Principle of Microeconomics
Econ 202-506
chapter 11
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
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
1) Using the data in the above table, which worker at Jefferson's Cleaners has the highest marginal
product?
A) the fifth
B) the second
C) the third
D) the fourth
1)
2) 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
2)
1
3) 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) b, d, and e.
B) d, e, and f.
C) c and d.
D) a, b, and c.
3)
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
4) In the above table, the average product is less than the marginal product
A) when the first worker is hired.
B) for the entire range of output given.
C) when the second worker is hired.
D) when the third worker is hired.
2
4)
Output
(tents)
0
1
2
3
4
Total
fixed cost
(dollars)
50
50
50
50
50
Total
variable cost
(dollars)
0
25
45
70
115
Total cost
(dollars)
50
75
95
120
165
5) The above table shows some cost data for Tracey's Tents. What is the average total cost when
output is 3?
A) $120
B) $40
C) $30
D) $50
5)
6) Health care costs are expected to rise more than 10 percent into 2009, 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) Productivity is increasing
D) Long run average total cost is decreasing
6)
7) In the above figure, between 20 and 25 units per hour, the firm experiences
A) constant returns to scale.
B) increasing total fixed costs.
C) economies of scale.
D) diseconomies of scale.
7)
8) Diminishing marginal returns occur when ________.
A) the marginal product of an additional worker is less than the marginal product of the
previous worker hired
B) the average product of the variable input eventually diminishes
C) the firm hires cheap less-skilled workers in place of expensive high-skilled workers
D) total product eventually diminishes
8)
3
9) Marginal cost is the increase in total ________ that results from a one-unit increase in ________.
A) variable cost; the variable input
B) cost; output
C) fixed cost; the fixed input
D) fixed cost; output
9)
10) 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 production to 220 earmuffs, his total cost increases to $2100, and his fixed cost
remains $400. What is Ernie's marginal cost per earmuff?
A) $9.55
B) $35
C) $105
D) $5
10)
11) 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) neither the marginal benefit nor the marginal cost of producing the 101st unit.
B) both the marginal benefit and the marginal cost of producing the 101st unit.
C) the marginal cost of producing the 101st unit.
D) the marginal benefit of producing the 101st unit.
11)
12) In the short run
A) a firm's plant is fixed.
C) labor usage must remain fixed.
12)
B) all factors of production are fixed.
D) no factors of production are fixed.
13) 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 40 gallons
B) at 60 gallons
C) at 0 gallons
D) at 10 gallons
4
13)
14) 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) Neither his truck nor 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) His truck is a fixed cost and gasoline is a variable cost.
14)
15) 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) AFC curve (not shown) slopes down.
B) MC curve is rising.
C) TFC curve (not shown) slopes down.
D) AVC curve is rising.
15)
16) Marginal cost eventually increases because
A) the marginal product of the variable input eventually falls.
B) of the law of diminishing returns.
C) eventually each additional worker produces a successively smaller addition to output.
D) All of the above answers are correct.
16)
17) If the average total cost of producing 20 sweaters an hour falls when the firm doubles all its inputs,
then the
A) firm moves along its short-run average total cost curve.
B) long-run average cost curve shifts downward.
C) firm experiences economies of scale.
D) short-run average total cost curve shifts upward because all inputs have increased.
17)
5
18) When the marginal product curve is downward sloping, the average product curve
A) might be either upward or downward sloping.
B) must be upward sloping.
C) must also be downward sloping.
D) must be horizontal.
Labor
(workers per day)
0
1
2
3
4
5
Output
(units per day)
0
10
15
18
20
21
19) 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) $60
B) $120
C) $140
D) $180
Output
(tents)
0
1
2
3
4
18)
Total
fixed cost
(dollars)
50
50
50
50
50
Total
variable cost
(dollars)
0
25
45
70
115
19)
Total cost
(dollars)
50
75
95
120
165
20) The above table shows some cost data for Tracey's Tents. What is the marginal cost of the 3rd tent?
A) $70
B) $120
C) $20
D) $25
20)
21) 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) 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) $1 million renovation of a building at the Hutchinson Air Base Industrial Tract and $400,000
in new equipment purchases
21)
22) 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 price of the output.
D) total amount of output produced divided by the quantity of labor employed.
22)
6
23) 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) diseconomies of scale.
B) diminishing marginal returns.
C) increasing marginal returns.
D) economies of scale.
23)
24) 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) total product must be increasing at an increasing rate as labor increases.
C) average product of labor must be increasing as labor increases.
D) None of the above answers is correct.
24)
Labor
(workers per day)
0
1
2
3
4
5
Total product
(pizzas per day)
0
10
25
37
45
50
25) Based on the production data for Pat's Pizza Parlor in the above table, the marginal product of the
4th worker is ________ pizzas.
