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 increase the number of ovens in the next month. Which period is the firm operating in?

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

A firm’s production function shows:

Accepted Answer

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.

Question 5

If the marginal product of labor is less than the average product of labor, what happens to the average product of labor as more workers are hired?

Accepted Answer

It decreases.

Question 6

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

Accepted Answer

As more of a variable input is added to a fixed input, the marginal product of the variable input eventually declines.

Question 7

Suppose Jill’s pizza restaurant has fixed costs of $$800 per week and variable costs of 650 $$per worker per week. If she hires 3 workers, what is her total cost per week?

Accepted Answer

$2,750

Question 8

Which equation correctly represents marginal cost (MC)?

Accepted Answer

$$ MC = \frac{\Delta TC}{\Delta Q} $$

Question 9

Why does the average total cost (ATC) curve typically have a U-shape?

Accepted Answer

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

Question 10

In the long run, which of the following statements is true?

Accepted Answer

All costs are variable.

Question 11

A firm experiences economies of scale when:

Accepted Answer

Long-run average costs fall as output increases.

Question 12

If a car factory becomes so large that it is difficult to manage and average costs start to rise, the firm is experiencing:

Accepted Answer

Diseconomies of scale.

Question 13

Which of the following is true at the minimum point of the average total cost (ATC) curve?

Accepted Answer

Marginal cost (MC) is equal to average total cost (ATC).

Question 14

Suppose the price of labor increases while the price of capital remains constant. According to the isocost-isoquant analysis, what will happen to the cost-minimizing combination of inputs?

Accepted Answer

The firm will use less labor and more capital.

Question 15

At the cost-minimizing combination of inputs, which of the following must be true?

Accepted Answer

$$ \frac{MP_L}{w} = \frac{MP_K}{r} $$

Question 16

A firm’s expansion path shows:

Accepted Answer

The combinations of inputs that minimize cost for every level of output.

Question 17

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

Accepted Answer

Difficulty in managing large operations.

Question 18

If a firm’s marginal cost (MC) is below its average total cost (ATC), what will happen to ATC as output increases?

Accepted Answer

ATC will fall.

Question 19

Which of the following best describes an isoquant?

Accepted Answer

A curve showing all combinations of two inputs that produce the same level of output.

Question 20

A National Football League (NFL) team is trying to maximize wins given a salary cap. According to economic theory, how should the team allocate its budget?

Accepted Answer

Allocate spending so that the marginal product per dollar spent is equalized across all players.

Ch.11 Technology, Production, and Costs: Microeconomics Study Notes

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