11.25
D) 45
Answer: C
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

37) Based on the production data for Pat's Pizza Parlor in the above table, which of the following pair of
workers have the same average product?
A) 1 and 2
B) 2 and 4
C) 1 and 5
D) 2 and 5
Answer: C
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

18
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38) In the figure above, the marginal product of the second worker is
A) 10 units.
B) 5 units.
C) 2 units.
D) 1 units.
Answer: B
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

39) In the above figure, after the second worker is hired, the marginal product of labor is
A) increasing.
B) diminishing.
C) constant.
D) zero.
Answer: B
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

40) At point d in the above figure, the average product of labor equals
A) 15.
B) 4.
C) 3.75.
D) approximately 1.
Answer: C
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

19
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41) In the above figure, the average product of labor at point c is
A) 10.
B) 5.
C) 2.
D) None of the above answers is correct.
Answer: B
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

42) In the figure above, ________ is a technologically efficient point.

A) d
B) f
C) g
D) None of the selections is correct.
Answer: A
Topic: Total Product Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

43) In the above figure, a technologically inefficient point is

A) a.
B) e.
C) g.
D) f.
Answer: D
Topic: Total Product Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

44) In the above figure, an unattainable point is

A) a.
B) e.
C) g.
D) f.
Answer: C
Topic: Total Product Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

20
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45) In the above figure, the most efficient way to produce 10 units is to hire
A) 1 worker.
B) 2 workers.
C) 3 workers.
D) 5 workers.
Answer: B
Topic: Total Product Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

46) In the above figure, the most efficient way to produce 15 units is to hire
A) 2 workers.
B) 3 workers.
C) 4 workers.
D) 5 workers.
Answer: C
Topic: Total Product Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

47) In the above figure, the maximum number of units that 4 workers can produce is
A) 5 units.
B) 10 units.
C) 15 units.
D) more than 15 units.
Answer: C
Topic: Total Product Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

48) In the above figure, the marginal product of labor is zero at point
A) a.
B) c.
C) e.
D) f.
Answer: C
Topic: Marginal Product Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

21
Copyright © 2014 Pearson Education, Inc.
49) At point e in the above figure, the marginal product of labor
A) is less than the average product of labor.
B) equals the average product of labor.
C) is greater than the average product of labor.
D) is at its maximum.
Answer: A
Topic: Marginal Product Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

50) The steeper the slope of the total product curve, the
A) larger is the marginal product of labor.
B) smaller is the marginal product of labor.
C) higher is the level of the total cost curve.
D) more efficient is the technology employed.
Answer: A
Topic: Marginal Product Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

51) Increasing marginal returns to labor might occur at low levels of labor input because of
A) increasing average costs.
B) differing factor proportions.
C) increasing specialization of tasks.
D) decreasing use of machinery and increasing use of technology.
Answer: C
Topic: Increasing Marginal Returns
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

52) In general, increasing marginal returns occur

A) as output expands at low levels of production.
B) through the entire range of production.
C) as output expands at high levels of production.
D) whenever the slope of the total product curve is positive.
Answer: A
Topic: Increasing Marginal Returns
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

22
Copyright © 2014 Pearson Education, Inc.
53) At that amount of output where diminishing marginal returns first sets in,
A) total product will begin to decline.
B) average product will begin to decline.
C) marginal product will begin to decline.
D) all of the above
Answer: C
Topic: Diminishing Marginal Returns
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

54) "Diminishing marginal returns" refer to a situation in which the

A) marginal cost of the next worker hired is less than the marginal cost of the previous worker hired.
B) average cost of the next worker hired is less than the average cost of the previous worker hired.
C) marginal product of the next worker hired is less than the marginal product of the previous worker
hired.
D) average product of the next worker hired is less than the average product of the previous worker
hired.
Answer: C
Topic: Diminishing Marginal Returns
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

55) A firm's total product curve shows that at first it has

A) economies of scale and then diseconomies of scale.
B) diseconomies of scale and then economies of scale.
C) increasing marginal returns and then diminishing marginal returns.
D) diminishing marginal returns and then increasing marginal returns.
Answer: C
Topic: Diminishing Marginal Returns
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

56) Diminishing marginal returns to labor occur because

A) after a while it is hard to find a good worker.
B) the capital resources used by the firm are fixed in the short run.
C) workers become more efficient over time.
D) larger companies are less efficient.
Answer: B
Topic: Diminishing Marginal Returns
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

23
Copyright © 2014 Pearson Education, Inc.
57) Which of the following statements regarding the marginal product curve is FALSE?
A) Increasing marginal returns occur only when the total product increases as the number of workers
increases.
B) Increasing marginal returns is due to greater efficiency from specialization in the production process.
C) The law of diminishing returns applies in the short run.
D) Along the marginal product curve, increasing marginal returns occur first and then diminishing
marginal returns.
Answer: A
Topic: Diminishing Marginal Returns
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

58) Diminishing marginal returns occur when ________.

A) the average product of the variable input eventually diminishes
B) the marginal product of an additional worker is less than the marginal product of the previous worker
hired
C) the firm hires cheap, less-skilled workers in place of expensive, high-skilled workers
D) total product diminishes
Answer: B
Topic: Diminishing Marginal Returns
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

59) The law of diminishing returns states that as

A) the size of a plant increases, the firm's fixed cost decreases.
B) the size of a plant increases, the firm's fixed cost increases.
C) a firm uses more of a variable input, given the quantity of fixed inputs, the marginal product of the
variable input eventually diminishes.
D) a firm uses more of a variable input, given the quantity of fixed inputs, the firm's average total cost
will decrease eventually.
Answer: C
Topic: Law of Diminishing Returns
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

60) The law of diminishing returns states that as a firm increases

A) all the inputs is uses, the marginal product of each of these inputs always decreases.
B) a variable input, with a given quantity of fixed inputs, the firm's marginal cost eventually decreases.
C) a variable input, with a given quantity of fixed inputs, the marginal product of the variable input
eventually decreases.
D) a variable input, given the quantity of fixed inputs, the firm's average total cost will eventually
decrease.
Answer: C
Topic: Law of Diminishing Returns
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

24
Copyright © 2014 Pearson Education, Inc.
61) The law of diminishing marginal returns says that as the firm uses more of ________, with a given
quantity of ________, the ________ product of the variable input eventually diminishes.
A) a fixed input; variable inputs; marginal
B) all inputs; capital; average
C) a variable input; fixed inputs; average
D) a variable input; fixed inputs; marginal
Answer: D
Topic: Law of Diminishing Returns
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

62) The law of diminishing returns makes it clear that as more a variable input is employed, in the
________ the marginal product of the variable input eventually will ________.
A) short run; rise
B) long run; rise
C) short run; fall
D) long run; fall
Answer: C
Topic: Law of Diminishing Returns
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

63) The law of diminishing returns occurs because

A) the marginal product of an additional worker is greater than the marginal product of the previous
worker.
B) the marginal product of a variable input, such as labor, depends in part on the amount of fixed inputs,
such as capital.
C) total production decreases as more of the variable inputs are used.
D) adding more and more workers leads to a decrease in the quantity of capital.
Answer: B
Topic: Law of Diminishing Returns
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

64) The law of diminishing returns implies that, with the quantity of capital fixed, as the use of labor rises,
A) total product will fall eventually.
B) the marginal product of labor will fall eventually.
C) the total product of labor will fall below the marginal product of labor.
D) the production process will become technologically inefficient eventually.
Answer: B
Topic: Law of Diminishing Returns
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

Labor (workers) Total product

25
Copyright © 2014 Pearson Education, Inc.
 (units)
0 0
5 1000
10 3000
15 4000
20 4500

65) In the above table, between what two levels of output does one first observe the law of diminishing
returns?
A) 0 and 1000
B) 1000 and 3000
C) 3000 and 4000
D) 4000 and 4500
Answer: C
Topic: Law of Diminishing Returns
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Decent Donuts
Total product
Labor (workers)
(dozens of donuts per day)
0 0
1 12
2 26
3 44
4 64
5 86
6 110
7 122
8 125
9 127
10 128

66) Using the table above, what is the marginal product of the 5th worker hired at Decent Donuts?
A) 86 dozen donuts per day
B) 22 dozen donuts per day
C) 17.2 dozen donuts per day
D) 64 dozen donuts per day
Answer: B
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

26
Copyright © 2014 Pearson Education, Inc.
67) Based on the data in the table above, which worker at Decent Donuts has the highest marginal
product?
A) the fourth
B) the fifth
C) the sixth
D) the seventh
Answer: C
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

68) Based on the data in the table above, what is the average product of labor when Decent Donuts
employs five workers?
A) 16.66 dozen donuts per day
B) 17.2 dozen donuts per day
C) 20 dozen donuts per day
D) 22 dozen donuts per day
Answer: B
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

69) Based on the data in the table above, when Decent Donuts hires eight workers, the
A) average product of labor is greater than the marginal product.
B) marginal product of labor is greater than the average product.
C) marginal product of labor is equal to the average product.
D) marginal product of labor is not defined.
Answer: A
Topic: Average Product of Labor and Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

70) Using the table above, for which of the following levels of employment does the marginal product of
labor exceed the average product of labor at Decent Donuts?
A) four workers
B) seven workers
C) both of the above
D) neither of the above
Answer: A
Topic: Average Product of Labor and Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

27
Copyright © 2014 Pearson Education, Inc.
71) Using the table above, for which of the following levels of employment does the average product of
labor exceed the marginal product of labor at Decent Donuts?
A) ten workers
B) seven workers
C) both of the above
D) neither of the above
Answer: C
Topic: Average Product of Labor and Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

72) Based on the data in the table above, after which worker is hired do diminishing marginal returns
begin?
A) the first
B) the fifth
C) the sixth
D) the ninth
Answer: C
Topic: Diminishing Marginal Returns
Skill: Analytical
Status: Modified 10th edition
AACSB: Analytical Skills

Total product
Labor (workers) (shirts)
0 0
1 50
2 120
3 180
4 220
5 250

73) The table above shows the short-run product schedule for Virginia's Tee-Shirts. What is the marginal
product associated with the hiring the fifth worker?
A) 30 shirts
B) 50 shirts
C) 235 shirts
D) 250 shirts
Answer: A
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

28
Copyright © 2014 Pearson Education, Inc.
74) The table above shows the short-run product schedule for Virginia's Tee-Shirts. What is the average
product associated with hiring the fourth worker?
A) 40 shirts
B) 55 shirts
C) 50 shirts
D) 220 shirts
Answer: B
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

75) The table above shows the short-run product schedule for Virginia's Tee-Shirts. The worker for whom
the law of diminishing returns initially occurs is the ________ worker.
A) 5th
B) 4th
C) 3rd
D) 2nd
Answer: C
Topic: Law of Diminishing Returns
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Jefferson's Cleaners
Total product
Labor (workers)
(suits cleaned per day)
0 0
1 12
2 26
3 46
4 60
5 73
6 84
7 94
8 102
9 109

76) Based on the above table, what is the marginal product of the 6th worker hired at Jefferson's Cleaners?
A) 10 suits per day
B) 11 suits per day
C) 14 suits per day
D) 84 suits per day
Answer: B
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

29
Copyright © 2014 Pearson Education, Inc.
77) Using the data in the above table, which worker at Jefferson's Cleaners has the highest marginal
product?
A) the second
B) the third
C) the fourth
D) the fifth
Answer: B
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

78) Using the above table, what is the average product of labor when Jefferson's Cleaners employs six
workers?
A) 11 suits per day
B) 12 suits per day
C) 13 suits per day
D) 14 suits per day
Answer: D
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

79) Using the above table, when Jefferson's Cleaners hires three workers,
A) the average product of labor is greater than the marginal product.
B) the marginal product of labor is greater than the average product.
C) it has already experienced diminishing marginal returns.
D) Both answers A and C are correct.
Answer: B
Topic: Average Product of Labor and Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

80) Using the data in the above table, which worker hired at Jefferson's Cleaners is the first to show
diminishing marginal returns?
A) the second
B) the third
C) the fourth
D) the fifth
Answer: C
Topic: Diminishing Marginal Returns
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

30
Copyright © 2014 Pearson Education, Inc.
81) Based on the data in the above table, at what level of output does the marginal cost start to rise at
Jefferson's Cleaners?
A) 45 suits per day
B) 47 suits per day
C) 74 suits per day
D) 85 suits per day
Answer: B
Topic: Cost Curves and Product Curves
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Total product
(books sold per
Labor (workers) hour)
0 0
1 10
2 24
3 40
4 58
5 73
6 83
7 87
8 89
9 90
10 90

82) The above table shows the short-run total product schedule for the campus book store. What is the
marginal product (MP) of going from 5 to 6 employees at the book store?
A) 83 books sold
B) 13.83 books sold
C) 10 books sold
D) between 11 and 14 books sold
Answer: C
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

31
Copyright © 2014 Pearson Education, Inc.
83) The above table shows the short-run total product schedule for the campus book store. Which
employee has the highest marginal product (MP)?
A) the 10th employee
B) the 5th employee
C) the 4th employee
D) the 1st employee
Answer: C
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

84) The above table shows the short-run total product schedule for the campus book store. What is the
average product (AP) of the 4th employee?
A) 58 books sold
B) 14.5 books sold
C) 18 books sold
D) 13.3 books sold
Answer: B
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

85) The above table shows the short-run total product schedule for the campus book store. When the fifth
employee is hired, the marginal product is ________ and is ________ the average product.
A) increasing; greater than
B) increasing; less than
C) decreasing; greater than
D) decreasing; less than
Answer: C
Topic: Marginal Product and Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

