CFO Mic12 TB 08

Principles of Microeconomics, 12e, Global Edition (Case/Fair/Oster)
Chapter 8 Short‐Run Costs and Output Decisions
8.1 Costs in the Short Run
1) In the short run

A) existing firms do not face limits imposed by a fixed input.
B) all firms have costs that they must bear regardless of their output.
C) new firms can enter an industry.
D) existing firms can exit an industry.
Answer: B
Diff: 1
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro‐9
2) Which type of cost does not depend on a firmʹs output?

A) fixed cost
B) variable cost
C) total cost
D) marginal cost
Answer: A
Diff: 1
Skill: Conceptual
3) Which type of cost does depend on a firmʹs output?

A) variable cost
B) total cost
C) marginal cost
D) all of the above
Answer: D
Diff: 1
Skill: Conceptual
1
Copyright © 2017 Pearson Education, Ltd.
4) Economists usually assume that ________ is a fixed input in the ________ run.
A) labor; short
B) capital; short
C) labor; long
D) capital; long
Answer: B
Diff: 1
Skill: Fact
5) Total variable cost ________ as output increases, and total fixed cost ________ as output increases.
A) increases; increases
B) increases; decreases
C) increases; does not change
D) does not change; does not change
Answer: C
Diff: 1
Skill: Fact
6) The formula for total fixed cost is

A) TFC = TC + TVC.
B) TFC = TVC ‐ TC.
C) TFC = TC/TVC.
D) TFC = TC ‐ TVC.
Answer: D
Diff: 1
Skill: Definition
7) Total cost is calculated as

A) the sum of total fixed cost and total variable cost.
B) the product of average total cost and price.
C) the sum of all the firmʹs explicit costs.
D) the sum of average fixed cost and average variable cost.
Answer: A
Diff: 1
Skill: Definition
2
8) The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000.
The Lawn Rangerʹs total fixed costs are
A) $0.
B) $3,000.
C) $5,000.
D) indeterminate because the firmʹs output level is not known.
Answer: B
Diff: 2
Skill: Analytical
AACSB: Analytical Thinking
9) The Lawn Ranger, a landscaping company, has total costs of $5,000 and total fixed costs of $3,000. The
Lawn Rangerʹs total variable costs are
A) $2,000.
B) $3,000.
C) $5,000.
Answer: A
Diff: 2
Skill: Analytical
10) The Farley Farm, a dairy company, has total costs of $15,000 and total variable costs of $2,000. The
Farley Farmʹs total fixed costs are
A) $0.
B) $13,000.
C) $17,000.
Answer: B
Diff: 2
Skill: Analytical
11) Wilburʹs Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total
variable cost is $300. What is the total cost of producing 100 widgets?
A) $300
B) $305
C) $500
D) $800
Answer: D
Diff: 2
Skill: Analytical
3
12) Amy spends $5,000 on remodeling a storefront that she then opens as a take‐out deli. Business has not
been very successful, and she needs an additional $1,000 to keep the deli open. Which of the following is
true?
A) The $5,000 Amy spent on remodeling represents a part of the total variable cost of her business.
B) The $5,000 Amy spent is a fixed cost of her business.
C) The $1,000 represents her marginal costs of production.
D) The $1,000 Amy needs to keep the deli open represents her total fixed costs.
Answer: B
Diff: 2
Skill: Analytical
13) Dana spends $10,000 on remodeling a storefront that she then opens as a shoe store. The business has
not been very successful, and she needs an additional $3,000 to keep the shoe store open. Which of the
following is true?
A) The $10,000 Dana spent on remodeling represents a part of the total variable cost of her business.
B) The $3,000 represents her marginal costs of production.
C) The $10,000 Dana spent on remodeling is a fixed cost of her business.
D) The $3,000 Dana needs to keep the deli open represents her total fixed costs.
Answer: C
Diff: 2
Skill: Analytical
14) Firms have ________ over their ________ costs in the short run.
A) control; fixed
B) no control; fixed
C) control; overhead
D) no control; variable
Answer: B
Diff: 1
Skill: Conceptual
15) The formula for average fixed costs is

A) TFC ‐ q.
B) TFC/q.
C) q/TFC.
D) Δq/ΔTFC.
Answer: B
Diff: 1
Skill: Definition
4
16) Average fixed costs
A) are the costs associated with producing an additional unit of output.
B) provide a per unit measure of costs.
C) fall as output rises.
D) reach their minimum at the output level where the average fixed cost curve is intersected by the
marginal cost curve.
Answer: C
Diff: 1
Skill: Conceptual
Refer to the information provided in Figure 8.1 below to answer the question(s) that follow.
Figure 8.1
17) Refer to Figure 8.1 above. The total fixed costs for Cyndyʹs Floral Arrangements are $1,000. If Cyndyʹs
Floral Arrangements produces 200 silk flower arrangements, the average fixed costs are
A) $0.20.
B) $5.
C) $20.
D) $200.
Answer: B
Diff: 2
Skill: Analytical
5
18) Refer to Figure 8.1 above. If Cyndyʹs Floral Arrangements produces 100 silk flower arrangements, the
average fixed costs are
A) $0.10.
B) $10.
C) $1,000.
D) There is not enough information in the graph to answer this question.
Answer: B
Diff: 2
Skill: Analytical
Figure 8.2
19) Refer to Figure 8.2 above. The total fixed costs for The Barber Shop are $3,000. If The Barber Shop
produces 300 haircuts, the average fixed costs are
A) $0.20.
B) $5.
C) $10.
D) $100.
Answer: C
Diff: 2
Skill: Analytical
6
20) Refer to Figure 8.2 above. If The Barber Shop produces more than 300 haircuts, the average fixed costs
are
A) < $10.
B) $10.
C) > $10.
D) There is not enough information in the graph to answer this question.
Answer: A
Diff: 2
Skill: Analytical
21) As output increases, average fixed costs

A) decrease.
B) initially decrease and then increase.
C) remain constant.
D) increase.
Answer: A
Diff: 1
Skill: Conceptual
22) Both Kate and John own saltwater taffy factories. Kateʹs factory has low fixed costs and high variable
costs. Johnʹs factory has high fixed costs and low variable costs. Currently, each factory is producing 1,000
boxes of taffy at the same total cost. Complete the following statement with the correct answer. If each
produces
A) less, their costs will be equal.
B) more, their costs will be equal.
C) more, the costs of Kateʹs factory will exceed those of Johnʹs factory.
D) less, the costs of Kateʹs factory will exceed those of Johnʹs factory.
Answer: C
Diff: 3
Skill: Conceptual
23) Short‐run costs that depend on the level of output are

A) total fixed cost only.
B) total variable costs only.
C) total costs only.
D) both total variable costs and total costs.
Answer: D
Diff: 1
Skill: Conceptual
7
24) Which statement is not true regarding the total variable cost curve?
A) It increases as output increases.
B) It shows the variable cost of production given current factor prices.
C) It starts at the origin.
D) It is a horizontal line.
Answer: D
Diff: 1
Skill: Conceptual
25) A point on a total variable cost curve shows the ________ variable cost a firm will bear to produce a
certain output.
A) highest
B) lowest
C) change in
D) average
Answer: B
Diff: 1
Skill: Conceptual
26) Which of the following is most likely to be a variable cost for a firm?
A) the interest payments made on loans
B) the franchiserʹs fee that a restaurant must pay to the national restaurant chain
C) the monthly rent on office space that it leased for a year
D) the payroll taxes that are paid on employee wages
Answer: D
Diff: 2
Skill: Conceptual
27) ________ are likely a fixed cost of a firm.

A) Wages paid to employees
B) The payments for supplies
C) Lease payments for office space
D) Travel expenses to meet with clients
Answer: C
Diff: 2
Skill: Conceptual
8
Refer to the information provided in Table 8.1 below to answer the question(s) that follow.
Table 8.1
28) Refer to Table 8.1. Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per
unit, what production technique should this firm use to produce 2 units of output?
A) production technique A
B) production technique B
C) The firm is indifferent between production technique A and production technique B.
D) It is impossible to determine if the firm should select production technique A or B because total fixed
costs are not given.
Answer: B
Diff: 2
Skill: Analytical
29) Refer to Table 8.1. Assume the price of labor (L) is $5 per unit, the price of capital (K) is $10 per unit,
and that firms attempt to minimize costs. The total variable cost of producing one unit of output is
A) $16.
B) $100.
C) $120.
D) $220.
Answer: B
Diff: 2
Skill: Analytical
9
30) Refer to Table 8.1. In the short run, if the price of labor (L) is $5 per unit, the price of capital (K) is $10
per unit, and firms attempt to minimize costs, then this firmʹs total cost of producing one unit of output is
A) $100.
B) $120.
C) $220.
D) indeterminate from this information.
Answer: D
Diff: 2
Skill: Analytical
31) Refer to Table 8.1. Assume that the relevant time period is the short run. Assuming the price of labor
(L) is $5 per unit and the price of capital (K) is $10 per unit, the average variable cost of producing two
units of output is
A) $20.
B) $40.
C) $90.
D) $100.
Answer: C
Diff: 2
Skill: Analytical
32) Refer to Table 8.1. Assume the price of labor (L) is $5 per unit, the price of capital (K) is $10 per unit,
and that firms attempt to minimize costs. The marginal cost of producing the third unit of output is
A) $30.
B) $40.
C) $50.
Answer: B
Diff: 2
Skill: Analytical
10
33) Refer to Table 8.1. Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per
unit, which of the following statements is true?
A) The firm will use production technique A to produce all three units of output.
B) The firm will use production technique B to produce all three units of output.
C) The firm will use production technique B to produce the first two units of output and production
technique A to produce the third unit of output.
D) The firm will use production technique A to produce the first unit and production technique B to
produce the second and third units of output.
Answer: C
Diff: 2
Skill: Analytical
34) Marginal cost

A) is the increase in total cost resulting from producing one more unit.
B) is the average cost of production divided by output.
C) equals the increase in AVC resulting from producing one more unit.
D) always equals average cost.
Answer: A
Diff: 1
Skill: Definition
35) A firm will begin to experience diminishing returns at the point where
A) marginal cost increases.
B) marginal cost decreases.
C) marginal product increases.
D) Both B and C are correct.
Answer: A
Diff: 2
Skill: Conceptual
36) Diminishing marginal returns implies

A) decreasing average variable costs.
B) decreasing marginal costs.
C) increasing marginal costs.
D) decreasing average fixed costs.
Answer: C
Diff: 2
Skill: Conceptual
11
37) Marginal cost is ________ average variable cost when ________.
A) equal to; average total cost is minimized
B) less than; total cost is maximized
C) greater than; average fixed cost is minimized
D) equal to; average variable cost is minimized.
Answer: D
Diff: 2
Skill: Conceptual
38) The explanation for why marginal cost is positive and rising in the short run is ________ marginal
product of labor in the production process.
A) a zero
B) a constant
C) an increasing
D) a diminishing
Answer: D
Diff: 1
Skill: Conceptual
39) In the short run when the marginal product of labor ________, the marginal cost of an additional unit
of output ________.
A) rises; rises
B) falls; falls
C) rises; falls
D) falls; doesnʹt change
Answer: C
Diff: 2
Skill: Conceptual
40) Total variable costs

A) initially increase as output increases, and then decrease.
B) always decrease with output.
C) always increase with output.
D) initially decrease and then increase with output.
Answer: C
Diff: 1
Skill: Conceptual
12
41) The formula for MC is
A) TVC/q.
B) q/TVC.
C) ΔTVC/q.
D) ΔTVC/Δq.
Answer: D
Diff: 1
Skill: Definition
42) The formula for AVC is

A) q/TVC.
B) TVC/q.
C) ΔTVC/Δq.
D) Δq/ΔTVC.
Answer: B
Diff: 1
Skill: Definition
43) In the short run, as output increases,

