Quick Quiz


1	A production schedule is given showing the output that is generated in a factory as labour is increased from 1 to 10 units. Labour is the only variable input. The wage rate is given. From this information we could construct
		A)	a total variable cost function.
		B)	a total fixed cost function.
		C)	a marginal cost function.
		D)	two of the above functions.


2	If average total cost is 50, quantity produced is 10 and total fixed cost is 100, what is the total variable cost for the output of 10?
		A)	100
		B)	400
		C)	500
		D)	600
		E)	1000


3	Questions 10-3 to 10-5 refer to the graph below. In the graph below, the ATC and the AVC curves converge as quantity increases because: frank_mci_10-3.gif
		A)	total fixed costs fall as output increases.
		B)	total variable costs rise as output increases but total fixed costs stay constant; thus AFC falls and hence so does the distance between AVC and ATC.
		C)	marginal costs pull up the AVC curve after it reaches its minimum, but do not affect the ATC.
		D)	both b and c are correct.
		E)	all of the above are correct.


4	AVC begins to rise before ATC does because
		A)	AVC is not being pulled down by the declining AFC.
		B)	"diminishing returns" in production affect the ATC but not the AVC.
		C)	the marginal cost curve affects the AVC but not the ATC.
		D)	of all of the above.
		E)	of none of the above.


5	Which of the following statements is not true of the cost curves graphed above?
		A)	The functions are derived from a production function that exhibits increasing and then decreasing marginal productivity of the variable factors.
		B)	Average fixed cost could be derived from the functions shown.
		C)	The ATC includes only explicit accounting costs of production.
		D)	If just the MC were given for each unit of output, then the total variable cost and average variable cost could be calculated.


6	When choosing which plant to use for the production of increased output, which of the following information must one know?
		A)	The ATC function of each plant.
		B)	The AFC function of each plant.
		C)	The MC function of each plant.
		D)	More than one of the above.


7	Based on the isoquant and isocost curve graphed below, where the firm is operating at point A, we can say that frank_mci_10-7.gif
		A)	the firm could produce more without raising cost, by hiring more labour and buying less capital.
		B)	the firm could produce more without raising cost, by buying more capital and hiring less labour.
		C)	the firm could produce the same amount at lower cost by hiring more labour and buying less capital.
		D)	the firm could produce the same amount at lower cost by hiring less labour and buying more capital.
		E)	more than one of the above is correct.


8	In the graph shown in 10-7 above, at point A:
		A)	MPL /MPK = PL/PK.
		B)	MPL/MPK > PL/PK
		C)	MPL/MPK < PL/PK
		D)	MPL/MPK = PK/PL


9	Long run cost curves for a firm
		A)	can be derived from the expansion path of a firm.
		B)	imply an optimal input combination for each output.
		C)	show the lowest possible cost for each possible output quantity.
		D)	are described in part by each one of the above answers.
		E)	are described in part by none of the above answers.


10	Which statement is not true about costs?
		A)	Economies of scale give rise to natural monopolies.
		B)	A small firm producing at the lowest point on its short-run ATC curve may have higher ATC costs than a larger firm producing at outputs less than the lowest point on its short-run ATC.
		C)	If the long run marginal cost for firms in an industry is below the long run average total cost over the entire market output, then diseconomies of scale exist in the cost structure of that industry.
		D)	It is not possible for a firm to be operating efficiently if its short-run ATC curve is not tangent at some point to the long-run ATC.

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