Production and Costs of the Firm Quiz

A  replaces unskilled labor with automated machinery.

B  buys extra machines for its workers to use.

C  allows fixed cost to become variable.

D  retrains Joe the welder as a painter and Pat the painter as a welder.

A  costs per unit decline as output expands.

B  firms always make handsome profits.

C  the government feels responsible for breaking up the firm.

D  costs fall as the size of the product is increased.

A  mortgage on the building

B  worker bonuses

C  electricity

D  steel to produce refrigerators

A  difference between total fixed cost and total variable cost.

B  change in total cost resulting from the production of one more unit of output.

C  difference between total cost and total expenditure.

D  change in total cost resulting from the purchase of one more unit of the variable input.

A  increasing costs per unit of output.

B  increasing returns to scale.

C  decreasing returns to scale.

D  constant returns to scale.

A  declining administrative costs as output increases.

B  falling fixed costs.

C  rising total product.

D  spreading fixed costs over larger outputs and increasing returns to the variable inputs.

A  there are increasing returns to scale in the airline industry.

B  the airline industry has constant returns to scale.

C  airlines are experiencing decreasing returns to scale.

D  the larger airlines are not profitable.

A  total consumer’s surplus.

B  total revenue product.

C  output.

D  marginal physical product times output.

A  is always zero.

B  increases as output increases.

C  remains constant even if the firm shuts down.

D  declines as output increases.

A  property taxes

B  jet fuel

C  rent of airport space

D  insurance

A  depends on the firm’s planning horizon.

B  is a composite of short-run AC curves.

C  shows the lowest possible short-run AC corresponding to each output level.

D  All of these are correct.

A  there is no economic reason to break up large firms that may have some control over the market.

B  many smaller firms would be less-efficient producers.

C  large firms have a concentration of economic power.

D  large firms are less-efficient producers.

A  the firm can maximize its output by operating at the point of minimum long-run average cost.

B  its fixed cost rises as output rises.

C  it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production.

D  it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production.

A  buy more of the higher priced input and less of the lower priced input.

B  reduce its output.

C  change its input mix so that the marginal physical product of the input whose price has risen falls and the marginal physical product of the other input rises.

D  buy less of that input and more of the other input.

A  producer should expand the use of that input.

B  marginal physical product of that input must be below its average physical product.

C  producer should reduce the use of that input.

D  price of the input will automatically rise in a free market.

A  how much the last input added to the total amount of production.

B  how much profit will be made at each level of production.

C  at what point to stop adding inputs to the production process.

D  how much the last input added to the total amount of revenue.

A  input quantity and output price.

B  output quantity and output price.

C  input quantity and input price.

D  output quantity and input price.

A  decreasing returns to scale.

B  increasing long-run average cost.

C  decreasing short-run average variable cost.

D  diminishing returns to labor.