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Browning/Zupan – Microeconomics, 11e Test Bank
File: Ch08; Chapter 8: The Cost of Production
Multiple Choice
1. Which of the following most completely describes the cost to a firm associated with the use of
its resources in a particular way?
A) Its monetary outlay for inputs
B) Its explicit cost
C) The implicit cost of not renting its own resources
D) The opportunity cost of its resources
Answer: D
Difficulty Level: Easy
Section Reference: The Nature of Cost
Page: 208
2. Which of the following can be classified as an implicit cost of production?

A) The cost of raw materials
B) Rent forgone on the office building
C) Interest paid on debt
D) Salary paid to workers
Answer: B
Difficulty Level: Medium
Page: 209
3. Jane Doe has her own law practice. She pays $1,500 in rent for her offices per month. She also
pays $4,000 a month in salaries to secretaries and staff, utility bills worth $500 a month, and
miscellaneous bills worth $1,000 a month. She recently received an offer to work for a legal firm
for $8,000 a month, but she declined that in order to run her own practice. Which of the following
most completely describes the cost Jane incurs per month to run her own practice?
A) $15,000
B) $7,000
C) $5,500
D) $6,000
Answer: A
Page: 209
4. A firm’s production cost equaling the opportunity cost of its resources reflects the fact that:
A) resources are best-suited to producing one particular good.
B) firms typically make one primary product.
C) resources can be used to make many different products.
D) firms often make more than one product.
Answer: C
Page: 209
5. Marico Corp. can manufacture 45,000 ball bearings per day at one of its production facilities. If
the company uses the same facility for manufacturing rivets, a total of 30,000 rivets can be
produced each day. Calculate Marico Corp.’s implicit cost per day of producing rivets at this
facility.
A) The monetary value of 45,000 ball bearings
B) The monetary value of 30,000 rivets
C) The monetary value of 15,000 ball bearings
D) The monetary value of 15,000 rivets
Answer: A
Page: 209
6. Suppose you quit your job as an accountant earning an annual salary of $50,000 to buy
foreclosed homes, fix them up, and then resell them. You have $200,000 of your own money to
invest in this, half of which you use to purchase three homes for a combined $500,000 (borrowing
the remaining $400,000), and spend the remaining $100,000 of your money on materials. Over the
course of one year you fix up all three homes and resell them for a total of $700,000. Assume that
your loan to purchase the homes is payable in one lump sum at the end of one year.If you can
borrow and lend money at a 6% annual rate of interest, what was your total cost of renovating these
three homes?
A) $572,000
B) $600,000
C) $624,000
D) $686,000
Answer: D
Difficulty Level: Hard

Page: 209
7. Suppose a builder constructs a house that he hopes to sell to a prospective future buyer before he
finishes building it. After spending six months and $300,000 in acquiring the land and constructing
the house, market conditions change and the builder fails to find a buyer willing to pay his asking
price of $360,000. The builder further realizes that by investing $300,000 in a bank deposit he
would have been able to earn $4,500 as interest. Which of the following is the economically
efficient way for the builder to view his investment?
A) The $300,000 is a sunk cost and should be ignored when negotiating a price for the home.
B) The $300,000 is the builder’s opportunity cost and he should not accept any offer below that.
C) He should advertise more heavily in an attempt to sell the home for at least $300,000.
D) He should raise the price even further to better reflect the additional opportunity costs of his
time and capital expenditures.
Answer: A
Section Reference: Short-Run Cost of Production
Page: 210
8. Ben decides to expand his ice cream store so he can begin selling sub sandwiches. He spends
$20,000 in preparing his new sandwich shop. His marginal cost of selling sub sandwiches is $3 and
he estimates that he can sell 10,000 subs for $6 each. He soon learns of a nearby store that is now
selling identical subs for $3.50 each. Ben should:
A) quit selling subs since his average total cost of selling subs is greater than the $3.50 price he
would now have to charge.
B) sell subs for $3.50 each, considering the $20,000 to be a sunk cost and ignoring it.
C) sell subs as long the price he receives exceeds his average fixed costs of selling subs.
D) lower his price to $5 to cover his average total cost of selling subs.
Answer: B
Page: 210
9. The monetary cost of the space a restaurant rents to produce meals can be categorized as a:
A) variable cost.
B) marginal cost.
C) fixed cost.
D) opportunity cost.
Answer: C
Page: 210
10. Total fixed cost is the same regardless of:

A) how many new machines a firm purchases.
B) how many facilities a firm shuts down.
C) how much new capital a firm rents.
D) how much output the firm produces.
Answer: D
Page: 210
11. If fixed costs are $10,000 and variable costs are constant at $1.00 per unit over the relevant
range of output, what will the average total cost be when 10,000 units are produced?
A) $0.20
B) $2.00
C) $5.00
D) $1.00
Answer: B
Page: 210
12. If fixed costs are $1,000 and variable costs are constant at $1.00 per unit over the relevant
range of output, what will the average total cost be when 2,000 units are produced?
A) $0.50
B) $1.00
C) $1.50
D) $2.00
Answer: C
Page: 210
13. If there are no fixed costs and variable costs are constant at $1.00 per unit over the relevant
range of output, what will the average total cost be after 1 unit of output is produced?
A) $0
B) $1
C) $1.50
D) $2
Answer: B
Page: 210
14. If total fixed costs are $1,000, variable costs are constant at $5.00 per unit over the relevant
range of output and the average total cost is $6, how many units are being produced?
A) 10
B) 100
C) 1,000
D) 1,100
Answer: C
Page: 210
15. Identify the example of sunk cost from the following.

A) A higher wage demanded by the labor union
B) Failure to meet the annual sales target
C) The lumber used to produce office furniture
D) Raw materials damaged by fire in the warehouse
Answer: D
Page: 210
range of output and average total cost is $6, what is total variable cost?
A) $100
B) $1,000
C) $5,000
D) $6,000
Answer: C
Page: 210
17. A firm’s costs are determined by:

A) its production function.
B) the market price of its product.
C) the market demand curve.
D) its production possibility frontier.
Answer: A
Page: 211
range of output and average total cost is $6, what is average fixed cost?
A) $1
B) $5
C) $10
D) $1,000
Answer: A
Page: 211
range of output, what is marginal cost when 1 unit of output is produced?
A) $0
B) $0.50
C) $1
D) $2
Answer: C
Page: 211
20. Which of the following is correct?

A) Total Fixed Cost = Total Cost + Total Variable Cost
B) Total Cost = Total Variable Cost + Marginal Cost
C) Average Fixed Cost = Average Total Cost – Average Variable Cost
D) Average Total Cost = Marginal Cost + Average Fixed Cost
Answer: C
Page: 211
range of output, what is the marginal cost of the second unit?
A) $0
B) $0.50
C) $1
D) $2
Answer: C
Page: 211
22. A total product curve whose slope is continually rising at an increasing rate:
A) indicates that an infinite amount of labor is needed to produce a given level of output.
B) does not reflect diminishing marginal returns.
C) does not reflect increasing marginal returns.
D) describes a production function where labor is the only input.
Answer: B
Page: 212
23. If the marginal cost curve intersects the average variable cost curve at 1,000 units per day, the
rate of output at which average total cost is minimized is _____.
A) 1,000 units
B) more than 1,000 units
C) less than 500 units
D) 500 units
Answer: B
Page: 212-213
In the figure given below, curves F, C, and G denote the total cost, the total variable cost, and the
total fixed cost of a firm.
Figure 8-1
Costs F
C
S
A G
B
T Output
24. In Figure 8-1, which of the following distances represent the total cost of producing BT units
of output?
A) SR
B) ST
C) RT
D) AB
Answer: B
Section Reference: Short-Run Cost Curves
Page: 213
25. Refer to Figure 8-1. Which of the following is true at the output level BT?
A) The firm’s fixed cost is RT.
B) The firm’s average variable cost is RT/BT.
C) The firm’s marginal cost is RT/RB.
D) The firm’s variable cost is AB
Answer: B
Page: 213
26. Which of the following is true of the total variable cost curve in the short run?
A) It depicts the law of decreasing returns to scale.
B) It is a straight line parallel to the horizontal axis.
C) It is independent of the production function.
D) It lies below the short-run total cost curve.
Answer: D
Page: 213
27. Which of the following does not decline as output increases?

A) Marginal cost
B) Average fixed cost
C) Average cost
D) Total fixed cost
Answer: D
Page: 213
28. Which of the following statements is not true?

