Multiple Choice Questions:
1. Which of the following is always true?
a. When marginal cost is less than average total cost, average total cost is increasing.
b. When average fixed cost is falling, marginal cost must be less than average fixed cost.
c. When average variable cost is falling, marginal cost must be greater than average variable cost.
d. When marginal cost is greater than average total cost, average total cost is increasing.
2. When marginal product is increasing,
a. Marginal cost is increasing.
b. Marginal cost is decreasing.
c. Average variable cost is increasing.
d. Average total cost is increasing.
e. Total cost is decreasing.
3. If a taxi service is operating in the region of diminishing marginal product and more taxi service is added in the short run, what will happen to the marginal cost of providing the additional service?
a. It is impossible to say anything about marginal cost with the information provided.
b. Marginal cost will decrease.
c. Marginal cost will increase.
d. Marginal cost will stay the same.
4. If the Burger Hut’s city permit to operate rose by $3,000 per year,
a. Its MC curve would shift upward.
b. Its AVC curve would shift upward.
c. Its ATC curve would shift upward.
d. Its MC, AVC, and ATC curves would shift upward.
5. If a firm’s ATC is falling in the long run, then
a. It is subject to economies of scale over that range of output.
b. It is subject to diseconomies of scale over that range of output.
c. It is subject to constant return to scale over that range of output.
d. It has reached the minimum efficient scale of production.
e. Both c and d are true.
6. In the long run,
a. The average fixed cost curve is U-shaped.
b. Average fixed cost exceeds the average variable cost of production.
c. All costs are variable.
d. All costs are fixed.
e. None of the above is correct.
7. When a firm experiences economies of scale in production,
a. Long-run average total cost declines as output expands.
b. Long-run average total cost increases as output expands.
c. Marginal cost increases as output expands.
d. The marginal product of an input diminishes with increased utilization.
8. The lowest level of output at which a firm’s goods are produced at minimum long-run average total cost is called
a. The point of zero marginal cost.
b. The point of diminishing returns.
c. The minimum total product.
d. The minimum efficient scale.
e. Plant capacity.