A) 8
B) 5
C) 10
D) 45
Labor
(workers per week)
0
1
2
3
4
5
6
25)
Output
(units per week)
0
20
50
70
85
95
100
26) The table above gives a firm's total product schedule. Suppose labor is the only variable input. 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) $26.32.
C) $32.63.
D) $17.45.
7
26)
27) In the above figure, the total cost curve is curve
A) A.
C) C.
B) B.
D) none of the curves in the figure
27)
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
28) 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.
28)
29) Diminishing marginal returns means that the firm definitely is experiencing
A) constant returns to scale.
B) diseconomies of scale.
C) Both answers A and B are correct.
D) Neither answers A nor B is correct.
29)
8
30) 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 2000 bagels
B) at 3000 bagels
C) at 500 bagels
D) at 1 bagel
Labor
(workers per week)
1
2
3
4
5
Output with Plant 1 (1 oven)
(pizzas per week)
50
80
100
110
115
30)
Output with Plant 2 (2 ovens)
(pizzas per week)
60
130
180
220
240
31) 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) greater than; increases
C) less than; increases
D) greater than; decreases
31)
32) 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) between $40,000 and $40,050.
B) less than $40,000.
C) greater than $40,080.
D) between $40,050 and $40,080.
32)
33) If the ATC curve has a positive slope, then the MC curve must be
A) below the ATC curve.
B) vertical.
C) horizontal.
D) above the ATC curve.
33)
9
34) Economies to scale refer to
A) the range of output over which the long-run average cost falls as output increases.
B) the fact that in the long run, fixed costs remain constant as output increases.
C) the point at which marginal cost equals average cost.
D) a feature of short-run production functions but not long-run production functions.
34)
35) In the above figure, which of the following statements is FALSE?
A) The vertical gap between curves B and C equals marginal fixed cost.
B) Curve A is the marginal cost curve.
C) The vertical gap between curves B and C gets smaller as AFC decreases.
D) Average fixed cost decreases as output decreases.
35)
10
36) 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) More information is needed to determine the minimum efficient scale.
D) 4,000 copies per day.
Labor
(workers per day)
0
1
2
3
4
5
36)
Quantity
(T shirts per day)
0
10
22
30
34
35
37) 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 11; 12
C) 10 to 22; 12
D) 10 to 22; 22
37)
38) If all inputs are increased by 5 percent and output increases by 8 percent, then the
A) firm experiences constant returns to scale.
B) firm experiences diseconomies of scale.
C) long-run average cost curve slopes downward.
D) long-run average cost curve shifts downward.
38)
11
Pizza Hut
Total product
Labor (workers)
(pizzas produced per hour)
0
0
1
5
2
9
3
12
4
14
5
15
39) Using the data in the above table, what is the marginal product of the third employee?
A) 2 pizzas per hour
B) 12 pizzas per hour
C) 4 pizzas per hour
D) 3 pizzas per hour
39)
40) The average product of labor exceeds the marginal product of labor
A) when the marginal product of labor is at its maximum.
B) when the average product of labor is falling.
C) when the average product of labor is rising.
D) when the average product of labor is at its maximum.
40)
41) When the marginal and average products of labor are equal to each other, the
A) total product must be at its maximum value.
B) average product must be at its maximum value.
C) marginal product must be at its maximum value.
D) None of the above answers is correct
41)
42) In the above figure, the marginal product of labor is zero at point
A) a.
B) c.
C) e.
42)
12
D) f.
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
43) Using the data in the above table, which worker hired at Jefferson's Cleaners is the first to show
diminishing marginal returns?
A) the third
B) the fourth
C) the second
D) the fifth
Labor (workers)
0
1
2
3
4
5
6
Total product
(units)
0
Marginal
product
43)
Average
product
3
4.5
14
3
19
1
44) 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) 5 units of labor.
B) 4 units of labor.
C) 2 units of labor.
D) 3 units of labor.
13
44)
45) In the above figure, economies of scale are present up to an output level of
A) 15,000 pounds of coffee.
B) 13,000 pounds of coffee.
C) 5,000 pounds of coffee.
D) 10,000 pounds of coffee.
45)
46) The marginal product of labor is the increase in total product from a
A) one unit increase in the quantity of labor, while also increasing the quantity of capital by one
unit.
B) one dollar increase in the wage rate, while holding the price of capital constant.
C) one unit increase in the quantity of labor, while holding the quantity of capital constant.
D) one percent increase in the wage rate, while also increasing the price of capital by one percent.
46)
47) When marginal cost is greater than average total cost, the
A) average total cost increases as output increases.
