Question

ECON 2106

1.   Short run marginal costs rise because of

(a)        rising prices of variable inputs             

(b)        declining productivity of fixed factors of production

(c)        diminishing marginal productivity of variable inputs     

(d)        reduced incentives to work in large plants

2.   When average total cost is declining as output increases, marginal cost must be

(a)        declining                                  (c)        above average total cost

(b)        below average total cost            (d)        rising

3. Total cost is $30 at 10 units of output and $32 at 11 units of output. In this output range, marginal cost must be

(a)        equal to average total cost                     (c)        less than average total cost

(b)        greater than average total cost               (d)        indeterminate

4. If the difference between ATC and AVC is $1.00 at 100 units of output, then at 200 units of output the difference between ATC and AVC must be

(a)        $2.00                                                   (c)        $0.50

(b)        $1.00                                                   (d)        indeterminate

Use the table below to answer the next 3 questions

Units of Output	Total Fixed Cost	Total Variable Cost
1	$1000	$200
2		450
3		800
4		1350
5		1950

5. Given the cost schedule above, the ATC of producing 4 units is

(a)        $550                                                    (c)        $1000

(b)        $588                                                    (d)        $2350

7. Given the cost schedule above, the TC of producing 3 units of output is

(a)        $800                                                    (c)        $1800

(b)        $1000                                                  (d)        $2800

8. Given the cost schedule above, it can be seen that the MC of the 3rd unit produced is

(a)        $350                                                    (c)        $600

(b)        $550                                                    (d)        $800

9.   AFC is

(a)        constant at all levels of output               (c)        the difference between AVC and ATC

(b)        less than MC when MC is falling           (d)        only important in the long run

10. A firms' short run AVC cost curve is at a minimum at the quantity where

(a)        the AVC is equal to the ATC                 (c)        the AVC is equal to the AFC

(b)        the AVC is equal to the MC                  (d)        the MC is at a minimum

Answer 1

1)   diminishing marginal productivity of variable inputs - because in short run only variable factors like labour can be added to the existing capital and hence increase in labour keeping capital fixed decreases the productivity of the factor of production

2) Below the AC curve. MC cuts the AC from the minimum and AVC is U in shape so when AVC is decreasing MC is below AC

3) less than average cost- since here MC =2 and ATC is 3, 2.909 at P=10 and P=11  

4) indeterminate - AVC can be increasing or decreasing. Because first AVC falls and so ATC keeping AFC fixed and then AFC falls and so the ATC so we cannot determine here the difference between the two.