Question 1

Which of the following best describes 'technology' in the context of microeconomics?

Accepted Answer

The processes a firm uses to turn inputs into outputs of goods and services.

Question 2

A bakery implements a new inventory management system that allows it to produce the same number of loaves with fewer workers. This is an example of:

Accepted Answer

Technological change.

Question 3

In the short run, which of the following is most likely to be a fixed input for a car manufacturer?

Accepted Answer

The size of the factory.

Question 4

Which equation correctly represents the relationship between total cost, fixed cost, and variable cost?

Accepted Answer

$$TC = FC + VC$$

Question 5

A restaurant owner gives up a $50,000 salary to run her own business. This is an example of:

Accepted Answer

An implicit cost.

Question 6

If a firm’s total cost increases from $$2,000 to 2$$,500 when output increases from 400 to 500 units, what is the marginal cost of the 500th unit?

Accepted Answer

$$MC = \frac{2,500 - 2,000}{500 - 400} = 50$$

Question 7

The law of diminishing returns states that:

Accepted Answer

As more of a variable input is added to a fixed input, the marginal product of the variable input will eventually decrease.

Question 8

Which of the following formulas correctly calculates average variable cost?

Accepted Answer

$$AVC = \frac{VC}{Q}$$

Question 9

Suppose a firm’s marginal cost is below its average total cost. What will happen to the average total cost as output increases?

Accepted Answer

Average total cost will decrease.

Question 10

A firm’s long-run average cost curve is downward sloping when:

Accepted Answer

The firm is experiencing economies of scale.

Question 11

If a pizza shop’s fixed cost is $800 per week and it produces 400 pizzas per week, what is its average fixed cost?

Accepted Answer

$$AFC = \frac{800}{400} = 2$$

Question 12

Which of the following best explains why the average total cost curve is U-shaped in the short run?

Accepted Answer

Because of the law of diminishing returns.

Question 13

A firm is producing at a point where its long-run average cost is rising as output increases. This firm is experiencing:

Accepted Answer

Diseconomies of scale.

Question 14

If the marginal product of labor is calculated as $$MPL = \frac{\Delta Q}{\Delta L}$$, what is the marginal product of labor when output increases from 450 to 600 as the number of workers increases from 2 to 3?

Accepted Answer

$$MPL = \frac{600 - 450}{3 - 2} = 150$$

Question 15

Which of the following is NOT a property of the family of cost curves (MC, ATC, AVC) in the short run?

Accepted Answer

As output increases, AFC gets larger and larger.

Question 16

A firm’s explicit costs include which of the following?

Accepted Answer

The wages paid to employees.

Question 17

Suppose a firm’s total cost is $$4,000 when producing 500 units and 4$$,600 when producing 600 units. What is the marginal cost of producing the 600th unit?

Accepted Answer

$$MC = \frac{4,600 - 4,000}{600 - 500} = 60$$

Question 18

Which of the following statements about the long run is correct?

Accepted Answer

All inputs are variable.

Question 19

If a firm’s average total cost is $$10 and its average variable cost is 7 at a $$certain level of output, what is its average fixed cost at that output?

Accepted Answer

$$AFC = ATC - AVC = 10 - 7 = 3$$

Question 20

Which of the following best describes minimum efficient scale?

Accepted Answer

The level of output at which all economies of scale are exhausted.

Chapter 11: Technology, Production, and Costs – Microeconomics Study Notes

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