A) the difference between average total cost and average variable cost decreases.
B) the difference between total cost and average variable cost decreases.
C) marginal cost eventually decreases.
D) All of the above are correct.
Answer: A
Diff: 2
Skill: Conceptual
44) Because marginal cost is always ________ in the short run, total variable cost always ________ when
output increases.
A) positive; increases
B) positive; decreases
C) negative; increases
D) negative; decreases
Answer: A
Diff: 2
Skill: Conceptual
13
45) In the short run where total variable cost is ________ at a(n) ________ rate, marginal cost is positive
and decreasing.
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing
Answer: B
Diff: 2
Skill: Conceptual
46) In the short run where total variable cost is ________ at a(n) ________ rate, marginal cost is positive
and increasing.
Answer: A
Diff: 2
Skill: Conceptual
14
Figure 8.3
47) Refer to Figure 8.3. The marginal cost of the 10th basketball is
A) $2.
B) $3.
C) $3.05.
D) $5.80.
Answer: A
Diff: 2
Skill: Analytical
48) Refer to Figure 8.3. If the total fixed cost is $50, then average total cost of producing 10 basketballs is
A) $3.
B) $5.
C) $8.
D) $80.
Answer: C
Diff: 2
Skill: Analytical
49) Refer to Figure 8.3. The marginal cost of the ninth basketball is
A) less than $2.
B) $2.
C) $3.
D) greater than $3.
Answer: A
Diff: 3
Skill: Analytical
15
50) Refer to Figure 8.3. The marginal cost of the 9th basketball is
A) < $2.
B) $2.
C) > $2.
D) $28.
Answer: A
Diff: 2
Skill: Analytical
51) Refer to Figure 8.3. If total fixed costs are $100, then average total cost of producing 10 basketballs is
A) $2.
B) $10.
C) $13.
D) $130.
Answer: C
Diff: 2
Skill: Analytical
52) Refer to Figure 8.3. The marginal cost of the eleventh basketball is
A) less than $1.
B) $1.
C) $2.
D) greater than $2.
Answer: D
Diff: 3
Skill: Analytical
53) For Elliotʹs dog‐walking service, the only variable input is labor. Elliotʹs labor costs are $300 a day and
his service walks 30 dogs per day. To walk 31 dogs per day, his labor costs increase to $305 a day. The
marginal cost of walking that 31st dog is
A) $5.
B) $9.83.
C) $19.52.
D) indeterminate from the information given.
Answer: A
Diff: 2
Skill: Analytical
16
Table 8.2
54) Refer to Table 8.2. If Sherry produces zero earrings, her total fixed costs are
A) $0.
B) $50.
C) $100.
Answer: C
Diff: 2
Skill: Analytical
55) Refer to Table 8.2. If Sherry produces one pair of earrings, her total variable costs are
A) $50.
B) $100.
C) $150.
Answer: A
Diff: 2
Skill: Analytical
56) Refer to Table 8.2. If Sherry produces two pairs of earrings, her marginal cost is
A) $40.
B) $45.
C) $72.50.
D) $122.50.
Answer: A
Diff: 2
Skill: Analytical
17
57) Refer to Table 8.2. If Sherry produces three pairs of earrings, her total variable costs are
A) $26.67.
B) $140.
C) $175.
D) $225.
Answer: B
Diff: 2
Skill: Analytical
58) Refer to Table 8.2. If Sherry produces five pairs of earrings, her total costs are
A) $320.
B) $360.
C) $370.
D) $400.
Answer: C
Diff: 2
Skill: Analytical
59) Refer to Table 8.2. If Sherry produces four pairs of earrings, her average fixed costs are
A) $4.
B) $20.
C) $25.
D) $100.
Answer: C
Diff: 2
Skill: Analytical
60) Refer to Table 8.2. Assume that Sherryʹs Earrings is producing in a perfectly competitive market and
the market price for earrings is $60. To maximize profits Sherry should produce ________ pairs of
earrings.
A) two
B) three
C) four
D) five
Answer: C
Diff: 2
Skill: Analytical
18
Table 8.3
61) Refer to Table 8.3. What is the total cost of producing zero units of output?
A) $0
B) $30
C) $60
D) indeterminate from the given information
Answer: C
Diff: 2
Skill: Analytical
62) Refer to Table 8.3. The marginal cost of the fourth unit is ________ and the average total cost of four
units is ________.
A) $10; $30
B) $20; $45
C) $30; $35
Answer: C
Diff: 2
Skill: Analytical
63) Refer to Table 8.3. From the information in the given table,
A) the firm is in the long run.
B) the firm eventually experiences diminishing returns to its variable input.
C) the marginal cost curve intersects the average total cost curve between 3 and 4 units of output.
D) the difference between total cost and total variable cost decreases as output increases.
Answer: B
Diff: 2
Skill: Analytical
19
64) Refer to Table 8.3. If the firm is in a perfectly competitive industry with a market price of $30 per unit,
the firm will produce ________ units and earn a profit of ________.
A) three; $20
B) four; $20
C) four; ‐$20
D) five; $30
Answer: C
Diff: 2
Skill: Analytical
65) If we know average total cost and the amount of output, then we can always calculate total cost by
A) adding average total cost and the amount of output.
B) subtracting the amount of output from average total cost.
C) multiplying average total cost by the amount of output.
D) dividing average total cost by the amount of output.
Answer: C
Diff: 2
Skill: Analytical
66) If marginal cost is above average variable cost, then

A) average variable cost is increasing.
B) marginal cost must be decreasing.
C) average variable cost is constant.
D) average variable cost is decreasing.
Answer: A
Diff: 1
Skill: Conceptual
67) The marginal cost curve intersects the ________ at its minimum.
A) average variable cost curve
B) average total cost curve
C) average fixed cost curve
D) A and B are both correct.
Answer: D
Diff: 2
Skill: Conceptual
20
68) If the marginal cost curve is below the average variable cost curve, then
A) average variable costs are increasing.
B) average variable costs are decreasing.
C) marginal cost must be decreasing.
D) average variable costs could either be increasing or decreasing.
Answer: B
Diff: 1
Skill: Conceptual
69) If the average variable cost curve is above the marginal cost curve, then
A) marginal costs must be decreasing.
B) average variable costs must be increasing.
C) marginal costs must be increasing.
D) marginal costs can be either increasing or decreasing.
Answer: D
Diff: 1
Skill: Conceptual
70) If marginal cost is between average variable cost and average total cost, then
A) both average variable cost and average total cost are increasing.
B) both average variable cost and average total cost are decreasing.
C) average variable cost is increasing and average total cost is decreasing.
D) average variable cost is decreasing and average total cost is increasing.
Answer: C
Diff: 2
Skill: Conceptual
71) The marginal cost curve intersects the average variable cost curve at the ________ value of the average
variable cost curve.
A) maximum
B) minimum
C) zero
D) average
Answer: B
Diff: 1
Skill: Conceptual
21
72) Twenty‐five students in a class take a test for which the average grade is 75. Then a twenty‐sixth
student enters the class, takes the test, and scores 80. The test average calculated with 26 students will
A) rise above 75.
B) fall below 75.
C) change from 75 but the direction is unclear.
D) still equal 75.
Answer: A
Diff: 2
Skill: Analytical
73) If a firmʹs total costs are $80 when 10 units of output are produced and $90 when 11 units of output
are produced, the marginal cost of the 11th unit is
A) $1.
B) $5.
C) $8.09.
D) $10.
Answer: D
Diff: 2
Skill: Analytical
74) If a firmʹs total costs are $100 when 10 units of output are produced and $103 when 11 units of output
are produced, the marginal cost of the 11th unit is
A) $1.
B) $3.
C) $5.
D) $9.36.
Answer: B
Diff: 2
Skill: Analytical
75) If the average variable cost of the fifth hat is $30, then the total variable cost of five hats is
A) $6.
B) $150.
C) $1800.
Answer: B
Diff: 2
Skill: Analytical
22
Figure 8.4
76) Refer to Figure 8.4. Micro Ovenʹs average fixed costs of producing two units of output are
A) $150.
B) $300.
C) $450.
Answer: A
Diff: 2
Skill: Analytical
77) Refer to Figure 8.4. If two microwave ovens are produced, Micro Ovenʹs total variable costs are
A) $150.
B) $300.
C) $450.
Answer: A
Diff: 2
Skill: Analytical
23
78) Refer to Figure 8.4. If two microwave ovens are produced, average variable costs are
A) $75.
B) $150.
C) $225.
Answer: A
Diff: 2
Skill: Analytical
79) Refer to Figure 8.4. Micro Ovenʹs average fixed costs of producing three units of output are
A) $100.
B) $150.
C) $166.67.
Answer: A
Diff: 2
Skill: Analytical
80) Refer to Figure 8.4. If three microwave ovens are produced, Micro Ovenʹs total variable costs are
A) $150.
B) $200.
C) $300.
D) $500.
Answer: B
Diff: 2
Skill: Analytical
81) Refer to Figure 8.4. If three microwave ovens are produced, average variable costs are
A) $50.
B) $66.67.
C) $100.
Answer: A
Diff: 2
Skill: Analytical
24
82) Refer to Figure 8.4. The marginal cost of the third microwave oven is
A) $50.
B) $166.67.
C) $300.
Answer: A
Diff: 2
Skill: Analytical
83) Refer to Figure 8.4. Micro Ovenʹs average fixed costs of producing six units of output are
A) $41.66.
B) $50.
C) $100.
Answer: B
Diff: 2
Skill: Analytical
84) Refer to Figure 8.4. If six microwave ovens are produced, Micro Ovenʹs total fixed costs are
A) $50.
B) $100.
C) $300.
Answer: C
Diff: 2
Skill: Analytical
85) Refer to Figure 8.4. If six microwave ovens are produced, Micro Ovenʹs total variable costs are
A) $100.
B) $150.
C) $300.
D) $600.
Answer: C
Diff: 1
Skill: Analytical
25
86) Refer to Figure 8.4.. If six microwave ovens are produced, average variable costs are
A) $50.
B) $100.
C) $150.
D) $300.
Answer: A
Diff: 2
Skill: Analytical
87) Refer to Figure 8.4. If six microwave ovens are produced, Micro Ovenʹs average total costs are
A) $100.
B) $150.
C) $300.
Answer: A
Diff: 2
Skill: Analytical
88) Refer to Figure 8.4. If six microwave ovens are produced, Micro Ovenʹs total costs are
A) $500.
B) $600.
C) $900.
Answer: B
Diff: 2
Skill: Analytical
89) Refer to Figure 8.4. Micro Ovenʹs average fixed costs of producing nine units of output are
A) $25.
B) $33.33.
C) $55.55.
Answer: B
Diff: 2
Skill: Analytical
26
90) Refer to Figure 8.4. Micro Ovenʹs average fixed costs of producing 10 units of output are
A) $30.
B) $40.
C) $50.
Answer: A
Diff: 2
Skill: Analytical
91) Refer to Figure 8.4. Micro Ovenʹs average fixed costs of producing twelve units of output are
A) $41.67.
B) $25.00
C) $16.67.
Answer: B
Diff: 2
Skill: Analytical
92) Refer to Figure 8.4. If twelve microwave ovens are produced, Micro Ovenʹs total fixed costs are
A) $25.
B) $41.67.
C) $50.
D) $66.67.
Answer: A
Diff: 2
Skill: Analytical
93) Refer to Figure 8.4. If twelve microwave ovens are produced, Micro Ovenʹs total variable costs are
A) $300.
B) $500.
C) $800.
D) $1,300.
Answer: B
Diff: 1
Skill: Analytical
27
94) Refer to Figure 8.4.. If twelve microwave ovens are produced, average variable costs are
A) $16.67.
B) $41.67.
C) $66.67.
D) $166.67.
Answer: B
Diff: 2
Skill: Analytical
95) Refer to Figure 8.4. If twelve microwave ovens are produced, Micro Ovenʹs average total costs are
A) $25.
B) $41.67.
C) $50.
D) $66.67.
Answer: B
Diff: 2
Skill: Analytical
96) Refer to Figure 8.4. If twelve microwave ovens are produced, Micro Ovenʹs total costs are
A) $300.
B) $500.
C) $800.
D) $1,300.
Answer: C
Diff: 1
Skill: Analytical
97) Refer to Figure 8.4. The vertical distance AB represents

