Economics of Production and Output

1. The main difference between the short run and the long run is that:

• A) firms earn zero profits in the long run.
• B) the long run always refers to a time period of one year or longer.
• C) in the short run, one or more inputs are fixed.
• D) in the long run, only one variable can be fixed.

2. At the level of output where marginal cost equals average variable cost:

• A) average total cost is decreasing.
• B) average variable cost is decreasing.
• C) marginal cost equals average total cost.
• D) marginal cost is decreasing.

3. If the average variable cost is $74 and total fixed cost is $100 at 5 units of output, then average total cost at this output level is:

• A) $91.
• B) $94.
• C) $97.
• D) $100.

4. If the marginal cost exceeds the average variable cost, then:

• A) average variable cost must be increasing.
• B) average total cost must be increasing.
• C) average fixed costs must be increasing.
• D) marginal cost must be decreasing.

5. At an output level of 50 units per day, a firm has average total costs of $60 and Economics of Production and Output by civilization

• A) $925.
• B) $1,250.
• C) $1,750.
• D) $3,000.

6. If the long-run average total cost decreases as output increases, this is due to:

• A) declining average fixed costs.
• B) economies of scale.
• C) the law of diminishing returns.
• D) externalities.

7. At an output of 20,000 units per year, a firm’s variable costs are $80,000 and its average fixed costs are $3. The total costs per year for the firm are:

• A) $80,000.
• B) $100,000.
• C) $140,000.
• D) $240,000.

Use the following to answer questions 9-10: Assume that the only variable resource used to produce output is labor.

8. Diminishing marginal returns set in with the addition of the:

• A) first unit of labor.
• B) third unit of labor.
• C) the second unit of labor.
• D) fourth unit of labor.

9. Refer to the above table. The marginal product of the fourth unit of labor is:

• A) 4 units of output.
• B) 8 units of output.
• C) 6 units of output.
• D) 30 units of output.

10. Which is not a fixed cost?

• A) monthly rent of $1,000 contractually specified in a one-year lease
• B) an insurance premium of $50 per year, paid last month
• C) an attorney’s retainer of $50,000 per year
• D) a worker’s wage of $15 per hour

11. The total variable cost of producing 35 units of output is:

• A) $90.
• B) $120.
• C) $160.
• D) $210.

12. Refer to the above table. If the output is zero, the total cost is:

• A) $90.
• B) $50.
• C) $40.
• D) $0.

13.  As output increases, average fixed costs:

• A) increase.
• B) remain constant.
• C) decrease.
• D) first increase and then decrease.

14. America Aniline’s cost of delivering Internet access to each additional user has fallen over time because:

• A) of constant returns to scale.
• C) of economies of scale.
• B) of minimum efficient scale.
• D) it is a natural monopoly.