A) Average variable cost falls, reaches a minimum and begins to rise.
B) Average total cost falls, reaches a minimum and begins to rise.
C) Average fixed cost falls, reaches a minimum, and begins to rise.
D) Marginal cost falls, reaches a minimum and begins to rise.
Answer: C
Page: 213
Figure 8-1
Costs F
C
S
A G
B
T Output
29. Refer to Figure 8-1. The total fixed costs of the firm are identified by the distance:
A) RS.
B) ST.
C) BR.
D) BT.
Answer: A
Page: 213-214
30. Which of the following determines the shape of the marginal cost curve in the short run?
A) The marginal product of labor is first increasing and then decreasing
B) The wage rate first decreases and then increases throughout the range of output
C) The price of output produced by labor is first decreasing and then increasing
D) The presence of economies of scale in the product market
Answer: A
Page: 214
31. In the short run, a firm’s marginal cost rises because of:
A) a decline in output prices.
B) a decline in marginal productivity of inputs.
C) decreasing returns to scale.
D) the flexibility in input usage.
Answer: B
Page: 214
32. If TC represents the change in total cost, w the change in the wage rate, TFC the change in
total fixed cost, q the change in output, and AC the change in average cost, the marginal cost of
the firm can be defined as:
A) TC/w.
B) TFC/q.
C) AC/q.
D) TC/q.
Answer: D
Page: 214
33. In the short-run, diminishing marginal returns are associated with:

A) declining average variable costs.
B) rising marginal cost.

C) rising average fixed cost.
D) falling average total cost.
Answer: B
Page: 214
34. Which of the following statements about marginal cost is correct?

A) When the marginal product of a variable input is rising, the marginal cost will fall.
B) When marginal cost equals average cost, average cost is at its maximum.
C) In the short-run, the marginal cost curve is parallel to the average variable cost curve.
D) When marginal cost is falling, total fixed cost is rising.
Answer: A
Page: 214
35. The law of diminishing marginal returns:

A) is relevant in both the short and the long-run.
B) says that increasing fixed inputs eventually results in smaller and smaller increases in total
output.
C) says that increasing variable inputs eventually results in smaller and smaller increases in total
output.
D) says that increasing variable inputs eventually results in smaller and smaller increases in total
cost.
Answer: C
Page: 214
36. When output expands from the fourth to the fifth unit, the total variable cost of production rises
from $400 to $500, while the total fixed cost remains constant at $100. Compute the marginal cost
of producing the fifth unit.
A) $50
B) $200
C) $400
D) $100
Answer: D
Page: 214
37. When labor is the only variable input used in production, marginal cost [MC]:
A) is inversely related to the marginal product of labor [MPL].
B) is inversely related to the wage rate [w].
C) is positively related to MPL.
D) is negatively related to labor supply [SL].
Answer: A
Page: 214
38. If the marginal product of the variable input rises and then falls, the MC curve will:
A) rise and then fall.
B) fall and then rise.
C) downward sloping throughout.
D) not depend upon the path of the marginal product of the variable input.
Answer: B
Page: 214
39. Once diminishing returns have set in, each additional unit of the variable input:
A) decreases total output.
B) adds less to total output.
C) adds more to total output.
D) does not affect total output.
Answer: B
Page: 214
40. Once diminishing returns have set in, each additional unit of output:
A) requires less of the variable input than the previous unit.
B) requires less cost outlay than the previous unit.
C) requires more of the fixed input than the previous unit.
D) requires more cost outlay than the previous unit.
Answer: D
Page: 214
41. If total cost rises as the level of output produced increases, then:
A) marginal cost must be rising.
B) marginal cost must be constant.
C) marginal cost must be falling.
D) marginal cost must be positive.
Answer: D
Page: 214
42. A firm uses labor as an input in production. For the range of output where the average product
of labor is increasing:
A) the marginal product of labor must be below the average product of labor.
B) the total product is at a maximum.
C) the marginal cost must also be increasing.
D) the average variable cost must be decreasing.
Answer: D
Page: 215
43. Average fixed cost [AFC] is the:

A) horizontal distance between average total cost [ATC] and average variable cost [AVC].
B) vertical distance between ATC and AVC.
C) horizontal distance between ATC and the Y-axis.
D) vertical distance between ATC and the X-axis.
Answer: B
Page: 215
44. A firm uses labor as an input in production. In the short-run, its average cost will reach a
minimum where:
A) average product of labor reaches a maximum.
B) marginal product of labor reaches a maximum.
C) marginal cost begins to increase.
D) marginal cost equals average cost.
Answer: D
Page: 215
45. Which of the following statements about the relationship between marginal cost and average
cost is correct?
A) When MC is falling, AC is rising.
B) AC equals MC at MC's lowest point.
C) When MC exceeds AC, AC must be rising.
D) When AC exceeds MC, MC must be rising.
Answer: C
Page: 216
46. Which of the following statements regarding the relationship between average cost and
marginal cost is not true?
A) When marginal cost is below average total cost, average total cost falls.
B) When marginal cost is above average variable cost, average variable cost rises.
C) When marginal cost is equal to average total cost, average total cost is minimized.
D) When marginal cost is above average fixed cost, average fixed cost rises.
Answer: D

Page: 216
47. Which of the following is true?

A) When average cost is decreasing, total cost must also be decreasing.
B) When average cost is decreasing, average product of labor must be decreasing.
C) When average cost is decreasing, marginal cost must be less than average cost.
D) When average cost is decreasing, output must be decreasing.
Answer: C
Page: 216
48. The slope of the total variable cost curve equals the:
A) average variable cost.
B) marginal cost.
C) average cost.
D) marginal physical product.
Answer: B
Page: 217
Figure 8-1
Costs F
C
S
A G
B
T Output
49. In Figure 8-1, R identifies the point:

A) of inflection.
B) where AVC reaches a minimum.
C) where MC reaches a minimum.
D) where diminishing marginal returns set in.
Answer: B
Page: 217
50. Consider a graph with a total variable cost curve. Cost is on the vertical axis and output on the
horizontal axis. The marginal cost can be represented by:
A) a ray from the origin to a point tangent to the total variable cost curve.
B) a ray from the origin to a point on the total variable cost curve.
C) the slope at a particular point on the total variable cost curve.
D) the distance from the origin to a point on the total variable cost curve.
Answer: C

Page: 217
51. Suppose labor is on the horizontal axis and capital is on the vertical axis. If the wage rate is
$15 per worker per hour and the rental rate of capital is $10 per unit per hour, what is the slope of
the isocost curve?
A) –0.667
B) –1.5
C) –10
D) –15
Answer: B
Section Reference: Long-Run Cost of Production
Page: 218
52. Suppose labor is on the horizontal axis and capital on the vertical axis. If the total cost is
defined by the equation TC = $400 + $15L + $10K, the slope of the isocost curve is:
A) –0.667
B) –1.5
C) –8
D) –40
Answer: B
Page: 218
53. Which of the following can be identified from an isocost line?

A) The least costly combination of inputs needed to produce a given level of output
B) The relative prices of inputs
C) The technological relationships among inputs
D) The rate at which one input can be substituted for another in the production process
Answer: B
Page: 218
54. Although isocost lines and budget lines are similar, they differ in that:
A) budget lines are linear while isocost lines can be curved.
B) the consumer is constrained to the budget line while the firm can have more than one isocost
line.
C) the slope of a budget line equals the price ratio while the slope of an isocost line is not related to
prices.
D) budget lines do not have a constant expenditure.
Answer: B
Page: 218
55. Assume that labor is plotted on the horizontal axis and capital is plotted on the vertical axis. A
firm plans to spend $1,000 per week on inputs and confronts a wage rate of $10 per hour and a
capital rental rate of $20 per hour. Given this information, what will be the slope of the isocost
curve?
A) –2
B) –1/2
C) –100
D) –50
Answer: B
Page: 218
56. A tangency between an isocost line and an isoquant shows all the following, except:
A) the maximum output attainable by a firm at a given cost.
B) the minimum cost necessary to produce a given output.
C) an input combination where the ratio of marginal products equals the ratio of the input prices.
D) an input combination where the returns to labor and capital inputs are equal.
Answer: D
Page: 219
57. Which of the following is true of the expansion path?

A) It always slopes upward.
B) It slopes upward as long as input prices are constant.
C) It slopes upward as long as the firm uses more of both inputs as output increases.
D) It is always linear, but not necessarily upward-sloping.
Answer: C
Page: 219
58. The long-run expansion path for a firm:

A) is not necessarily linear, but always slopes upward.
B) may be backward-bending, if a firm uses less of one input as output increases.
C) may be backward-bending, if the firm uses more of both inputs as output increases.
D) is always linear, but not necessarily upward-sloping.
Answer: B
Page: 219
59. The expansion path identifies:

A) the least costly combination of inputs required to produce various levels of output.
B) the firm's demand curves for the inputs.
C) the various combinations of inputs that can be used to produce a given level of output.
D) the least-cost combination of outputs.
Answer: A
Page: 219
60. The point of tangency between an isoquant and the isocost line indicates:
A) that in the long run fixed costs are equal to variable costs.
B) the maximum cost incurred for producing one unit of output.
C) that in the long run marginal costs tend to exceed fixed costs.
D) the minimum cost necessary to produce a particular level of output.
Answer: D

Page: 219-220
61. The rule of cost minimization indicates that a firm should:

