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1 | |
The law of diminishing returns: |
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| | A) | Only applies in the long run. |
| | B) | Shows that output can always be expanded by adding more of the variable input. |
| | C) | States that after a point, each additional unit of a variable input produces less than the previous unit. |
| | D) | A and C. |
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2 | |
In the short run as output is increased more variable inputs are added to a given amount of fixed inputs. After some point, we expect: |
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| | A) | Essentially no change in average fixed costs. |
| | B) | Average variable cost to stop falling and to begin rising. |
| | C) | Average total cost to stop rising and begin falling. |
| | D) | Marginal cost to continue its decline throughout all ranges of output. |
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3 | |
A firm's marginal cost of production is: |
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| | A) | Its total cost of production divided by total output. |
| | B) | The change in average cost of production divided by the level of output. |
| | C) | The change in total cost incurred as a result of producing one more unit of output. |
| | D) | The cost incurred by the firm even if no output is produced. |
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4 | |
If a firm incurs a total cost of £874 when it produces 10 units of output and a total cost of £950 when it produces 11 units of output, the marginal cost is: |
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| | A) | 1824 |
| | B) | 950 |
| | C) | 54 |
| | D) | 76 |
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5 | |
Which one of the following costs will probably not change as more output is produced? |
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| | A) | The interest paid on money borrowed by the firm. |
| | B) | The total amount of wages paid for labour. |
| | C) | The electricity used to operate the plant's machines. |
| | D) | The employer's contribution to the workers' social security programme. |
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6 | |
Firms produce in the short run and sometimes in the long run. For a firm, the short run is that period of time: |
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| | A) | When all factors of production are variable. |
| | B) | When at least one input is fixed. |
| | C) | That lasts at least one year. |
| | D) | When its plant size can be adjusted. |
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7 | |
In the long run, the typical firm: |
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| | A) | Has all inputs fixed except one. |
| | B) | Has only variable inputs. |
| | C) | May change some but not all of its inputs. |
| | D) | Is not concerned with its variable costs of production. |
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8 | |
The U-shaped long-run average cost curve shows: |
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| | A) | The per unit cost of producing different levels of output over the long run. |
| | B) | The range of output over which a firm experiences increasing returns to scale. |
| | C) | The range of output over which the firm experiences constant returns to scale. |
| | D) | The range of output over which returns to scale are decreasing. |
| | E) | All of the above. |
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9 | |
Which one of the following is not an explanation for the presence of economies of scale? |
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| | A) | As a firm gets larger, it becomes more specialised in the production of output. |
| | B) | As a firm gets larger, management becomes too bureaucratic. |
| | C) | As a firm gets larger, it can use better and more efficient capital equipment. |
| | D) | As a firm gets larger, it can spread its fixed factors of production over more units of output. |
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10 | |
Which one of the following expressions is incorrect? |
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| | A) | AVC = ATC - AFC |
| | B) | AFC = ATC + AVC |
| | C) | ATC = AVC + AFC |
| | D) | AFC = ATC - AVC |
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11 | |
Small firms are always less efficient than large firms. |
|
| | A) | TRUE |
| | B) | FALSE |
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12 | |
A firm will close down in the short run if price is less than average total costs. |
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| | A) | TRUE |
| | B) | FALSE |
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13 | |
In the short run employing more workers will lead to rising marginal costs. |
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| | A) | TRUE |
| | B) | FALSE |
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14 | |
Fixed costs fall as output increases. |
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| | A) | TRUE |
| | B) | FALSE |
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15 | |
If workers are equally productive, the marginal product of labour is constant. |
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| | A) | TRUE |
| | B) | FALSE |
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16 | |
Economies of scale are associated with _________ average total costs. |
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| | A) | Rising |
| | B) | Falling. |
| | C) | Constant |
| | D) | Growing |
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17 | |
If fixed costs are £50, average variable costs are £2, the price is £3 and the firm is producing 30 units, then the loss made by the firm is _________. |
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| | A) | 50 |
| | B) | 90 |
| | C) | 60 |
| | D) | 20 |
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18 | |
A bus operator can gain economies of scale from a bus because of _________. |
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| | A) | Specialisation |
| | B) | Improved Capital |
| | C) | Indivisibilities |
| | D) | Contribution to fixed costs. |
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19 | |
The difference between the total cost at successive units of output is the _________. |
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| | A) | Fixed Cost |
| | B) | Marginal cost |
| | C) | Average cost |
| | D) | Variable cost |
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20 | |
Total revenue minus total variable costs equals the _______ to fixed costs. |
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| | A) | Contribution |
| | B) | Ratio |
| | C) | Returns |
| | D) | Average |