A) total fixed costs.
B) marginal costs.
C) average fixed costs.
D) average total costs.
Answer: A
Diff: 2
Skill: Analytical
28
Refer to the short‐run information provided in Figure 8.5 below to answer the question(s) that follow.
Figure 8.5
98) Refer to Figure 8.5. The total fixed costs for Blackstar Drones are
A) $0.
B) $50.
C) $150.
Answer: B
Diff: 2
Skill: Analytical
99) Refer to Figure 8.5. If no drones are produced, total variable costs are
A) $0.
B) $25.
C) $50.
Answer: A
Diff: 2
Skill: Analytical
29
100) Refer to Figure 8.5. If one drone is produced, total variable costs are
A) $30.
B) $40.
C) $50.
Answer: A
Diff: 2
Skill: Analytical
101) Refer to Figure 8.5. If two drones are produced, total variable costs are
A) $25.
B) $30.
C) $50.
D) $80.
Answer: C
Diff: 2
Skill: Analytical
102) Refer to Figure 8.5. If four drones are produced, total variable costs are
A) $17.50.
B) $20.
C) $70.
D) $120.
Answer: C
Diff: 2
Skill: Analytical
103) Refer to Figure 8.5. If six drones are produced, total variable costs are
A) $10.
B) $13.33.
C) $70.
D) $80.
Answer: D
Diff: 2
Skill: Analytical
30
104) Refer to Figure 8.5. If seven drones are produced, total variable costs are
A) $14.29.
B) $21.43.
C) $50.
D) $100.
Answer: D
Diff: 2
Skill: Analytical
105) Refer to Figure 8.5. If one drone is produced, average variable costs are
A) $25.
B) $30.
C) $40.
Answer: B
Diff: 2
Skill: Analytical
106) Refer to Figure 8.5. If two drones are produced, average variable costs are
A) $10.
B) $20.
C) $25.
D) $50.
Answer: C
Diff: 2
Skill: Analytical
107) Refer to Figure 8.5. If four drones are produced, average variable costs are
A) $5.
B) $10.
C) $17.50.
D) $25.
Answer: C
Diff: 2
Skill: Analytical
31
108) Refer to Figure 8.5. If six drones are produced, average variable costs are
A) $2.50.
B) $5.
C) $10.
D) $13.33.
Answer: D
Diff: 2
Skill: Analytical
109) Refer to Figure 8.5. If seven drones are produced, average variable costs are
A) $2.86.
B) $14.29.
C) $20.
D) $21.43.
Answer: B
Diff: 2
Skill: Analytical
110) Refer to Figure 8.5. If one drone is produced, average fixed costs are
A) $0.
B) $50.
C) $80.
Answer: B
Diff: 2
Skill: Analytical
111) Refer to Figure 8.5. If two drones are produced, average fixed costs are
A) $10.
B) $20.
C) $25.
D) $50.
Answer: C
Diff: 2
Skill: Analytical
32
112) Refer to Figure 8.5. If four drones are produced, average fixed costs are
A) $5.
B) $10.
C) $12.50.
D) $17.50.
Answer: C
Diff: 2
Skill: Analytical
113) Refer to Figure 8.5. If six drones are produced, average fixed costs are
A) $2.50.
B) $8.33.
C) $13.33.
D) $21.67.
Answer: B
Diff: 2
Skill: Analytical
114) Refer to Figure 8.5. If seven drones are produced, average fixed costs are
A) $7.14.
B) $14.29.
C) $20.
D) $21.43.
Answer: A
Diff: 2
Skill: Analytical
115) Refer to Figure 8.5. The marginal cost of the second drone is
A) $10.
B) $20.
C) $50.
Answer: B
Diff: 2
Skill: Analytical
33
116) Refer to Figure 8.5. The marginal cost of the seventh drone is
A) $2.86.
B) $3.33.
C) $20.
Answer: C
Diff: 2
Skill: Analytical
117) A short‐run total cost schedule is a ________ cost schedule shifted upward by the amount of
________ cost.
A) total fixed; marginal
B) marginal; total variable
C) total variable; total fixed
D) total variable; marginal
Answer: C
Diff: 1
Skill: Conceptual
118) In the short run, ________ costs exceed ________ costs.

A) total fixed; total
B) average variable; average total
C) total variable; total
D) average total; average variable
Answer: D
Diff: 1
Skill: Conceptual
119) Total cost is

A) TFC ‐TVC.
B) TFC/TVC.
C) TFC + TVC.
D) AFC + AVC.
Answer: C
Diff: 1
Skill: Definition
34
120) Total cost refers to
A) the full economic costs of production.
B) the sum of average fixed cost and average variable cost.
C) the fixed costs of production.
D) the explicit costs of production.
Answer: A
Diff: 1
Skill: Definition
121) ATC is
A) TC/q.
B) q/TC.
C) AFC ‐ AVC.
D) ΔTC ‐ Δq.
Answer: A
Diff: 1
Skill: Definition
122) Average total cost

A) measures the spread of overhead across output.
B) is the average cost of producing each unit of output.
C) is always increasing.
D) the sum of fixed cost and average variable cost.
Answer: B
Diff: 1
Skill: Definition
123) The Framing Gallery frames posters. The Framing Gallery has total fixed costs of $500. The Framing
Galleryʹs average variable cost is $20 and its average total cost is $25. The Framing Gallery is currently
framing
A) 5 posters.
B) 25 posters.
C) 100 posters.
D) a number of posters that is indeterminate from this information.
Answer: C
Diff: 2
Skill: Analytical
35
124) The average variable cost of producing ice cream sundaes are minimized when 100 sundaes are
produced. The total cost of producing 100 sundaes is $500. If fixed cost of production is $200, what is the
marginal cost of producing the 100th sundae?
A) $2
B) $3
C) $5
Answer: B
Diff: 3
Skill: Analytical
125) Average variable cost and average total costs get closer together as output increases because
A) diminishing returns set in.
B) average fixed costs decrease as output increases.
C) marginal costs decrease as output increases.
D) economies of scale become apparent.
Answer: B
Diff: 2
Skill: Analytical
Figure 8.6
126) Refer to Figure 8.6. Curve 1 is Outdoor Equipmentʹs

A) marginal cost curve.
B) average variable cost curve.
C) average total cost curve.
D) average fixed cost curve.
Answer: A
Diff: 2
Skill: Analytical
36
127) Refer to Figure 8.6. Outdoor Equipmentʹs average variable costs are minimized at the output level
A) where curves 1 and 2 intersect.
B) where curves 1 and 3 intersect.
C) between the intersections of curves 1 and 2 and curves 1 and 3.
D) indeterminate with the given information.
Answer: A
Diff: 2
Skill: Analytical

Answer: B
Diff: 2
Skill: Analytical

Answer: C
Diff: 2
Skill: Analytical
130) Refer to Figure 8.6. The vertical distance AB is Outdoor Equipmentʹs

A) marginal cost.
B) average fixed cost.
C) total fixed cost.
D) total cost.
Answer: B
Diff: 2
Skill: Analytical
37
131) Refer to Figure 8.6. Marginal cost is represented by
A) curve 1.
B) curve 2.
C) curve 3.
D) line segment AB.
Answer: A
Diff: 2
Skill: Analytical
132) Refer to Figure 8.6. Outdoor Equipmentʹs ________ are minimized at the output level where curves 1
and 3 intersect.
A) average variable costs
B) average total costs
C) average fixed costs
D) marginal costs
Answer: B
Diff: 2
Skill: Analytical
133) Refer to Figure 8.6. Average variable cost is represented by

A) curve 1.
B) curve 2.
C) curve 3.
D) line segment AB.
Answer: B
Diff: 2
Skill: Analytical
134) Refer to Figure 8.6. Average total cost is represented by

A) curve 1.
B) curve 2.
C) curve 3.
D) line segment AB.
Answer: C
Diff: 2
Skill: Analytical
38
135) Refer to Figure 8.6. Average fixed cost is represented by
A) curve 1.
B) curve 2.
C) curve 3.
D) line segment AB.
Answer: D
Diff: 2
Skill: Analytical
136) If marginal cost is below average total cost, average total cost will
A) be maximized.
B) be decreasing.
C) be increasing.
D) remain constant.
Answer: B
Diff: 2
Skill: Conceptual
137) At the point where marginal cost equals average total cost, average total cost will be
A) at its maximum.
B) decreasing.
C) increasing.
D) at its minimum.
Answer: D
Diff: 2
Skill: Conceptual
138) The short‐run average total cost curve eventually begins to increase at an increasing rate because of
A) economies of scale.
B) the constraint that the firm cannot change production technologies.
C) diminishing returns.
D) increasing returns to scale.
Answer: C
Diff: 1
Skill: Conceptual
39
139) The law of diminishing marginal returns
A) results in average variable cost (AVC), average total cost (ATC) ,and marginal cost (MC) curves
eventually increasing at an increasing rate.
B) results in MC but not ATC curves eventually increasing at an increasing rate.
C) causes average fixed costs to decline continuously as output increases.
D) causes the difference between average total cost and average variable cost to shrink as output
increases.
Answer: A
Diff: 2
Skill: Conceptual
140) In the short run a firmʹs lowest cost level of output is the minimum point on its ________ cost curve.
A) average total
B) total variable
C) average fixed
D) marginal
Answer: A
Diff: 2
Skill: Conceptual
141) A firm is producing output less than the output associated with the minimum point on the firmʹs
short run average variable cost curve. At this level of output the firm uses its fixed capital input ________
and its variable labor input ________.
A) at the lowest average cost; at the lowest average cost
B) at the lowest average cost; at a level higher than the lowest average cost
C) at a level higher than the lowest average cost; at the lowest average cost
D) at a level higher than the lowest average cost; at a level higher than the lowest average cost
Answer: D
Diff: 3
Skill: Conceptual
40
142) Consider an output beyond the minimum point of a firmʹs short run average total cost curve. At this
level of output the firm can use its ________ input at a lower average cost but only by using its ________
input at a higher average cost.
A) fixed capital; variable labor
B) variable labor; fixed capital
C) variable capital; fixed labor
D) fixed labor; variable capital
Answer: A
Diff: 3
Skill: Analytical
143) Related to the Economics in Practice on page 172: When there are a few unsold seats in an arena for a
rock concert, the marginal cost of filling those seats
A) is probably close to zero.
B) will be negative.
C) is generally quite high.
D) will primarily depend on the number of people waiting to get the seats.
Answer: A
Diff: 2
Topic: Costs in the Short Run: Economics in Practice
Skill: Conceptual
144) The decision by firms of the quantity of output to supply is based on

A) techniques of production available.
B) the price of output.
C) the price of inputs.
D) government oversight.
Answer: B
Diff: 1
Skill: Conceptual
145) The decision by firms of the quantity of each input to demand is based on
Answer: C
Diff: 1
Skill: Conceptual
41
146) The decision by firms of how to produce output is based on
Answer: A
Diff: 1
Skill: Conceptual
147) Fixed costs