A) employ inputs so as to maximize output.
B) employ inputs such that the marginal product per dollar spent is equal for all inputs.
C) minimize total costs.
D) minimize marginal costs.
Answer: B
Page: 220
62. Suppose the wage rate is $15 per hour and the rental rate of capital is $10 per hour. If the
marginal product of labor is 60 and the marginal product of capital 10, the profit maximizing firm
should:
A) hire more labor and less capital.
B) utilize more capital and less labor.
C) maintain its current input mix of capital and labor.
D) employ more of both capital and labor.
Answer: A
Page: 220
63. Which of the following is true at every point on the expansion path?
A) It shows the combinations of inputs having the maximum productivity.
B) It shows the various levels of output that can be produced using a given level of inputs.
C) It shows the various combinations of inputs that can be used to produce a given level of output.
D) It shows the maximum output attainable at a given cost.
Answer: D
Page: 220
64. Each point on an expansion path:

A) has a constant input price ratio.
B) has the same marginal rate of technical substitution [MRTS].
C) has the same total cost.
D) is cost-minimizing.
Answer: D
Page: 220
65. Suppose a firm that uses labor and capital as the only inputs in production is currently on the
long-run expansion path. The marginal product of labor and capital at this least cost combination
are 60 units and 80 units respectively and the wage rate of labor is $6. Calculate the rental cost of
capital borne by the firm.
A) $10
B) $8
C) $5
D) $12
Answer: B
Page: 220
66. Assume that Donnell Corp. is currently producing 500 units of output per period, using 25
units of labor and 20 units of capital. Values for the marginal product of each input and the prices
of the inputs are as follows: MPK = 100, MPL = 200, w = 2, and r = 3. Given the information above,
which of the following is true?
A) The firm is currently using the optimal levels of capital and labor.
B) The firm should increase capital and reduce labor usage.
C) The firm should increase labor and reduce capital usage.
D) The firm is not using the optimal levels of capital and labor, and it is impossible to determine
the optimal levels from the given information.
Answer: C
Page: 220
67. A firm is employing 100 units of labor and 50 units of capital to produce 200 widgets. Labor
costs $10 per unit and capital $5 per unit. For the quantities of inputs employed, MPL = 2 and MPK
= 5. In this situation, the firm:
A) is producing the maximum output possible given the prices and relative productivities of the
inputs.
B) could lower its production costs by using more labor and less capital.
C) could increase its output at no extra cost by using more capital and less labor.
D) should use more of both inputs in equal proportions.
Answer: C
Page: 220
68. A firm employs 100 units of labor and 50 units of capital to produce 200 widgets. Labor costs
$10 per unit and capital costs $21 per unit. For the quantities of inputs employed, MPL = 3 and
MPK = 3. In this situation, the firm:
A) is producing the maximum amount possible at the lowest possible cost.
B) could lower its production costs by using more capital and less labor.
C) could increase its output at no extra cost by using more labor and less capital.
D) should keep its input usage unchanged.
Answer: C
Page: 220
69. If the marginal product of labor is four times the marginal product of capital and the price of
labor is twice the price of capital, then:
A) labor will be substituted for capital by a profit maximizing firm.
B) capital will be substituted for labor by a profit maximizing firm.
C) output cannot be expanded any further by using the same input levels.
D) input usage should be left unchanged.
Answer: A
Page: 220
70. Which of the following is true of cost minimization?

A) It is equivalent to profit maximization.
B) It is sufficient for profit maximization.
C) It is necessary for profit maximization.
D) It is unrelated to profit maximization.
Answer: C
Page: 222
71. Which of the following assumptions is made by economists while constructing a firm’s
marginal cost [MC] and average cost [AC] curves?
A) Input prices are constant.
B) Output is constant.
C) Output price is constant.
D) Technology will vary.
Answer: A
Section Reference: Input Price Changes and Cost Curves
Page: 224
72. Consider a firm that uses labor and capital as the only inputs. Suppose labor is on the
horizontal axis and capital is on the vertical axis. Further, the expansion path has shifted down and
average cost curves have shifted up. Which of following provides the most likely explanation for
what has happened?
A) The wage rate decreased
B) The wage rate increased
C) The price of capital decreased
D) The price of capital increased
Answer: D
Page: 224
73. Suppose a firm is using two inputs, labor and capital. What will happen if the price of labor
falls?
A) The firm's average cost curve will shift upward.
B) The firm's marginal cost curve will shift downward.

C) To produce the same level of output, the firm would need more capital.
D) The firm’s total cost of production will increase.
Answer: B
Page: 225
74. Which of the following depicts the change in per-unit cost of production resulting from a
decrease in the input prices, given the output produced by the firm is constant?
A) An upward shift of the marginal cost curve
B) A rightward shift of the total cost curve
C) A downward shift of the average cost curve
D) An upward shift of the isocost curve
Answer: C
Page: 227
75. Which of the following explains the shape of the long-run average cost curve?
A) Returns to scale
B) Returns to labor
C) Returns to capital
D) Rental rate on capital
Answer: A
Section Reference: Long-Run Cost Curves
Page: 228
76. Which of the following is guaranteed by increasing returns to scale in production experienced
in the long run?
A) Negative marginal costs
B) Zero average costs
C) Declining average costs
D) Rising marginal costs
Answer: C

Page: 228
77. If constant returns to scale apply to the entire range of production, then the long-run total cost
curve would most likely:
A) be a straight line from the origin.
B) to increase at a decreasing rate initially, and then increase at an increasing rate.
C) to increase at an increasing rate initially, and then increase at a decreasing rate.
D) be U-shaped.
Answer: A
Page: 228
78. Increasing returns to scale imply that:

A) average costs are constant.
B) average costs are falling.
C) average costs are increasing.
D) average costs are negative.
Answer: B
Page: 228
79. The long-run average cost curve always:

A) reflects the law of diminishing returns.
B) reflects constant returns to scale.
C) shows the least-cost method of production for each level of output.
D) has an inverted U-shape.
Answer: C
Page: 229
80. Suppose the government restricts the amount of capital equipment firms can purchase in an
attempt to increase employment. If a firm expands output then its long-run average costs will be:
A) less than they would be without the restriction.
B) more than they would be without the restriction.
C) the same as they would be without the restriction.
D) uncertain. Need more information
Answer: B
Page: 229
81. Assume that with 20L and 30K a given firm can produce 100 units of output and with 40L and
60K it can produce 175 units (where L and K denote the labor and capital inputs). Based on this
information, we can conclude that:
A) decreasing returns to scale exist.
B) average cost is decreasing.
C) average cost is constant.
D) increasing returns to scale exist.
Answer: A
Page: 229
82. Decreasing returns to scale imply:

A) decreasing long run average cost and increasing short-run average cost.
B) increasing long run average cost.
C) constant long run average cost.
D) increasing long run average cost and decreasing short run average cost.
Answer: B
Page: 229
83. Economies of scale:

A) is the same thing as increasing returns to scale.
B) exist if a firm increases its output more than in proportion to its total input cost.
C) exist if a firm increases its output precisely proportional to its total input cost.
D) refers to the ability to make large-scale investments in capital.
Answer: B
Page: 229
84. Which of the following is true?

A) Diseconomies of scale imply increasing returns to scale.
B) Increasing returns to scale implies diseconomies of scale.
C) Increasing returns to scale implies economies of scale.
D) Economies of scale imply increasing returns to scale.
Answer: C
Page: 229
85. Suppose a bakery is currently producing 1,500 loaves of bread per day using 20 workers and 80
units of capital. After hiring five more workers and twenty additional units of capital, the firm’s
output increases by 600 loaves per day. This change exhibits:
A) increasing marginal product of labor.
B) constant returns scale.
C) economies of scale.
D) diminishing marginal product of labor.
Answer: C
Page: 229
86. Suppose a firm has two plants producing the same good. Each plant is producing 200 units of
the good. In plant A, the short run average cost of production is $20 and in plant B it is $30. If the
firm wants to produce a total of 400 units at the lowest cost in the long run, it should:
A) switch production from plant B to plant A until the average cost of production at each plant is
the same.
B) produce only at plant A and shut down plant B.
C) switch production from plant B to plant A until the average cost is the same at the two plants.
D) continue to use the same input ratio.
Answer: A
Page: 229-230
87. Long-run costs of production are generally lower than the short run costs because:
A) all inputs are fixed in the long run.
B) firms cannot change their scale of production in the long run.
C) there is greater flexibility in input usage in the long run.
D) there is no scope for learning by doing in the long run.
Answer: C
Section Reference: Learning by Doing
Page: 230
88. Learning by doing:

A) results in higher costs in the long run than in the short run.
B) is a result of technological progress.
C) increases productivity of the inputs.
D) results from the increased use of inputs in production.
Answer: C
Page: 230
89. Which of the following is true of learning by doing?

A) It results from economies of scale.
B) It results from an increase in the price of inputs.
C) It results from the substitution of one input by a costlier input.
D) It results from a firm’s cumulative output experience.
Answer: D
Page: 230
90. When average costs fall as output increases, it is due to _____; when they fall at a given level
of output it is due to _____.
A) economies of scale; learning by doing
B) economies of scale; diseconomies of scale
C) learning by doing; economies of scale
D) learning by doing; diseconomies of scale
Answer: A
Page: 231
91. The possibility of learning by doing ensures:

A) equal profits for all firms in an industry.
B) uniform price for a product.
C) lower production costs to a pioneering firm.
D) lower production costs to a market entrant.
Answer: C
Page: 231
92. Learning by doing is illustrated by:

A) a movement along the average cost curve to a lower cost.
B) a downward shift of the average cost curve.
C) a movement along the average cost curve to a higher cost.
D) an upward shift of the average cost curve.
Answer: B
Page: 231
93. Which of the following factors can lead to learning by doing?

