Question 1

Suppose a factory hires more workers, and each additional worker increases output, but eventually, the increase in output from each new worker starts to decline. Which economic principle best explains this phenomenon?

Accepted Answer

Law of Diminishing Marginal Returns

Question 2

If the Marginal Product of Labor (MPL) is at its maximum, what can be said about Marginal Cost (MC)?

Accepted Answer

MC is at its minimum

Question 3

Given the formula for Marginal Cost: $$MC = \frac{\Delta TC}{\Delta Q}$$, if total cost increases by $$50$$ when output increases by $$10$$ units, what is the marginal cost per unit?

Accepted Answer

$$MC = 5$$

Question 4

Why does the Average Fixed Cost (AFC) curve always slope downward as output increases?

Accepted Answer

Because fixed costs are spread over more units

Question 5

Which of the following best describes the relationship between Marginal Product of Labor (MPL) and Marginal Cost (MC) when wage is constant?

Accepted Answer

MC moves in the opposite direction of MPL

Question 6

If $$MC \u003c ATC$$, what happens to Average Total Cost (ATC) as output increases?

Accepted Answer

ATC falls

Question 7

A firm notices that its Average Variable Cost (AVC) curve is U-shaped. What is the main reason for this shape?

Accepted Answer

AVC falls at first due to rising MPL, then rises as MPL falls

Question 8

Which formula correctly expresses the relationship between Marginal Cost (MC), wage (Wage), and Marginal Product of Labor (MPL)?

Accepted Answer

$$MC = \frac{Wage}{MPL}$$

Question 9

If a firm’s fixed cost is $$100$$ and it produces $$20$$ units, what is its Average Fixed Cost (AFC)? Use the formula $$AFC = \frac{FC}{Q}.$$

Accepted Answer

$$AFC = 5$$

Question 10

At what point does the Marginal Cost (MC) curve cross the Average Total Cost (ATC) curve?

Accepted Answer

At the minimum of ATC

Question 11

If the Marginal Cost (MC) of producing an extra unit is higher than the Average Total Cost (ATC), what will happen to ATC?

Accepted Answer

ATC will rise

Question 12

Which of the following best explains why the Marginal Product of Labor (MPL) initially rises as more workers are hired?

Accepted Answer

Specialization and teamwork increase efficiency

Question 13

If a firm’s Average Variable Cost (AVC) is $$10$$ and Average Fixed Cost (AFC) is $$5$$, what is the Average Total Cost (ATC)? Use the formula $$ATC = AVC + AFC.$$

Accepted Answer

$$ATC = 15$$

Question 14

Which of the following scenarios best illustrates the Law of Diminishing Marginal Returns?

Accepted Answer

A bakery hires more bakers, but each new baker adds less to total output than the previous one

Question 15

If the Marginal Cost (MC) curve is below the Average Variable Cost (AVC) curve, what is happening to AVC?

Accepted Answer

AVC is falling

Question 16

A firm’s total cost increases from $$200 to$$ $$260 as $$output increases from $$10 to$$ $$20$$ units. What is the Marginal Cost (MC) per unit? Use $$MC = \frac{\Delta TC}{\Delta Q}.$$

Accepted Answer

$$MC = 6$$

Question 17

Why does the Average Total Cost (ATC) curve eventually rise after falling?

Accepted Answer

Because AVC eventually rises and pushes ATC up

Question 18

Which of the following best describes the shape of the Marginal Product of Labor (MPL) curve?

Accepted Answer

Upside-down U

Question 19

If a firm’s wage rate is $$20$$ and the Marginal Product of Labor (MPL) is $$5$$, what is the Marginal Cost (MC)? Use $$MC = \frac{Wage}{MPL}.$$

Accepted Answer

$$MC = 4$$

Question 20

Which of the following statements is true about the relationship between productivity and cost?

Accepted Answer

Productivity and cost move in opposite directions

Production and Cost Curves: Marginal Product, Marginal Cost, and Average Costs

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