A) do not exist in the long run.
B) depend on a firmʹs level of output.
C) are zero if a firm produces no output.
D) are total costs minus average variable costs.
Answer: A
Diff: 1
Skill: Conceptual
148) All of the following statements about variable costs are true except
A) they are equal to total costs in the long run.
B) they are zero if output is zero.
C) they are equal to the product of average variable cost and the output level.
D) they are constant as output increases.
Answer: D
Diff: 1
Skill: Conceptual
149) Economists usually assume that capital is a ________ input in the ________ run.
A) variable; short
B) fixed; short
C) fixed; long
D) variable; short and long
Answer: B
Diff: 1
Skill: Fact
42
150) Economists usually assume that ________ is a variable input in the ________ run.
A) labor; short
B) capital; short
C) labor; short and long
D) capital; short and long
Answer: C
Diff: 1
Skill: Fact
151) TC ‐TVC =
A) TFC.
B) ATC.
C) AVC.
D) AFC.
Answer: A
Diff: 1
Skill: Definition
152) The Lawn Ranger, a landscaping company, has total costs of $5,000 and total variable costs of $1,000.
The Lawn Rangerʹs total fixed costs are
A) $0.
B) $4,000.
C) $6,000.
D) indeterminate because the firmʹs output level is unknown.
Answer: B
Diff: 2
Skill: Analytical
153) The Lawn Ranger, a landscaping company, has total costs of $7,000 and total fixed costs of $5,000.
The Lawn Rangerʹs total variable costs are
A) $2,000.
B) $3,000.
C) $5,000.
D) indeterminate because the firmʹs output level is unknown.
Answer: A
Diff: 2
Skill: Analytical
43
154) A dairy company, Farley Farm, has total costs of $10,000 and total variable costs of $3,000. Farley
Farmʹs total fixed costs are
A) $0.
B) $7,000.
C) $13,000.
Answer: B
Diff: 2
Skill: Analytical
155) Wilburʹs Widgets, a widget company, produces 100 widgets. Its average fixed cost is $6 and its total
variable cost is $400. The total cost of producing 100 widgets is
A) $306.
B) $400.
C) $600.
D) $1,000.
Answer: D
Diff: 2
Skill: Analytical
156) Amy spends $6,000 on remodeling a storefront that she then opens as a take‐out deli. After opening
her deli her business is terrible and she needs an additional $2,000 to keep the deli open. Which of the
following is true?
A) The $6,000 Amy spent on remodeling represents a part of the total variable cost of her business.
B) The $6,000 Amy spent on remodeling represents a sunk cost of her business.
C) The $2,000 Amy needs to keep the deli open represents her marginal costs of production.
D) The $2,000 Amy needs to keep the deli open represents her total fixed costs.
Answer: B
Diff: 2
Skill: Analytical
44
157) Alicia spends $20,000 on remodeling a storefront that she then opens as a flower shop. Her business
has not been very successful, and she needs an additional $8,000 to keep the flower shop. Which of the
following is true?
A) The $20,000 Alicia spent on remodeling represents a part of the total variable cost of her business.
B) The $8,000 represents her marginal costs of production.
C) The $20,000 Alicia spent on remodeling is a fixed cost of her business.
D) The $8,000 Alicia needs to keep the flower shop open represents her total fixed costs.
Answer: C
Diff: 2
Skill: Analytical
158) Firms ________ their ________ costs in the short run.

A) can change; fixed
B) cannot change; total
C) can change; overhead
D) can change; variable
Answer: D
Diff: 1
Skill: Conceptual
159) The formula for ________ is TFC/q.

A) total cost
B) average fixed costs
C) total variable costs
D) average total cost
Answer: B
Diff: 1
Skill: Definition
160) As output rises, ________ will continue to fall.

A) average variable costs
B) average total costs
C) average fixed costs
D) marginal costs
Answer: C
Diff: 1
Skill: Conceptual
45
161) As output decreases, average fixed costs
A) decrease.
B) initially decrease and then increase.
C) remain constant.
D) increase.
Answer: D
Diff: 1
Skill: Conceptual
162) Both Stan and Kyle own potato chip factories. Stanʹs factory has low fixed costs and high variable
costs. Kyleʹs factory has high fixed costs and low variable costs. Currently, each factory is producing 5,000
bags of potato chips at the same total cost. Complete the following statement with the correct answer. If
each produces
A) less, their costs will be equal.
B) more, their costs will be equal.
C) more, the costs of Kyleʹs factory will exceed those of Stanʹs factory.
D) less, the costs of Kyleʹs factory will exceed those of Stanʹs factory.
Answer: D
Diff: 3
Skill: Conceptual
163) Short‐run costs that do not depend on the level of output are
A) total fixed costs only.
B) total variable costs only.
C) total costs only.
D) both total variable costs and total costs.
Answer: A
Diff: 1
Skill: Conceptual
164) Which of the following statements is true?

A) The total variable cost curve decreases as output increases.
B) The total variable cost curve shows the variable costs of production given current factor prices.
C) Total variable cost is always greater than total fixed cost.
D) Total variable cost is inversely related to output.
Answer: B
Diff: 1
Skill: Conceptual
46
165) At an output of zero, ________ is zero.
A) total fixed cost
B) total variable cost
C) total cost
Answer: B
Diff: 1
Skill: Conceptual
166) ________ is (are) most likely a variable cost for a firm.

A) The monthly lease payment on a delivery truck that is leased for three years
B) The plumbing companyʹs annual licensing fee
C) The quarterly payments for a two‐year maintenance contract for copy machines
D) Monthly health insurance expenses for employees
Answer: D
Diff: 2
Skill: Conceptual
167) ________ are likely a fixed cost of a firm.

A) Utility costs
B) The costs of raw materials used in production
C) Mortgage payments for a new warehouse
D) Expenses for holiday office parties
Answer: C
Diff: 2
Skill: Conceptual
47
Table 8.4
168) Refer to Table 8.4. Assuming the price of capital (K) is $10 per unit and the price of labor (L) is $5 per
unit, what production technique should this firm use to produce 2 units of output?
A) production technique A
B) production technique B
C) The firm is indifferent between production technique A and production technique B.
D) It is impossible to determine if the firm should select production technique A or B because total fixed
costs are not given.
Answer: B
Diff: 2
Skill: Analytical
unit, the lowest long‐run total cost of producing one unit of output is
A) $8.
B) $50.
C) $60.
D) $110.
Answer: B
Diff: 2
Skill: Analytical
48
170) Refer to Table 8.4. Assume that the relevant time period is the short run. Assuming the price of
capital (K) is $10 per unit and the price of labor (L) is $5 per unit, this firmʹs total cost of producing one
unit of output is
A) $50.
B) $60.
C) $110.
Answer: D
Diff: 2
Skill: Analytical
171) Refer to Table 8.4. Assume that the relevant time period is the short run. Assuming the price of labor
(L) is $5 per unit and the price of capital (K) is $10 per unit, the average total cost of producing two units
of output is
A) $10.
B) $20.
C) $45.
D) $50.
Answer: C
Diff: 2
Skill: Analytical
unit, the marginal cost of producing the third unit of output is
A) $15.
B) $20.
C) $25.
Answer: B
Diff: 2
Skill: Analytical
49
unit, the firm will use production technique ________ to produce ________ of output.
A) A; all three units
B) B; all three units
C) B; the first two units of output and production technique A to produce the third unit
D) A; the first unit and production technique B to produce the second and third units
Answer: C
Diff: 2
Skill: Analytical
174) The increase in total cost resulting from producing one more unit of output. is called
A) marginal cost.
B) average total cost.
C) variable cost.
D) opportunity cost.
Answer: A
Diff: 1
Skill: Definition
175) A firm will ________ at the output where marginal cost increases
A) begin to experience diminishing returns
B) begin to experience increasing returns
C) become profitable
D) start to experience losses
Answer: A
Diff: 2
Skill: Conceptual
176) ________ marginal returns implies ________ marginal costs.

A) Diminishing; decreasing
B) Increasing; increasing
C) Diminishing; increasing
D) Increasing; constant
Answer: C
Diff: 2
Skill: Conceptual
50
177) Marginal cost is equal to ________ when ________ is minimized.
A) average fixed cost; average fixed cost
B) average variable cost; average fixed cost
C) average total cost; average variable cost
D) average variable cost; average variable cost
Answer: D
Diff: 2
Skill: Conceptual
178) In a short‐run production process, a diminishing marginal product of labor explains why marginal
cost is
A) positive and rising.
B) positive but falling.
C) zero.
D) negative and falling.
Answer: A
Diff: 1
Skill: Conceptual
179) In the short run when the marginal product of labor ________, the marginal cost of an additional unit
of output ________.
A) rises; rises
B) falls; rises
C) rises; doesnʹt change
D) falls; falls
Answer: B
Diff: 2
Skill: Conceptual
180) Total variable costs ________ with decreasing output.

A) always increase
B) always decrease
C) initially increase and then decrease
D) initially decrease and then increase
Answer: B
Diff: 1
Skill: Conceptual
51
181) One formula for ________ is ΔTVC/Δq.
A) AVC
B) TFC
C) ATC
D) MC
Answer: D
Diff: 1
Skill: Definition
182) One formula for ________ is TVC/q.

A) TFC
B) AVC
C) MC
D) TC
Answer: B
Diff: 1
Skill: Definition
183) As output decreases, in the short run,

A) the difference between average total cost and average variable cost increases.
B) the difference between total cost and average variable cost increases.
C) marginal cost eventually decreases.
Answer: A
Diff: 2
Skill: Conceptual
184) Because marginal cost is always ________ in the short run, total variable cost always ________ when
output decreases.
A) positive; increases
B) positive; decreases
C) negative; increases
D) negative; decreases
Answer: B
Diff: 2
Skill: Conceptual
52
185) In the short run marginal cost is positive and increasing at output levels where total variable cost is
________ at a(n) ________ rate.
Answer: A
Diff: 2
Skill: Conceptual
186) In the short run marginal cost is positive and decreasing at output levels where total variable cost is
________ at a(n) ________ rate.
Answer: B
Diff: 2
Skill: Conceptual
187) Labor is the only variable input for Elliotʹs dog‐walking service. His labor costs are $300 a day and
his service walks 25 dogs per day. His labor costs increase to $315.50 a day to walk 26 dogs per day. The
marginal cost of walking that 26th dog is
A) $15.50.
B) $19.50.
C) $29.50.
D) indeterminate from the information given.
Answer: A
Diff: 2
Skill: Analytical
53
Table 8.5
Number of
TVC MC AVC TFC TC AFC ATC
Swords
0 50
1 25
2 47.50
3 23.33
4 150
5 135
188) Refer to Table 8.5. If Phoebe produces zero swords, her total fixed costs are
A) $0.
B) $25.
C) $50.
Answer: C
Diff: 2
Skill: Analytical
189) Refer to Table 8.5. If Phoebe produces one sword, her total variable costs are
A) $25.
B) $50.
C) $75.
Answer: A
Diff: 2
Skill: Analytical
190) Refer to Table 8.5. If Phoebe produces two swords, her marginal cost is
A) $20.
B) $22.50.
C) $36.25.
D) $61.25.
Answer: A
Diff: 2
Skill: Analytical
54
191) Refer to Table 8.5. If Phoebe produces three swords, her total variable costs are
A) $13.33.
B) $70.
C) $87.50.
D) $112.25.
Answer: B
Diff: 2
Skill: Analytical
192) Refer to Table 8.5. If Phoebe produces five swords, her total costs are
A) $160.
B) $180.
C) $185.
D) $200.
Answer: C
Diff: 2
Skill: Analytical
193) Refer to Table 8.5. If Phoebe produces four swords, her average fixed costs are
A) $2.
B) $10.
C) $12.50.
D) $50.
Answer: C
Diff: 2
Skill: Analytical
194) Refer to Table 8.5. Assume that Phoebe is producing swords in a perfectly competitive market and
the market price for swords is $30. To maximize profits Phoebe should produce ________ swords.
A) two
B) three
C) four
D) five
Answer: C
Diff: 2
Skill: Analytical
55
Table 8.6
195) Refer to Table 8.6. What is the total cost of producing zero units of output?
A) $0
B) $15
C) $30
Answer: C
Diff: 2
Skill: Analytical
196) Refer to Table 8.6. The marginal cost of the fourth unit is ________ and the average total cost of four
units is ________.
A) $5; $15
B) $10; $22.50
C) $15; $17.50
Answer: C
Diff: 2
Skill: Analytical
197) Refer to Table 8.6. From the information in the given table,
A) the firm is in the long run.
B) the firm eventually experiences diminishing returns to its variable input.
C) the marginal cost curve intersects the average total cost curve between 3 and 4 units of output.
D) the difference between total cost and total variable cost decreases as output increases.
Answer: B
Diff: 2
Skill: Analytical
56
198) Refer to Table 8.6. If the firm is in a perfectly competitive industry with a market price of $15 per
unit, the firm will produce ________ units and earn a profit of ________.
A) three; $10
B) four; $10
C) four; ‐$10
D) five; $15
Answer: C
Diff: 2
Skill: Analytical
199) If the marginal cost curve is below the average variable cost curve, then
B) average variable cost is decreasing.
D) marginal cost is increasing.
Answer: B
Diff: 1
Skill: Conceptual
200) Marginal cost is equal to average variable cost when average variable cost is
A) zero.
B) at its minimum.
C) at its maximum.
D) equal to total variable cost.
Answer: D
Diff: 2
Skill: Conceptual
201) If the marginal cost curve is above the average variable cost curve, then
B) average variable cost is decreasing.
D) marginal cost is decreasing.
Answer: A
Diff: 1
Skill: Conceptual
57
202) If the average variable cost curve is below the marginal cost curve, then
A) marginal costs must be decreasing.
B) marginal costs must be increasing.
C) marginal costs can be either increasing or decreasing.
D) average variable costs must be decreasing.
Answer: B
Diff: 3
Skill: Conceptual
203) The ________ curve intersects the average variable cost curve at the minimum value of the average
variable cost curve.
A) total cost
B) marginal cost
C) total variable cost
D) average fixed cost
Answer: B
Diff: 1
Skill: Conceptual
204) Twenty‐five students in a class take a test for which the average grade is 75. Then a twenty‐sixth
student enters the class, takes the same test, and scores 70. The test average grade calculated with 26
students will
A) rise above 75.
B) fall below 75.
C) change from 75, but the direction is unclear.
D) still equal 75.
Answer: B
Diff: 2
Skill: Analytical
205) If a firmʹs total costs are $75 when it produces 10 units of output and $80 when it produces 11 units
of output, then the marginal cost of producing the 11th unit is
A) $1.
B) $5.
C) $8.09.
D) $10.
Answer: B
Diff: 2
Skill: Analytical
58
206) If a firmʹs total costs are $100 when 10 units of output are produced and $105 when 11 units of
output are produced, the marginal cost of the 11th unit is
A) $1.
B) $3.
C) $5.
D) $9.36.
Answer: C
Diff: 2
Skill: Analytical
207) If the average variable cost of the fifth hat is $50, then the total variable cost of five hats is
A) $10.
B) $250.
C) $1800.
Answer: B
Diff: 2
Skill: Analytical
208) A short‐run total cost schedule is a total variable cost schedule shifted ________ by the amount of
total fixed cost.
A) downward
B) to the right
C) upward
D) to the left
Answer: C
Diff: 1
Skill: Conceptual
209) Average total cost is