A) Substantial loss suffered in the long run
B) Decreasing returns to scale
C) Significant addition to inventory stock
D) Increased skill of the existing workforce
Answer: D
Page: 231
94. Some firms can attain lower production costs through their cumulative production experience.
The average cost curve of such firms shift downward with each successive bulk increase in total
production. The situation described above refers to:
A) economies of scale.
B) economies of scope.
C) learning by doing.
D) the familiarity index.
Answer: C
Page: 231
95. Learning by doing:

A) is synonymous with economies of scale.
B) causes the average cost curve to shift down.
C) causes the firm’s marginal cost curve to shift up and to the left.
D) occurs when output increases in greater proportion to the increase in inputs.
Answer: B
Page: 231
96. Which of the following changes shift the long-run AC curve?

A) Learning by doing
B) Economies of scale
C) Diminishing marginal productivity
D) Constant returns to scale
Answer: A
Page: 231
97. An important determinant of market structure is:

A) the difference between short-run average cost and long-run average cost for a given rate of
output.
B) the elasticity of market demand where it intersects the industry supply curve.
C) the slope of the expansion path.
D) the level of output at which long-run average cost is at a minimum relative to market demand.
Answer: D
Section Reference: Importance of Cost Curves to Market Structure
Page: 232
98. Assume that the long run average cost for a representative firm in an industry is minimized at
$10 per unit of output. Further assume that total industry output is X at a price of $10, and that each
firm in this industry produces 0.2X at an average cost of $10. Under these conditions we would
expect the market to have:
A) a single firm.
B) two firms.
C) infinite number of firms.
D) five firms.
Answer: D
Page: 232
99. The minimum efficient scale is:

A) the level of output at which average cost per unit is smallest.
B) the scale of operations at which marginal cost is minimized.
C) the scale of operations at which average fixed cost per unit is minimized.
D) the level of output at which total cost is minimized.
Answer: A
Page: 232
100. The technological relationships reflected in the firms' long run cost curves are an important
factor in determining the market structure of an industry because:
A) they determine the size of the market.
B) they influence the price elasticity of demand for the product.
C) they influence the demand for the product in the short run.
D) they determine the number of firms that can exist in an industry in the long run.
Answer: D
Page: 233
101. Economic analysis suggests that if the marginal cost of pollution abatement differs for two
firms, the least cost pollution abatement strategy would require:
A) that both firms are limited to the same total pollution.
B) that the firms engage in different levels of pollution abatement but incur the same marginal cost
of abatement.
C) that the firms engage in different levels of pollution abatement as long as they incur different
marginal costs.
D) that the firms engage in different levels of pollution abatement but incur the same opportunity
cost.
Answer: B
Section Reference: Using Cost Curves: Controlling Pollution
Page: 235
102. If the marginal cost of pollution abatement differs between two firms, the total cost of
pollution abatement can be lowered by:
A) increasing abatement where its marginal cost is high and reducing it where marginal cost is
lower.
B) decreasing abatement where its average cost is high and reducing it where average cost is lower.
C) increasing abatement where its marginal cost is less and reducing it where marginal cost is
greater.
D) decreasing abatement where its marginal cost is less and increasing it where marginal cost is
greater.
Answer: C
Section Reference: Using Cost Curves: Controlling Pollution
Page: 236
103. Economies of scope exist if:

A) it is cheaper to have only one firm in an industry.
B) it is cheaper for one firm to produce two products jointly than for separate firms to produce them
separately.
C) it is more expensive to have one firm in an industry.
D) it is cheaper for two firms to work together to make two products than for one firm to make both
by itself.
Answer: B
Section Reference: Economies of Scope
Page: 237
104. Identify the correct statement.

A) Economies of scope are unrelated to economies of scale.
B) Economies of scope imply economies of scale, but not vice versa.
C) Economies of scope imply economies of scale, and vice versa.
D) Economies of scope usually imply diseconomies of scale.
Answer: A
Page: 237
105. Dine-in restaurants provide two distinct products, food and a place to sit and eat. This is an
example of:
A) economics of scale.
B) economies of scope.
C) a poor pricing strategy.
D) a loss leader.
Answer: B
Page: 237
106. Consider the cubic total cost function TC = a + bQ + cQ2 + dQ3, where a = 0, b = 25, c = -10,
and d = 1. The firm's minimum efficient scale would be an output of _____ units.
A) ten
B) five
C) one
D) two
Answer: B
Section Reference: Estimating Cost Functions
Page: 239
107. For the cubic total cost function TC = a + bQ + cQ2 + dQ3, where a = 0, b = 25, c = -10, and d
= 1, the firm’s average variable cost is minimized at an output of:
A) ten.
B) five.
C) two.
D) one.
Answer: B
Page: 239
108. For the cubic total cost function TC = a + bQ + cQ2 + dQ3, where a = 0, b = 25, c = -10, and d
= 1, the marginal cost at an output of one unit equals:
A) $0.
B) $5.
C) $8.
D) $10.
Answer: C
Page: 239
109. Which of the following is true for the cubic total cost function TC = a + bQ + cQ2 + dQ3,
where a = 0, b = 25, c = -10, and d = 1?
A) Marginal cost equals average total cost
B) Marginal cost equals average variable cost
C) Total cost equals total variable cost
D) Total cost equals total fixed cost
Answer: C
Page: 239
110. A firm incurs a total cost of $500 per day for producing 10 semi-electronic toys. When its
production increases to 15 toys, the total cost rises to $700. The firm observes that at each level of
output between 10 toys and 15 toys, the marginal cost of production is below the average cost of
production. Which of the following can be definitely concluded about the firm’s cost curves when
its output is anywhere between 10 toys and 15 toys?
A) The marginal cost curve is positively sloped for this range of output
B) The total fixed cost curve is negatively sloped for this range of output.
C) The average cost curve is negatively sloped for this range of output.
D) The average variable cost curve is positively sloped for this range of output.
Answer: C
Section Reference: The Mathematics behind Production Cost
Page: 240
111. At 20 units of output, the slope of a firm’s average cost curve is recorded as +1.5. Calculate
the firm’s average cost at this output level if its marginal cost is $300.
A) $270
B) $300
C) $230
D) $200
Answer: A
Page: 240
112. At 30 units of output, the slope of a firm’s average cost curve is recorded as +1.20. Calculate
the firm’s marginal cost at this output level if its average cost is $300.
A) $300
B) $130
C) $336
D) $120
Answer: C
Page: 240
Short Answers
113. For the total variable cost (TVC) curve below, draw a total cost curve and a positive total
fixed cost (TFC) curve. Then derive the associated marginal cost (MC), average total cost (ATC),
average variable (AVC), and average fixed cost (AFC) curves. Explain the appropriate
relationships among the curves.
Answer:
Total Cost
TC
TVC
Slope=min ATC
Slope=min AVC
TFC
O Q1 Q2 Q3 Output
Per-unit
cost MC ATC
AVC
AFC
O Q1 Q2 Q3 Output
Total fixed cost is simply a horizontal line in the Total Cost (TC) graph. Note that there are two
graphs. Did you remember to draw a separate graph for the per-unit curves (MC, AFC, AVC,
ATC)? The TC curve is above the TVC curve by exactly TFC at all points. Now derive the per-unit
cost curves in the bottom graph. AVC is a U-shaped curve because the slope of a ray from origin in
the Total Cost graph to any point on the TVC curve at first falls and then rises, with the min AVC
at output level q2. Note that the horizontal axis is “output” in both the Total Cost and Per-Unit Cost
graphs, so we can drop the arrows down from output level q2 and find the minimum AVC in the
lower graph.
Next, draw the marginal cost curve (MC). We know that MC intersects AVC at the latter’s
minimum point. This is because of the relationship between marginal and average. When MC is
below AVC, AVC will decline; when MC is above AVC, AVC rises. Thus, when AVC is at a
minimum, MC = AVC. Similar reasoning requires that MC also intersects the ATC curve at ATC’s
minimum.
Note that MC is also a U-shaped curve. MC is the slope of TC (or of TVC because a change in
fixed cost is zero). We can see that the slope of TC initially falls and then begins to rise after the
inflection point at output level q1.
We must also capture the relationship between ATC and AVC. ATC is U-shaped for the same
reasons that AVC was U-shaped above. The slope of a ray from the origin in the Total Cost graph
to any point on the TC curve at first falls and then rises, and the min ATC is at output level q3. The
ATC curve asymptotically approaches AVC because their difference, AFC, approaches zero as
output rises to infinity. So your ATC curve should get closer and closer to AVC as you move along
the horizontal axis (i.e., as output rises). Note that the minimum of ATC is slightly larger than the
minimum of AVC. In other words, q2 does not equal q3. This is because ATC = AFC + AVC and
when AVC is at a minimum at q2, AFC is falling (it is always falling as output rises), so it takes a
bit more output before the rising AVC overtakes the still falling AFC. Thus, q2 < q3. Do not draw
the minimum of ATC directly above the minimum of your AVC curve.
Finally, since AFC = TFC/q and TFC never changes, then as q increases, the AFC curve
continually falls and asymptotically approaches zero (it does not intersect the horizontal axis).
Page: 213-215
114. Do you think the marginal cost curve of a petroleum refinery will be U-shaped? Explain your
answer.
Answer: Oil refineries are large scale plants, processing about a hundred thousand to several
hundred thousand barrels of crude oil a day. They use high-end technology and machinery for their
production. The marginal cost of production in this industry will decline when production increases
at low levels of output because the potential capacity of the fixed plant and equipment is quite high.
When the refinery reaches the output level where all its plant and equipment is put to the optimum
use, marginal cost will reach its minimum. Thereafter, if the refinery tries to over utilize the
existing plant and equipment the marginal cost of production will increase as diminishing returns to
capital will set in.
The shape of the marginal cost curve indicates that the cost of producing additional units of output
initially declines, reaches a minimum, and thereafter starts rising. Marginal cost falls at first
because the fixed plant and equipment are not designed to produce very low rates of output, and
production is very expensive when output is low. Declining marginal cost comes to an end at some
point, and thereafter marginal cost rises with output. Eventually, marginal cost must rise because
the plant will ultimately be over utilized as output expands beyond the level for which it was
designed. At that point, marginal cost begins to rise, and each additional unit of output costs more
than the previous one.
Page: 214
115. On the following per-unit cost graph, show two ways to identify total fixed cost. Explain your
answer.
Per-unit
cost MC ATC
AVC
AFC
Output
Answer:
Per-unit
q2 ATC
cost MC
a d AVC
b
c
f
e
AFC
O q1 Output
Rectangles “abcd” and “efq1O” both represent Total Fixed Costs. In other words, they have equal
areas. Why? ATC = AFC + AVC. Therefore, ATC – AVC = AFC. Now to get TFC from AFC
we multiply by q. That gives us the area abcd for output level q2. The other way to depict TFC in
this figure is to find the AFC at a given output level (directly from the AFC curve) and multiply it
with the output level. Thus, for q1 level of output, TFC = Oq1*f q1 = area efq1O.

