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ECON 511 Revision Questions On CH 7

Diminishing returns start when marginal product starts decreasing, which is after the third worker since MPL is highest for the third worker. Therefore, diminishing returns start after the third worker.

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88 views

ECON 511 Revision Questions On CH 7

Diminishing returns start when marginal product starts decreasing, which is after the third worker since MPL is highest for the third worker. Therefore, diminishing returns start after the third worker.

Uploaded by

SZA
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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A general remark on these solutions: Please, never take them for granted.

Always read and think critically. You may have a better solution for the same
question. Let us always have your feedback. Good luck.

(1) Changes in the Short Run total costs result from changes in only:
A) Variable costs
B) Fixed costs
C) Historical costs
D) Sunk costs
(2) Which of the following is most likely a fixed cost?
A) Expenditures for raw materials
B) Wages for unskilled labor
C) Fuel cost
D) Rent payments
(3) Average fixed cost
A) Does not change as total output increases or decreases
B) Varies directly with total output
C) Falls continuously as total output expands
D) Rises as the output is expanded.

(4) Average fixed cost is


A) ATC minus AVC. B) TC divided by Q.
C) AVC minus MC. D) TC minus TVC.

(5) When a firm increased its output by one unit, its AFC decreased. This is an indication
that
A) the law of diminishing returns has taken effect.
B) MC < AFC.
C) AVC < AFC.
D) the firm is spreading out its total fixed cost.

(6) The relationship between MC and AC can best be described as follows:


A) when AC increases, MC starts to increase.
B) when MC increases, AC starts to increase.
C) when MC decreases, AC decreases.
D) when MC exceeds AC, AC starts to increase.

(7) The relationship between MC and AC can best be described as follows:


A) When AC increases, MC equals zero.
B) When MC increases, AC is at minimum.
C) MC = AC when MC is at minimum.
D) When MC exceeds AC, AC is increasing
(8) When a firm increased its output by one unit, its AC rose from $45 to $50. This implies
that its MC is
A) $5. B) below $45. C) greater than $50.
D) Cannot be determined from the above information.

(9) MC increases because


A) MC naturally increases as firm nears capacity.
B) labor is paid overtime wages when volume increases.
C) in the short run, MC always increases.
D) the law of diminishing returns takes effect.

(10) The marginal cost will intersect the average variable cost curve
A) when the average variable cost curve is rising.
B) where average variable cost curve equals price.
C) at the minimum point of the average variable cost curve.
D) the two will never intersect.

(11) When a firm increased its output by one unit, its AC decreased. This implies that
A) MC < AC.
B) MC = AC.
C) MC < AFC.
D) the law of diminishing returns has not yet taken effect.
(12) Which of the following holds true?
A) When the Marginal Product (MP) is rising, Marginal cost (MC) is rising; and when MP is
falling, MC is falling.
B) When MP is rising, MC is falling, and when MP is falling, MC is rising.
C) When MP is rising, MC is constant, and when MP is falling, MC is negative
D) There is no relationship between MP and MC.

(13) To an Economist, total costs include:


A) Explicit, but not implicit costs
B) Implicit, but not explicit costs
C) Explicit and implicit costs
D) Neither explicit nor implicit costs

(14) Costs of production that change with the rate of output are:
A) Sunk costs B) Opportunity costs C) Fixed costs D) Variable costs

(15) The relationship between MC and AC can best be described as follows:


A) when AC increases, MC starts to increase.
B) when MC increases, AC starts to increase.
C) when MC decreases, AC decreases.
D) when MC exceeds AC, AC starts to increase

(16) MC increases because


A) MC naturally increases as firm nears capacity.
B) labor is paid overtime wages when volume increases.
C) in the short run, MC always increases.
D) the law of diminishing returns takes effect.

(17) In the long run:


A) Fixed costs tend to be greater than variable costs
B) Variable costs tend to be greater than fixed costs
C) All costs are fixed cots
D) All costs are variable costs
Do as Shown

1. Diminishing returns of the variable input starts when MP = 0. [Rewrite after making
required corrections]
Answer: Diminishing returns of the variable input starts when MP = AP, since this is the
start of having both MP and AP to be falling (stage 2 of production). Notice some books
may say that diminishing returns start when MP starts falling. This is OK too.
2. As Q increases the AVC will typically decrease and eventually it will increase _.
[Complete using: increase, decrease, or remain constant]

Problems

The following table shows the relationship between output and number of workers in the
short run. If the wage is $50/day, find marginal cost of production.

Number Of Workers Output


0 0
1 50
2 110
3 300
4 450
5 590
6 665
7 700
8 725
9 710
10 705
Answer:

Number
Of Workers Output MPL MC (=w/MPL)
0 0 -- --

1 50 50 1.00
2 110 60 0.91
3 300 190 0.26
4 450 150 0.33
5 590 140 0.36
6 665 75 0.67
7 700 35 1.43
8 725 25 2.00
9 710 15 3.33
10 705 -5 --

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