Question 1

Which of the following best describes the law of diminishing returns in the context of a pizza restaurant hiring more workers?

Accepted Answer

Each additional worker eventually contributes less to output than the previous worker.

Question 2

A firm’s production function shows:

Accepted Answer

The relationship between the inputs employed and the maximum output of the firm.

Question 3

If a graphic T-shirt business has fixed costs of $100 and hires 3 workers at $20 each to produce 82 shirts, what is the total cost (TC)?

Accepted Answer

$160

Question 4

Which formula correctly calculates average total cost (ATC) in the short run?

Accepted Answer

$ATC = \frac{TC}{Q}$

Question 5

In the short run, which of the following is true about fixed costs?

Accepted Answer

Fixed costs remain constant regardless of output.

Question 6

A firm’s marginal cost (MC) is defined as:

Accepted Answer

The change in total cost resulting from a one-unit increase in output.

Question 7

If a firm’s total cost increases from $140 to $160 when output increases from 70 to 82 shirts, what is the marginal cost (MC) of producing these additional shirts?

Accepted Answer

$MC = \frac{160 - 140}{82 - 70} = \frac{20}{12} \approx 1.67$

Question 8

Which of the following best describes economies of scale?

Accepted Answer

Average total cost falls as output increases.

Question 9

A variable factor of production is:

Accepted Answer

An input that can be changed in a certain period of time and changes if the level of output changes.

Question 10

Which of the following is an example of an implicit cost?

Accepted Answer

The foregone salary from choosing to run your own business instead of working elsewhere.

Question 11

In the long run, all costs are:

Accepted Answer

Variable.

Question 12

If a firm experiences diseconomies of scale, what happens as output increases?

Accepted Answer

Average total cost increases.

Question 13

Suppose a pizza restaurant hires a third worker and output increases from 450 to 550 pizzas per week. What is the marginal product of the third worker?

Accepted Answer

100 pizzas

Question 14

Which equation correctly expresses total cost (TC) in terms of fixed cost (FC) and variable cost (VC)?

Accepted Answer

$TC = FC + VC$

Question 15

If a firm’s average fixed cost (AFC) is $2 and average variable cost (AVC) is $3 for a given output, what is the average total cost (ATC)?

Accepted Answer

$ATC = AFC + AVC = 2 + 3 = 5$

Question 16

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

Accepted Answer

Diminishing returns cause average variable cost to rise after a certain point.

Question 17

A firm’s technology is defined as:

Accepted Answer

The process by which a firm turns inputs into outputs.

Question 18

If a firm produces zero output, but has $100 in fixed costs, what is its total cost?

Accepted Answer

$100

Question 19

Which of the following is true about the marginal cost curve in the short run?

Accepted Answer

It is initially downward sloping due to specialization, then upward sloping due to diminishing returns.

Question 20

Suppose a firm’s total cost is $220 when producing 96 shirts. What is the average total cost (ATC)?

Accepted Answer

$ATC = \frac{220}{96} \approx 2.29$

Production and Costs: Microeconomics Study Notes

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