Question

1. Explain how the following event would affect the cost curves:

*Hourly wages for employees increase.*

A) Marginal cost, average variable cost, and average total cost will decrease. Average fixed cost will not change.

B) Marginal cost, average variable cost, and average fixed cost will increase. Average total cost will not change.

C) Marginal cost, average variable cost, and average total cost will increase. Average fixed cost will decrease.

D) Marginal cost, average variable cost, and average total cost will increase. Average fixed cost will not change.

2. Because of the law of diminishing marginal returns, the marginal product curve must eventually

A) decrease

B) increase

C) increase but at a decreasing rate

3. In a perfectly competitive market, the marginal revenue curve for an individual firm is:

A) downward sloping.

B) upward sloping.

C) horizontal.

D) vertical.

4) A firm has a standard shaped, continuous, total cost function. The average total cost (ATC) function is at its lowest point where MC=ATC.

A) True

B) False

5)

Consider a firm that uses capital and labor as inputs and sells 6,000 units of output per year at the going market price of $10. Also assume that total labor costs to the firm are $47,500 annually. Assume further that the total capital stock of the firm is currently worth $100,000, that the return to investors with comparable risk is 15 percent annually, and that there is no depreciation. (Think of this firm like a corporation with shareholders - you do not need to include the opportunity cost of the owner's time.)

What is this firm's economic profit?

A) $2,500

B) $12,500

C) - $87,500 (a loss of $87,500)

D) - $2,500 (a loss of $2,500)

E) $62,500

Answer #1

1 - Option D

Marginal cost , average variable cost and average total cost will increase. Average fixed cost will remain same.

2 - Option A

Decrease

This will denotes the law of diminshing marginal returns

3 - Option C

Horizontal

This is because the price is constant and equal to MR in competitive firm

4 - True

The MC curve intersects the ATC curve at its minimum point

5 - Option D

-2500 (a loss of 2500)

Economic profit = 60000-47500-15000

= 60000-62500

= $ -2500

If average total cost (ATC) curve is always downward sloping,
then
A. marginal cost will cross ATC at its minimum
B. average variable cost will cross ATC at its minimum
C. the firm has economies of scale
D. average fixed cost will cross ATC at its minimum
Given a U-shaped Average Total Cost (ATC) curve
A. Average Fixed costs will always be above ATC
B. Marginal cost will always be below ATC
C. Average variable costs will always be below...

Short Run Cost
1)Why is the ATC U-Shaped?
b)Why is marginal curve upward sloping in the short run ?
c)Where and why does the MC curve cross the ATC curve?
d)Given values for ATC and AVC,how would you determine Fixed
cost (what are the steps necessary to get from the first twoto the
last one )?
e)Given ATC,how would you determine total cost?
f)Graphically show and verbaly explain what the general pattern
of and relationship between fixed cost,variable cost and...

The vertical distance between the average total cost and the
average variable cost curves is:
a.
constant with respect to output.
b.
decreasing with respect to output.
c.
increasing with respect to output.
d.
equal to total fixed costs.
e.
none of the above.
1 points
QUESTION 11
The point at which the SRAC curve is tangent to the LRAC
curve:
a.
represents the most efficient wa to use a given plant.
b.
is always the output where MC=AC....

Short run cost curves:
a. Explain why the marginal cost curve intersects the average
total and variable cost curve at their respective minimum
values:
b. At what point on the ATC will a perfectly competitive firm
always produce in the long run:
c. The supply curve for a perfectly competitive firm is the same
as one of the cost curves based on a specific criterion. State both
the curve and the criterion:

1) A perfectly competitive firm's short-run supply curve is
its:
A. average variable cost curve above the marginal cost
curve.
B. marginal cost curve above the average fixed cost curve.
C. marginal cost curve above the average total cost curve.
D. marginal cost curve above the average variable cost
curve.
2)Economic Profit
A. (per unit) is price minus average variable cost.
B. is correctly described by all of these.
C. as a total amount, is (P - ATC) times quantity....

1:
MC increases because
a.
labor is paid overtime wages when volume increases.
b.
in the short run, MC always increases.
c.
the law of diminishing returns takes effect.
d.
MC naturally increases as firms nears capacity
2:
The marginal cost (MC) will intersect the average variable cost
curve (AVC):
a.
when the average variable cost (AVC) curve is rising
b.
where average variable cost curve (AVC) equals price.
c.
at the minimum point of the average variable cost (AVC)...

Fixed, Variable and marginal Cost Curves:
If the total cost increase, does this change average (total)
costs?, how about average variable costs?

In class we looked at (short run) cost curves.
Explain why the marginal cost curve intersects the average total
and variable cost curves at their respective minimum values:
At what point on the ATC will a perfectly competitive firm
always produce in the long run:
The supply curve for a perfectly competitive firm is the same as
one of the cost curves based on a specific criterion. State both
the curve and the criterion:

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...

a) In the long run in a competitive constant-cost industry
A. A firm’s supply curve is upward sloping but the industry
supply curve is perfectly elastic at the minimum of AVC.
B. firm’s supply curve is upward sloping but the industry supply
curve is perfectly elastic at the minimum of ATC.
C. Both the industry and a firm’s supply curve are perfectly
elastic at the minimum of ATC.
2)Which of the following is correct?
A. In a competitive market buyers...

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