Question 1

Which of the following best describes the opportunity cost of attending a free seminar when your best alternative is to attend a $$40 talk by Warren Buffett, which you value at 100$$?

Accepted Answer

The net benefit you forgo, which is $$100 (value) - 40 ($$cost) = $60.

Question 2

A sunk cost is best defined as:

Accepted Answer

A past expenditure that cannot be recovered.

Question 3

Which equation correctly represents the total cost ($$C) in $$the short run?

Accepted Answer

$$C = VC + F$$

Question 4

If the marginal cost ($$MC) of $$producing an additional unit is less than the average cost ($$AC$$), what happens to $$AC as $$output increases?

Accepted Answer

$$AC$$ decreases.

Question 5

Given the cost function $$C = wL + rK$$, what does the slope of the isocost line represent?

Accepted Answer

The ratio of the price of labor to the price of capital ($$-w/r).$$

Question 6

Suppose a firm faces a specific tax of $10 per unit produced. How does this affect the firm's cost curves?

Accepted Answer

It shifts both the average variable cost and marginal cost curves upward by $10.

Question 7

In the long run, which of the following is true about fixed costs ($$F$$)?

Accepted Answer

$$F is $$zero because all costs are variable.

Question 8

If the marginal product of labor ($$MPL) $$decreases while the wage rate ($$w) $$remains constant, what happens to marginal cost ($$MC$$)?

Accepted Answer

$$MC$$ increases.

Question 9

Which rule states that cost is minimized when the last dollar spent on each input yields the same marginal product?

Accepted Answer

Last-dollar rule

Question 10

A firm experiences economies of scale if:

Accepted Answer

Average cost decreases as output increases.

Question 11

If a firm’s production function is fixed-proportions and it takes one unit of labor and one unit of capital to produce one unit of output, what is the long-run cost function?

Accepted Answer

$$C = (w + r)q$$

Question 12

Which of the following best describes 'learning by doing'?

Accepted Answer

The increase in productivity as workers and managers gain experience.

Question 13

A firm is considering producing two goods jointly. If the total cost of producing both together is less than producing them separately, this is an example of:

Accepted Answer

Economies of scope

Question 14

If the wage rate ($$w) $$falls while the rental rate of capital ($$r) $$remains constant, what happens to the slope of the isocost line?

Accepted Answer

It becomes flatter.

Question 15

Which of the following is NOT included in economic cost?

Accepted Answer

Future expected profits

Question 16

Suppose a firm’s average variable cost ($$AVC) is $$given by $$AVC = w/APL. If $$the average product of labor ($$APL) $$increases, what happens to $$AVC$$?

Accepted Answer

$$AVC$$ decreases.

Question 17

A lump-sum franchise tax will:

Accepted Answer

Shift the average cost curve upward but not change the output at which $$AC is $$minimized.

Question 18

Which of the following is true about the long-run average cost curve ($$LRAC$$)?

Accepted Answer

$$LRAC is $$the envelope of the short-run average cost curves.

Question 19

If a firm moves production abroad where both the wage rate and the cost of capital are halved, what happens to the cost of producing the same output?

Accepted Answer

The cost is halved.

Question 20

Which of the following is a real-world example of a sunk cost?

Accepted Answer

The cost of a non-refundable advertising campaign.

Production Costs in Microeconomics: Short-Run and Long-Run Analysis

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