86) The above table shows the short-run total product schedule for the campus book store. At what levels
of books sold per hour will the marginal product of labor be greater than the average product of labor?
A) 40 books sold per hour
B) 73 books sold per hour
C) Both A and B are correct.
D) Neither A nor B is correct.
Answer: C
Topic: Marginal Product and Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

32
Copyright © 2014 Pearson Education, Inc.
87) The above table shows the short-run total product schedule for the campus book store. When the
book store hires the 3rd employee,
A) the bookstore is still experiencing increasing marginal returns.
B) the book store has already begun to experience diminishing marginal returns, but average product is
still rising.
C) both marginal and average product have already begun to decline.
D) marginal product is at its maximum.
Answer: A
Topic: Law of Diminishing Returns
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

88) The above table shows the short-run total product schedule for the campus book store. With which
employee do diminishing marginal returns set in?
A) the 9th employee
B) the 6th employee
C) the 5th employee
D) the 2nd employee
Answer: C
Topic: Law of Diminishing Returns
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Labor Quantity
(workers per day) (T shirts per day)
0 0
1 10
2 22
3 30
4 34
5 35

89) The table above shows some data that describe Tom's T-Shirts' total product when Tom has 1 sewing
machine. An increase in the number of workers from 1 to 2 a day increases average product of labor from
________ T shirts per worker and marginal product of labor is ________ T shirts per worker.
A) 10 to 11; 22
B) 10 to 22; 12
C) 10 to 22; 22
D) 10 to 11; 12
Answer: D
Topic: Average Product of Labor and Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

33
Copyright © 2014 Pearson Education, Inc.
90) The table above shows some data that describe Tom's T-Shirts' total product when Tom's has 1 sewing
machine. Diminishing marginal returns begin when the ________ is employed.
A) second worker
B) fifth worker
C) fourth worker
D) third worker
Answer: D
Topic: Law of Diminishing Returns
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Total product
Labor (workers) (units per hour)
0 0
1 8
2 20
3 34
4 46
5 56
6 64
7
8 74
9 75

91) In the above table, the marginal product of the 7th worker is 6. What is the total product when 7
workers are employed?
A) 68
B) 70
C) 72
D) 76
Answer: B
Topic: Total Product
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

92) In the above table, what is marginal product of labor for the 2nd worker?
A) 20
B) 8
C) 10
D) 12
Answer: D
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

34
Copyright © 2014 Pearson Education, Inc.
93) In the above table, what is marginal product of labor for the 5th worker?
A) 10
B) 14
C) 9
D) 11.2
Answer: A
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

94) In the above table, what is average product when 4 workers are employed?
A) 12
B) 10
C) 11.5
D) 9.5
Answer: C
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

95) In the above table, diminishing marginal returns start to occur when the
A) 3rd worker is employed.
B) 4th worker is employed.
C) 5th worker is employed.
D) 6th worker is employed.
Answer: B
Topic: Law of Diminishing Returns
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

96) If a firm's marginal product of labor is less than its average product of labor, then an increase in the
quantity of labor it employs definitely will
A) decrease its total product.
B) decrease its average product of labor.
C) increase its marginal product of labor.
D) not change its average product of labor.
Answer: B
Topic: Relationship Between Marginal Product and Average Product
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

35
Copyright © 2014 Pearson Education, Inc.
97) Which of the following statements is true?
A) When marginal product is less than average product, average product is increasing.
B) When marginal product is less than average product, average product is decreasing.
C) When marginal product is falling, average product is decreasing.
D) When marginal product is rising, average product is decreasing.
Answer: B
Topic: Relationship Between Marginal Product and Average Product
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

98) Which of the following statements is true?

A) If average product equals marginal product, average product decreases.
B) If marginal product equals average product, average product is a maximum.
C) If marginal product equals average product, marginal product is a maximum.
D) If marginal product exceeds average product, marginal product increases.
Answer: B
Topic: Relationship Between Marginal Product and Average Product
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

99) When the marginal product of labor is greater than the average product of labor, the
A) marginal product of labor must be increasing as labor increases.
B) average product of labor must be increasing as labor increases.
C) total product must be increasing at an increasing rate as labor increases.
D) None of the above answers is correct.
Answer: B
Topic: Relationship Between Average Product and Marginal Product
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

100) When the average product of labor is greater than the marginal product of labor,
A) the marginal product of labor must be increasing as labor increases.
B) there must be increasing marginal returns.
C) the average product of labor is decreasing as labor increases.
D) None of the above answers is correct
Answer: C
Topic: Relationship Between Average Product and Marginal Product
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

36
Copyright © 2014 Pearson Education, Inc.
101) When the marginal and average products of labor are equal to each other, the
A) average product must be at its maximum value.
B) marginal product must be at its maximum value.
C) total product must be at its maximum value.
D) None of the above answers is correct
Answer: A
Topic: Relationship Between Average Product and Marginal Product
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

102) When the marginal product of labor is a maximum, the average product of labor is ________.
A) a maximum
B) increasing
C) decreasing
D) equal to marginal product
Answer: B
Topic: Relationship Between Marginal Product and Average Product
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

103) When the marginal product equals the average product, the
A) average product curve is downward sloping.
B) average product curve is upward sloping.
C) marginal product is at its maximum.
D) average product is at its maximum.
Answer: D
Topic: Relationship Between Average Product and Marginal Product Curves
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

104) Which of the following statements is true for any marginal and average?
A) When the marginal is greater than the average, the average increases.
B) When the marginal is less than the average, the average increases.
C) When the marginal is rising, the average is increasing.
D) When the marginal is equal to the average, the average decreases.
Answer: A
Topic: Relationship Between Average Product and Marginal Product Curves
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

37
Copyright © 2014 Pearson Education, Inc.
105) When the marginal product curve is above the average product curve, ________ as output increases.
A) average product must decrease
B) average product must increase
C) marginal product must decrease
D) marginal product must increase
Answer: B
Topic: Relationship Between Average Product and Marginal Product Curves
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

106) Which of the following statements is true?

A) The marginal and average product curves intersect at the maximum level of output.
B) At every output level the marginal product curve lies above the average product curve.
C) The marginal product and average product curves intersect when average product is at its maximum.
D) The marginal product curve always has a positive slope.
Answer: C
Topic: Relationship Between Average Product and Marginal Product Curves
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

107) The marginal product and average product curves

A) never intersect.
B) intersect at the maximum point of the marginal product curve.
C) intersect at the maximum point of the average product curve.
D) do not intersect at any predictable point.
Answer: C
Topic: Relationship Between Average Product and Marginal Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

108) When the marginal product curve is downward sloping, the average product curve
A) must also be downward sloping.
B) might be either upward or downward sloping.
C) must be upward sloping.
D) must be horizontal.
Answer: B
Topic: Relationship Between Average Product and Marginal Product Curves
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

38
Copyright © 2014 Pearson Education, Inc.
109) If a firm's marginal product of labor is greater than its average product of labor, then an increase in
the quantity of labor it employs definitely
A) increases its total product.
B) increases its marginal product of labor.
C) decreases its average product of labor.
D) does not change its average product of labor.
Answer: A
Topic: Average Product of Labor and Marginal Product of Labor
Skill: Conceptual
Status: New
A-level heading: Short-Run Technology Constraint
AACSB: Reflective Thinking

110) With a technological change that increases productivity, the average product curve ________ and the
marginal product curve ________.
A) shifts upward; is unchanged
B) is unchanged; is unchanged
C) is unchanged; shifts upward
D) shifts upward; shifts upward
Answer: D
Topic: Technology
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

111) Total product divided by the total quantity of labor employed equals the
A) average product of labor.
B) marginal product of labor.
C) average total cost.
D) average variable cost.
Answer: B
Topic: Study Guide Question, Average Product
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

112) Diminishing marginal returns occurs when

A) all inputs are increased and output decreases.
B) all inputs are increased and output increases by a smaller proportion.
C) a variable input is increased and output decreases.
D) a variable unit is increased and its marginal product falls.
Answer: D
Topic: Study Guide Question, Diminishing Marginal Returns
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

39
Copyright © 2014 Pearson Education, Inc.
113) The average product of labor exceeds the marginal product of labor
A) when the average product of labor is falling.
B) when the average product of labor is rising.
C) when the marginal product of labor is at its maximum.
D) when the average product of labor is at its maximum.
Answer: A
Topic: Study Guide Question, Relationship Between Marginal & Avg. Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

114) When the marginal product of labor exceeds the average product of labor,
A) the average product of labor is increasing.
B) the average product of labor is decreasing.
C) the total product curve is negatively sloped.
D) the firm is experiencing decreasing returns to scale.
Answer: A
Topic: Study Guide Question, Relationship Between Marginal & Avg. Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Total product
Labor (workers) (units per day)
0 0
1 3
2 12
3 19
4 23
5 25

115) Using the data in the above table, if the firm employs 3 workers, total product (measured in units per
day) and average product and marginal product of the third worker (measured in units per worker) are
A) 19, 6 1/3, and 9 respectively.
B) 3, 19, and 6 1/3 respectively.
C) 19, 3, and 9 respectively.
D) 19, 6 1/3, and 7 respectively.
Answer: D
Topic: Parallel MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

40
Copyright © 2014 Pearson Education, Inc.
116) Using the data in the above table, if the firm employs 5 workers, total product (measured in units per
day) and average product and marginal product of the fifth worker (measured in units per worker) are
A) 23, 5.00, and 4 respectively.
B) 23, 5.75, and 4 respectively.
C) 25, 5.00, and 2 respectively.
D) 25, 5.75, and 4 respectively.
Answer: C
Topic: Parallel MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

3 Short-Run Cost

1) A firm's total cost (TC) equals the sum of its fixed cost plus its
A) marginal cost.
B) variable cost.
C) variable cost plus its marginal cost.
D) sunk cost plus its variable cost plus its marginal cost.
Answer: B
Topic: Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

2) Total cost is equal to the

A) sum of the total fixed cost and the total variable cost.
B) sum of the average fixed cost and the average variable cost.
C) difference between the average variable cost and the average fixed cost.
D) product of the marginal cost multiplied by the average total cost.
Answer: A
Topic: Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

3) Which of the following statements is correct?

A) As output increases, total cost and total fixed cost increase by the same amount.
B) As output increases, total cost and total fixed cost increase but not necessarily by the same amount.
C) As output increases, total cost increases and total fixed cost decreases.
D) Total fixed cost plus total variable cost equals total cost.
Answer: D
Topic: Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

41
Copyright © 2014 Pearson Education, Inc.
4) A firm has fixed costs
A) in the short run and in the long run.
B) in the short run but not in the long run.
C) in the long run but not in the short run.
D) neither in the long run nor in the short run.
Answer: B
Topic: Total Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

5) Total fixed cost is the sum of all

A) costs of the firm's fixed factors of production.
B) costs associated with the production of goods.
C) costs that rise as output increases.
D) the marginal costs of the different factors of production.
Answer: A
Topic: Total Fixed Cost
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

6) A firm's total fixed cost (TFC) is a cost

A) it is certain ("fixed") that the firm must pay.
B) that does not change as output changes.
C) that is dependent on marginal cost.
D) that is paid in only the long run.
Answer: B
Topic: Total Fixed Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

7) Total fixed cost

A) increases as output increases.
B) does not change as output changes.
C) decreases as output increases.
D) initially decreases and then increases as output increases.
Answer: B
Topic: Total Fixed Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

42
Copyright © 2014 Pearson Education, Inc.
8) Which type of cost is does not change as the quantity of output produced changes?
A) total cost
B) average cost
C) fixed cost
D) marginal cost
Answer: C
Topic: Total Fixed Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

9) Which of the following would be classified as a fixed cost for the local supermarket?
A) The cost of the boxes of cereal sold in the store.
B) The salary and any overtime paid the store's manager.
C) The rent from the six-year lease for the building the store uses.
D) The Social Security tax the store pays the federal government on the workers' income.
Answer: C
Topic: Total Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

10) Which of the following would be classified as a fixed cost for the proprietor who owns and operates
the local Texaco station?
A) The federal excise tax paid on each gallon of Texaco gasoline sold.
B) The state income tax on the profit earned.
C) The rent paid on the 10 year lease for the property on which the station is located.
D) The Social Security tax the owner pays the federal government on the owner's income.
Answer: C
Topic: Total Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

11) Total variable cost is the sum of all

A) costs of the firm's fixed factors of production.
B) costs associated with the production of goods.
C) costs that rise as output increases.
D) implicit costs.
Answer: C
Topic: Total Variable Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

43
Copyright © 2014 Pearson Education, Inc.
12) A firm's total variable cost (TVC) is defined as a cost that
A) does not change (is not "variable") as the firm changes its output.
B) changes as the firm changes its output.
C) falls as the firm increases its output.
D) varies only when the firm reaches the long run.
Answer: B
Topic: Total Variable Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

13) Total variable cost

A) increases as output increases.
B) does not change as output changes.
C) decreases as output increases.
D) initially decreases and then increases as output increases.
Answer: A
Topic: Total Variable Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

14) Ernie's Earmuffs produces 200 earmuffs per year at a total cost of $2,000 and $400 of this cost is fixed.
What is Ernie's total variable cost?
A) $2,400
B) $2,000
C) $1,600
D) $800
Answer: C
Topic: Total Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