B) marginal cost decreases as output increases.
C) average total cost decreases as output increases.
D) marginal cost does not change as output increases.
47)
14
Total product
(units per
Labor (workers)
hour)
0
0
1
8
2
20
3
34
4
46
5
56
6
64
7
8
74
9
75
48) In the above table, what is average product when 4 workers are employed?
A) 10
B) 11.5
C) 12
D) 9.5
48)
49) The steeper the slope of the total product curve, the
A) higher is the level of the total cost curve.
B) more efficient is the technology employed.
C) smaller is the marginal product of labor.
D) larger is the marginal product of labor.
49)
50) When long-run average costs decrease as output increases, there are
A) constant returns to scale.
B) constant marginal costs.
C) economies of scale.
D) diseconomies of scale.
50)
51) In the above figure, the average product of labor at point c is
A) 5.
B) 2.
C) 10.
D) None of the above answers is correct.
51)
15
52) 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 3000 bagels daily
C) at 2000 bagels daily
D) all of the above
52)
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
53) In the above table, the marginal product of the fourth worker is
A) 3.
B) 4.
C) 1.
D) 6.
54) 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 raise prices to purchase equipment
B) Because employees will be upset
C) Because it is easier to sell the equipment than it is to lay off employees
D) Because the firm has to live with the long run decisions for a long time
16
53)
54)
Labor (workers)
0
5
10
15
20
Output
(frijoles)
0
1000
3000
4000
4500
Total cost
(dollars)
1,000
3,000
5,000
7,000
9,000
55) 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) $2
B) $3
C) $1
D) More information is needed to determine the answer.
55)
56) The short run is a period of time in which
A) the quantity used of at least one resource is fixed.
B) resource prices are fixed.
C) output prices are fixed.
D) the quantities used of all resource are fixed.
56)
17
Answer Key
Testname: CHAPTER 11
1) C
ID: mic9pb 4.2-79
2) C
ID: mic9pb 4.3-116
3) B
ID: mic9pb 4.4-29
4) C
ID: mic9pb 4.2-32
5) B
ID: mic9pb 4.3-94
6) A
ID: mic9pb 4.5-20
7) D
ID: mic9pb 4.4-66
8) A
ID: mic9pb 4.2-60
9) B
ID: mic9pb 4.3-24
10) D
ID: mic9pb 4.3-29
11) C
ID: mic9pb 4.3-31
12) A
ID: mic9pb 4.1-8
13) A
ID: mic9pb 4.3-150
14) D
ID: mic9pb 4.5-9
15) A
ID: mic9pb 4.3-138
16) D
ID: mic9pb 4.3-166
17) C
ID: mic9pb 4.4-46
18) A
ID: mic9pb 4.2-110
19) D
ID: mic9pb 4.3-64
20) D
ID: mic9pb 4.3-93
21) D
ID: mic9pb 4.5-2
22) A
ID: mic9pb 4.2-9
23) D
ID: mic9pb 4.4-45
18
Answer Key
Testname: CHAPTER 11
24) C
ID: mic9pb 4.2-101
25) A
ID: mic9pb 4.2-34
26) C
ID: mic9pb 4.3-57
27) A
ID: mic9pb 4.3-118
28) C
ID: mic9pb 4.2-88
29) D
ID: mic9pb 4.4-50
30) C
ID: mic9pb 4.3-141
31) C
ID: mic9pb 4.4-15
32) C
ID: mic9pb 4.3-114
33) D
ID: mic9pb 4.3-177
34) A
ID: mic9pb 4.4-35
35) A
ID: mic9pb 4.3-183
36) D
ID: mic9pb 4.4-24
37) B
ID: mic9pb 4.2-91
38) C
ID: mic9pb 4.4-47
39) D
ID: mic9pb 4.2-20
40) B
ID: mic9pb 4.2-114
41) B
ID: mic9pb 4.2-103
42) C
ID: mic9pb 4.2-48
43) B
ID: mic9pb 4.2-82
44) C
ID: mic9pb 4.2-25
45) D
ID: mic9pb 4.4-67
46) C
ID: mic9pb 4.2-10
19
Answer Key
Testname: CHAPTER 11
47) A
ID: mic9pb 4.3-155
48) B
ID: mic9pb 4.2-96
49) D
ID: mic9pb 4.2-50
50) C
ID: mic9pb 4.4-37
51) A
ID: mic9pb 4.2-41
52) B
ID: mic9pb 4.3-144
53) A
ID: mic9pb 4.2-29
54) D
ID: mic9pb 4.5-3
55) A
ID: mic9pb 4.3-49
56) A
ID: mic9pb 4.1-3
20