Production Costs (2)
Review Questions
ARSC 1432 Microeconomics Co-Seminar
SPRING 2009
1) Marginal product is the slope of the
a) marginal cost curve.
b) long-run average total cost curve.
c) total product curve.
d) total cost curve.
2) The minimum-cost output is the quantity corresponding to the minimum point of the
a) average variable cost curve.
b) marginal product curve.
c) marginal cost curve.
d) average total cost curve.
3) Since the marginal product of labor equals the change in the quantity of output divided by
the change in the quantity of labor, it stands to reason that
a) marginal product will continually increase as the firm produces more.
b) a firm would never operate in the range where marginal product is negative.
c) a firm would never operate in the range where marginal product is decreasing.
d) there is no predictable relationship between marginal revenue and marginal cost.
4) Marginal cost is the slope of the
a) marginal product curve.
b) total cost curve.
c) total product curve.
d) long-run average total cost curve.
5) A firm experiencing constant returns to scale
a) has a horizontal total product curve.
b) has a horizontal long-run average total cost curve.
c) has a horizontal marginal product curve.
d) has a horizontal marginal cost curve.
6) If a firm experiences economies of scale as it expands production,
a) then its marginal cost curve will be downward-sloping in that range.
b) then it is not subject to diminishing returns.
c) then its marginal product curve will be downward-sloping in that range.
d) then its long-run average total cost curve will be downward-sloping in that
range.
7) How long is the long run?
a) Long enough for the firm to make a profit.
b) Long enough that all costs can become fixed.
c) Long enough for diminishing returns to set in.
d) Long enough that all costs can become variable.
8) What is on the horizontal axis when we draw a total product curve?
a) Quantity of output
b) Quantity of labor input
c) Total cost
d) Marginal cost
9) Which of the following is a marginal decision, rather than an either-or decision?
a) How much money to invest in your savings account
b) Whether to look for another job
c) Whether to ask for a promotion
d) Whether to recommend a friend for a job at your workplace
10) Mark owns a ranch in Colorado that costs $3.76 million per year to operate. Of that, his
explicit cost equals $3.29 million. Therefore, his actual monetary cost of running the
ranch is
a) $3.76 million.
b) over $7 million.
c) $3.29 million.
d) $470,000.
11) Where the marginal cost of producing sweet potatoes equals the marginal benefit, the
sweet potato producer has
a) minimized the total costs of production.
b) avoided incurring any opportunity costs.
c) reached the optimal quantity.
d) incurred economic losses.
12) Economic theory asserts that an optimal decision is one which
a) has chosen to undertake all of those activities that add to net gains.
b) ignores the time frame in which costs and benefits are incurred.
c) ignores implicit costs.
d) ignores explicit costs.
13) Marginal analysis is used to
a) convince others that the costs of a certain activity do not matter.
b) make an either-or decision.
c) decide how much of something is the optimal amount.
d) determine which costs are sunk costs.
14) Economic theory asserts that
a) only implicit costs are relevant in decision-making.
b) both implicit costs and explicit costs are relevant in decision-making.
c) a cost to be incurred in the future should count more heavily than a cost incurred
today.
d) only explicit costs are relevant in decision-making.
15) To the extent that a firm incurs an implicit cost of capital,
e) it will encounter more difficulty determining the optimal quantity to produce.
f) it will earn more of its profit in the future and less in the present.
g) its accounting profit will be less than its economic profit.
h) its economic profit will be less than its accounting profit.
16) Matt estimates the marginal benefit of eating one slice of pizza at $3. The marginal
benefit of the 2nd slice is $2, the marginal benefit of the third slice is $1, and the
marginal benefit of the 4th slice is $0. If the price is $1.50 per slice, to maximize his net
benefit Matt should eat
i) 2 slices.
j) 3 slices.
k) 1 slice.
l) 4 slices.
17) How do people maximize net gains from decisions they make?
a) By pursuing an activity until marginal cost equals marginal benefit.
b) By including sunk costs as a relevant cost in all decisions.
c) By choosing to participate only in activities with increasing marginal benefits.
d) By choosing to participate only in activities without costs.
18) An individual wants to maximize her net gains from working. She estimates that the 12th
hour of work per week yields monetary and nonmonetary benefits of $10, but involves $9
in additional costs. She should
a) work the 12th hour only if she can negotiate a higher wage for that hour.
b) work for only 11 hours per week, since the 12th hour yields such a small net gain.
c) work for only 11 hours since it doesn't make sense to undertake work that has positive
costs associated with it.
d) definitely work the 12th hour since doing so raises her net gain from working.
19) The principle of marginal analysis is useful when
a) trying to find ways to minimize costs.
b) trying to convince others that a certain activity is beneficial to them.
c) trying to find ways to further income equality.
d) trying to make decisions that maximize net gains.
20) When the implicit cost of capital is positive,
a) then the firm's explicit costs will be zero.
b) then the firm is incurring no opportunity costs.
c) then the firm's economic profit will be less than its accounting profit.
d) then the firm's accounting profit will be less than its economic profit.
21) In order to maximize net gains from an activity, a person should choose the quantity at
which
a) marginal benefit is equal to marginal cost.
b) marginal benefit exceeds marginal cost by the greatest amount.
c) marginal benefit is zero.
d) marginal cost is lowest.