15) Which of the following would be classified as a variable cost for the local Texaco station?
A) Interest payments to a local bank for a 5-year loan.
B) The total wages paid to the workers who are all paid $16.00 per hour, no matter how many hours they
work each week.
C) The premiums paid for liability insurance, which are constant throughout the life of the contract.
D) The opportunity cost of money used to finance the installation of some new pumps.
Answer: B
Topic: Total Variable Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

44
Copyright © 2014 Pearson Education, Inc.
16) In a diagram with the total cost curve and the total variable cost curve, as output increases, the
vertical distance between these two curves
A) is constant.
B) decreases.
C) increases.
D) gets smaller and then bigger again.
Answer: A
Topic: The Relationship Between Total Cost and Total Variable Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

17) Ernie's Earmuffs produces 200 earmuffs per year at a total cost of $2,000 and $400 of this cost is fixed.
What is Ernie's average total cost?
A) $12
B) $10
C) $8
D) $2
Answer: B
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Total fixed costs Total variable Total cost

Labor (workers) Output (bikes)
(dollars) cost (dollars) (dollars)
0 0 200
1 20 100
2 50
3 60
4 64

18) The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty.
Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total
cost of producing 50 bikes?
A) $100
B) $200
C) $300
D) $400
Answer: D
Topic: Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

45
Copyright © 2014 Pearson Education, Inc.
19) The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty.
Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total
fixed cost of producing 64 bikes?
A) $200
B) $300
C) $400
D) $500
Answer: A
Topic: Total Fixed Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

20) The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty.
Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total
variable cost of producing 60 bikes?
A) $200
B) $300
C) $400
D) $500
Answer: B
Topic: Total Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

21) A firm's marginal cost is the increase in its total cost divided by the increase in its
A) quantity of labor.
B) average cost.
C) output.
D) average revenue.
Answer: C
Topic: Marginal Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

22) Marginal cost is equal to

A) total cost divided by output.
B) output divided by total cost.
C) the change in total cost divided by the change in total revenue.
D) the change in total cost divided by the change in output.
Answer: D
Topic: Marginal Cost
Skill: Recognition
Status: Modified 10th edition
AACSB: Reflective Thinking

46
Copyright © 2014 Pearson Education, Inc.
23) Marginal cost is the increase in total ________ that results from a one-unit increase in ________.
A) fixed cost; the fixed input
B) cost; output
C) variable cost; the variable input
D) fixed cost; output
Answer: B
Topic: Marginal Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

24) Marginal cost is

A) all the costs of the fixed inputs.
B) all the costs of production of goods.
C) all the costs that vary with output.
D) the change in the total cost resulting from a one-unit change in output.
Answer: D
Topic: Marginal Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

25) Marginal cost is calculated as

A) total cost divided by output.
B) the increase in total cost divided by the increase in output.
C) the increase in total cost divided by the increase in labor, given the amount of capital.
D) total cost minus total fixed cost.
Answer: B
Topic: Marginal Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

26) Marginal cost ________ as the quantity produced is increased.

A) first increases and then decreases
B) first decreases and then increases
C) always increases
D) always decreases
Answer: B
Topic: Marginal Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

47
Copyright © 2014 Pearson Education, Inc.
27) A decrease in the price of a fixed factor of production decreases total cost and
A) increases marginal cost.
B) leaves marginal cost unchanged.
C) decreases marginal cost.
D) increases variable cost.
Answer: B
Topic: Marginal Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

28) Ernie's Earmuffs produces 200 earmuffs per year at a total cost of $2,000 and $400 of this cost is fixed.
If he increases output to 220 earmuffs, his total cost increases to $2100, and his fixed cost remains $400.
What is Ernie's marginal cost per earmuff?
A) $105
B) $35
C) $9.55
D) $5
Answer: D
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

29) A company could produce 99 units of a good for $316 or produce 100 units of the same good for $320.
The marginal cost of the 100th unit
A) is $3.20.
B) is $4.00.
C) is $320.
D) cannot be calculated with this information.
Answer: B
Topic: Marginal Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

30) A company could produce 100 units of a good for $320 or produce 101 units of the same good for
$324. The $4 difference in costs is
A) the marginal benefit of producing the 101st unit.
B) the marginal cost of producing the 101st unit.
C) both the marginal benefit and the marginal cost of producing the 101st unit.
D) neither the marginal benefit nor the marginal cost of producing the 101st unit.
Answer: B
Topic: Marginal Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

48
Copyright © 2014 Pearson Education, Inc.
31) As output increases, marginal cost will eventually
A) increase because of the law of increasing returns.
B) increase because of the law of diminishing returns.
C) decrease because of the law of diminishing returns.
D) decrease because of the law of increasing returns.
Answer: B
Topic: Marginal Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

32) Which of the following statements is true?

A) Average fixed cost equals average total cost plus average variable cost.
B) Average variable cost is always greater than average fixed cost.
C) Average fixed cost equals total fixed cost divided by total output.
D) Average total cost always falls as output increases.
Answer: C
Topic: Average Fixed Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

33) As output increases, average fixed cost

A) always decreases.
B) increases, then decreases.
C) decreases, then increases.
D) remains constant.
Answer: A
Topic: Average Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

34) By using more labor to produce more output, a firm can always reduce its
A) marginal cost.
B) average variable cost.
C) average total cost.
D) average fixed cost.
Answer: D
Topic: Average Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

49
Copyright © 2014 Pearson Education, Inc.
35) Average total cost minus average variable cost ________ as output increases because ________ as
output increases.
A) decreases and then increases; marginal cost initially decreases and then increases
B) decreases; average fixed cost decreases
C) decreases; marginal returns diminish
D) decreases; economies of scale are present
Answer: B
Topic: Average Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

36) As output increases, AVC approaches ATC because of

A) diseconomies of scale.
B) diminishing marginal returns.
C) decreasing average fixed cost.
D) increasing marginal cost.
Answer: C
Topic: Average Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

37) Average variable cost is equal to

A) average total cost minus average fixed cost.
B) average total cost multiplied by output.
C) total cost divided by output.
D) the change in total cost divided by the change in output.
Answer: A
Topic: Average Variable Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

38) The average total cost curve eventually slopes upwards because of the
A) law of diminishing returns.
B) reductions in average fixed costs.
C) increase in capital costs.
D) decrease in labor costs.
Answer: A
Topic: Why the Average Total Cost Curve is U-Shaped
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

50
Copyright © 2014 Pearson Education, Inc.
39) The average total cost curve
A) is U-shaped.
B) diminishes initially because average fixed costs diminish.
C) increases eventually because of diminishing returns.
D) All of the above answers are correct.
Answer: D
Topic: Why the Average Total Cost Curve is U-Shaped
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

40) Average total costs are total costs divided by

A) total output.
B) total fixed costs.
C) total variable costs.
D) the total number of workers employed.
Answer: A
Topic: Average Total Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

41) Average total costs are

A) total costs divided by total output.
B) total output divided by total costs.
C) the change in total costs divided by the change in output.
D) the change in output divided by the change in total costs.
Answer: A
Topic: Average Total Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

42) A firm's average total cost is $60, its average variable cost is $30, and its total fixed cost is $600. Its
output is
A) 20 units.
B) 30 units.
C) 40 units.
D) 50 units.
Answer: A
Topic: Average Costs
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

51
Copyright © 2014 Pearson Education, Inc.
 Labor Output
(workers per day) (units per day)
0 0
1 13
2 18
3 22
4 24
5 25

43) Sandra's Sweaters' production function is shown in the above table. Sandra rents three knitting
machines for $30 a day each and hires workers at a wage rate of $40 a day. If Sandra produces 18
sweaters per day, what is her average total cost?
A) $5.00
B) $6.67
C) $9.44
D) $10.00
Answer: C
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

44) Sandra's Sweaters' production function is shown in the above table. Sandra rents three knitting
machines for $30 a day each and hires workers at a wage rate of $40 a day. If the rental rate of capital rises
to $50 per machine a day, Sandra's ________ curve shifts upward.
A) average variable cost
B) total variable cost
C) average fixed cost
D) marginal cost
Answer: C
Topic: Average Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

52
Copyright © 2014 Pearson Education, Inc.
 Total cost
Labor (workers)Output (frijoles)
(dollars)
0 0 1,000
5 1000 3,000
10 3000 5,000
15 4000 7,000
20 4500 9,000

45) The above table gives some production and cost information for Flaming Fernando's, a restaurant that
sells Fiery Frijoles. What is the total fixed cost of producing 4,500 frijoles?
A) $1000
B) $8000
C) $9000
D) More information is needed to determine the answer.
Answer: A
Topic: Total Fixed Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

46) The above table gives some production and cost information for Flaming Fernando's, a restaurant that
sells Fiery Frijoles. Between what two levels of output does the marginal cost of producing Fiery Frijoles
first begin to rise?
A) 0 and 1000
B) 1000 and 3000
C) 3000 and 4000
D) 4000 and 4500
Answer: C
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

47) The above table gives some production and cost information for Flaming Fernando's, a restaurant that
sells Fiery Frijoles. What is the average variable cost of producing 1,000 frijoles?
A) $1
B) $2
C) $3
D) More information is needed to determine the answer.
Answer: B
Topic: Average Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

53
Copyright © 2014 Pearson Education, Inc.
48) The above table gives some production and cost information for Flaming Fernando's, a restaurant that
sells Fiery Frijoles. What is the average total cost of producing 4,500 frijoles?
A) $2
B) $225
C) $9000
D) More information is needed to determine the answer.
Answer: A
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

49) The production and cost information provided in the table above for Flaming Fernando's, a restaurant
that sells Fiery Frijoles, is for the
A) short run because there are no variable costs.
B) short run because there is a fixed cost.
C) long run because there are no variable costs.
D) long run because there are no fixed costs.
Answer: B
Topic: Short Run and Long Run
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

50) As output increases, total cost ________, total fixed cost ________, and total variable cost ________.
A) increases; increases; increases
B) increases; increases; does not change
C) increases; does not change; increases
D) does not change; increases; increases
Answer: C
Topic: Total Cost, Variable Cost, and Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

51) The vertical distance between the total variable cost curve and the total cost curve ________ as output
increases; the vertical distance between the average variable cost curve and the average total cost curve
________ as output increases.
A) decreases; remains the same
B) is constant; becomes smaller
C) increases; becomes smaller at first but then increases
D) increases; remains the same
Answer: B
Topic: Fixed Cost and Average Fixed Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

54
Copyright © 2014 Pearson Education, Inc.
52) If total fixed cost increases, then the average total cost curve ________ and the marginal cost curve
________.
A) does not shift; shifts upward
B) shifts upward; shifts upward
C) does not shift; does not shift
D) shifts upward; does not shift
Answer: D
Topic: Fixed Cost and Marginal Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Labor Output
(workers per week) (units per week)
0 0
1 20
2 50
3 70
4 85
5 95
6 100

53) In the table above, the marginal product of the 5th worker is ________ units per week.
A) 2
B) 5
C) 10
D) 19
Answer: C
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

54) The table above gives a firm's total product schedule. Suppose labor is the only variable factor of
production. The price of labor is $500 per week and total fixed costs are $600 per week. What is the total
cost of producing 70 units?
A) $1,700
B) $1,900
C) $2,100
D) $2,300
Answer: C
Topic: Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

55
Copyright © 2014 Pearson Education, Inc.
55) The table above gives a firm's total product schedule. Suppose labor is the only variable factor of
production. The price of labor is $500 per week and total fixed costs are $600 per week. If 95 units are
produced, the average total cost is
A) $6.31.
B) $17.45.
C) $26.32.
D) $32.63.
Answer: D
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

56) The table above gives a firm's total product schedule. Suppose labor is the only variable factor of
production. The price of labor is $500 per week and total fixed costs are $600 per week. What is the
marginal cost of producing the 90th unit?
A) $10.00
B) $24.92
C) $31.61
D) $50.00
Answer: D
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

56
Copyright © 2014 Pearson Education, Inc.
 Decent Donuts
Total product (dozens
Labor (workers)
of donuts per day)
0 0
1 12
2 26
3 44
4 64
5 86
6 110
7 122
8 125
9 127
10 128

57) Use the data in the table above and suppose that labor is the only variable factor of production. If each
worker is paid $42.00 per day, what is the average variable cost to Decent Donuts of producing 122 dozen
donuts per day?
A) $1.91
B) $2.16
C) $2.41
D) $3.06
Answer: C
Topic: Average Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

58) Use the data in the table above and suppose that labor is the only variable factor of production. When
122 dozen donuts are produced at Decent Donuts, the MC curve
A) has a positive slope.
B) shows the effect of increasing marginal returns.
C) Both answers A and B are correct.
D) Neither answer A nor B is correct.
Answer: A
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

57
Copyright © 2014 Pearson Education, Inc.
59) Use the data in the table above and suppose that labor is the only variable factor of production. When
122 dozen donuts are produced at Decent Donuts, the AVC curve
A) has a negative slope.
B) has a positive slope.
C) is at its minimum point.
D) is at its maximum point.
Answer: B
Topic: Average Variable Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

60) Use the data in the above table and suppose that labor is the only variable factor of production. At
what level of output does the marginal cost start to rise at Decent Donuts?
A) 0 dozen donuts
B) 111 dozen donuts
C) 128 dozen donuts
D) There is not enough information given to determine when the marginal cost starts to increase.
Answer: B
Topic: Cost Curves and Product Curves
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Labor Output
(workers per day) (units per day)
0 0
1 10
2 15
3 18
4 20
5 21

61) Cindy's Sweaters' production function is shown in the above table. What is the marginal product of
labor when the 4th worker is hired?
A) 4 sweaters per day
B) 2 sweaters per day
C) 20 sweaters per day
D) 5 sweaters per day
Answer: B
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

