Question 1

For most producing firms:

Accepted Answer

average total costs decline as output is carried to a certain level, and then begin to rise.

Question 2

Which of the following is most likely to be a fixed cost?

Accepted Answer

Property insurance premiums.

Question 3

Which of the following is a short-run adjustment?

Accepted Answer

A local bakery hires two additional bakers.

Question 4

To the economist, total cost includes:

Accepted Answer

explicit and implicit costs.

Question 5

Economies and diseconomies of scale explain:

Accepted Answer

why the firm's long-run average total cost curve is U-shaped.

Question 6

The law of diminishing returns describes the:

Accepted Answer

relationship between resource inputs and product outputs in the short run.

Question 7

(Consider This) If the law of diminishing returns applies to study time:

Accepted Answer

the tenth hour of study will likely be less productive than the third.

Question 8

Normal profit is:

Accepted Answer

the return to the entrepreneur when economic profits are zero.

Question 9

The long-run average total cost curve:

Accepted Answer

indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size.

Question 10

If a firm decides to produce no output in the short run, its costs will be:

Accepted Answer

its fixed costs.

Question 11

In the short run, which of the following statements is correct?

Accepted Answer

Total cost will exceed variable cost.

Question 12

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that:

Accepted Answer

both relatively small and relatively large firms can be viable in the industry.

Question 13

Marginal cost:

Accepted Answer

equals both average variable cost and average total cost at their respective minimums.

Question 14

In the short run:

Accepted Answer

TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.

Question 15

To economists, the main difference between the short run and the long run is that:

Accepted Answer

in the long run all resources are variable, while in the short run at least one resource is fixed.

Question 16

Fixed cost is:

Accepted Answer

any cost that does not change when the firm changes its output.

Question 17

In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs:

Accepted Answer

are $1,250.

Question 18

The vertical distance between a firm's ATC and AVC curves represents:

Accepted Answer

AFC, which decreases as output increases.

Question 19

Diseconomies of scale arise primarily because:

Accepted Answer

of the difficulties involved in managing and coordinating a large business enterprise.

Question 20

An explicit cost is:

Accepted Answer

a money payment made for resources not owned by the firm itself.

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