Page: 215
116. (a) Consider a firm which produces baseball bats using wood and workers. On a graph with
capital (wood) on the vertical axis and labor (workers) on the horizontal axis, draw an isoquant and
isocost line such that the firm is minimizing the total cost of producing Q1 baseball bats. Let this
initial point be profit-maximizing.
Answer: Let the price of wood be r and the price of labor be w. The firm will minimize the total
cost of producing Q1 bats at total cost, TC1. They will employ La workers (note that you can also
think of this as hiring workers for La hours of work) and Ka units of capital. At the tangency point
a, MPL/w1 = MPK/r1 indicating that the firm is minimizing costs.
Capital
TC1/r1
TC2 isocost line

TC1/r2 Expansion path for w1, r1
Ka a Expansion path for w1, r2
b
Kb
c
Kc Q1
Q2
O Lc La Lb TC1/w1 Labor

Page: 218-220
(b) Suppose forest fires cause the price of wood to rise. Trace the effects of this change on the
firm’s optimal combination of inputs. Will they now produce more or less than Q1 bats? Why?
Answer: Let the price of wood be r and the price of labor be w. The tangency point a in the figure,
MPL/w1 = MPK/r1 indicates that the firm is minimizing costs. We are told that the firm is
maximizing profits at point a.
Now the price of capital rises to r2. This will cause the vertical intercept of the isocost line to shift
down. To produce the same Q1 bats at the new prices, w1 and r2, the firm should operate at point b.
This is found by moving the new isocost line out parallel until it is tangent to the original Q1
isoquant. Since capital is now relatively more expensive, the firm shifts toward labor (Lb > La) and
away from capital (Kb < Ka); this is the input substitution effect. The minimum cost to produce Q1
bats has risen from TC1 to TC2. Higher total cost implies that the firm’s average cost and marginal
cost curves will shift up (not shown). Since marginal cost rises and marginal revenue stays the
same, we now have MC > MR at point b! Thus, point b is not profit-maximizing. Since MC >
MR, the firm should produce fewer than Q1 bats, thus lowering its MC until it again equals MR. In
the graph above, we have assumed that production falls to Q2 bats and inputs are Lc and Kc. Note
that the final input combination does not have to end up on the intermediate isocost line; that would
simply be by coincidence. We know that the firm will move backward down the expansion path
through point b. Note that any expansion path is unique for the given input prices. When input
prices change, we must consider a new expansion path.
Page: 224-225
117. Talco Inc., a manufacturer of steel pipes, uses 500 workers and 100 machines to produce
10,000 pipes, each 28mm thick, every day. Its operations research team reports that the marginal
productivity of labor is 40 steel pipes while that of capital is 240 steel pipes. If workers are paid $8
per day and the rental cost of capital is $40 per day, examine whether the company is following the
golden rule of cost minimization.
Answer: The golden rule of cost minimization says that to minimize cost, a firm should employ
inputs in such a way that the marginal product per dollar spent is equal across all inputs. According
to the information provided in the question with respect to Talco Inc., the ratio of the marginal
product of labor to the cost of labor is 5. On the other hand, the ratio of the marginal product of
capital to the cost of capital is 6. This implies that MPL/w is less than MPK/r. Therefore, the
company is currently not following the golden rule of cost minimization. It should ideally increase
the usage of capital (machines) and decrease the labor usage to minimize its cost.
Page: 220
118. Using an isoquant and isocost curves, with labor on the horizontal axis and capital on the
vertical axis,
a) show a firm’s efficient combination of capital and labor needed to produce 100 television sets
per day. (You may use abstract quantities such as K1 and L1 or actual numbers.)
Answer:
At isocost1 and Q=100, the firm utilizes L1 units of labor and K1 units of capital.
Page: 220
b) Is this the least cost means of producing this level of output? Explain.
Answer: Notice that at L1 units of labor the marginal product of labor is less than it is at L2. Notice
also that the ratio of the input prices is greater than the marginal rate of technical substitution. In
other words, at L1 units of labor and K1 units of capital, the firm can give up two units of labor and
replace it with one unit of capital and remain on the same isoquant. But at the prevailing market
prices (i.e., isocost2), the firm can decrease the amount of labor by, say, four and replace it with one
unit of capital.
What this means is that the marginal product per dollar spent across both inputs is not equal and
that the firm will consequently be a high cost producer of television sets relative to competitors.
This leaves it open for new entrants – domestic or foreign imports – to enter the market and in the
long run drive the television manufacturer out of business.
Page: 219-222
c) Next, using a dashed line, on the same graph draw the change that would occur in the long run if
the cost of labor were to rise relative to the cost of capital and the firm’s output were to remain
fixed at 100 television sets per day.
Answer: The increase in the price of labor relative to capital shifts the isocost curve to isocost 2 and
the firm’s least cost means of producing 100 television sets is L2 units of labor and K2 units of
capital.
Page: 224-225
d) Now, suppose that before the price change took effect, labor in this industry had succeeded in
protecting against job loss by forbidding firms from getting rid of labor and substituting it with
capital. Draw the new isocost curve assuming the company still wishes to produce 100 television
sets each day.
Answer: If the firm is not able to replace labor with capital, it continues operating at L1 units of
labor and K1 units of capital. Notice, however, that the price change remains in effect, which means
the firm’s cost of producing 100 television sets is greater than if it could replace some labor with
capital. This is shown by the shift from isocost2 to isocost3, a higher cost means of producing 100
television sets than either isocost1 or isocost2. (Remember, the shift from isocost1 to isocost2 was
due to the increase in the price of labor. If the firm still employs the same number of workers using
the same amount of capital, the cost associated with isocost3 must be greater.)
Page: 224-225
e) Is labor made better off in the long run as a result of this labor saving campaign? Explain.
Answer: In the short run it appears that labor at this form is made better off due to the wage
increase, and the fact that there is no job loss. However, the cost to the firm of manufacturing 100
television sets at the new wage level using K1 units of capital and L1 units of labor is not
minimized. It is therefore not efficient given the relative prices of labor and capital. In a
competitive market this firm is likely to be driven out of the television business, which means labor
hired by this firm to produce televisions decreases to zero.
Page: 232
119. Explain why the long-run average cost curve is usually U-shaped although all inputs are
variable in the long run?
Answer: The law of diminishing marginal return accounts for the U-shape of the short-run average
variable cost curve. In the long run, there are no fixed inputs, so the law of diminishing returns is
not directly applicable. Here, returns to scale and not returns to the factor determine how output
varies when all inputs are varied in proportion. It has been observed that increasing returns to scale
is usually common at low output levels, while decreasing returns to scale are likely to prevail at
high output levels. Increasing returns to scale mean that at higher output levels each unit of output
requires (on average) a smaller quantity of all inputs. Since inputs are available at fixed prices,
smaller average input requirements imply smaller average unit costs. Therefore, increasing returns
to scale imply that the average unit cost is falling. By the same reasoning, constant returns to scale
imply a constant average cost, and decreasing returns to scale imply a rising average cost. Hence,
the LRAC is also U-shaped.
Page: 228-229
120. Consider two firms A and B. Firm A notices that its total costs have declined by 10 percent
each time its cumulative output has doubled. Firm B notices that its average cost of production
declined by 10 percent after it increased production by 5 percent and hired 50 more workers to
work with its existing unused equipments. Explain graphically whether the experiences of these
two firms will have similar implications on the long run average cost of production.
Answer: Improvements in productivity resulting from a firm’s cumulative output experience is