58
Copyright © 2014 Pearson Education, Inc.
62) Cindy's Sweaters' production function is shown in the above table. Cindy rents two knitting machines
for $30 a day each and hires workers at a wage rate of $40 a day. If Cindy produces 18 sweaters per day,
what is her total cost?
A) $120
B) $140
C) $180
D) $60
Answer: C
Topic: Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

63) Cindy's Sweaters' production function is shown in the above table. Cindy rents two knitting machines
for $30 a day each and hires workers at a wage rate of $40 a day. If Cindy produces 20 sweaters per day,
what is her average fixed cost of production?
A) $3.00
B) $3.33
C) $8.00
D) $11.00
Answer: A
Topic: Average Fixed Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

64) Cindy's Sweaters' production function is shown in the above table. Cindy rents two knitting machines
for $30 a day each and hires workers at a wage rate of $40 a day. What is the marginal cost of the 19th
sweater?
A) $40.00
B) $20.00
C) $10.00
D) $8.00
Answer: B
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

59
Copyright © 2014 Pearson Education, Inc.
65) Cindy's Sweaters' production function is shown in the above table. Cindy rents two knitting machines
for $30 a day each and hires workers at a wage rate of $40 a day. If Cindy produces 18 sweaters per day,
what is her average total cost?
A) $6.67
B) $10.00
C) $11.00
D) $13.33
Answer: B
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Total product
Labor (workers)
(books sold per hour)
0 0
1 10
2 24
3 40
4 58
5 73
6 83
7 87
8 89
9 90
10 90

66) The above table shows the total product schedule for the campus book store. If employees are paid $6
per hour and there are no other variable costs, then what is the marginal cost (MC) per book of increasing
book sales from 83 to 87 books per hour?
A) $6.00
B) $4.00
C) $2.07
D) $1.50
Answer: D
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

60
Copyright © 2014 Pearson Education, Inc.
67) The above table shows the total product schedule for the campus book store. If each employee is paid
$6 per hour and there are no other variable costs, then at what level of books sold per hour does the
marginal cost begin to increase?
A) 41 books per hour
B) 59 books per hour
C) 73 books per hour
D) 90 books per hour
Answer: B
Topic: Short-Run Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

68) The above table shows the total product schedule for the campus book store. If each employee is paid
$6 per hour, what is the average variable cost of selling 83 books per hour (assuming labor costs are the
only variable costs of production)?
A) $0.43 per book
B) $0.07 per book
C) $2.30 per book
D) $6.00 per book
Answer: A
Topic: Average Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

69) The above table shows the total product schedule for the campus book store. If employees are paid $6
per hour, assuming there are no other variable costs, then the average variable cost of selling books will
reach its minimum at
A) 58 books sold per hour.
B) 59 books sold per hour.
C) 73 books sold per hour.
D) 83 books sold per hour.
Answer: C
Topic: Average Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

70) The above table shows the total product schedule for the campus book store. When the book store is
selling 60 books per hour it is certain that
A) marginal costs are increasing, but average variable costs are still decreasing.
B) both marginal and average costs are decreasing.
C) both marginal and average costs are increasing.
D) hiring one more employee per hour will lead to fewer books being sold.
Answer: A
Topic: Short-Run Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

61
Copyright © 2014 Pearson Education, Inc.
 Cost schedule
Total variable
Output Total fixed cost
Labor (workers) cost
(units per day) (dollars)
(dollars)
0 0 20 0
1 4 20 25
2 9 20 50
3 13 20 75
4 16 20 100
5 18 20 125

71) In the above table, the total cost of producing 9 units of output is
A) $20.
B) $30.
C) $50.
D) $70.
Answer: D
Topic: Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

72) The above table shows a firm's

A) long-run costs.
B) short-run costs.
C) short-run and long-run costs.
D) More information is needed to determine if the costs are long-run costs or short-run costs.
Answer: B
Topic: Total Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

73) In the above table, the total variable cost of producing 16 units of output is
A) $20.
B) $60.
C) $100.
D) $120.
Answer: C
Topic: Total Variable Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

62
Copyright © 2014 Pearson Education, Inc.
74) Using the data in the above table, when output increases from 4 to 9 units, the marginal cost of one of
those 5 units is
A) $4.00.
B) $4.25.
C) $5.00.
D) $6.25.
Answer: C
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

75) Using the data in the above table, the average fixed cost of producing 9 units per day is
A) $2.22.
B) $5.00.
C) $5.55.
D) $20.00.
Answer: A
Topic: Average Fixed Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

76) Using the data in the above table, the average total cost of producing 16 units per day is
A) $1.25.
B) $6.25.
C) $7.00
D) $7.50.
Answer: D
Topic: Average Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

63
Copyright © 2014 Pearson Education, Inc.
 Total variable
Output Total cost
cost
(pies) (dollars)
(dollars)
0 0 300
100 400
200 1,000
300 1,800
400 2,800

77) The above table gives some of the costs of the Delicious Pie Company. What is the total fixed cost of
producing 100 pies?
A) $300
B) $400
C) $700
D) More information is needed to calculate the total fixed cost.
Answer: A
Topic: Total Fixed Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

78) The above table gives some of the costs of the Delicious Pie Company. The marginal cost of increasing
pie output from 200 to 300 pies equals ________ per pie.
A) $1.800
B) $1,000
C) $8
D) $6
Answer: C
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

79) The above table gives some of the costs of the Delicious Pie Company. What is the average variable
cost of producing 300 pies?
A) $1,800
B) $6
C) $5
D) More information is needed to calculate the average variable cost.
Answer: C
Topic: Average Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

64
Copyright © 2014 Pearson Education, Inc.
80) The above table gives some of the costs of the Delicious Pie Company. What is the average total cost
of producing 200 pies?
A) $5.00
B) $650
C) $6.50
D) More information is needed to calculate the average total cost.
Answer: C
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Total product
Labor (workers per
(baseball hats per
hour)
hour)
0 0
1 4
2 10
3 18
4 25
5 30

81) The table above gives production information for Bob's Baseball Cap Company. Bob's total cost when
zero caps are produced is $200 and workers cost $10 per hour. The total fixed cost of producing 10
baseball hats per hour is
A) $400.
B) $200.
C) $22.
D) More information is needed to answer the question.
Answer: B
Topic: Total Fixed Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

82) The table above gives production information for Bob's Baseball Cap Company. Bob's total cost when
zero caps are produced is $200 and workers cost $10 per hour. The total variable cost of producing 18
baseball hats per hour is
A) $200.00
B) $30.00.
C) $1.67.
D) More information is needed to answer the question.
Answer: B
Topic: Total Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

83) The table above gives production information for Bob's Baseball Cap Company. Bob's total cost when
65
Copyright © 2014 Pearson Education, Inc.
zero caps are produced is $200 and workers cost $10 per hour. The total cost of producing 30 baseball hats
per hour is
A) $50.
B) $200.
C) $250.
D) More information is needed to answer the question.
Answer: C
Topic: Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

84) The table above gives production information for Bob's Baseball Cap Company. Bob's total cost when
zero caps are produced is $200 and workers cost $10 per hour. The average fixed cost of producing 25
baseball hats per hour is
A) $1.60
B) $8.00.
C) $9.60.
D) More information is needed to answer the question.
Answer: B
Topic: Average Fixed Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

85) The table above gives production information for Bob's Baseball Cap Company. Bob's total cost when
zero caps are produced is $200 and workers cost $10 per hour. The average variable cost of producing 10
baseball hats per hour is
A) $1.
B) $2.
C) $20.
D) More information is needed to answer the question.
Answer: B
Topic: Average Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

66
Copyright © 2014 Pearson Education, Inc.
86) The table above gives production information for Bob's Baseball Cap Company. Bob's total cost when
zero caps are produced is $200 and workers cost $10 per hour. The average total cost of producing 4
baseball hats per hour is
A) $1.67.
B) $50.00.
C) $52.50.
D) More information is needed to answer the question.
Answer: C
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

87) The table above gives production information for Bob's Baseball Cap Company. Bob's total cost when
zero caps are produced is $200 and workers cost $10 per hour. The marginal cost per hat of producing 30
hats per hour (instead of 25) is
A) $240.00 per hat.
B) $250.00 per hat.
C) $8.33 per hat.
D) $2.00 per hat.
Answer: D
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Average
Output Total cost Marginal cost
variable cost
(units) (dollars) (dollars)
(dollars)
0 10
3 80
9 20
14 290
17 380

88) The above (incomplete) table provides information about the relationships between output and
various cost measures. The total fixed cost (TFC) for the firm is
A) zero.
B) $45.
C) $10.
D) None of the above answers is correct.
Answer: C
Topic: Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

67
Copyright © 2014 Pearson Education, Inc.
89) The above (incomplete) table provides information about the relationships between output and
various cost measures. The total cost (TC) of producing 9 units of output is
A) $180.
B) $190.
C) $20.
D) None of the above answers is correct.
Answer: B
Topic: Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

90) The above (incomplete) table provides information about the relationships between output and
various cost measures. The marginal cost per unit when increasing output from 14 to 17 units is
A) $20.
B) $30.
C) $380.
D) None of the above answers is correct.
Answer: B
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Total Total
Output Total cost
fixed cost variable cost
(tents) (dollars)
(dollars) (dollars)
0 50 0 50
1 50 25 75
2 50 45 95
3 50 70 120
4 50 115 165

91) The above table shows some cost data for Tracey's Tents. What is the marginal cost of the 3rd tent?
A) $25
B) $20
C) $70
D) $120
Answer: A
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

68
Copyright © 2014 Pearson Education, Inc.
92) The above table shows some cost data for Tracey's Tents. What is the average total cost when output
is 3?
A) $120
B) $30
C) $40
D) $50
Answer: C
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

93) The above table shows some cost data for Tracey's Tents. What is the average fixed cost when 4 tents
are produced?
A) $50.00
B) $12.50
C) $25.00
D) $37.50
Answer: B
Topic: Average Fixed Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Quantity Total variable

(barrels of cost
pickles) (dollars)
0 0
1 20
2 35
3 50
4 75
5 110
6 160

94) The above table gives some cost data for Peter's Pickles. Peter's fixed cost is $20. His total cost of
producing 6 barrels of pickles is
A) $160.
B) $180.
C) $450.
D) There is not enough information to answer the question.
Answer: B
Topic: Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

69
Copyright © 2014 Pearson Education, Inc.
95) The above table gives some cost data for Peter's Pickles. Peter's fixed cost is $20. The marginal cost of
increasing output from 3 to 4 barrels of pickles is
A) $25.
B) $75.
C) $20.
D) $50.
Answer: A
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

96) The above table gives some cost data for Peter's Pickles. Peter's fixed cost is $20. The average total cost
(ATC) when 5 barrels of pickles are produced is
A) $22.
B) $26.
C) $35.
D) There is not enough information to answer the question.
Answer: B
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

97) The above table gives some cost data for Peter's Pickles. Peter's fixed cost is $20. Average variable cost
(AVC) is lowest when output is equal to
A) 1 barrel of pickles.
B) 2 barrels of pickles.
C) 3 barrels of pickles.
D) 4 barrels of pickles.
Answer: C
Topic: Average Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

70
Copyright © 2014 Pearson Education, Inc.
 Output Total cost Total variable cost
(T shirts per hour) (dollars) (dollars)
4 42 22
5 50 30
6 60 40

98) The table above gives the cost of producing T-shirts. The total fixed cost is ________ and the marginal
cost of increasing production from 5 to 6 T shirts is ________.
A) $20; $6
B) $20; $10
C) $10.40; $8
D) unable to be determined; $8
Answer: B
Topic: Total Fixed Cost and Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

99) The table above gives the cost of producing T-shirts. When 5 T-shirts are produced, the average fixed
cost is ________ and the average variable cost is ________.
A) $4; $10
B) $10; $6
C) $5; $3
D) $4; $6
Answer: D
Topic: Average Fixed Cost and Average Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

71
Copyright © 2014 Pearson Education, Inc.
 Cost schedule
Total variable
Output Total cost
Labor (workers) cost
(units per day) (dollars)
(dollars)
0 0 0 30
1 3 20 50
2 8 40 70
3 12 60 90
4 14 80 110
5 15 100 130

100) In the above table, the total fixed cost is

A) $0.
B) $20.
C) $30.
D) $50.
Answer: C
Topic: Fixed Costs
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

101) In the above table, when output increases from 8 to 12 units, the marginal cost of one of those 4 units
is
A) $1.20.
B) $2.00.
C) $5.00.
D) $15.00.
Answer: C
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

102) In the above table, the average fixed cost of producing 15 units of output is
A) $0.50.
B) $2.00.
C) $6.66.
D) $8.66.
Answer: B
Topic: Average Fixed Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

72
Copyright © 2014 Pearson Education, Inc.
103) In the above table, the average variable cost of producing 14 units of output is
A) $0.175.
B) $5.71.
C) $7.86.
D) $10.00.
Answer: B
Topic: Average Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

104) In the above table, the average total cost of producing 14 units of output is
A) $5.71.
B) $6.75.
C) $7.00.
D) $7.86.
Answer: D
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

105) A firm's average total cost is $100, its average variable cost is $90, and its total fixed cost is $1,000. Its
output is
A) less than 70 units.
B) between 70 and 120 units.
C) between 120 and 170 units.
D) more than 170 units.
Answer: B
Topic: Costs
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

