Question

1. How are marginal and average product related graphically to marginal and average variable cost?

a. They are mirror images of each other.

b. The maximums of the product curves are the minimum of the cost curves.

c. As marginal and average product increase the respective cost curves decrease.

d. All of the above.

2 How can long-run total cost be calculated?

a. Multiplying average costs by output.

b. Adding positive total fixed costs to total variable costs.

c. Multiplying average fixed costs by output.

d. None of the above.

3.When do we have economies of scale?

a. When increasing all inputs leads to a larger proportional increase in output and long-run average costs are decreasing.

b. When increasing all inputs leads to a smaller proportional increase in output and long-run average costs are increasing.

c. When increasing all inputs leads to a constant proportional increase in output and long-run average costs are constant.

d. None of the above.

4. What is the optimal firm size from a cost perspective?

a. Where the long-run average cost curve is flat.

b. Where the firm is experiencing economies of scale.

c. It will not depend on the industry.

d. None of the above.

5. How do firms maximize profit?

a. By setting the quantity where market demand equals the sum of marginal cost curves.

b. Always set quantity where marginal revenue is equal to marginal cost regardless of price.

c. Set quantity where marginal revenue is equal to marginal cost if price is above average variable cost.

d. The firm will always produce a positive amount.

Answer 1

1> d. All of the above.

Reason

As the average product increase, the cost associated with it decreases, thus it can be thought of as mirror image of each other,

2> b. Adding positive total fixed costs to total variable costs.

Reason

In the long run, the most efficient method of production is used.

3> a. When increasing all inputs leads to a larger proportional increase in output and long-run average costs are decreasing.

This is true by definition

4> a. Where the long-run average cost curve is flat.

Reason

Where this happens, one can not increase or decrease outcome to increase efficiency.