referred to as learning by doing. Therefore, the decrease in production cost experienced by Firm A
results from learning by doing. The experience gained by the firm over time with the production
process has helped to improve the effectiveness with which it combines inputs to produce the final
output. In the graph given below, learning by doing is represented by a drop in the height of the
long run average cost curve (from AC to AC’) at all output levels.
Cost
Economies of scale
AC
Learning by
doing AC'
O Q1 Q2 Output
The decrease in the average cost of production experienced by Firm B mostly results from
economies of scale. These are cost advantages obtained by a firm due to expansion. The presence
of economies of scale when output is expanded from Q1 to Q2 units is represented by a movement
down along the average cost curve.
Page: 230-231
121. Consider the cost function C0 = 20L + 30K and production function Q = L0.3K0.7 of a firm.
Derive the first order conditions if the firm is maximizing its output subject to the given cost
constraint.
Answer: For dealing with a constrained optimization problem, we begin by forming the Lagrangian
expression as given below:
Z = L0.3K0.7 + λ(C0 - 20L - 30K)
The first-order conditions for a maximum involve setting the three partial derivatives
(with respect to the variables, L, K, and λ) equal to zero:
∂Z/∂L = 0.3L-0.7K0.7 - 20λ = 0
∂Z/∂K = 0.7K-0.3L0.3 - 30λ = 0
∂Z/∂λ = C0 - 20L - 30K = 0
Page: 240-241
Another random document with
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L. S. Goodwin.
side talks with the philistines:
being sundry bits of wisdom
which have been heretofore
secreted, and are now set
forth in print.
If The Philistine disturbs placid self-complacency anywhere,
as one or two of its critics intimate, it is sorry, for there is no such
happiness attainable anywhere this side of Nirvana as its serene
contemplation of the charms of self which Narcissus and some more
modern fakirs exemplify; and the magazine of to-day is its gospel.
But so good a Philistine as Horace Greeley is my authority for
believing that the still pool in which self-love sees the reflection it
feeds upon is a breeder of death, not life, and effervescence is the
sworn foe of the morbid. Not the things we do that we ought not to
do, but the things left undone that we ought to do are the primary
count leading up to the confession that “there is no health in us.” The
other follows. Stagnation and the miasma of self-consciousness co-
exist and are not to be separated. Wherefore, fellow-egoists, let us
get a gait on.
I like the broad flourish with which some imaginative writers
connect widely separated events in a stroke of the pen and omit all
that lies between as mere incident. It seems to me a proof of the
theory put forward by my good friend Elbert Hubbard that genius is a
feminine element of character—in man or woman. For example, I
find this statement in the latest of the Little Journeys: “Moses was
sent adrift, but the tide carried him into power.” I didn’t know just
what that meant till I recalled the discovery of the bulrush cradle. A
less intuitive writer wouldn’t have bridged eighty years in that
summary way. He might have hinted at Moses’s police court record
—told how he killed an Egyptian for calling him a son of a Populist or
something and skun out for half a lifetime and yet became a Prince
of Egypt and spent forty years or so at court before he took the road
with the forefathers of Brickmaker Tourgee. But to connect the
condensed milk baby in the market basket on the Nile with the law-
giver of Israel in one movement, as the music people say, is a pretty
long span and suggests the liberty David Copperfield takes with his
own biography in the best book but one written by the subject of the
latest Little Journey. “I was born:” he says—and all else is irrelevant.
I take it that Mr. Hubbard agrees with John Boyle O’Reilly that “the
world was made when a man was born.” The feminine element of
genius which Mr. Hubbard tells us makes poets is manifest in that
formula. If the author of the Journeys will permit, I would suggest that
the same mother instinct that crops out there is manifested in the
grasp of a life in the compass of a sentence which puzzled me at the
first. To be born and to die is the record of existence, to which all
else is tributary; and the pangs of birth and death thrill all the poet-
strains. Only the tragedy that sweeps along the strings lives to echo
in human hearts. It is the deathless minor chord that distinguishes
the melody of true poetry from the dancing cadences of rhyme in all
literature. The undertone is the soul of all song, in verse or in the
unmeasured periods of epic prose.
Mention of Moses recalls the perhaps unique fact that a priest
of the most austere of churches rolled off a tongue, musical with
brogue, in his newspaper sanctum—for he is a priest of the pen too
—this romantic version of the basket story which I have never seen
anywhere but in his paper—then in the process of make-up:
On Egypt’s banks, convaynient to the Nile,

Great Pharaoh’s daughter went to bathe in shtyle,
And shtooping down, as everyone supposes
To scratch her shin, she shpied the infant Moses:
Then turning to her maids, in accents wild
Cried: “Tare an’ ’ouns, girls, which o’ yes owns the chyild?”
I observe that the editor of the Arena is about to make a

contract with the Michigan Wheel Company of Lansing, Michigan, for
large quantities of its product to give as prizes to new contributors
only, the old ones being already well supplied.
The following advertisement is clipped from one of the October
magazines:
MANUSCRIPT RECORD.
A handsome method for keeping track of manuscripts.
Contains space for recording one hundred manuscripts,
showing title, where sent, number of words, when returned or
accepted, when paid for and amount, when published,
postage account, etc. Each page a complete history of one
manuscript, from the time it is first sent out, until published
and paid for. Price, $1.25. Sent postpaid to any address on
receipt of price.
The Bohemian Publishing Co.,
Pike Building, Cincinnati, O.
I have sent for this book, as it is my intention to write one hundred

manuscripts, and I desire to keep track of them until published and
paid for. I have therefore ordered the book bound in cast iron.
In a recent number of Modern Art protest is filed against the
editor of the Chip-Munk continuing to ask that startling question “Do
You Keep a Dog?” In God’s name, what right have the Chicago
Decadents to thus pry into our private affairs? Is it not bad enough
when the Chip-Munk advises us to drink Guzzle’s beer and use
Culby’s soap without being interrogated as to what we “keep?”
Among the revivals which occur now and then in everything is a
discussion of an old “science” of reading characters by the hair. I
don’t know much about it, but from what I have heard I believe a pair
of old she-bears set back the theory for a few centuries when they
chewed up the small boys that poked fun at Elijah. The old man
would be rated as having no character, according to these “readers,”
for he had no hair, but Providence and the early Ursulines vindicated
him.
A new woman who has been reading God’s Fool laid it down at
the last chapter with a long sigh. “What do you think of it,” I asked. “It
is dramatic,” she said, “terribly dramatic at the end,” and then added,
after a pause, “I wonder what the reading of the next generation will
be like. We have reached a force and directness of narration that
seems to me to be pretty near the limit of possibility. What will we
have next?” “What do you think?” I asked. “I think,” she said, “we will
have a reaction. We will take in more and give out less. We are near
one of the great periods of what has been called revelation in the
past. Our literature is shallow but perfect, relatively, in expression.
Our art is the same throughout. Our politics are personal. Our
religion is liberal, and loose in the joints. Our social life is insincere
and imitative. Our lives have nothing in them to stir the deeps. There
will be a reaction. The finesse of expression will be set aside for the
tremendous earnestness that accompanies great events and prints
their lessons on receptive minds. A break-up in Europe it may be, or
some other social convulsion, that will change the tide. We are pretty
near at the top of the flood now.” That’s the new woman’s view. I
wonder how near she’s right?
Three hundred and twenty-seven thousand of my friends have
individually sent to me a recent number of my Philadelphia
contemporary, Footlights, in which it refers to The Philistine
variously as a crow, a dicky bird and “a birdie of the jackass breed.” I
am glad to be catalogued in this ornithological manner, and my
friends may accept the listing as they please. As for myself, I’d rather
be a good honest wild ass of the desert with long fuzzy ears than a
poor imitation bird-of-paradise—stuffed by one hundred and
seventeen geniuses.
A matter of architecture has been involved in the social problem
which the Arena has ever with it—like a stutter or a beer breath.
According to an alleged novel recently published by the Arena
Company and called Edith, a Story of Chinatown, a feature of the
tabooed district of Los Angeles, California, is a bay window
projection on the houses devoted to vice, wherein beauty spreads
lures for the eyes of passers-by. The heroine of this lovely romance
is one of these persons, sinned against in the prologue and sinning
in the present, but discovered by a miraculous New York reporter on
a vacation and returned to her broken-hearted parents and a good
life. A benediction, with a remote hint of the Lohengrin march, ends
the story. The Arena gives two pages to a review of the book, which
is very kind of the publisher, and tells us therein that a description of
Alameda street and of Dupont street, San Francisco, which is worse,
is its purpose. The Arena can be depended on for a full stock of
“terrible examples.”
The Literary Digest is falling into line admirably. Recently it
printed a translation from some French source from which I clip the
following:
A Parisian literary man has been complaining that authors