106) A firm's average total cost is $80, its average variable cost is $75, and its output is 50 units. Its total
fixed cost is
A) less than $100.
B) between $100 and $200.
C) between $200 and $300.
D) more than $300.
Answer: C
Topic: Costs
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

73
Copyright © 2014 Pearson Education, Inc.
107) A firm's average variable cost is $60, its total fixed cost is $3,000, and its output is 600 units. Its
average total cost is
A) less than $58.
B) between $58 and $62.
C) between $62 and $64.
D) more than $64.
Answer: D
Topic: Costs
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

108) A firm's average variable cost is $90, its total fixed cost is $10,000, and its output is 1,000 units. Its
total cost is
A) less than $85,000.
B) between $85,000 and $95,000.
C) between $95,000 and $105,000.
D) more than $105,000.
Answer: C
Topic: Costs
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

109) A firm's average total cost is $80, its fixed cost is $1000, and its output is 100 units. Its average
variable cost
A) is less than $40.
B) is between $40 and $60.
C) is more than $60.
D) cannot be determined without more information.
Answer: C
Topic: Costs
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

110) A firm's marginal cost is $30, its average total cost is $50, and its output is 800 units. Its total cost of
producing 801 units is
A) less than $40,000.
B) between $40,000 and $40,050.
C) between $40,050 and $40,080.
D) greater than $40,080.
Answer: B
Topic: Costs
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

74
Copyright © 2014 Pearson Education, Inc.
111) A firm's marginal cost is $82, its average total cost is $50, and its output is 800 units. Its total cost of
producing 801 units is
A) less than $40,000.
B) between $40,000 and $40,050.
C) between $40,050 and $40,080.
D) greater than $40,080.
Answer: D
Topic: Costs
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

112) The vertical distance between a firm's total cost (TC) and its total variable cost (TVC) curves
A) decreases as output decreases.
B) is equal to the average variable cost, AVC.
C) is equal to the total fixed cost, TFC.
D) is equal to the marginal cost, MC.
Answer: C
Topic: Total Fixed Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

75
Copyright © 2014 Pearson Education, Inc.
113) In the above figure, the total fixed cost curve is curve
A) A.
B) B.
C) C.
D) none of the curves in the figure
Answer: C
Topic: Total Fixed Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

114) In the above figure, the total variable cost curve is curve
A) A.
B) B.
C) C.
D) none of the curves in the figure
Answer: B
Topic: Total Variable Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

115) In the above figure, the total cost curve is curve

A) A.
B) B.
C) C.
D) none of the curves in the figure
Answer: A
Topic: Total Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

76
Copyright © 2014 Pearson Education, Inc.
116) In the above figure, the relationship between costs indicates that the distance between curves
A) A and B is equal to the fixed cost.
B) A and B is equal to the variable cost.
C) B and C is equal to the fixed cost.
D) B and C is equal to the average total cost.
Answer: A
Topic: Total Fixed Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

117) Fernando charges the restaurant Flaming Fernando's $1,000 annually for use of his name. If
Fernando increases the fee for use of his name,
A) the restaurant's average fixed cost, average variable cost, average total cost, and marginal cost curves
all shift upward.
B) the restaurant's average fixed cost, average total cost, and marginal cost curves shift upward.
C) the restaurant's average variable cost, average total cost, and marginal cost curves shift upward.
D) the restaurant's average fixed cost and average total cost curves shift upward.
Answer: D
Topic: Change in the Price of a Resource
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

118) As output increases, the slope of the curve showing the firm's average fixed cost is
A) first negative, then positive.
B) first positive, then negative.
C) always negative.
D) always positive.
Answer: C
Topic: Average Fixed Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

119) The vertical distance between a firm's average total cost curve, ATC, and its average variable cost
curve, AVC,
A) decreases as output increases.
B) is equal to its marginal cost, MC.
C) is equal to its total fixed cost, TFC.
D) is equal to its average product.
Answer: A
Topic: Average Fixed Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

77
Copyright © 2014 Pearson Education, Inc.
120) The output at which average variable cost is a minimum is ________ than the output at which
________ is a minimum.
A) the same as; average total cost
B) the same as; marginal cost
C) less than; average total cost
D) less than; marginal cost
Answer: C
Topic: Average Variable Cost Curve and Average Total Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

121) Which of the following curves is not U-shaped?

A) average variable cost curve
B) average fixed cost curve
C) average total cost curve
D) marginal cost curve
Answer: B
Topic: Average Fixed Cost Curve
Skill: Conceptual
Status: New
A-level heading: Short-Run Cost
AACSB: Reflective Thinking

78
Copyright © 2014 Pearson Education, Inc.
122) In the figure above, curve C is the ________ curve.
A) average fixed cost
B) average variable cost
C) average total cost
D) marginal cost
Answer: B
Topic: Average Variable Cost Curve
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

123) In the figure above, curve A is the ________ curve.

A) average fixed cost
B) average variable cost
C) average total cost
D) marginal cost
Answer: D
Topic: Average Variable Cost Curve
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

124) In the figure above, curve B is the ________ curve.

A) average fixed cost
B) average variable cost
C) average total cost
D) marginal cost
Answer: C
Topic: Average Variable Cost Curve
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

79
Copyright © 2014 Pearson Education, Inc.
125) In the figure above, when 20 units are produced the marginal cost is
A) less than $8.
B) $8.
C) more than $8 and less than $16.
D) None of the above answers is correct.
Answer: A
Topic: Marginal Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

126) In the figure above, when 40 units are produced the average fixed cost is
A) $4.
B) $8.
C) $12.
D) $20.
Answer: A
Topic: Average Fixed Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

127) In the above figure, the marginal cost curve is curve

A) A.
B) B.
C) C.
D) D.
Answer: A
Topic: Marginal Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

80
Copyright © 2014 Pearson Education, Inc.
128) In the above figure, the average fixed cost curve is curve
A) A.
B) B.
C) C.
D) D.
Answer: D
Topic: Average Fixed Cost Curve
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

129) In the above figure, the average variable cost curve is curve
A) A.
B) B.
C) C.
D) D.
Answer: C
Topic: Average Variable Cost Curve
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

130) In the above figure, the average total cost curve is curve
A) A.
B) B.
C) C.
D) D.
Answer: B
Topic: Average Total Cost Curve
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

131) In the above figure, as output increases, the distance between curves B and C decreases because
A) total cost decreases as output increases.
B) average fixed cost decreases as output increases.
C) there are diminishing returns to average total cost.
D) there are increasing marginal costs as output increases.
Answer: B
Topic: Average Fixed Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

81
Copyright © 2014 Pearson Education, Inc.
132) In the above figure, curve D slopes downward because
A) average fixed costs decrease as output increases.
B) all costs decrease as output increases.
C) there are diminishing returns.
D) there are decreasing marginal costs.
Answer: A
Topic: Average Fixed Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

133) In the above figure, the intersection of curves A and C is the point at which
A) average total cost is minimized.
B) average variable cost is minimized.
C) average fixed cost is minimized.
D) total product is maximized.
Answer: B
Topic: Relationship Between Marginal Cost and Average Variable Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

134) In the above figure, the intersection of curves A and B is the point at which
A) average total cost is minimized.
B) average variable cost is minimized.
C) average fixed cost is minimized.
D) total product is maximized.
Answer: A
Topic: Relationship Between Marginal Cost and Average Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

82
Copyright © 2014 Pearson Education, Inc.
135) The above figure shows the costs at Barney's Bagel Bakery. At which of the following amounts of
output is the AFC be the lowest?
A) at 2000 bagels
B) at 3000 bagels
C) at 3500 bagels
D) None of the above because the AFC is constant regardless of how many bagels are produced each day.
Answer: C
Topic: Average Fixed Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

136) The above figure shows the costs at Barney's Bagel Bakery. As the amount of output increases, the
AVC curve approaches the ATC curve because the
A) TFC curve (not shown) slopes down.
B) AFC curve (not shown) slopes down.
C) MC curve is rising.
D) AVC curve is rising.
Answer: B
Topic: Average Fixed Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

83
Copyright © 2014 Pearson Education, Inc.
137) The above figure shows the costs at Barney's Bagel Bakery. After 3000 bagels are produced each day,
the ATC curve starts to slope upward because the
A) MC curve slopes upward.
B) MC exceeds the ATC.
C) AFC curve (not shown) starts to slope upward.
D) None of the above answers is correct.
Answer: B
Topic: Relationship Between Marginal Cost and Average Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

138) The above figure shows the costs at Barney's Bagel Bakery. Up to which level of output will
increasing marginal returns in production be experienced at Barney's Bagel Bakery?
A) up to 500 bagels
B) up to 2000 bagels
C) up to 3000 bagels
D) up to 3500 bagels
Answer: A
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

139) Based on the above figure of the costs at Barney's Bagel Bakery, at which level of output will
diminishing marginal returns first occur?
A) at 1 bagel
B) at 500 bagels
C) at 2000 bagels
D) at 3000 bagels
Answer: B
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

140) Based on the above figure of the costs at Barney's Bagel Bakery, at which of the following levels of
output does the marginal product of labor equal the average product of labor?
A) at 500 bagels
B) at 2000 bagels
C) at 3000 bagels
D) None of the above because the marginal and average products of labor can never be equal.
Answer: B
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

84
Copyright © 2014 Pearson Education, Inc.
141) The above figure shows the costs at Barney's Bagel Bakery. For which of the following levels of
output does the marginal product of labor exceed the average product of labor?
A) at 1000 bagels daily
B) at 2000 bagels daily
C) at 3000 bagels daily
D) all of the above
Answer: A
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

142) The above figure shows the costs at Barney's Bagel Bakery. For which of the following levels of
output does the average product of labor exceed the marginal product of labor?
A) at 1000 bagels daily
B) at 2000 bagels daily
C) at 3000 bagels daily
D) all of the above
Answer: C
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

85
Copyright © 2014 Pearson Education, Inc.
143) Some of the cost curves for Ike's Ice Cream Kitchen are given in the above figure. At which of the
following levels of output will AFC be the lowest?
A) at 0 gallons
B) at 10 gallons
C) at 40 gallons
D) at 70 gallons
Answer: D
Topic: Average Fixed Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

144) As illustrated in the above figure, after 40 gallons are produced each hour at Ike's Ice Cream Kitchen,
the AVC curve starts to slope upward. The AVC starts to slope upward because the
A) MC curve slopes upward.
B) MC exceeds the AVC.
C) ATC curve has not yet reached its minimum.
D) None of the above answers is correct.
Answer: B
Topic: Relationship Between Marginal Cost and Average Variable Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

86
Copyright © 2014 Pearson Education, Inc.
145) As illustrated in the above figure, after 60 gallons are produced each hour at Ike's Ice Cream Kitchen,
the ATC curve starts to slope upward. The ATC starts to slope upward because the
A) MC curve slopes upward.
B) MC exceeds the ATC.
C) distance between the ATC and the AVC curve is shrinking.
D) None of the above answers is correct.
Answer: B
Topic: Relationship Between Marginal Cost and Average Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

146) Based on the above figure, up to which level of output will Ike's Ice Cream Kitchen have increasing
marginal returns?
A) only at 0 gallons
B) up to 10 gallons
C) up to 40 gallons
D) up to 60 gallons
Answer: B
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

147) Based on the above figure, at which level of output does diminishing marginal returns first occur at
Ike's Ice Cream Kitchen?
A) at 0 gallons
B) at 10 gallons
C) at 40 gallons
D) at 60 gallons
Answer: B
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

148) Some of the cost curves for Ike's Ice Cream Kitchen are given in the above figure. At which of the
following levels of output does the marginal product of labor equal the average product of labor?
A) at 0 gallons
B) at 10 gallons
C) at 40 gallons
D) at 60 gallons
Answer: C
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

87
Copyright © 2014 Pearson Education, Inc.
149) Based on the above figure, for which of the following levels of output at Ike's Ice Cream Kitchen does
the marginal product of labor exceed the average product of labor?
A) at 10 gallons
B) at 40 gallons
C) at 70 gallons
D) all of the above
Answer: A
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

150) Based on the above figure, for which of the following amounts of output at Ike's Ice Cream Kitchen
does the average product of labor exceed the marginal product of labor?
A) at 10 gallons
B) at 40 gallons
C) at 70 gallons
D) all of the above
Answer: C
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

151) The marginal cost (MC) curve intersects the

A) ATC, AVC, and AFC curves at their minimum points.
B) ATC and AFC curves at their minimum points.
C) AVC and AFC curves at their minimum points.
D) ATC and AVC curves at their minimum points.
Answer: D
Topic: Relationship Between Marginal Cost and Average Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

152) If average variable cost is decreasing as output increases, then marginal cost is definitely
A) decreasing as output increases.
B) increasing as output increases.
C) less than average variable cost.
D) greater than average variable cost.
Answer: C
Topic: Relationship Between Marginal Cost and Average Variable Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

88
Copyright © 2014 Pearson Education, Inc.
153) When marginal cost is greater than average total cost, the
A) marginal cost decreases as output increases.
B) marginal cost does not change as output increases.
C) average total cost increases as output increases.
D) average total cost decreases as output increases.
Answer: C
Topic: Relationship Between Marginal Cost and Average Total Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

154) If marginal cost is less than average variable cost and output increases, average total cost ________
and average variable cost ________.
A) increases; increases
B) decreases; decreases
C) decreases; increases
D) increases; decreases
Answer: B
Topic: Relationship Between Marginal Cost and Average Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

