Question 1

Which of the following best describes the difference between accounting profit and economic profit?

Accepted Answer

Economic profit includes both accounting costs and opportunity costs, while accounting profit only includes explicit costs.

Question 2

A firm pays $$100 per day in wages, 50 $$per day in rent, and the owner forgoes a salary of $80 per day to run the business. What is the firm's economic cost per day?

Accepted Answer

$230

Question 3

In the short run, which of the following is true about factors of production?

Accepted Answer

At least one factor of production is fixed.

Question 4

Given the production function $$Q = Ak$$^{\alpha}$$l^{\beta}$, what does the marginal product of labor represent?

Accepted Answer

The additional output produced by increasing labor by one unit, holding capital constant.

Question 5

If a firm’s total fixed cost (TFC) is $60 and it produces 20 units of output, what is the average fixed cost (AFC)?

Accepted Answer

$3

Question 6

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

Accepted Answer

As more workers are hired, marginal product eventually decreases.

Question 7

A firm’s total cost (TC) is given by $$TC = TVC + TFC. If$$ $$TVC = 120$$ and $$TFC = 60$$, what is the average total cost (ATC) when output $$Q = 30$$?

Accepted Answer

$$6$$

Question 8

Which cost curve is always decreasing as output increases?

Accepted Answer

Average Fixed Cost (AFC)

Question 9

Suppose a firm’s marginal cost (MC) for producing hats is $$MC = \frac{\Delta TC}{\Delta Q}. If $$producing one more hat increases total cost from $$100 to$$ $$120$$, what is the marginal cost of that hat?

Accepted Answer

$$20$$

Question 10

Which of the following statements about long-run average cost (LAC) is correct?

Accepted Answer

LAC is the envelope of all possible short-run average cost curves.

Question 11

If a firm experiences economies of scale, what happens to its long-run average cost (LAC) as output increases?

Accepted Answer

LAC decreases.

Question 12

A firm’s average product of labor is maximized when:

Accepted Answer

Marginal product equals average product.

Question 13

Which of the following is NOT included in the economic cost of production?

Accepted Answer

Revenue from selling goods.

Question 14

If a firm’s total cost (TC) is $$180$$ when producing $$60$$ units, and total fixed cost (TFC) is $$60$$, what is the average variable cost (AVC)?

Accepted Answer

$$2$$

Question 15

Which of the following best describes the minimum efficient scale?

Accepted Answer

The smallest output that minimizes long-run average cost.

Question 16

A firm’s short-run cost function is $$TC = 60 + 2Q. $$What is the marginal cost (MC)?

Accepted Answer

$$2$$

Question 17

Which of the following is a real-world example of an opportunity cost for a restaurant owner?

Accepted Answer

The salary the owner could earn working as a chef elsewhere.

Question 18

If a firm’s average total cost (ATC) is $$5$$ and average variable cost (AVC) is $$3 at a $$certain output, what is the average fixed cost (AFC)?

Accepted Answer

$$2$$

Question 19

Which of the following statements about marginal cost (MC) is correct?

Accepted Answer

MC is the change in total cost divided by the change in output.

Question 20

Suppose a firm can choose between two machines. Machine A has lower average total cost at low output, while Machine B has lower average total cost at high output. What does this illustrate about long-run cost curves?

Accepted Answer

Long-run average cost is the envelope of the lowest short-run average costs for each output level.

Producer Theory: Cost and Production in Microeconomics

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