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 (ovens) 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 Jill Johnson’s restaurant pays $800 per week for pizza ovens and $650 per week for each worker, what is the total cost per week if she employs 3 workers?

Accepted Answer

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

Question 5

The law of diminishing returns states that:

Accepted Answer

Adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline.

Question 6

Which equation correctly represents the marginal product of labor ($MPL$)?

Accepted Answer

$MPL = \frac{\Delta Q}{\Delta L}$

Question 7

If the marginal product of the third worker 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 8

Which of the following best describes the shape of the average total cost (ATC) curve in the short run?

Accepted Answer

U-shaped, due to initially falling and then rising average total costs.

Question 9

A firm experiences economies of scale when:

Accepted Answer

Long-run average costs decrease as output increases.

Question 10

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

Accepted Answer

All inputs are variable, and firms can adopt new technology.

Question 11

Suppose a car company increases its factory size and output, but its long-run average cost per car rises. This is an example of:

Accepted Answer

Diseconomies of scale.

Question 12

Which formula correctly calculates average fixed cost ($AFC$)?

Accepted Answer

$AFC = \frac{FC}{Q}$

Question 13

If marginal cost ($MC$) is below average total cost ($ATC$), what happens to $ATC$ as output increases?

Accepted Answer

$ATC$ decreases.

Question 14

A firm’s total cost ($TC$) is $5,000$ when producing $1,000$ units. If the fixed cost ($FC$) is $2,000$, what is the average variable cost ($AVC$)?

Accepted Answer

$AVC = \frac{TC - FC}{Q} = \frac{5,000 - 2,000}{1,000} = 3$

Question 15

Which of the following is NOT a reason why large firms may experience economies of scale?

Accepted Answer

Difficulty in managing and coordinating a large operation.

Question 16

If a firm’s long-run average cost remains unchanged as it increases output, the firm is experiencing:

Accepted Answer

Constant returns to scale.

Question 17

Which of the following best describes an explicit cost?

Accepted Answer

A cost that involves a direct monetary payment.

Question 18

A technological change that allows a firm to produce more output with the same inputs is called:

Accepted Answer

A positive technological change.

Question 19

Which of the following is true about the relationship between marginal cost ($MC$) and average total cost ($ATC$)?

Accepted Answer

$MC$ intersects $ATC$ at the minimum point of the $ATC$ curve.

Question 20

Suppose a firm’s production function exhibits increasing marginal returns to labor for the first few workers hired. What is the most likely explanation?

Accepted Answer

Specialization and division of labor increase productivity.

Technology, Production, and Costs: Microeconomics Study Guide

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