155) If marginal cost exceeds average variable cost but is less than average total cost, then as output
increases average total cost ________ and average variable cost ________.
A) increases; decreases
B) decreases; decreases
C) increases; increases
D) decreases; increases
Answer: D
Topic: Relationship Between Marginal Cost and Average Total Cost
Skill: Conceptual
Status: Modified 10th edition
AACSB: Analytical Skills

156) If marginal cost is less than average total cost, then ________ is ________.
A) average total cost; falling
B) average variable cost; falling
C) marginal cost; falling
D) marginal cost; rising
Answer: A
Topic: Relationship Between Marginal Cost and Average Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

89
Copyright © 2014 Pearson Education, Inc.
157) The marginal cost curve passes through the ________ points of the ________ cost curve and the
________ cost curve.
A) minimum; average total; average variable
B) minimum; average total; average fixed
C) maximum; total cost; total variable
D) minimum; average variable; average fixed
Answer: A
Topic: Relationship Between Marginal Cost and Average Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

158) If marginal cost exceeds average variable cost, then ________ cost is ________ as output increases.
A) average total; at a maximum
B) average total; falling
C) average variable; rising
D) average fixed; at a maximum
Answer: C
Topic: Relationship Between Marginal Cost and Average Variable Cost
Skill: Conceptual
Status: Modified 10th edition
AACSB: Analytical Skills

159) Average variable cost is at a minimum at the same amount of output at which
A) average product is at a maximum.
B) marginal product is at a maximum.
C) average product is at a minimum.
D) marginal product is at a minimum.
Answer: A
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

160) The range of output over which a firm's average variable cost is decreasing is the same as the range
over which its
A) marginal cost is increasing.
B) average fixed cost is decreasing.
C) average product is increasing.
D) average product is decreasing.
Answer: C
Topic: Cost Curves and Product Curves
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

90
Copyright © 2014 Pearson Education, Inc.
161) If as output increases average product increases, then ________.
A) average total cost decreases
B) average fixed cost decreases
C) marginal cost decreases
D) average variable cost decreases
Answer: D
Topic: Cost Curves and Product Curves
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

162) The output at which average product is a maximum is the same output at which ________ is a
minimum.
A) average fixed cost
B) average variable cost
C) average total cost
D) marginal cost
Answer: B
Topic: Cost Curves and Product Curves
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

163) Increasing marginal returns means that as the firm expands its output, its
A) long-run average total cost increases.
B) long-run average total cost decreases.
C) short-run average total cost increases.
D) short-run average total cost decreases.
Answer: D
Topic: Cost Curves and Product Curves
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

164) Marginal cost eventually increases because

A) of the law of diminishing returns.
B) eventually each additional worker produces a successively smaller addition to output.
C) the marginal product of the variable input eventually falls.
D) All of the above answers are correct.
Answer: D
Topic: Cost Curves and Product Curves
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

91
Copyright © 2014 Pearson Education, Inc.
165) A technological change that increases productivity ________ marginal product and ________
marginal cost.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Answer: B
Topic: Cost Curves and Product Curves
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

166) Which of the following shifts the ATC curve upward at the XYZ Co.?
A) an increase in the hourly wage that XYZ pays its workers
B) a decrease in the hourly wage that XYZ pays its workers
C) an increase in the fixed amount of liability insurance premiums that XYZ pays for its business
D) Both answers A and C are correct.
Answer: D
Topic: Shifts in the Cost Curves
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

167) Which of the following shifts the AVC curve upward at Barney's Bagel Bakery?
A) an increase in the hourly wage that Barney pays his workers
B) a decrease in the hourly wage that Barney pays his workers
C) an increase in the fixed amount of liability insurance premiums that Barney pays for his business
D) Both answers A and C are correct.
Answer: A
Topic: Change in the Price of a Resource
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

168) Which of the following shifts the AVC curve upward at Barney's Bagel Bakery?
A) an increase in the hourly wage that Barney pays his workers
B) an increase in Barney's daily output from hiring more workers
C) an increase in the fixed amount of local property tax that Barney pays on the building he owns and
uses
D) all of the above
Answer: A
Topic: Change in the Price of a Resource
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

92
Copyright © 2014 Pearson Education, Inc.
169) A change in technology that shifts the firm's total product curve upward without changing the
quantity of capital used
A) shifts the average total cost curve upward.
B) shifts the average total cost curve downward.
C) does not change the cost curves.
D) shifts the marginal cost curve upward.
Answer: B
Topic: Change in Technology and Costs
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

170) The a firm's short-run cost curves shifts when there is a change in
A) technology
B) the prices of factors of production
C) the quantity of outputs
D) Both answers A and B are correct.
Answer: D
Topic: Short Run Cost Curves
Skill: Conceptual
Status: New
A-level heading: Short-Run Cost
AACSB: Reflective Thinking

171) Which cost always increases as output increases?

A) total cost
B) marginal cost
C) average total cost
D) average fixed cost
Answer: A
Topic: Study Guide Question, Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

172) Pat's Catering finds that when it caters 20 meals a week, its total cost is $6,000. If Pat has total
variable cost of $5,000, what is Pat's total fixed cost?
A) $50
B) $250
C) $1,000
D) $6,000
Answer: C
Topic: Study Guide Question, Total Fixed Costs
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

93
Copyright © 2014 Pearson Education, Inc.
173) The change in total cost from producing another unit of output equals the
A) average total cost.
B) variable cost.
C) average variable cost.
D) marginal cost.
Answer: D
Topic: Study Guide Question, Marginal Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

174) A farmer discovers that the total cost of growing 50 acres of eggplant is $50,000 and that the total cost
of growing 51 acres of eggplant is $52,000. The marginal cost of the 51st acre of eggplant is
A) $52,000.
B) $50,000.
C) $2,000.
D) $1,000.
Answer: C
Topic: Study Guide Question, Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

175) Which curve intersects the AVC curve at its minimum point?
A) the MC curve
B) the ATC curve
C) the AFC curve
D) the MP curve
Answer: A
Topic: Study Guide Question, Relationship Between Marginal Cost & Avg. Var. Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

176) If the ATC curve has a positive slope, then the MC curve must be
A) horizontal.
B) vertical.
C) above the ATC curve.
D) below the ATC curve.
Answer: C
Topic: Study Guide Question, Relationship Between Marginal Cost & Avg. Total Cost
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

94
Copyright © 2014 Pearson Education, Inc.
177) The average variable cost curve shifts downward if
A) there is a decrease in fixed costs.
B) there is a technological advance.
C) the cost of a variable input increases.
D) the price of output decreases.
Answer: B
Topic: Study Guide Question, Technological Change and Costs
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

178) The cost of a variable input, such as the wage paid to workers, decreases. This decrease shifts the
A) total fixed cost curve downward.
B) marginal product of labor curve downward.
C) average variable cost curve downward.
D) marginal product of labor curve upward.
Answer: C
Topic: Study Guide Question, Change in the Price of a Resource
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

Total variable
Output Total fixed cost, Total cost, TC
Labor (workers) cost, TVC
(units) TFC (dollars) (dollars)
(dollars)
0 0 20 0 20
1 4 20 25 45
2 9 20 50 70
3 13 20 75 95
4 16 20 100 120
5 18 20 125 145

179) Using the data in the above table, the average fixed cost of producing 16 units is
A) $1.11 a unit.
B) $1.25 a unit.
C) $1.54 a unit.
D) $2.22 a unit.
Answer: B
Topic: Parallel MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

95
Copyright © 2014 Pearson Education, Inc.
180) Using the data in the above table, when the firm increases its output from 4 to 9 units, the marginal
cost of a unit is
A) $4.00 a unit.
B) $5.00 a unit.
C) $6.00 a unit.
D) $7.00 a unit.
Answer: B
Topic: Parallel MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

181) In the above figure, which of the following statements is FALSE?

A) The total fixed cost curve is curve C.
B) Total variable cost and total cost both increase as output increases.
C) Marginal cost is equal to the slope of curve A.
D) The vertical gap between curves A and B is equal to average fixed cost.
Answer: D
Topic: Parallel MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

96
Copyright © 2014 Pearson Education, Inc.
182) In the above figure, which of the following statements is FALSE?
A) Average fixed cost decreases as output decreases.
B) The vertical gap between curves B and C equals marginal fixed cost.
C) The vertical gap between curves B and C gets smaller as AFC decreases.
D) Curve A is the marginal cost curve.
Answer: B
Topic: Parallel MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

183) Poppy Lipstick is a lipstick producer. A decrease in the rent paid by Poppy Lipstick
A) shifts its TFC curve downward but not its TVC curve.
B) shifts both its TFC curve and its TVC curve downward.
C) does not shift its TFC curve but shifts its TVC curve upward.
D) does not shift its TFC curve but shifts its TVC curve downward.
Answer: A
Topic: Parallel MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

184) Sticky Cakes is a bakery. A decrease in the wage rate that Sticky Cakes pays its workers
A) does not shift its MC curve or its ATC curve.
B) shifts its MC curve downward but not its ATC curve.
C) shifts both its MC curve and its ATC curve downward.
D) does not shift its MC curve but shifts its ATC curve downward.
Answer: C
Topic: Parallel MyEconLab Questions
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

97
Copyright © 2014 Pearson Education, Inc.
4 Long-Run Cost

1) Which of the following statements is true?

A) In the long run, the average cost curve is always downward sloping.
B) In the long run, the quantities of all inputs are fixed.
C) In the long run, the firms' fixed costs are greater than its variable costs.
D) In the long run, all costs are variable costs.
Answer: D
Topic: Long Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

2) Which of the following is FALSE?

A) Long-run average variable costs equal long-run average total costs.
B) Fixed costs increase in the long run.
C) As a firm produces more output, eventually it experiences diseconomies of scale.
D) In the long run, both the amount of capital and labor used by the firm can be changed.
Answer: B
Topic: Short Run Versus Long Run
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

3) In the long run,

A) all inputs can be varied.
B) all inputs are fixed.
C) some inputs are variable and other inputs are fixed.
D) output is fixed.
Answer: A
Topic: Long Run
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

4) The firm's production function is the relationship between the ________ and ________.
A) output produced; the quantities of all inputs
B) maximum output attainable; the quantity of variable inputs
C) possible range of maximum output; the quantity of variable inputs
D) maximum output attainable; the quantities of both labor and capital
Answer: D
Topic: Production Function
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

98
Copyright © 2014 Pearson Education, Inc.
5) A firm's long run cost is the cost of production when the firm
A) calculates its cost at least one year into the future.
B) adds together all of its short run costs.
C) uses the economically efficient quantities for its plant and its labor.
D) can vary the amount of output it produces.
Answer: C
Topic: Long-Run Cost
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

6) A firm's long-run average cost curve

A) shows the lowest attainable average total cost of producing any level of output when the plant and
labor are fixed.
B) is the sum of all of its short-run average cost curves.
C) tells the firm which plant size to use and which quantity of labor to use to minimize the cost of
producing any level of output.
D) all of the above
Answer: C
Topic: Long-Run Average Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

7) The long-run average cost curve is the

A) change in total product divided by the change in capital when the quantity of labor is constant.
B) change in output resulting from a one-unit increase in the quantity of capital.
C) relationship between the lowest attainable average total cost and output when both the plant size and
labor are varied.
D) relationship between the lowest attainable average total cost and output when both the plant size and
labor are fixed.
Answer: C
Topic: Long-Run Average Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

8) A firm's long-run average cost curve

A) shows the lowest attainable average total cost of producing any level of output when the plant and
labor are variable.
B) is U-shaped.
C) tells the firm which plant size to use and which quantity of labor to use to minimize the cost of
producing any level of output.
D) all of the above
Answer: D
Topic: Long-Run Average Cost Curve
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking

99
Copyright © 2014 Pearson Education, Inc.
9) Which of the following is correct?
A) A firm's short-run average cost curve is derived from a series of long-run average cost curves.
B) A firm's long-run average cost curve is derived from a series of short-run average cost curves.
C) A firm's long-run total cost is the difference between its long-run fixed cost and long-run variable cost.
D) Both answers A and C are correct.
Answer: B
Topic: Long-Run Average Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

10) For each short-run average total cost curve, the ________ the plant, the ________ is the output at
which average total cost is at a ________.
A) larger; greater; maximum
B) larger; greater; minimum
C) larger; smaller; minimum
D) smaller; smaller; minimum
Answer: B
Topic: Long-Run Average Cost Curve
Skill: Conceptual
Status: New
A-level heading: Long-Run Cost
AACSB: Reflective Thinking

Labor Output with Plant 1 (1 oven) Output with Plant 2 (2 ovens)

(workers per week) (pizzas per week) (pizzas per week)
1 50 60
2 80 130
3 100 180
4 110 220
5 115 240

11) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose
that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost,
$280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week.
Suppose Silvio's kitchen currently has enough room for only one oven. If Silvio employs 3 workers,
producing 200 pizzas per week is ________ in the short run and ________ in the long run.
A) impossible; impossible
B) impossible; possible
C) possible; impossible
D) possible; possible
Answer: B
Topic: Short Run and Long Run
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

100
Copyright © 2014 Pearson Education, Inc.
12) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose
that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost,
$280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week.
If Silvio's uses Plant 1, the marginal product of the 3rd worker is ________ pizzas per week.
A) 33
B) 100
C) 20
D) 80
Answer: C
Topic: Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

13) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose
that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost,
$280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week.
With Plant 2, Silvio's average product per worker is highest if ________ workers per week are employed.
A) 3
B) 4
C) 5
D) 2
Answer: D
Topic: Average Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

14) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose
that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost,
$280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week.
Suppose Silvio's uses Plant 2. If Silvio hires the 4th worker, the firm will experience ________ marginal
returns.
A) diminishing
B) increasing
C) constant
D) zero
Answer: A
Topic: Diminishing Marginal Returns
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

101
Copyright © 2014 Pearson Education, Inc.
15) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose
that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost,
$280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week. When
Silvio's uses 2 ovens and hires the 3rd worker, the marginal product of labor is ________ the average
product of labor, and therefore the average product of labor ________.
A) less than; decreases
B) less than; increases
C) greater than; decreases
D) greater than; increases
Answer: B
Topic: Average Product of Labor and Marginal Product of Labor
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

16) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose
that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost,
$280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week.
Suppose Silvio's uses Plant 1 and hires 3 workers. What is the firm's average fixed cost?
A) $4.33
B) $8.40
C) $19.40
D) $11.00
Answer: D
Topic: Average Fixed Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

17) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose
that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost,
$280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week.
Suppose Silvio's uses Plant 1 and hires 2 workers. What is the firm's average variable cost?
A) $7.00
B) $6.40
C) $19.50
D) $8.25
Answer: A
Topic: Average Variable Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

102
Copyright © 2014 Pearson Education, Inc.
18) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose
that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost,
$280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week.
Suppose Silvio's uses Plant 2 and hires 4 workers. What is the firm's average total cost?
A) $6.00
B) $8.26
C) $10.55
D) $12.40
Answer: C
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

19) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose
that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost,
$280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week.
Suppose Silvio's uses Plant 2. What is the marginal cost of producing the 200th pizza?
A) $5.09
B) $7.00
C) $10.55
D) $4.40
Answer: B
Topic: Marginal Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

20) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose
that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost,
$280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week.
Suppose Silvio's uses Plant 2. The firm's average total cost is minimized when ________ pizzas per week
are produced.
A) 180
B) 130
C) 220
D) 60
Answer: C
Topic: Average Total Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

103
Copyright © 2014 Pearson Education, Inc.
21) Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose
that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost,
$280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week.
What is Silvio's long-run average cost if the output is 100 pizzas per week?
A) $8.40
B) $11.00
C) $19.40
D) $17.90
Answer: D
Topic: Long-Run Average Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

22) Dustin's copy shop can use four alternative plants. The figure above shows the average total cost
curves for Plant 1 (ATC1), Plant 2 (ATC2), Plant 3 (ATC3), and Plant 4 (ATC4).What is Dustin's long-run
average cost if the output is 3,000 copies per day?
A) 3.7 cents per copy
B) 5.0 cents per copy
C) 8.5 cents per copy
D) More information is needed to determine the long-run average cost.
Answer: A
Topic: Long-Run Average Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

104
Copyright © 2014 Pearson Education, Inc.
23) Dustin's copy shop can use four alternative plants. The figure above shows the average total cost
curves for Plant 1 (ATC1), Plant 2 (ATC2), Plant 3 (ATC3), and Plant 4 (ATC4). Dustin's Plant 2 will be
economically efficient if the firm produces
A) 2,000 copies per day.
B) 4,800 copies per day.
C) 5,300 copies per day.
D) 6,000 copies per day.
Answer: B
Topic: Long-Run Average Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

24) Dustin's copy shop can use four alternative plants. The figure above shows the average total cost
curves for Plant 1 (ATC1), Plant 2 (ATC2), Plant 3 (ATC3), and Plant 4 (ATC4). Dustin's minimum efficient
scale is
A) 2,650 copies per day.
B) 6,000 copies per day.
C) 4,000 copies per day.
D) More information is needed to determine the minimum efficient scale.
Answer: C
Topic: Long-Run Average Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

105
Copyright © 2014 Pearson Education, Inc.
25) The average total cost curves for plants A, B, C and D are shown in the above figure. Which plant is
best to use to produce 20 units per day?
A) plant A
B) plant B
C) plant C
D) plant D
Answer: A
Topic: Long-Run Average Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

26) The average total cost curves for plants A, B, C and D are shown in the above figure. Which plant is
best to use to produce 60 units per day?
A) plant A
B) plant B
C) plant C
D) plant D
Answer: B
Topic: Long-Run Average Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

106
Copyright © 2014 Pearson Education, Inc.
27) The average total cost curves for plants A, B, C and D are shown in the above figure. Which plant is
best to use to produce 80 units per day?
A) plant A
B) plant B
C) plant C
D) plant D
Answer: C
Topic: Long-Run Average Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

28) The average total cost curves for plants A, B, C, and D are shown in the above figure. The plant size
that is the most economically efficient
A) is plant A.
B) is plant B.
C) is plant C.
D) depends on the desired level of output.
Answer: D
Topic: Long-Run Average Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

29) The average total cost curves for plants A, B, C, and D are shown in the above figure. It is possible that
the long-run average cost curve runs through points
A) a, b, and c.
B) b, d, and e.
C) d, e, and f.
D) c and d.
Answer: C
Topic: Long-Run Average Cost Curve
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

107
Copyright © 2014 Pearson Education, Inc.
30) The average total cost curves for Plant 1, ATC0, and Plant 2, ATC1, are shown in the figure above.
Over what range of output is it efficient to operate Plant 1?
A) 0-20
B) 0-25
C) 20-25
D) greater than 25
Answer: B
Topic: Long-Run Average Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

31) The average total cost curves for Plant 1, ATC0, and Plant 2, ATC1, are shown in the figure above.
Over what range of output is it efficient to operate Plant 2?
A) 0-20
B) 0-25
C) 20-25
D) greater than 25
Answer: D
Topic: Long-Run Average Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

108
Copyright © 2014 Pearson Education, Inc.
32) The average total cost curves for Plant 1, ATC0, and Plant 2, ATC1, are shown in the figure above. The
long-run average cost curve goes through points
A) C, D, G.
B) A, C, E.
C) A, B, D, G.
D) A, B, D, E, F.
Answer: C
Topic: Long-Run Average Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

33) A firm is operating in its range of economies of scale and is on both its LRAC curve and its short-run
ATC curve. At that level of output, the slope of its LRAC curve is
A) zero and the slope of its ATC curve is zero.
B) zero and the slope of its ATC curve is negative.
C) negative and the slope of its ATC curve is zero.
D) negative and the slope of its ATC curve is negative.
Answer: D
Topic: Long-Run Average Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

34) When economies of scale are present, the LRAC curve touches each short-run ATC curve
A) to the left of the ATC curve's minimum point.
B) to the right of the ATC curve's minimum point.
C) at the ATC curve's minimum point.
D) at no points.
Answer: A
Topic: Long-Run Average Cost Curve
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

35) Economies of scale refer to

A) the point at which marginal cost equals average cost.
B) the fact that in the long run, fixed costs remain constant as output increases.
C) the range of output over which the long-run average cost falls as output increases.
D) a feature of short-run production functions but not long-run production functions.
Answer: C
Topic: Economies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

109
Copyright © 2014 Pearson Education, Inc.
36) In the short run,
A) all inputs are variable.
B) all firms experience increasing returns to scale.
C) some firms experience economies of scale.
D) no firm experiences economies of scale.
Answer: D
Topic: Economies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

37) When long-run average costs decrease as output increases, there are
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) constant marginal costs.
Answer: A
Topic: Economies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

38) When a firm experiences economies of scale, its ________ cost curve slopes ________ as output
increases.
A) long-run average; downward
B) short-run average total; downward
C) short-run marginal cost; downward
D) long-run average; upward
Answer: A
Topic: Economies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

39) A firm experiences ________ when its ________ downward as output increases.
A) diseconomies of scale; average total cost curve slopes
B) economies of scale; long-run average cost curve slopes
C) diminishing marginal returns; long-run average cost curve slopes
D) diminishing marginal returns; average total cost curve shifts
Answer: B
Topic: Economies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

110
Copyright © 2014 Pearson Education, Inc.
40) Economies of scale refer to the range of output over which
A) marginal cost exceeds average cost.
B) the long-run average cost falls as output increases.
C) the marginal product of labor diminishes.
D) the long-run average cost is lower than the short-run average total cost.
Answer: B
Topic: Economies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

41) When long-run average cost decreases as output increases, there are definitely
I. increasing marginal returns.
II. economies of scale.
A) only I
B) only II
C) both I and II
D) neither I nor II
Answer: B
Topic: Economies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

42) If Dell Computer Company could produce more computers at lower long-run average cost by
increasing the quantity of all the inputs it uses, Dell definitely would experience
A) decreasing marginal returns.
B) diseconomies of scale.
C) increasing marginal returns.
D) economies of scale.
Answer: D
Topic: Economies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

43) When long-run average cost decreases as output increases there are definitely
A) increasing marginal returns.
B) economies of scale.
C) Both answers A and B are correct.
D) Neither answer A nor B is correct.
Answer: B
Topic: Economies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

111
Copyright © 2014 Pearson Education, Inc.
44) Electric utility companies have built larger and larger electric generating stations and, as a result, the
long-run average cost of producing each kilowatt hour decreased. This is an example of
A) constant returns to cost.
B) increasing returns to cost.
C) economies of scale.
D) diseconomies of scale.
Answer: C
Topic: Economies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

45) Electric utility companies have built larger and larger electric generating stations and, as a result, the
long-run average cost of producing each kilowatt hour decreased. This is an example of
A) increasing marginal returns.
B) diminishing marginal returns.
C) economies of scale.
D) diseconomies of scale.
Answer: C
Topic: Economies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

46) If the average total cost of producing 20 sweaters an hour falls when the firm doubles all its inputs,
then the
A) short-run average total cost curve shifts upward because all inputs have increased.
B) firm moves along its short-run average total cost curve.
C) firm experiences economies of scale.
D) long-run average cost curve shifts downward.
Answer: C
Topic: Economies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

47) If all inputs are increased by 5 percent and output increases by 8 percent, then the
A) firm experiences constant returns to scale.
B) long-run average cost curve slopes downward.
C) long-run average cost curve shifts downward.
D) firm experiences diseconomies of scale.
Answer: B
Topic: Economies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

112
Copyright © 2014 Pearson Education, Inc.
48) Economies of scale occur when the percentage increase in output
A) exceeds the percentage increase in all inputs.
B) is less than the percentage increase in all inputs.
C) exceeds the percentage decrease in all inputs.
D) is less than the percentage decrease in all inputs.
Answer: A
Topic: Economies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

49) Economies of scale

A) lead to rising long-run average costs as output increases.
B) occur if output more than doubles when all inputs are doubled.
C) occur if output less than doubles when all inputs are doubled.
D) occur when management complexity brings rising average cost.
Answer: B
Topic: Economies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

50) Diminishing marginal returns means that the firm definitely is experiencing
A) diseconomies of scale.
B) constant returns to scale.
C) Both answers A and B are correct.
D) Neither answer A nor B is correct.
Answer: D
Topic: Diseconomies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

51) "Diseconomies of scale" occur in

A) the long run, but not the short run.
B) the short run, but not the long run.
C) both the short run and the long run.
D) neither the short run nor the long run.
Answer: A
Topic: Diseconomies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

113
Copyright © 2014 Pearson Education, Inc.
52) When long-run average cost increases as output increases there are
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) none of the above
Answer: B
Topic: Diseconomies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

53) When long-run average costs increase as output increases, there are
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) constant marginal costs.
Answer: B
Topic: Diseconomies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

54) Diseconomies of scale definitely means that as the firm increases its output, its
A) long-run average total cost increases.
B) long-run average total cost decreases.
C) short-run average total cost increases.
D) short-run average total cost decreases.
Answer: A
Topic: Diseconomies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

55) If diseconomies of scale are present and the firm ________ all its inputs, its output ________.
A) doubles; more than doubles
B) doubles; less than doubles
C) increases; increases by the same percentage
D) halves; doubles
Answer: B
Topic: Diseconomies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

114
Copyright © 2014 Pearson Education, Inc.
56) One reason for diseconomies of scale is that, at very large scales, management systems can become
A) more efficient because they can effectively manage more workers.
B) increasingly complex and inefficient.
C) more numerous than the workers they manage.
D) none of the above
Answer: B
Topic: Diseconomies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

57) A common source of diseconomies of scale is the

A) diminishing marginal returns to capital.
B) diminishing marginal returns to labor.
C) diminishing marginal returns to land.
D) growing complexity of management and organizational structure.
Answer: D
Topic: Diseconomies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

Long-run total cost

Quantity
(dollars)
0 0
20 100
40 160
60 180
80 190

58) The cost data in the above table data show that production is characterized by
A) economies of scale.
B) constant returns to scale.
C) decreasing returns to scale.
D) More information is needed to answer the question.
Answer: A
Topic: Economies of Scale
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

115
Copyright © 2014 Pearson Education, Inc.
59) Based on the cost data in the above table, the long-run average cost (LRAC) is lowest when output is
A) 20.
B) 40.
C) 80.
D) Long-run average cost is constant at all levels of output.
Answer: C
Topic: Long-Run Average Cost
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

60) When long-run average cost remains constant as output increases there are constant
A) marginal returns.
B) returns to scale.
C) economies of scale.
D) diseconomies of scale.
Answer: B
Topic: Constant Returns to Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

61) Farmer Seth has a perfectly flat long-run average total cost curve over the range of output from 10,000
bushels of wheat to 100,000 bushels of wheat. Hence, over this range of output, Farmer Seth definitely
experiences
A) constant marginal returns.
B) constant returns to scale.
C) constant economies of scale.
D) none of the above
Answer: B
Topic: Constant Returns to Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