A) AFC ‐ AVC.
B) AFC/AVC.
C) AFC + AVC.
D) TFC + TVC.
Answer: C
Diff: 1
Skill: Definition
59
210) ________ cost refers to the full economic costs of production.
A) Total
B) Marginal
C) Average variable
D) Total variable
Answer: A
Diff: 1
Skill: Definition
211) TC/q is
A) ATC.
B) MC.
C) AVC.
D) TVC.
Answer: A
Diff: 1
Skill: Definition
212) ________ is the average cost of producing each unit of output.

A) Average fixed cost
B) Average total cost
C) Average variable cost
D) Marginal cost
Answer: B
Diff: 1
Skill: Definition
213) The Framing Gallery frames posters and has total fixed costs of $1,000. The Framing Gallery is
currently framing ________ posters if its average variable cost is $20 and its average total cost is $30.
A) 5
B) 25
C) 100
D) an indeterminate number of
Answer: C
Diff: 2
Skill: Analytical
60
214) The average variable cost of producing 250 sundaes is $5. At this level of output, average variable
cost is minimized. Which of the following statements is true?
A) Marginal cost of the 251st sundae is $1,250.
B) Average total cost is minimized at an output greater than 250 sundaes.
C) Average fixed cost is minimized at an output less than 250 sundaes.
D) Total cost of producing 250 sundaes is $1,250.
Answer: B
Diff: 2
Skill: Analytical
215) Average variable and average total costs get farther apart as output decreases because ________ as
output decreases.
A) diminishing returns set in
B) average fixed costs increase
C) marginal costs increase
D) total and total variable costs get farther apart
Answer: B
Diff: 2
Skill: Analytical
216) If marginal cost is above average total cost, average total cost will
A) be minimized.
B) decrease.
C) increase.
D) remain constant.
Answer: C
Diff: 2
Skill: Conceptual
217) If marginal cost equals average variable cost, average variable cost will
A) be maximized.
B) decrease.
C) increase.
D) be minimized.
Answer: D
Diff: 2
Skill: Conceptual
61
218) The short‐run average variable cost curve eventually begins to increase at an increasing rate because
of
A) diseconomies of scale phenomena.
B) a constraint that does not allow the firm to change its production technology.
C) diminishing returns phenomena.
D) increasing returns to scale to capital.
Answer: C
Diff: 1
Skill: Conceptual
219) The law of diminishing marginal returns results in average total cost eventually
A) increasing at a decreasing rate.
B) decreasing at a decreasing rate.
C) decreasing at an increasing rate.
D) increasing at an increasing rate.
Answer: D
Diff: 2
Skill: Conceptual
220) In the short run, a firm using variable labor and fixed capital inputs achieves the ________ level of
output at the minimum point on its average total cost curve.
A) efficient
B) highest cost
C) least efficient
D) only possible
Answer: A
Diff: 1
Skill: Conceptual
221) A firm is producing output less than the output associated with the minimum point on the firmʹs
short run average variable cost curve. At this level of output the firm uses its fixed capital input ________
and its variable labor input ________.
A) efficiently; efficiently
B) efficiently; inefficiently
C) inefficiently; efficiently
D) inefficiently; inefficiently
Answer: D
Diff: 3
Skill: Conceptual
62
222) At an output ________ of a firmʹs short run average total cost curve, a firm can use its fixed capital
input at a lower average cost but only by using its variable input at a higher average cost.
A) beyond the minimum point
B) beyond the maximum point
C) prior to the minimum point
D) equal to the highest level
Answer: A
Diff: 3
Skill: Conceptual
223) Related to the Economics in Practice on page 172: When there are only a few empty cabins on a large
cruise ship, the marginal cost of adding extra passengers to occupy those cabins
A) is probably very low.
B) will be negative.
C) is generally quite high.
D) will primarily depend on the number of customers waiting to travel.
Answer: A
Diff: 2
Topic: Costs in the Short Run: Economics in Practice
Skill: Conceptual
224) Average fixed costs rise continuously as quantity of output rises.

Answer: FALSE
Diff: 1
Skill: Conceptual
225) The increase in total cost that results from producing one more unit of output is the marginal cost.
Answer: TRUE
Diff: 2
Skill: Definition
226) The best combination of inputs at one level of production may not be best at other levels.
Answer: TRUE
Diff: 1
Skill: Conceptual
63
227) If marginal cost is increasing, then average variable cost must be increasing simultaneously.
Answer: FALSE
Diff: 1
Skill: Conceptual
228) Average total cost and average variable cost are minimized at the same level of output.
Answer: FALSE
Diff: 1
Skill: Conceptual
229) When marginal cost is between average variable cost and average total cost, marginal cost is
increasing.
Answer: TRUE
Diff: 2
Skill: Conceptual
230) Average total cost of producing 100 units of output is $5. If the marginal cost of producing the 101st
unit is $4, then average total cost of 101 units is less than $5.
Answer: TRUE
Diff: 2
Skill: Analytical
231) Marginal cost is total variable cost divided by output.

Answer: FALSE
Diff: 1
Skill: Definition
232) Average variable costs fall continuously as quantity of output rises.

Answer: FALSE
Diff: 1
Skill: Conceptual
64
233) At a particular level of output, the difference between average total cost and average fixed cost is
average variable cost.
Answer: TRUE
Diff: 1
Skill: Definition
234) At an output level of zero, total cost is zero.

Answer: FALSE
Diff: 1
Skill: Conceptual
235) If marginal cost is increasing, then average total cost must be increasing simultaneously.
Answer: FALSE
Diff: 1
Skill: Conceptual
236) Average total cost is minimized at a higher level of output than average variable cost.
Answer: TRUE
Diff: 1
Skill: Conceptual
237) The marginal cost curve intersects the average total cost curve at its minimum point.
Answer: TRUE
Diff: 2
Skill: Conceptual
238) Average total cost of producing 100 units of output is $5. If the marginal cost of producing the 101st
unit is $6, then average total cost of 101 units is less than $5.
Answer: FALSE
Diff: 2
Skill: Analytical
65
239) Total variable cost divided by output is average variable cost.
Answer: TRUE
Diff: 1
Skill: Definition
8.2 Output Decisions: Revenues, Costs, and Profit Maximization
1) Marginal revenue (MR) is

A) TR/q
B) ΔTR/Δq.
C) P × q
D) P/q
Answer: B
Diff: 1
Topic: Output Decisions: Revenues, Costs, and Profit Maximization
Skill: Definition
2) The main decision for a profit‐maximizing perfectly competitive firm is not what ________ but what
________.
A) level of output to produce; price to charge
B) price to charge; level of output to produce
C) level of output to produce; total revenue to achieve
D) price to charge; total cost to achieve
Answer: B
Diff: 1
Skill: Conceptual
3) If an individual perfectly competitive firm charges a price above the industry equilibrium price, it will
A) sell all that it can produce and gain equal revenue with competitors.
B) sell all that it can produce and gain more revenue than competitors.
C) sell part of what it can produce and gain less revenue than competitors will.
D) not sell any of what it produces.
Answer: D
Diff: 1
Skill: Conceptual
66
4) If an individual perfectly competitive firm charges a price below the industry equilibrium price, it will
A) not sell anything.
B) sell part of what it produces.
C) sell all that it produces and gain more revenue than competing firms will.
D) sell all that it produces but gain less revenue than competing firms will.
Answer: D
Diff: 1
Skill: Conceptual
5) Any firmʹs total revenue equals

A) MR × q.
B) P × q.
C) P/q.
D) MR/q.
Answer: B
Diff: 1
Skill: Definition
6) The added revenue that a firm takes in when it increases output by one additional unit is ________
revenue.
A) total
B) marginal
C) variable
D) fixed
Answer: B
Diff: 1
Skill: Definition
7) Marginal revenue is the

A) ratio of total revenue to quantity.
B) difference between total revenue and total costs.
C) added revenue that a firm takes in when it increases output by one additional unit.
D) additional profit the firm earns when it sells an additional unit of output.
Answer: C
Diff: 1
Skill: Definition
67
8) The marginal revenue curve for a perfectly competitive firm is
A) downward sloping.
B) upward sloping.
C) horizontal.
D) vertical.
Answer: C
Diff: 1
Skill: Conceptual
9) In perfect competition, the marginal revenue curve

A) and the demand curve facing the firm are identical.
B) is always above the demand curve facing the firm.
C) is always below the demand curve facing the firm.
D) intersects the demand curve when marginal revenue is minimized.
Answer: A
Diff: 1
Skill: Conceptual
10) The relationship between the price that a perfectly competitive firm can charge buyers and the firmʹs
marginal revenue is that the price is ________ marginal revenue over all output.
A) above
B) below
C) equal to
D) sometimes above and sometimes below
Answer: C
Diff: 1
Skill: Conceptual
11) Profit‐maximizing firms want to maximize the difference between