are not represented at international expositions in the same
sense as are painters and sculptors. The complaint has
provoked sarcastic comment from M. Maurice Goncourt, who,
in Charivari (Paris), suggests that, since an exhibition of their
works would not be sufficiently striking, the authors
themselves should be put on show in cages!
“All the writers who are at present the incontestable
masters of romance and journalism will transport, during the
period of the Exposition, their working rooms to a section
specially provided for them.
“The public will see them there as they really are at home,
surrounded with their furniture, their books, all their
accessories, and in working costume.
“From such an hour to such an hour—as at home—they will
work on their articles, poems, or novels.
“That would draw a crowd; that would be truly interesting!
“They could be looked at through a sheet of glass or a
lattice—silently, so as not to interfere with their inspiration.
“The administration could even put up signs like this:
PLEASE THROW NOTHING TO THE POETS,
or—more particularly for the pretty visitors:
DON’T EXCITE THE PSYCHOLOGISTS.
All this sounds much as though it had been written by the keeper
of The Literary Shop, but I don’t believe it was. Supposing, however,
such an exhibit were held at Atlanta with the Fair now in progress.
Imagine Mr. Gilder and James Knapp Reeve, Mr. Le Gallienne and
Laura Jean Libbey, Count Tolstoi and Mrs. Mary Jane Holmes, each
in his or her own coop like a Leghorn chicken! Imagine Colonel S. S.
McClure (Limited) with his Menagerie of Trained Thoroughbreds,
each one of them exhibiting by his emaciation the horrible results of
syndicate writing! Imagine Cy Warman pawing madly at the bars of
his cage trying to tell Sweet Marie about the secret in his heart! Then
imagine Little Tin God of Philadelphia, cuddled up in his basket,
writing his masterpiece, How to Feed a Sick Kitten! To them then
would enter Major John Boyd Thacher, the pride and joy of the
Albany Democracy, and judge equally both the just and the unjust.
It’s a great idea.
One of my correspondents tells me that “the editor of the Lark
uses execrable perfume on his note paper.” This item is for the future
reference of Mr. Burgess when he writes about his literary passions.
Several solemn newspapers have taken seriously to the extent
of half a column or so the proposal of a San Francisco publishing
house to “bring out good literature in a cheap form,” which sounds
much like the advance agent talk of most publishing houses. It isn’t a
joke, to be sure, but a good deal depends on what is meant by “good
literature.” Thundering in the prologue is not a novelty, but there may
be a storm coming for all that.
I note that the brilliant Bok has gone to writing proverbs. Here is
one culled at random from “A Handful of Laconics,” printed under his
honored signature in his September output:
It is singular and yet a fact that what we are most loath to

believe possessed by others is what we are incapable of
ourselves.
It is my wish to call the particular attention of my readers to this
nugget. From a literary and philosophic standpoint literature contains
nothing like it. Examine Rochefoucauld, Montaigne, Plutarch, Pliny
the Elder, Pliny the Younger or Solomon, and you will not find its
fellow. Read it again, and read it slowly: “It-is-singular-yet-a-fact-that-
what-we-are-most-loath-to-believe-possessed-by-others-is-what-we-
are-incapable-of-ourselves.” This is undoubtedly the finest thing in
the language and a reward of one million dollars will be paid to any
Philistine who will furnish the solution. There is no bar against
reading it backwards. It reads a little better backwards than forwards,
but I do not think that is it.
I desire to record a discovery. I found a magazine the other day
with the advertising pages uncut.
I doubt if Bliss Carman has had a more enthusiastic admirer
than I. When his Vagabondia appeared I sent a copy to Her, which
was the greatest compliment I could pay the book. In the magazines,
notably in Town Topics, he has printed verses that were well worth
preserving as some of the best of the decade. In the great mass,
however, which he has published, there have been lines which
nobody on earth could understand. They were worse than Stephen
Crane’s, for he at least has a vague idea somewhere, though he
rarely does us the favor to express it in a seemly manner. Now I
want to protest, not only against Mr. Carman, but against Life, which
gave us The Whale and the Sprat which Mr. Carman wrote recently.
Here are two of the stanzas:
My dear Mr. Sprat,

I really am grat-
Ified at your offer.
So down they both sat.
Said the Sprat to the Whale,

I admire your tail;
I should think it would be
Of great use in a gale.
How Mr. Metcalfe ever allowed such drivel to get into his columns I
cannot understand. Possibly while he was in Japan the compositor
set the stuff in the waste basket instead of that on the copy hook.
Vogue asserts that “thou shalt not covet thy neighbor’s wife” is
the ninth commandment. On information and belief, no doubt.
Because Mr. Rockefeller sneers at Mr. Pullman for giving but a
paltry hundred thousand for a church at Albion, Orleans County, New
York, Mr. Pullman retorts that Rockefeller is only a malmsey-nosed
varlet anyway, whose grease his axles are not worthy to unloose. I
am not quite ready to take George M. into the Philistinic fold, but he
is surely coming my way.
I rejoice to find a thoughtful article by Richard Burton on the
“Renascence of Old English Expression” in the current Forum—and
not so much for what is in the article in detail as for its recognition of
the main fact that there is something besides Bunthornism in the
harking back to the simple dignity of early English. Our author, it will
be noted, has little use for the overflowing maimed vowels of
Normanesque “Renaissance.” Plain Latin renascence is good
enough in a plea for the Saxon. But it is odd if so simple a thing as a
rising from death into new life has no Saxon equivalent. Why not “re
birth!”
Since the Mule-Spinners at Cohoes and Fall River went out on
a strike I understand that subscriptions to The Writer have fallen off
one-third.
Neith Boyce is a poet who never beats the brush piles of
thought without starting good game. She writes good honest verse
and she also writes “Book Notes and News” and other things for the
New Cycle. The New Cycle, by the way, is not published by the Pope
Manufacturing Company as one might suppose, but it is a monthly
magazine “devoted to Education, Social Economics, Literature and
Art.” I once edited a magazine devoted to Education, but the subject
proved too large for the brainful syndicate that employed me; I have
also written a book on Art; and once, having nothing to do, I lectured
for a space on Social Economics, but God help me! I never in a
small monthly magazine attempted to tell all about Education, Social
Economics, Literature and Art.
But the New Cycle is interesting, and if its various departments
were as well cared for as its Book Notes and News it would be a
greater success than it is. Neith Boyce has an unfailing insight and
her touch is as light and as sure as my own; and moreover there is a
tang to her wit that all bookish Philistines might well cultivate. In
classic lore I have always looked up to Miss Boyce as the Court of
last Appeal, but is it not possible that Minerva sometimes nods?
Read this:
“An attraction of the eminently respectable Harper’s Weekly