116
Copyright © 2014 Pearson Education, Inc.
62) In the above figure, the long-run average cost curve exhibits economies of scale
A) between 5 and 10 units per hour.
B) between 10 and 20 units per hour.
C) between 20 and 25 units per hour.
D) along the entire curve.
Answer: A
Topic: Economies of Scale
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

63) In the above figure, between 5 and 10 units per hour, the firm experiences
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) decreasing total fixed costs.
Answer: A
Topic: Economies of Scale
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

64) In the above figure, the long-run average cost curve exhibits constant returns to scale
A) between 5 and 10 units per hour.
B) between 10 and 20 units per hour.
C) between 20 and 25 units per hour.
D) along the entire curve.
Answer: B
Topic: Constant Returns to Scale
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

117
Copyright © 2014 Pearson Education, Inc.
65) In the above figure, the long-run average cost curve exhibits diseconomies of scale
A) between 5 and 10 units per hour.
B) between 10 and 20 units per hour.
C) between 20 and 25 units per hour.
D) along the entire curve.
Answer: C
Topic: Diseconomies of Scale
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

66) In the above figure, between 20 and 25 units per hour, the firm experiences
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) increasing total fixed costs.
Answer: B
Topic: Diseconomies of Scale
Skill: Analytical
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

67) In the above figure, economies of scale are present up to an output level of
A) 5,000 pounds of coffee.
B) 10,000 pounds of coffee.
C) 13,000 pounds of coffee.
D) 15,000 pounds of coffee.
Answer: B
Topic: Economies and Diseconomies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills
118
Copyright © 2014 Pearson Education, Inc.
68) In the above figure, the minimum efficient scale of output is
A) 5,000 pounds of coffee.
B) 10,000 pounds of coffee.
C) 13,000 pounds of coffee.
D) 15,000 pounds of coffee.
Answer: B
Topic: Minimum Efficient Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

69) If wages a firm pays it workers increase, then

A) the firm's long-run average cost curve shifts upward.
B) the firm moves rightward along its long-run average cost curve to where it has diseconomies of scale.
C) the firm's long-run average cost curve does not shift and there is no movement along the long-run
average cost curve.
D) the firm moves rightward along its long-run average cost curve but not necessarily to where it has
diseconomies of scale.
Answer: A
Topic: Long-Run Average Cost Curve
Skill: Conceptual
Status: New 10th edition
AACSB: Reflective Thinking

70) The LRAC curve

A) is the minimum points on all the short-run ATC curves.
B) shows the lowest possible marginal cost of producing the different levels of output.
C) shows the lowest attainable average total cost for all levels of output when all inputs can be varied.
D) generally lies above the short-run ATC curves.
Answer: A
Topic: Study Guide Question, Long-Run Average Cost Curve
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

71) The LRAC curve generally is

A) shaped as an upside-down U.
B) U-shaped.
C) upward sloping.
D) downward sloping.
Answer: B
Topic: Study Guide Question, Long-Run Average Cost Curve
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

119
Copyright © 2014 Pearson Education, Inc.
72) When a firm is experiencing economies of scale,
A) the MP curve slopes upward.
B) the LRAC curve slopes downward.
C) diminishing returns to labor have been suspended.
D) the MC curve slopes downward.
Answer: B
Topic: Study Guide Question, Economies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

73) Constant returns to scale means that as all inputs are increased,
A) total output remains constant.
B) average total cost rises.
C) average total cost rises at the same rate as do the inputs.
D) total output increases in the same proportion as do the inputs.
Answer: D
Topic: Study Guide Question, Constant Returns to Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

74) When a firm is experiencing diseconomies of scale,

A) the MP curve has a negative slope.
B) the LRAC curve has a positive slope.
C) it must also experience diminishing returns to labor.
D) the MC curve has a negative slope.
Answer: B
Topic: Study Guide Question, Diseconomies of Scale
Skill: Recognition
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

5 News Based Questions

1) In 2008, Precision Pattern Interiors, which makes high-end aircraft interiors, began a $1 million
renovation of a building at the Hutchinson Air Base Industrial Tract south of Yoder, Kansas. The
company will also add some $400,000 in new equipment and triple its Yoder work force. Which of
Precision Pattern Interiors' decisions is a short run decision?
A) Triple its Yoder work force
B) $1 million renovation of a building at the Hutchinson Air Base Industrial Tract
C) $400,000 in new equipment purchases
D) All of these decisions are short run decisions.
Answer: A
Topic: Short-Run Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

120
Copyright © 2014 Pearson Education, Inc.
2) In 2008, Precision Pattern Interiors, which makes high-end aircraft interiors, began a $1 million
renovation of a building at the Hutchinson Air Base Industrial Tract south of Yoder, Kansas. The
company will also add some $400,000 in new equipment and triple its Yoder work force. Which of
Precision Pattern Interiors' decisions is a long run decision?
A) $1 million renovation of a building at the Hutchinson Air Base Industrial Tract and $400,000 in new
equipment purchases
B) $1 million renovation of a building at the Hutchinson Air Base Industrial Tract
C) $400,000 in new equipment purchases
D) Triple its Yoder work force
Answer: A
Topic: Long-Run Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

3) In 2008, Precision Pattern Interiors, which makes high-end aircraft interiors, began a $1 million
renovation of a building at the Hutchinson Air Base Industrial Tract south of Yoder, Kansas. The
company will also add some $400,000 in new equipment and triple its Yoder work force. Why would the
long run decisions be riskier than the short run decisions?
A) Because the firm has to live with the long run decisions for a long time
B) Because it is easier to sell the equipment than it is to lay off employees
C) Because the firm has to raise prices to purchase equipment
D) Because employees will be upset
Answer: A
Topic: Long Run
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

4) For the past 15 years the American public has wanted to buy big trucks. The Big Three automakers
delivered, investing billions in plants that build gas guzzlers. Now, when customers walk into
showrooms, gas mileage is on their mind. Retooling the industry will take years, so in the meantime GM,
Ford and Chrysler are tweaking their existing models. They're changing tires, adjusting transmissions
and exhaust valves in hopes of getting one or maybe two more miles per gallon. Which of the decisions
by the Big Three to gain gas mileage is a short run decision?
A) Adjusting exhaust valves
B) Adjusting transmissions
C) Changing tires
D) All of these decisions are short run decisions.
Answer: D
Topic: Short Run
Skill: Conceptual
Status: Previous edition, Chapter 11
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5) For the past 15 years the American public has wanted to buy big trucks. The Big Three automakers
delivered, investing billions in plants that build gas guzzlers. Now, when customers walk into
showrooms, gas mileage is on their mind. Retooling the industry will take years. Mike Quincy says the
industry is "like a huge aircraft carrier. It doesn't stop on a dime. It doesn't turn on a dime." What does
Mike mean?
A) The decision time frame to enter into the long run is very long in this industry.
B) The industry has increasing returns to scale.
C) Short run decisions are easily reversed.
D) The industry experiences diminishing marginal returns.
Answer: A
Topic: Long Run
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

6) In August 2008, Toyota halted production of the Tundra, its full-size, gas-guzzling pick-up. Sales of the
vehicle are down 15 percent and the production suspension could last for months. When production of
the truck resumes, it'll be at a slower pace. If Toyota, like many car makers, experiences increasing returns
to scale, what would happen to long run average cost if production resumed, but at a slower pace?
A) Long run average cost would increase.
B) Long run average cost would decrease.
C) Long run average cost would stay constant.
D) Long run average cost would increase and then decrease.
Answer: A
Topic: Long-Run Average Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

7) Angel Rodriguez pulls up in his 24-foot panel truck in front of Sezz Medi Brick Oven Pizza in Upper
Manhattan. Even though it's the middle of the summer, he's delivering— firewood. He says even though
fuel costs have doubled in the past year, it's still worth the premium he gets delivering ash and cherry to
the captive and growing market in NYC. Which of the following statements is true about short run costs
for Angel?
A) His truck is a fixed cost and gasoline is a variable cost.
B) His truck is a variable cost and gasoline is a fixed cost.
C) Both his truck and gasoline is a variable cost.
D) Neither his truck nor gasoline is a variable cost.
Answer: A
Topic: Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

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8) Angel Rodriguez pulls up in his 24-foot panel truck in front of Sezz Medi Brick Oven Pizza in Upper
Manhattan. Even though it's the middle of the summer, he's delivering— firewood. He says even though
fuel costs have doubled in the past year, it's still worth the premium he gets delivering ash and cherry to
the captive and growing market in NYC. How would a decrease in gasoline prices affect Angel's short
run costs?
A) Short run total costs would decrease.
B) Short run variable costs would increase.
C) Short run fixed costs would decrease.
D) Short run average variable costs would increase.
Answer: A
Topic: Total Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

9) Angel Rodriguez pulls up in his 24-foot panel truck in front of Sezz Medi Brick Oven Pizza in Upper
Manhattan. Even though it's the middle of the summer, he's delivering— firewood. He says even though
fuel costs have doubled in the past year, it's still worth the premium he gets delivering ash and cherry to
the captive and growing market in NYC. How does the doubling of fuel costs affect Angel's short run
costs?
A) Short run variable costs would increase.
B) Short run fixed costs would decrease.
C) Short run total costs would decrease.
D) Short run average fixed costs would increase.
Answer: A
Topic: Variable Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

10) Angel Rodriguez pulls up in his 24-foot panel truck in front of Sezz Medi Brick Oven Pizza in Upper
Manhattan. Even though it's the middle of the summer, he's delivering— firewood. He says even though
fuel costs have doubled in the past year, it's still worth the premium he gets delivering ash and cherry to
the captive and growing market in NYC. How would an increase in Angel's salary affect short run costs?
A) Short run variable costs would increase.
B) Short run fixed costs would decrease.
C) Short run total costs would decrease.
D) Short run average fixed costs would increase.
Answer: A
Topic: Variable Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

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11) Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. The
price of cocoa beans had shot up 44 percent in the first nine months of 2008. How does this affect Rogue's
short run costs?
A) Short run variable costs would increase.
B) Short run fixed costs would decrease.
C) Short run total costs would decrease.
D) Short run average fixed costs would increase.
Answer: A
Topic: Variable Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

12) Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. If
Rogue's average total cost decreases as the business increases plant size, then Rogue experiences:
A) Economies of scale.
B) Diseconomies of scale.
C) Diminishing marginal returns.
D) Constant returns to scale.
Answer: A
Topic: Economies of Scale
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

13) Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. Most
chocolate companies use already processed chocolate to craft their sweets. But Rogue buys raw cocoa
beans, and roasts and grinds them until they're in a liquid state and then runs the chocolate through a big
squat machine with rollers. Which statement is true for Rogue?
A) Raw cocoa beans are a variable factor of production and the machine is a fixed factor of production.
B) Both processed chocolate and raw cocoa beans are variable factors of production.
C) Processed chocolate is a variable factor of production and the machine is a fixed factor of production.
D) Processed chocolate and raw cocoa beans are variable factors of production and the machine is a fixed
factor of production.
Answer: A
Topic: Inputs, Fixed and Variable
Skill: Conceptual
Status: Previous edition, Chapter 11
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14) Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content.
Rogue can produce 15 chocolate bars per day with one employee, 35 with 2, 50 with 3 and 55 with 4
employees. Which statement is true?
A) Rogue's marginal product curve initially increases and then decreases.
B) Rogue's marginal product curve decreases continually.
C) Rogue's total product curve increases at an increasing rate.
D) Rogue's marginal product curve decreases initially and then increases.
Answer: A
Topic: Marginal Product
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

15) Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content.
Rogue can produce 15 chocolate bars per day with one employee, 29 with 2, 35 with 3 and 40 with 4
employees. Which statement is true?
A) Rogue's marginal product curve decreases continually.
B) Rogue's marginal product curve initially increases and then decreases.
C) Rogue's total product curve increases at an increasing rate.
D) Rogue's marginal product curve decreases initially and then increases.
Answer: A
Topic: Marginal Product
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Analytical Skills

16) Health care costs are expected to rise more than 10 percent into 2011, according to a survey of insurers
by Aon Consulting Worldwide. Which of the following would be a variable cost in a hospital?
A) Nurses
B) An MRI machine
C) Laboratory equipment
D) Gurneys
Answer: A
Topic: Variable Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

17) Health care costs are expected to rise more than 10 percent into 2011, according to a survey of insurers
by Aon Consulting Worldwide. Which of the following would be a fixed cost in a hospital?
A) An MRI machine
B) Bandages
C) Nurses
D) Syringes
Answer: A
Topic: Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

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18) Health care costs are expected to rise more than 10 percent into 2011, according to a survey of insurers
by Aon Consulting Worldwide. If the increase in costs is expected to solely come from increased wages to
nurses and doctors, then for the health care industry:
A) Variable costs are increasing.
B) Fixed costs are increasing.
C) Long run average total cost is decreasing.
D) Productivity is increasing.
Answer: A
Topic: Variable Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

19) Health care costs are expected to rise more than 10 percent into 2011, according to a survey of insurers
by Aon Consulting Worldwide. If the increase in costs is expected to solely come from increased costs to
buy MRI and X-ray machines, then for the health care industry:
A) Fixed costs are increasing.
B) Long run average total cost is decreasing.
C) Productivity is increasing.
D) Variable costs are increasing.
Answer: A
Topic: Fixed Cost
Skill: Conceptual
Status: Previous edition, Chapter 11
AACSB: Reflective Thinking

126
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