Department of Economics
University of Lethbridge
Econ 1010A
Practice Questions – Chapter 8
1. The marginal cost curve intersects the
A) total cost curve at its minimum point.
B) variable cost curve at its minimum point.
C) average variable cost curve at its minimum point.
D) average fixed cost curve at its minimum point.
2. Economic profit
A) equals total revenue minus explicit and implicit costs.
B) is the same as accounting profit.
C) will always be smaller than accounting profit.
D) does not include opportunity cost of the entrepreneur.
3. Suppose you operate a factory that produces 500 lawn mowers a week. If your weekly
variable cost is $40,000 and your weekly total cost is $50,000, then
A) the average fixed cost of production is $80.
B) the average cost of production is $80.
C) the average fixed cost of production is $20.
D) the average variable cost of production is $100.
4. Economic profit is
A) total revenue minus explicit measurable costs.
B) explicit revenues minus explicit costs.
C) total revenue minus implicit and explicit costs.
D) total revenue minus implicit costs.
5. The U shape of the average total cost curve reflects the fact that
A) average productivity falls and then rises.
B) average productivity rises and then falls.
C) average productivity is constant.
D) marginal product falls and then rises.
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6. Total revenue refers to
A) the amount a firm receives for selling its product or service.
B) any increase in the value of the assets owned by the firm.
C) the opportunity cost of factors of production provided by the owners of the firm.
D) explicit payments to the factors of production.
7. If Gail's grade currently has a C and the grade she receives on her next exam is a B, then
her
A) overall grade will fall.
B) overall grade will remain the same.
C) overall grade will increase.
D) marginal grade is less than her average grade.
8. When production increases, the average variable cost and average total cost curves
A) spread further apart.
B) become horizontal.
C) cross.
D) move closer together.
9. The marginal cost curve is a mirror image of
A) the total product curve.
B) the marginal product curve.
C) the average product curve.
D) the average variable cost curve.
Output
Use the following to answer question 10:
B
A
Num ber of w orke rs
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10. Refer to the graph above. The marginal product and the average product curves
A) are A and B respectively.
B) are B and A respectively.
C) could be either A or B.
D) are not drawn properly.
11. The average fixed cost curve appears
A) U shaped.
B) horizontal.
C) always upward sloping.
D) always downward sloping.
12. Can accounting profit be positive, while economic profits are negative?
A) No. The two concepts are identical.
B) Yes, if total revenue covers opportunity costs but not explicit costs.
C) Yes, if total revenue covers explicit costs but not opportunity costs.
D) No. Economic profits must always be larger than accounting profits.
13. If fixed costs are $960, variable costs are $1440, and output is 12, then average total
cost would be
A) $ 80.
B) $100.
C) $120.
D) $200.
Costs in dollars
Use the following to answer question 14:
MC
ATC
AVC
Output
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14. Refer to the graph above. The graph showing costs of production
A) is correct.
B) is wrong because the average variable and average total cost curves are confused.
C) is wrong because the marginal cost curve does not go through the minimum points
of the AVC and ATC curves.
D) is wrong because the marginal cost curve does not intersect the average total cost
curve.
15. When the average variable cost curve is at its minimum point, average product will
A) be at its maximum.
B) be increasing.
C) be decreasing.
D) be at its minimum.
Use the following to answer question 16:
Number of
workers
1
2
3
4
5
6
7
8
9
10
Average
product of workers
2
5
9
14
16
17
18
18
17
15
16. Refer to the table above. Marginal product declines when which worker is hired?
A) The fifth.
B) The sixth.
C) The seventh.
D) The ninth.
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17. In a short-run decision
A) a firm has more options than in the long run.
B) a firm has fewer options than in the long run.
C) a firm has the same number of options than in the long run.
D) there is no relation between the number of options a firm has and whether it is a
short-run decision or a long-run decision.
18. If a firm can produce 560 units of output with 5 workers, 600 units of output with 6
workers, then the
A) marginal product of the 6th worker is 100 units.
B) marginal product of the 6th worker is 40 units.
C) average product of 6 workers is 70 units.
D) the average product of 5 workers is 100 units.
19. In the long run
A) some inputs are fixed.
B) the firm is constrained in regard to what production decisions it can make.
C) all inputs are variable.
D) some inputs are variable and some are fixed.
20. At higher levels of output, total cost tends to
A) increase at a constant rate.
B) increase at a decreasing rate.
C) increase at an increasing rate.
D) decrease at an increasing rate.
21. Output per worker is also called
A) marginal product.
B) average product.
C) total product.
D) variable product.
22. When output is 20, fixed costs are $100 and total variable costs are $400. When output
rises to 21, fixed costs are $100 and variable costs are $450. This implies that the
marginal cost of the last unit of output equals
A) 25.
B) 50.
C) 500.
D) 550.
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Use the following to answer question 23:
Output
(Bicycles
per week)
1
2
3
4
5
6
7
8
Total Cost
(Dollars)
100
200
310
440
580
730
900
1200
23. Refer to the table above. Marginal cost
A) never increases.
B) decreases then increases.
C) increases then decreases.
D) never decreases.
Use the following to answer question 24:
Units of
Output
0
1
2
3
4
5
6
7
8
9
10
Total
Cost
5
11
16
20
23
25
26
28
31
35
40
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24. Refer to the table above.
A) 0.
B) 1.
C) 2.
D) 3.
The average fixed cost of producing 5 units of output is
25. Accounting profit is equal to
A) total revenue minus implicit costs.
B) total revenue minus explicit measurable costs.
C) total revenue minus implicit and explicit costs.
D) total revenue minus implicit revenues.
26. A production table can be used to determine
A) a firm's profits.
B) a firm's costs.
C) how much output is produced from a given quantity of inputs.
D) how much of a product will be demanded by consumers.
27. The total fixed cost curve is
A) upward sloping.
B) U shaped.
C) horizontal.
D) downward sloping.
28. The minimum point of the average variable cost curve is reached at the output level at
which
A) marginal product is maximized.
B) neither marginal nor average products are maximized.
C) average product is maximized.
D) average and marginal products are maximized.
29. The minimum point of the average total cost curve always occurs at a larger output level
than the minimum point of the average variable cost curve because
A) marginal cost is falling.
B) average fixed costs are rising.
C) average fixed costs are falling.
D) marginal cost is rising.
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30. A firm is producing 100 units of output at a total cost of $400. The firm's average
variable cost is $3 per unit. What is the firm's total fixed cost?
A) $1.
B) $50.
C) $100.
D) $300.
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Answer Key – Chapter 8
1.
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8.
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30.
C
A
C
C
B
A
C
D
B
A
D
C
D
C
A
A
B
B
C
C
B
B
D
B
B
C
C
C
C
C
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