will be a series of papers called ‘A Houseboat on the Styx’ by
Mr. Bangs of Yonkers. Nothing is sacred to this funny man.
Not content with taking his fling at the defunct majesty of
Napoleon he now proposes to take Pluto by the beard and
make copy of the pale shadows that throng the Stygian
shores.”
It may be so, but I did not know that Pluto had whiskers. And how
does Miss Boyce dispose of the legend concerning the smooth face
and giddy ways of old Mr. Pluto when he took to wife the young and
blooming Persephone? Charon wears a Vandyke as we well know;
while Mephisto is usually represented as clean-shaved or at best a
moustache and goatee; but hereafter I’ll never think of Pluto without
calling up in mind Mr. Peffer of Kansas. Go to, Fair Lady! think you
because barber shops are closed in York State on Sundays that they
are shut in Hades all the week? Next!
A lecturer on Egypt, telling the natives of Buffalo, N. Y., about
the marvels in stone built on that strip of mud, illustrated the
proportions of the Nile Valley by saying “It it eleven hundred miles
long in Egypt proper and seven miles wide for most of its length. If
the city of Buffalo were laid crosswise in the valley, it would bisect
the kingdom.” And a Rochester man who had strayed into the fold
was mean enough to add: “And if Buffalo was there, that’s the way it
would lie—cross-ways.” That’s the way they talk in Rochester.
I quote this paragraph from Alice and respectfully refer it to the
editor of Mlle New York with the hope that he can see the point as
plainly as he sees most things:
All this time the Guard was looking at her, first through a
telescope, then through a microscope, and then through an
opera glass. At last he said, “You’re travelling the wrong way,”
and shut up the window and went away.
On his way to Montreal Mr. Hall Caine stopped off one day at
East Aurora. The Pink Tea given in his honor at the office of The
Philistine was largely attended by the farmers from both up the
creek and down the creek. In fact, as my old friend Billy McGlory
used to say, “Ye cudden’t see de street fer dust.”
The Boston Commonwealth (what satire there is in that name!)
is a nice paper, but its editor has not smiled for forty years; and all of
his little writers carry so much culture that they are round-
shouldered, flat-chested, bow-legged and near-sighted. They belong
to the large class that invariably miss the point of things and use
dignity for a mask to hide their lack of a sense of fun. The
Commonwealth accuses us of being envious of the Chip-Munk; of
being violently prejudiced against Mr. Cudahy’s book, and of
speaking irreverently of Boston. Go to thou old granny
Commonwealth, why sit you like your grandsire carved in alabaster
and creep into the jaundice by being peevish?
The Book-Peddler is doing great service in promotion of what
passes for literature in the paper and ink stores. I cannot but think
what a similar publication devoted to literature, not trade, could do to
save the valuable time of the reading public. Since Solomon’s time a
good many things have changed, but in one there is no
improvement. “Of the making of many books there is no end,” and
that is a heap sadder than the lamentation of Maud Muller and His
Honor.
Concerning Mr. Grant Allen’s book and the manner in which its
title has been made the basis of several others more or less
reminiscent, my most valued correspondent writes me that the
novelists are missing much by not calling a story The Woman Who Is
Simply Dying To. In my well known philanthropic way I throw out this
suggestion hoping that somebody may make many dollars by the
adoption of the title for a decadent tale.
The Vanastorbilts are really under great obligations to Mrs.
Rorer’s Household News for the simple daily menus for poor folks
which are a feature. There’s nothing so cheap as good living—in a
magazine. When bread sticks and banana chutney and peaches and
rice and cantaloupe can be mowed away by a poor man before the
seven o’clock whistle blows no hard worker ought to lack muscle for
his daily toil. We have printed assurance of Mrs. Bellow that “These
menus have been arranged on a scientific plan, are thoroughly
hygienic, and contain all that is necessary for proper living.” It is luck
after all that man does not live by bread alone, but by every word
that proceedeth out of the hygienic mouth aforesaid.
Messrs. Lo & Behold, publishers of works on moral pathology,
Boston, are making great efforts to club the Arena. I understand they
propose offering season tickets to museums of morbid anatomy as
prizes.
I note a somewhat guarded statement by Dr. Swan M. Burnett
denying that he and his wife have separated or are undergoing that
mutually humiliating process. All there is of it, he says, is that her
work keeps her abroad and his keeps him in Washington. The
doctor’s friends say, however, that the doctor and the writist live
apart and have done so for years and that he is tired of being
referred to as Mrs. Frances Hodgson Burnett’s husband. I think more
likely he objects to being identified at the banks and elsewhere as
the father of Little Lord Fauntleroy.
The Pell Mell Gazette of last Saturday contains a cablegram
from Mr. Hall Caine, dated at East Aurora, N. Y., wherein the author
of The Manxman reports that the prospect for next year’s crop of
ginger is very promising.
I suppose it’s all right for the publisher of Munsey’s to tell how
he made that magazine jump from 20,000 to half a million copies a
month by shutting out middlemen and reaching the hungering and
thirsting public direct. That’s his cue. If the publisher didn’t blow his
horn who would? I opine, however, that the fish would sell without it,
and that the editor of Munsey’s could tell them something a good
deal more interesting in the same space. What does the great public,
with its multitude of aims and desires, care how such an effect was
accomplished? All that could safely remain within the veil. It would
be more to the point if the editor or publisher of Mr. Bok’s collection
of wax works would tell by what miracle he got a circulation. It is
easy in the other case, regardless of the smart publisher. The time
passed long ago when a horse being led to water could be forced to
drink. The public must have wanted Munsey’s when it was shut out
by the middleman or they wouldn’t have compelled the dealers to
send for it, and that implies that there’s something in it besides self-
consciousness and the publisher’s tactical brilliancy. But how on
earth came the embodied ego and its sisters and cousins and aunts
to get a hearing anywhere? Is Ruth Ashmore, alias Bab, at the
bottom of it?
A certain gentleman of my acquaintance, having heard until he
is sick of it that it takes nine Taylors to make a man, continues to
boldly assert that it takes two Chatfields to make a Taylor.
When the Philistine was started six months ago I had no idea
that it would now have half a million subscribers.
I am reminded by a Boston newspaper of the continued
existence of a belief that criticism of books and other things more or
less remotely connected with literature is largely a matter of
prejudice and that the imprints on title pages determine the authors’
fate. Yet the same article goes on to quote the Chip-Munk firm as
proof that merit will win sometimes in spite of such drawbacks. It
seems to me the instance proves too much.
And here, just at the last, I want to set down what I have just
read in a delightful book written by Katherine Cheever Meredith—
Johanna Staats—because it seems to fit one’s mood at this time of
year. This is it:
“Oh, I play with Miss Gray Blanket and I play with Fanny.”
“Fanny? The little girl?”
“Yes. After it’s dark, you know, I play with her. Then I talk to
her. She never answers. But I play she’s so tired she can’t. Of
course I can’t play that when it’s light. For then I could see
that she wasn’t there. But in the dark she might be.”
“Exactly,” responded Poole abstractedly. He was thinking
that many men and women indulge in the same game.
Sometimes with their faith in each other; but more often,
though, with their creeds.
FANFARRONADE.
Let no man deem himself of Fate the King,
Or challenge Fortune with a voice defiant—
A tiny pebble in a shepherd’s sling
Once overthrew a proud and boastful giant.
Clarence Urmy.
NOTHING BUT LEAVES.
It was one of those November days when the wind swoops down the
mountain sides, bringing an avalanche of leaves—disked oak leaves
—and then leaving them for a moment in the valley basin, gathers
them in her mighty hands and tosses them again almost to the
mountain tops.
Chris found a sympathy in the dizzy, whirling, swirling leaves. His
hopes had withered so, and now a girl’s changeful hand had been as
reckless with him as was the wind with these: like wrath in death and
envy afterwards.
Poor Chris’s spiritual kingdom was suffering the nature of an
insurrection, for though he loved her he was too proud to tell her she
had misjudged him. The dissipation of his hopes now was tinged
with regret, just as the wanton winds seem to us ruthless as we
remember when these leaves were planes and green, not disked
and brown.
Mockingly came the dance of leaves around his feet—each like a
thing alive—to beckon him here, there, to elude him, to laugh at him.
“It’s too hard to bear!” groaned Chris, between his teeth. “How
could she believe it! How could she!”
A flurry of hurrying, scurrying leaves swept past him, a company of
mocking, dancing leaves; from right and left they came, and scarce
ten steps before him they met and swirled up—up into a monstrous
wraith with beckoning hands. Chris’s conflict took form. “I’ll do it! I’ll
do it! I’ll show her! She’ll regret this day!” and he threw back his head
and with flashing eyes started forward with resolute steps.
A lost leaf wavered, dipped, paused, then with a timid wafture
touched his crisp curls.
His blood surged up, for it was like the caress of a loving hand.
“Oh no,” said Chris, “I may be wrong—I’ll tell her so;” and holding
the lost leaf very gently between his two hands he walked swiftly
back.
Honor Easton.
A FLOWER FROM THE CENTURY PLANT.

by charles dinneh gives’em.
The Princess Stony-eye kept on saying nothing.
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Finance Applications and Theory 3rd Edition Cornett

File: Ch08; Chapter 8: The Cost of Production

2. Which of the following can be classified as an implicit cost of production?

Difficulty Level: Hard

10. Total fixed cost is the same regardless of:

15. Identify the example of sunk cost from the following.

17. A firm’s costs are determined by:

20. Which of the following is correct?

27. Which of the following does not decline as output increases?

28. Which of the following statements is not true?

33. In the short-run, diminishing marginal returns are associated with:

B) rising marginal cost.

34. Which of the following statements about marginal cost is correct?

35. The law of diminishing marginal returns:

43. Average fixed cost [AFC] is the:

D) vertical distance between ATC and the X-axis.

Section Reference: Short-Run Cost Curves

47. Which of the following is true?

49. In Figure 8-1, R identifies the point:

Difficulty Level: Easy

53. Which of the following can be identified from an isocost line?

57. Which of the following is true of the expansion path?

58. The long-run expansion path for a firm:

59. The expansion path identifies:

Difficulty Level: Medium

61. The rule of cost minimization indicates that a firm should:

64. Each point on an expansion path:

70. Which of the following is true of cost minimization?

B) The firm's marginal cost curve will shift downward.

Difficulty Level: Medium

78. Increasing returns to scale imply that:

79. The long-run average cost curve always:

82. Decreasing returns to scale imply:

83. Economies of scale:

D) refers to the ability to make large-scale investments in capital.

84. Which of the following is true?

88. Learning by doing:

89. Which of the following is true of learning by doing?

91. The possibility of learning by doing ensures:

92. Learning by doing is illustrated by:

93. Which of the following factors can lead to learning by doing?

95. Learning by doing:

96. Which of the following changes shift the long-run AC curve?

97. An important determinant of market structure is:

99. The minimum efficient scale is:

103. Economies of scope exist if:

104. Identify the correct statement.

Difficulty Level: Hard

TC2 isocost line