A) total revenue and marginal cost.
B) total revenue and total cost.
C) marginal revenue and marginal cost.
D) marginal revenue and average cost.
Answer: B
Diff: 1
Skill: Conceptual
68
12) Assume Robbieʹs Robots operates in a perfectly competitive market producing 3,000 robots per day.
At this output level, the selling price is $800 per robot and the marginal cost is $625 per robot. It follows
that producing one more robot will cause this firmʹs
A) total cost to decrease.
B) profits to increase.
C) profits to decrease.
D) profits to remain unchanged.
Answer: B
Diff: 2
Skill: Analytical
At this output level, the selling price is $800 per robot and the marginal cost is $625 per robot. To
maximize profits, Robbieʹs Robots should
A) make no adjustments as they are already maximizing their profits.
B) increase their output.
C) decrease their output.
D) stop producing since it is earning a loss.
Answer: B
Diff: 2
Skill: Analytical
Answer: C
Diff: 2
Skill: Analytical
69
Answer: A
Diff: 2
Skill: Analytical
Refer to the information provided in Table 8.7 below to answer the following question(s).
Table 8.7
16) Refer to Table 8.7. Assume that fruit baskets are sold in a perfectly competitive market. The market
price of a fruit basket is $22. To maximize profits, Exotic Fruit should sell ________ fruit baskets and their
profit is ________.
A) three; $5
B) four; $7
C) five; $14
D) six; $14
Answer: D
Diff: 2
Skill: Analytical
70
17) Refer to Table 8.7. Assume that fruit baskets are sold in a perfectly competitive market. The market
price of a fruit basket is $15. To maximize profits, Exotic Fruit should sell ________ fruit baskets and their
profit is ________.
A) zero; $0
B) two; ‐$35
C) three; ‐$26
D) five; ‐$21
Answer: D
Diff: 2
Skill: Analytical
18) If a firmʹs demand curve is perfectly elastic, then at the profit‐maximizing level of output,
A) P = MR = MC.
B) P > MR > MC.
C) P < MR < MC.
D) P > 0 and MR = 0.
Answer: A
Diff: 3
Skill: Conceptual
19) If a profit‐maximizing firm is currently producing where MR = MC, it should

A) increase output so that marginal revenue is less than marginal cost.
B) decrease output so that marginal revenue will be greater than marginal cost and the firmʹs profit will
increase.
C) not change because it is already maximizing profit.
D) exit the industry.
Answer: C
Diff: 2
Skill: Conceptual
20) If a firm is producing where MR > MC,

A) the revenue gained by producing one more unit of output exceeds the cost incurred by doing so.
B) the revenue gained by producing one more unit of output equals the cost incurred by doing so.
C) the revenue gained by producing one more unit of output is less than the cost incurred by doing so.
D) the firm is already maximizing profits because revenue is being increased by more than costs.
Answer: A
Diff: 2
Skill: Analytical
71
21) Joeʹs Butcher Shop is producing where MR = MC; Joeʹs Butcher Shop must be
A) earning a zero economic profit.
B) incurring a loss.
C) maximizing profits.
D) maximizing revenue but not maximizing profits.
Answer: C
Diff: 2
Skill: Analytical
22) The profit‐maximizing level for all firms, regardless of industry structure, is the output level where
A) TR = MC.
B) P = MC.
C) ATC = P.
D) MC = MR.
Answer: D
Diff: 1
Skill: Conceptual
Figure 8.7
23) Refer to Figure 8.7. If Buffy gives 17 perms per day, her daily profit is
A) $3.
B) $51.
C) $153.
D) $204.
Answer: B
Diff: 2
Skill: Analytical
72
24) Refer to Figure 8.7. If Buffy gives 17 perms per day, her total revenue is
A) $3.
B) $51.
C) $153.
D) $204.
Answer: D
Diff: 2
Skill: Analytical
25) A firm in a perfectly competitive industry is producing 50 units, its profit‐maximizing quantity.
Industry price is $2, total fixed costs are $25, and total variable costs are $40. The firmʹs economic profit is
A) $15.
B) $30.
C) $35.
D) $60.
Answer: C
Diff: 2
Skill: Analytical
26) Wheat is produced in a perfectly competitive market. Market demand for wheat increases. This will
cause the individual wheat farmerʹs marginal revenue to ________ and their profit‐maximizing level of
output to ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Answer: A
Diff: 3
Skill: Conceptual
73
27) Corn is produced in a perfectly competitive market. The demand for ethanol increases. This will cause
the individual corn farmerʹs marginal revenue to ________ and their profit‐maximizing level of output to
________.
Answer: A
Diff: 3
Skill: Conceptual
28) Strawberries are produced in a perfectly competitive market. Average consumer incomes decrease.
This will cause the individual strawberry farmerʹs marginal revenue to ________ and their profit‐
maximizing level of output to ________.
Answer: D
Diff: 3
Skill: Conceptual
29) Assume soybeans are produced in a perfectly competitive market. A soybean farmer is currently
maximizing his profits. If the market price of soybeans falls, after the farmer adjusts to the new price, he
will be producing ________ bushels of soybeans, and his profit will be ________.
A) fewer; the same
B) fewer; lower
C) more; the same
D) the same number of; the same
Answer: B
Diff: 3
Skill: Conceptual
74
Figure 8.8
30) Refer to Figure 8.8. This farmerʹs profit‐maximizing level of output is ________ units of output.
A) 200
B) 700
C) 1,000
D) 1,400
Answer: C
Diff: 2
Skill: Analytical
31) Refer to Figure 8.8. If this farmer is producing the profit‐maximizing level of output, her profit is
A) $0.
B) $2,800.
C) $3,000.
D) $12,000.
Answer: C
Diff: 2
Skill: Analytical
32) Refer to Figure 8.8. What is the total cost of producing the profit‐maximizing level of output?
A) $9
B) $1,000
C) $5,600
D) $9,000
Answer: D
Diff: 2
Skill: Analytical
75
33) Refer to Figure 8.8. If the market price of soybeans falls to $8, then to maximize profits this farmer
should produce
A) 200 bushels of soybeans.
B) 700 bushels of soybeans.
C) 1,000 bushels of soybeans.
D) a level of output that is indeterminate from this information.
Answer: B
Diff: 2
Skill: Analytical
34) Refer to Figure 8.8. At the market price of $8 per bushel, if this farmer produces the profit‐maximizing
level of soybeans, the total revenue would be
A) $1,200.
B) $2,800.
C) $5,600.
D) $8,400.
Answer: C
Diff: 2
Skill: Analytical
35) Refer to Figure 8.8. At the market price of $8 per bushel, if this farmer produces the profit‐maximizing
level of soybeans, the profit would be
A) $0.
B) $2,800.
C) $5,600.
D) $8,000.
Answer: A
Diff: 2
Skill: Analytical
36) Refer to Figure 8.8. A soybean farmerʹs ________ level of output is 1,000 units of output.
A) loss‐minimizing
B) break‐even
C) profit‐maximizing
D) shut‐down
Answer: C
Diff: 2
Skill: Analytical
76
37) Refer to Figure 8.8. If this farmer is producing the profit‐maximizing level of output, her marginal cost
is
A) $2.
B) $8.
C) $9.
D) $12.
Answer: D
Diff: 2
Skill: Analytical
38) Refer to Figure 8.8. What is the total revenue from producing the profit‐maximizing level of output?
A) $8,400
B) $9,000
C) $12,000
D) $16,800
Answer: C
Diff: 2
Skill: Analytical
39) Refer to Figure 8.8. If the market price of soybeans ________, then to maximize profits this farmer
should produce 700 bushels of soybeans.
A) falls to $2
B) falls to $8
C) falls to $9
D) stays at $12
Answer: B
Diff: 2
Skill: Analytical
40) Refer to Figure 8.8. If this farmer produces the profit‐maximizing level of soybeans when the market
price is $8 per bushel, then her total cost would be
A) $1,200.
B) $2,800.
C) $5,600.
D) $8,400.
Answer: C
Diff: 2
Skill: Analytical
77
41) Refer to Figure 8.8. If this farmer produces the profit‐maximizing level of soybeans when the market
price is ________ per bushel, then her profit would be $0.
A) $2
B) $8
C) $9
D) $12
Answer: A
Diff: 2
Skill: Analytical
Figure 8.9
42) Refer to Figure 8.9. This farmerʹs profit‐maximizing level of output is ________ units of output.
A) 100
B) 350
C) 500
D) 700
Answer: C
Diff: 2
Skill: Analytical
78
43) Refer to Figure 8.9. If this farmer is producing the profit‐maximizing level of output, her profit is
A) $0.
B) $1,000.
C) $2,000.
D) $3,000.
Answer: C
Diff: 2
Skill: Analytical
44) Refer to Figure 8.9. If the market price of hay falls to $18, then to maximize profits this farmer should
produce
A) 350 bales of hay.
B) 500 bales of hay.
C) 750 bales of hay.
D) a level of output that is indeterminate from this information.
Answer: A
Diff: 2
Skill: Analytical
45) Refer to Figure 8.9. At the market price of $18 per bale, if this farmer produces the profit‐maximizing
level of hay, the total revenue would be
A) $1,200.
B) $2,800.
C) $5,600.
D) $6,300.
Answer: D
Diff: 2
Skill: Analytical
46) Refer to Figure 8.9. At the market price of $18, if this farmer produces the profit‐maximizing quantity,
what profit will he make?
A) $0
B) $2,000
C) $700
D) indeterminate from this information
Answer: A
Diff: 2
Skill: Analytical
79
47) Refer to Figure 8.9. This farmerʹs ________ level of output is 500 units of output.
A) profit‐maximizing
B) loss‐minimizing
C) break‐even
D) shut‐down
Answer: A
Diff: 2
Skill: Analytical
48) Refer to Figure 8.9. If this farmer is producing the profit‐maximizing level of output, her total revenue
is
A) $0.
B) $8,400.
C) $12,000.
D) $16,800.
Answer: C
Diff: 2
Skill: Analytical
49) Refer to Figure 8.9. If the market price of hay ________, then to maximize profits this farmer should
produce 350 bales of hay.
A) falls to $20
B) falls to $18
C) falls to $4
D) stays at $24
Answer: B
Diff: 2
Skill: Analytical
50) Refer to Figure 8.9. If this farmer produces the profit‐maximizing level of hay when the market price
is $18 per bale, her total cost would be
A) $1,200.
B) $2,800.
C) $5,600.
D) $6,300.
Answer: D
Diff: 2
Skill: Analytical
80
51) Refer to Figure 8.9. If this farmer produces the profit‐maximizing quantity when the market price is
________, her profit is $0.
A) $24
B) $20
C) $18
D) $4
Answer: C
Diff: 2
Skill: Analytical
52) A perfectly competitive firm will earn positive economic profits in the range of output for which the
firmʹs price is ________ its minimum average total cost.
A) below
B) above
C) equal to
D) below its marginal cost and
Answer: B
Diff: 2
Skill: Analytical
53) If a perfectly competitive firmʹs average total cost curve is above its demand schedule at every level of
output, then the firm will earn ________ profits.
A) positive
B) break‐even
C) negative
D) zero
Answer: C
Diff: 2
Skill: Analytical
54) A perfectly competitive firm breaks even at the level of output where
A) P > ATC.
B) P < ATC.
C) P = ATC.
D) P = MC.
Answer: C
Diff: 2
Skill: Analytical
81
55) If P = MC and MC > ATC, then a perfectly competitive firm will earn ________ profits.
A) positive
B) zero
C) negative
D) break‐even
Answer: A
Diff: 3
Skill: Analytical
56) If a perfectly competitive firm is currently producing where P = MC and MC = ATC, then the firm will
earn ________ profits.
A) positive
B) zero
C) negative
D) above normal
Answer: B
Diff: 2
Skill: Analytical
57) If there is an increase in industry supply while the industry demand curve remains the same, then an
individual firm in a perfectly competitive industry currently earning positive profits will see its profits
A) increase.
B) not change.
C) decrease.
D) impossible to determine
Answer: C
Diff: 3
Skill: Analytical
58) If there is a decrease in industry supply while the industry demand curve remains the same, then an
individual firm in a perfectly competitive industry currently earning losses will see its losses
A) increase.
B) not change.
C) decrease.
Answer: C
Diff: 3
Skill: Analytical
82
59) Perfectly competitive firms
A) sell homogeneous products.
B) are price takers.
C) are small relative to the size of the market.
Answer: D
Diff: 2
Skill: Conceptual
60) The rising part of a perfectly competitive firmʹs ________ cost curve is the firmʹs short‐run ________
curve.
A) average total; supply
B) average variable; demand
C) average fixed; demand
D) marginal; supply
Answer: D
Diff: 2
Skill: Conceptual
83
Figure 8.10
61) Refer to Figure 8.10. Panel ________ represents the demand curve facing a perfectly competitive
producer of wheat.
A) A
B) B
C) C
D) D
Answer: B
Diff: 2
Skill: Analytical
62) Refer to Figure 8.10. Panel ________ represents the industry demand curve for the perfectly
competitive wheat industry.
A) A
B) B
C) C
D) D
Answer: A
Diff: 2
Skill: Analytical
84
63) Jerry sells cherry sno‐cones along the boardwalk in New Jersey. During the summer this is a perfectly
competitive business, and Jerry faces a perfectly elastic demand curve. If he wants to try to increase
revenues he should
A) raise the price of his sno‐cones to make more per sale.
B) lower the price of his sno‐cones to try to sell more.
C) keep the price the same but produce more to increase sales.
D) do nothing; there is nothing he can do to increase revenue.
Answer: C
Diff: 3
Skill: Conceptual
64) A firm in a perfectly competitive market has no control over price because
A) the government imposes price ceilings on the products produced in perfectly competitive industries.
B) there is free entry and exit from the industry.
C) every firmʹs product is a perfect substitute for every other firmʹs product.
D) the market demand for products produced in perfectly competitive industries is perfectly elastic.
Answer: C
Diff: 1
Skill: Conceptual
65) The closest example of a perfectly competitive market is

