Q: A firm’s total cost is given by $$TC = FC + VC$$, where $$FC is $$fixed cost and $$VC is $$variable cost. If $$FC = 800$$ and $$VC = 650 \times L$$, where $$L is $$the number of workers, what is the total cost when 3 workers are hired?

$$TC = 800 + 650 \times 3 = 2,750$$

Question 1

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

Accepted Answer

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

Question 2

Suppose a pizza restaurant can hire more workers but cannot change the number of ovens in the next month. This scenario is an example of:

Accepted Answer

The short run, because at least one input is fixed.

Question 3

Which of the following is an example of an implicit cost for a business owner?

Accepted Answer

The salary the owner could have earned working elsewhere.

Question 4

If the marginal product of labor is decreasing as more workers are hired, which economic principle is being illustrated?

Accepted Answer

Law of diminishing returns

Question 5

A firm’s total cost is given by $$TC = FC + VC$$, where $$FC is $$fixed cost and $$VC is $$variable cost. If $$FC = 800$$ and $$VC = 650 	imes L$$, where $$L is $$the number of workers, what is the total cost when 3 workers are hired?

Accepted Answer

$$TC = 800 + 650 	imes 3 = 2,750$$

Question 6

Which of the following best describes the relationship between marginal cost (MC) and average total cost (ATC)?

Accepted Answer

When $$MC is $$above $$ATC$$, $$ATC is $$rising.

Question 7

If a firm’s average fixed cost (AFC) is $$2$$ and its average variable cost (AVC) is $$5 at a $$certain output level, what is its average total cost (ATC) at that output?

Accepted Answer

$$ATC = 7$$

Question 8

Which of the following is most likely to be a variable cost for a pizza restaurant in the short run?

Accepted Answer

Wages paid to hourly workers

Question 9

Suppose the marginal product of the third worker hired is less than the average product of the first two workers. What happens to the average product when the third worker is hired?

Accepted Answer

The average product decreases.

Question 10

A firm experiences economies of scale when:

Accepted Answer

Long-run average total cost decreases as output increases.

Question 11

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

Accepted Answer

Marginal cost first falls due to increasing returns, then rises due to diminishing returns.

Question 12

If a technological change allows a firm to produce more output with the same inputs, this is an example of:

Accepted Answer

A positive technological change

Question 13

Which of the following is true about costs in the long run?

Accepted Answer

All costs are variable.

Question 14

Suppose Jill Johnson’s restaurant has fixed costs of $$800 per week and hires 4 workers at 650 $$each per week. What is the average fixed cost if the restaurant produces 1,000 pizzas per week?

Accepted Answer

$$AFC = 800 / 1,000 = 0.80$$

Question 15

Which of the following scenarios best illustrates the law of diminishing returns?

Accepted Answer

A restaurant hires more cooks, but each additional cook adds less to total output than the previous one.

Question 16

If the marginal cost of producing the 101st pizza is $$5 and the average total cost of producing 100 pizzas is 4.80$$, what will happen to the average total cost if the 101st pizza is produced?

Accepted Answer

Average total cost will increase.

Question 17

Which of the following is NOT an explicit cost?

Accepted Answer

The value of the owner’s time spent working elsewhere

Question 18

A firm’s production function shows:

Accepted Answer

The relationship between the inputs employed and the maximum output that can be produced.

Question 19

Which of the following best describes diseconomies of scale?

Accepted Answer

Long-run average total cost increases as output increases.

Technology, Production, and Costs: Microeconomics Chapter 11 Study Guide

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