A) fast foods.
B) beer.
C) gasoline stations.
D) soybeans.
Answer: D
Diff: 2
Skill: Conceptual
85
Figure 8.11
66) Refer to the Figure 8.11. Assuming wool is a perfectly competitive industry, the demand curve faced
by each wool producer is ________ starting at $3.00 per pound.
A) downward sloping
B) upward sloping
C) vertical
D) horizontal
Answer: D
Diff: 1
Skill: Conceptual
67) Refer to Figure 8.11. Assuming the wool market (industry) is perfectly competitive and the industry
consists of 100 firms of identical size, each firm would produce an average of ________ pounds of wool
and sell the wool for ________ per pound.
A) 50; $0.03
B) 5,000; $3.00
C) 5,000; $0.03
D) 50; $3.00
Answer: D
Diff: 2
Skill: Analytical
86
68) A market demand curve is
B) upward sloping.
C) perfectly elastic.
D) perfectly inelastic.
Answer: A
Diff: 2
Skill: Conceptual
69) If a firm in a perfectly competitive industry raises its price above market price,
A) total revenue for the firm will increase.
B) profit will increase.
C) sales will drop to zero.
D) demand curves will become downward sloping.
Answer: C
Diff: 2
Skill: Conceptual
70) A perfectly elastic demand curve implies that, ceteris paribus,

A) a firm can sell more by lowering its price.
B) if a firm raises its price above the market price, quantity demanded will equal zero.
C) the price a firm charges is irrelevant, as it will sell the same amount regardless of the price charged.
D) a firm can raise its price and not lose all its customers.
Answer: B
Diff: 1
Skill: Conceptual
71) Assume the wool industry is perfectly competitive. Why is it difficult for a wool producer to make
excess profits in the long run?
A) the fact that wool producers are ʺprice takersʺ
B) the assumption that wool producers in the industry do not ʺdiﬀerentiateʺ their products
C) the fact that the demand curve facing each wool producer is perfectly elastic
D) There is free entry into the wool industry.
Answer: D
Diff: 2
Skill: Conceptual
87
72) Assume the wool industry is perfectly competitive. The market demand curve for wool is ________
and each individual wool producerʹs demand curve is ________.
A) downward sloping; horizontal
B) horizontal; downward sloping
C) horizontal; horizontal
D) downward sloping; downward sloping
Answer: A
Diff: 3
Skill: Conceptual
73) Free entry implies that

A) a perfectly competitive firm can never earn a profit.
B) if firms in an industry are making excessively high profits, new firms are likely to enter the industry.
C) the government regulates the number of firms that are allowed in an industry.
D) firms will always earn a profit, as new firms can enter the industry at any time they like.
Answer: B
Diff: 2
Skill: Conceptual
74) The fast‐food industry is not considered perfectly competitive because

A) entry and exit are strictly regulated by the government.
B) the firmʹs products are not homogeneous.
C) there is a small number of dominant firms.
D) there is a very large number of firms.
Answer: B
Diff: 2
Skill: Conceptual
75) ________ is ΔTR/Δq.

A) Marginal cost
B) Marginal revenue
C) Average revenue
D) Economic profit
Answer: B
Diff: 1
Skill: Definition
88
76) A perfectly competitive industry consists of firms that produce ________ products.
A) identical
B) unique
C) slightly differentiated
D) significantly differentiated
Answer: A
Diff: 1
Skill: Conceptual
77) If an individual perfectly competitive firm charges a price ________ the industry equilibrium price
while competitors charge the equilibrium price, the firm will not sell any of what it produces.
A) above
B) below
C) equal to
D) More information is needed to answer the question.
Answer: A
Diff: 1
Skill: Conceptual
78) If an individual perfectly competitive firm charges a price ________ the industry equilibrium price
while competitors charge the equilibrium price, the firm will sell all that it produces but forgo revenue
that it could have had.
A) above
B) below
C) equal to
D) More information is needed to answer the question.
Answer: B
Diff: 1
Skill: Conceptual
79) Any firmʹs ________ equals P × q.

A) total cost
B) total revenue
C) marginal revenue
D) marginal cost
Answer: B
Diff: 1
Skill: Definition
89
80) The ________ that a firm takes in when it increases output by one additional unit is marginal revenue.
A) total revenue
B) added revenue
C) extra resources
D) additional labor
Answer: B
Diff: 2
Skill: Definition
81) For perfectly competitive firms,

A) marginal revenue equals total revenue.
B) marginal revenue equals price.
C) total revenue equals price.
D) all of the above
Answer: B
Diff: 1
Skill: Definition
82) In perfect competition, a firmʹs demand curve

A) and the marginal revenue curve facing the firm are identical.
B) is always above the marginal revenue curve facing the firm.
C) is always below the marginal revenue curve facing the firm.
D) intersects the marginal revenue curve when marginal revenue is minimized.
Answer: A
Diff: 1
Skill: Conceptual
83) In perfect competition, a firmʹs ________ curve is horizontal.

A) marginal cost
B) total revenue
C) marginal revenue
D) total cost
Answer: C
Diff: 1
Skill: Conceptual
90
84) Which of the following represents an accurate situation for a perfectly competitive firm?
A) P = $12 and MR = $8
B) P = $5 and MR = $7
C) P = $9 and MR = $9
D) P = $16 and MR = $0
Answer: C
Diff: 1
Skill: Conceptual
85) Profit‐maximizing firms want to ________ the difference between total revenue and total cost.
A) minimize
B) maximize
C) equalize
D) eliminate
Answer: B
Diff: 1
Skill: Conceptual
86) Assume Cathyʹs Cupcake Company operates in a perfectly competitive market producing 10,000
cupcakes per day. At this output level, price exceeds the firmʹs marginal and average variable costs. It
follows that producing one more cupcake will cause this firmʹs
A) total cost to decrease.
B) profits to increase.
C) profits to decrease.
D) profits to remain unchanged.
Answer: B
Diff: 2
Skill: Analytical
cupcakes per day. At this output level, price exceeds this firmʹs marginal and average variable costs. To
maximize profits, Cathyʹs should
Answer: B
Diff: 2
Skill: Analytical
91
cupcakes per day. At this output level, marginal cost exceeds this firmʹs price. Assuming price exceeds
average variable cost, to maximize profits Cathyʹs should
Answer: C
Diff: 2
Skill: Analytical
cupcakes per day. At this output level, price equals this firmʹs marginal cost. Assuming price exceeds
average variable cost, to maximize profits Cathyʹs should
Answer: A
Diff: 2
Skill: Analytical
92
Refer to the information provided in Table 8.8 below to answer the following question(s).
Table 8.8
Number of
TFC TVC TC MC
Fruit Baskets
0 $100 $0 $100 ‐‐
1 100 20 120 20
2 100 30 130 10
3 100 42 142 12
4 100 62 162 20
5 100 92 192 30
6 100 136 236 44
90) Refer to Table 8.8. Assume that Polynesian Fruit sells fruit baskets in a perfectly competitive market.
The market price of a fruit basket is $44. To maximize profits, Polynesian Fruit should sell ________ fruit
basket(s) and their profit is ________.
A) three; $10
B) four; $14
C) five; $28
D) six; $28
Answer: D
Diff: 2
Skill: Analytical
91) Refer to Table 8.8. Assume that Polynesian Fruit sells fruit baskets in a perfectly competitive market.
The market price of a fruit basket is $30. To maximize profits, Polynesian Fruit should sell ________ fruit
baskets and their profit is ________.
A) zero; $0
B) two; ‐$70
C) three; ‐$52
D) five; ‐$42
Answer: D
Diff: 2
Skill: Analytical
93
92) If a firmʹs demand curve is ________, then at the profit‐maximizing level of output, P = MR = MC.
A) relatively elastic
B) perfectly elastic
C) perfectly inelastic
D) relatively inelastic
Answer: B
Diff: 2
Skill: Conceptual
93) If a profit‐maximizing firm is currently producing output where MR = MC in the short run, it should
A) increase output.
B) decrease output.
C) not change output.
D) shut down.
Answer: C
Diff: 2
Skill: Conceptual
94) If a firm is producing where MR < MC,

A) the revenue gained by producing one more unit of output exceeds the cost incurred by doing so.
B) the revenue gained by producing one more unit of output equals the cost incurred by doing so.
C) the revenue gained by producing one more unit of output is less than the cost incurred by doing so.
D) the firm is already maximizing profits because revenue is being decreased by more than costs.
Answer: C
Diff: 2
Skill: Analytical
95) Bubbaʹs Bait and Tackle is maximizing profits, so it must be producing where
A) MR > MC.
B) MR < MC.
C) MR = MC.
D) MR = 0.
Answer: C
Diff: 2
Skill: Conceptual
94
96) The profit‐maximizing level for all firms in ________ is the output level where MC = MR.
A) only perfectly competitive industries
B) only monopoly industries
C) only large industries
D) any industry
Answer: D
Diff: 1
Skill: Conceptual
97) A firm in a perfectly competitive industry produces its profit‐maximizing quantity, 40 units. Industry
price is $3, total fixed costs are $45, and total variable costs are $60. The firmʹs economic profit is
A) $15.
B) $30.
C) $35.
D) $60.
Answer: A
Diff: 2
Skill: Analytical
98) An individual wheat farmer produces wheat in a perfectly competitive market. A decrease in the
market demand for wheat will cause the farmerʹs marginal revenue to ________ and his profit‐
maximizing level of output to ________.
Answer: D
Diff: 3
Skill: Conceptual
95
99) Corn is produced in a perfectly competitive market. The demand for ethanol decreases. This will
cause the individual corn farmerʹs marginal revenue to ________ and their profit‐maximizing level of
output to ________.
Answer: D
Diff: 3
Skill: Conceptual
100) Strawberries, a normal good, are produced in a perfectly competitive market. Average consumer
incomes increase. This will cause the individual strawberry farmerʹs marginal revenue to ________ and
their profit‐maximizing level of output to ________.
Answer: A
Diff: 3
Skill: Conceptual
101) A farmer producing bushels of soybeans in the perfectly competitive soybean industry is currently
maximizing profits. If the market price of soybeans increases and the farmer adjusts output to the new
price, he will produce ________ soybeans and make ________ profit.
A) fewer; the same
B) fewer; less
C) more; more
D) the same bushels of; the same
Answer: C
Diff: 3
Skill: Conceptual
96
102) A perfectly competitive firm will earn ________ economic profits in the range of output for which the
firmʹs price is above its minimum average total cost.
A) positive
B) negative
C) zero
D) Any of the above answers could be correct.
Answer: A
Diff: 3
Skill: Analytical
103) If a perfectly competitive firmʹs average total cost curve is below its demand schedule at any level of
output, then the firm will earn ________ profits.
A) positive
B) break‐even
C) negative
D) zero
Answer: A
Diff: 2
Skill: Analytical
104) A perfectly competitive firm ________ at the level of output where P = ATC.
A) earns an economic profit
B) suffers an economic loss
C) breaks even
D) shuts down
Answer: C
Diff: 3
Skill: Analytical
105) If P = MC and MC <ATC, then a perfectly competitive firm will earn ________ profits.
A) positive
B) zero
C) negative
D) break‐even
Answer: C
Diff: 3
Skill: Analytical
97
106) If a perfectly competitive firm is currently producing where ________, then the firm will earn zero
profits.
A) P > MC and MC = ATC
B) P = MC and MC = ATC
C) P = MC and MC < ATC
D) P < MC and MC > ATC
Answer: B
Diff: 2
Skill: Analytical
107) If there is an increase in industry supply while the industry demand remains the same, then an
individual firm in a perfectly competitive industry currently earning negative profits will see its profits
A) increase.
B) not change.
C) decrease further.
Answer: C
Diff: 3
Skill: Analytical
108) If there is a decrease in industry supply while the industry demand curve remains the same, then an
individual firm in a perfectly competitive industry currently earning profits will see its profits
A) increase.
B) not change.
C) decrease.
Answer: A
Diff: 3
Skill: Analytical
109) Perfectly competitive firms

A) sell identical products.
B) are price makers.
C) are large relative to the size of the market.
Answer: A
Diff: 2
Skill: Conceptual
98
110) The ________ part of a perfectly competitive firmʹs marginal cost curve is the firmʹs short‐run supply
curve.
A) rising
B) falling
C) horizontal
D) backward‐bending
Answer: A
Diff: 2
Skill: Conceptual
111) Dominic sells pizza slices for $5 on the Santa Monica Pier. He currently sells 500 slices of pizza per
day. This is a perfectly competitive business, and Dominic faces a perfectly price elastic demand curve. If
he wants to try to increase daily revenues to $3,000, he should
A) raise the price of his pizza to $6 per slice and continue to sell 500 slices per day.
B) lower the price of his pizza to $4 per slice and try to sell 750 slices per day.
C) keep the price at $5 per slice and produce 600 slices per day.
D) do nothing since he can do nothing to increase revenue.
Answer: C
Diff: 3
Skill: Conceptual
112) A firm in a perfectly competitive market has ________ control over price because each firmʹs product
perfectly substitutes for every other firmʹs product.
A) total
B) moderate
C) limited
D) no
Answer: D
Diff: 1
Skill: Conceptual
113) The closest example of a perfectly competitive industry is

A) casual dining restaurants.
B) cigarettes.
C) convenience stores.
D) alfalfa.
Answer: D
Diff: 2
Skill: Conceptual
99
114) An individual firmʹs demand curve in a perfectly competitive market is
B) upward sloping.
C) perfectly elastic.
D) perfectly inelastic.
Answer: C
Diff: 2
Skill: Conceptual
115) If a firm in a perfectly competitive industry lowers its price below the market price, its
A) total revenue will increase.
B) profit will decrease.
C) sales will drop to zero.
D) demand curve will become downward sloping.
Answer: B
Diff: 2
Skill: Conceptual
116) A firm facing a ________ demand curve, ceteris paribus, will have zero quantity demanded if it raises
its price above the market price.
A) perfectly inelastic
B) relatively elastic
C) relatively inelastic
D) perfectly elastic
Answer: D
Diff: 2
Skill: Conceptual
117) It is ________ for a corn producer in a perfectly competitive corn industry to make excess profits
because entry into the corn industry is free.
A) expected
B) very easy
C) likely
D) difficult
Answer: D
Diff: 2
Skill: Conceptual
100
118) If the corn industry is perfectly competitive, ________ for corn is downward sloping and ________ is
horizontal.
A) the market demand curve; an individual corn producerʹs demand curve
B) an individual corn producerʹs demand curve; the marginal revenue curve
C) the marginal cost curve; the marginal revenue curve
D) marginal revenue curve; average total cost curve
Answer: A
Diff: 3
Skill: Conceptual
119) Free exit implies that

A) a perfectly competitive firm can never earn a profit.
B) if an industryʹs existing firms make excessively high losses, firms are likely to exit the industry.
C) the government regulates the number of firms it allows in an industry.
D) firms will always earn below normal profit, as firms can exit the industry at any time they like.
Answer: B
Diff: 2
Skill: Conceptual
120) Economists do not consider the smartphone industry perfectly competitive because
A) the government strictly regulates entry and exit.
B) smartphones are heterogeneous.
C) smartphone manufacturers each have a small market share.
D) there are a large number of smartphone manufacturers.
Answer: B
Diff: 2
Skill: Fact
121) Perfectly competitive industries are characterized by a homogeneous product.

Answer: TRUE
Diff: 1
Skill: Conceptual
122) Demand for the product of an industry in perfect competition is assumed to be inelastic.
Answer: FALSE
Diff: 1
Skill: Conceptual
101
123) The total revenue curve for a perfectly competitive firm will be a straight line with positive slope.
Answer: TRUE
Diff: 1
Skill: Conceptual
124) The marginal revenue curve for a perfectly competitive firm will be downward sloping.
Answer: FALSE
Diff: 1
Skill: Conceptual
125) Marginal costs reflect changes in variable costs.

Answer: TRUE
Diff: 1
Skill: Conceptual
126) The short‐run is a period of less than one year.

Answer: FALSE
Diff: 1
Skill: Definition
127) The production decision is a short‐run decision.

Answer: TRUE
Diff: 2
Skill: Conceptual
128) If demand in a perfectly competitive market increases, then an individual firm in that industry will
see its profits fall.
Answer: FALSE
Diff: 2
Skill: Conceptual
102
129) For a perfectly competitive firm, when P = MC = ATC, the most profit the firm can earn is zero.
Answer: TRUE
Diff: 2
Skill: Conceptual
130) Firms maximize their profits by producing the output level where MR = MC.
Answer: TRUE
Diff: 2
Skill: Conceptual
131) Perfectly competitive firms maximize their profit by producing the output level where P = MR =
AVC.
Answer: FALSE
Diff: 2
Skill: Conceptual
132) The upward‐sloping portion of the perfectly competitive firmʹs average total cost curve is the firmʹs
short‐run supply curve.
Answer: FALSE
Diff: 2
Skill: Conceptual
133) Perfectly competitive firms sell homogeneous products.

Answer: TRUE
Diff: 1
Skill: Conceptual
134) Perfectly competitive firms are price setters.

Answer: FALSE
Diff: 1
Skill: Conceptual
103
135) In perfectly competitive industries, firms can easily enter and exit the industry in the long run.
Answer: TRUE
Diff: 1
Skill: Conceptual
136) For a firm in a perfectly competitive industry, price equals marginal revenue.
Answer: TRUE
Diff: 1
Skill: Conceptual
137) A firm in a perfectly competitive industry can raise its price above the market price to increase
revenue.
Answer: FALSE
Diff: 1
Skill: Conceptual
138) The marginal revenue curve for a perfectly competitive firm will be upward sloping.
Answer: FALSE
Diff: 1
Skill: Conceptual
139) Homogeneous products are indistinguishable from one another.

Answer: FALSE
Diff: 1
Skill: Definition
140) The long run is a period of more than one year.

Answer: FALSE
Diff: 1
Skill: Definition
104
141) The shut‐down decision is a short‐run decision.
Answer: TRUE
Diff: 2
Skill: Conceptual
142) Individual firms in perfectly competitive industries decide what price to charge for their output and
what quantity of output to produce.
Answer: FALSE
Diff: 2
Skill: Conceptual
143) For a perfectly competitive firm, when P = MC = ATC, the firm should reduce its output so as to
increase its profits.
Answer: FALSE
Diff: 2
Skill: Conceptual
144) If, ceteris paribus, demand in a perfectly competitive industry increases, the market price for the
product will also increase.
Answer: TRUE
Diff: 2
Skill: Conceptual
145) Perfectly competitive firms minimize their losses by producing the output level where P = MR =
AVC.
Answer: FALSE
Diff: 2
Skill: Conceptual
146) The upward‐sloping portion of the perfectly competitive firmʹs average variable cost curve is the
firmʹs short run supply curve.
Answer: FALSE
Diff: 2
Skill: Conceptual
105
147) Because of free entry and exit, firms in a perfectly competitive market cannot earn a profit in the
short run.
Answer: FALSE
Diff: 1
Skill: Conceptual
148) Perfectly competitive firms will produce as long as marginal revenue exceeds marginal cost.
Answer: TRUE
Diff: 2
Skill: Conceptual
106

CFO Mic12 TB 08

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CFO Mic12 TB 08

Uploaded by

Copyright:

Available Formats

Principles of Microeconomics, 12e, Global Edition (Case/Fair/Oster)

Chapter 8 Short‐Run Costs and Output Decisions

8.1 Costs in the Short Run

1) In the short run

2) Which type of cost does not depend on a firmʹs output?

3) Which type of cost does depend on a firmʹs output?

6) The formula for total fixed cost is

7) Total cost is calculated as

15) The formula for average fixed costs is

21) As output increases, average fixed costs

23) Short‐run costs that depend on the level of output are

27) ________ are likely a fixed cost of a firm.

34) Marginal cost

36) Diminishing marginal returns implies

40) Total variable costs

42) The formula for AVC is

43) In the short run, as output increases,

66) If marginal cost is above average variable cost, then

97) Refer to Figure 8.4. The vertical distance AB represents

118) In the short run, ________ costs exceed ________ costs.

119) Total cost is

122) Average total cost

126) Refer to Figure 8.6. Curve 1 is Outdoor Equipmentʹs

128) Refer to Figure 8.6. Curve 2 is Outdoor Equipmentʹs

129) Refer to Figure 8.6. Curve 3 is Outdoor Equipmentʹs

130) Refer to Figure 8.6. The vertical distance AB is Outdoor Equipmentʹs

133) Refer to Figure 8.6. Average variable cost is represented by

134) Refer to Figure 8.6. Average total cost is represented by

144) The decision by firms of the quantity of output to supply is based on

147) Fixed costs

158) Firms ________ their ________ costs in the short run.

159) The formula for ________ is TFC/q.

160) As output rises, ________ will continue to fall.

164) Which of the following statements is true?

166) ________ is (are) most likely a variable cost for a firm.

167) ________ are likely a fixed cost of a firm.

176) ________ marginal returns implies ________ marginal costs.

180) Total variable costs ________ with decreasing output.

182) One formula for ________ is TVC/q.

183) As output decreases, in the short run,

209) Average total cost is

212) ________ is the average cost of producing each unit of output.

224) Average fixed costs rise continuously as quantity of output rises.

231) Marginal cost is total variable cost divided by output.

232) Average variable costs fall continuously as quantity of output rises.

234) At an output level of zero, total cost is zero.

8.2 Output Decisions: Revenues, Costs, and Profit Maximization

1) Marginal revenue (MR) is

5) Any firmʹs total revenue equals

7) Marginal revenue is the

9) In perfect competition, the marginal revenue curve

11) Profit‐maximizing firms want to maximize the difference between

19) If a profit‐maximizing firm is currently producing where MR = MC, it should

20) If a firm is producing where MR > MC,

65) The closest example of a perfectly competitive market is

70) A perfectly elastic demand curve implies that, ceteris paribus,

73) Free entry implies that

74) The fast‐food industry is not considered perfectly competitive because

75) ________ is ΔTR/Δq.

79) Any firmʹs ________ equals P × q.

81) For perfectly competitive firms,

82) In perfect competition, a firmʹs demand curve

83) In perfect competition, a firmʹs ________ curve is horizontal.

118) In the short run, costs exceed costs.

158) Firms their costs in the short run.

176) marginal returns implies marginal costs.