EC 301 final Exam
1. The rate at which one input can be reduced per additional unit of the other input, while holding
output constant, is measured by the A) marginal rate of technical substitution. B) marginal rate of
substitution. C) average product of the input. D) slope of the isocost curve.: A
2. Once we enter the region of diminishing returns, total variable cost:
increases at a decreasing rate. increases
at an increasing rate. decreases at a
decreasing rate.
decreases at an increasing rate.: increases at an increasing rate.
3. The total fixed cost curve:
varies with the level of output. is
negatively sloped.
is simply a horizontal line.
is simply a vertical line.: is simply a horizontal line.
4. The short run total cost of zero output is equal to:
variable cost.
fixed cost. zero.
variable cost plus fixed cost.: fixed cost.
5. The vertical distance between the average variable cost and average total cost curves:
is everywhere equal to total fixed costs. is
everywhere equal to marginal cost. increases at a
decreasing rate.
decreases as quantity increases.: decreases as quantity increases.
6. Output for a simple production process is given by Q = 2KL, where K denotes capital, and L
denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The
price of labor is $5 per unit. What is the total cost of producing 80 units of output?:
$525
$200
$233
$225: $225
, EC 301 final Exam
7. The slope of a ray from the origin to a point on the total cost curve is the:
average fixed cost of producing the corresponding level of output. average total cost of
producing the corresponding level of output. marginal cost of producing the
corresponding level of output.
variable cost of producing the corresponding level of output.: average total cost of producing the
corresponding level of output.
8. Marginal cost is defined as:
the rate at which average cost changes with output.
the rate at which total variable cost changes with output. the rate at which
fixed cost changes with output.
total cost minus variable cost.: the rate at which total variable cost changes with output.
9. When marginal
cost is less than average total cost, as output in-
creases.:
average total cost must be increasing average variable
cost must be decreasing average fixed cost must be
increasing
average total cost must be decreasing: average total cost must be decreasing
10. In order to divide a given production quota between two production processes in such a way as
to produce the quota at the lowest possible cost, one should produce the output where:
average costs are equal for both processes.
average cost is equal to marginal cost for both processes. marginal costs are
equal in both processes.
marginal costs are at least equal to ATC in each process.: marginal costs are equal in both
processes.
11. The long-run total cost of zero output is equal to:
variable cost.
fixed cost. zero.
the marginal revenue product of labor.: zero
12. Markets characterized by declining long-run average costs are often re- ferred to as:
, EC 301 final Exam
perfect competition.
diseconomies of scale. natural
monopolies.
nonprofit organizations.: natural monopolies.
13. ATC equals:
AVC - AFC.
FC/Q.
(TFC + TVC)/Q.
MC + AFC.: (TFC + TVC)/Q.
14. At one unit of output AVC is:
zero.
infinite.
equal to marginal cost.
less than marginal cost.: equal to marginal cost.
15. If the total variable cost curve is a straight line then the:
total cost curve will also be a straight line.
total cost curve may or may not be a straight line. marginal cost function is
downward sloping.
marginal cost function is upward sloping.: total cost curve will also be a straight line.
16. Let the TC curve be given by the equation TC(Q) = 20 + 5Q. The variable cost curve can be
expressed as:
20 + 5Q.
20.
5Q.
5.: 5Q
17. Let the TC curve be given by the equation TC(Q) = 5 + Q. The ATC curve can be expressed as:
(1/Q) + 5.
(5/Q) + 1.
5.
Q.: (5/Q) + 1.
18. Let the TC curve be given by the equation TC(Q) = 10 + 5Q. The average variable cost can be
expressed as:
, EC 301 final Exam
10.
(10/Q) + 5.
10 + (5/Q).
It cannot be determined.: (10/Q) + 5.
19. Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of
output. Subsequent hires add 5 units less to production than the previous worker. Thus the second
worker adds 15, the third adds 10 etc. If the fifth laborer adds 25 units to the short run production
output and the sixth laborer adds 20 units to the total output and the firm can hire all the labor it
wants at the going wage we can be sure that:
marginal cost is increasing. average total cost
is increasing. average variable cost is
increasing.
None of these is correct because all the costs listed are decreasing.: marginal cost is increasing.
20. SKIP ON HW 6:
21. Producing an additional unit whose marginal cost exceeds the average total cost incurred
thus far has the effect of pulling the:
average cost up. total
cost down. average cost
down.
fixed cost up.: average cost up.
22. The total cost curve:
increases at a decreasing rate due to diminishing returns. is a horizontal line.
is parallel to and above the total variable cost curve.
is parallel to the total fixed cost curve.: is parallel to and above the total variable cost curve.
23. Total cost is broken down into two components:
average cost and marginal cost. variable
cost and marginal cost. average cost and
fixed cost.
variable cost and fixed cost.: variable cost and fixed cost.
1. The rate at which one input can be reduced per additional unit of the other input, while holding
output constant, is measured by the A) marginal rate of technical substitution. B) marginal rate of
substitution. C) average product of the input. D) slope of the isocost curve.: A
2. Once we enter the region of diminishing returns, total variable cost:
increases at a decreasing rate. increases
at an increasing rate. decreases at a
decreasing rate.
decreases at an increasing rate.: increases at an increasing rate.
3. The total fixed cost curve:
varies with the level of output. is
negatively sloped.
is simply a horizontal line.
is simply a vertical line.: is simply a horizontal line.
4. The short run total cost of zero output is equal to:
variable cost.
fixed cost. zero.
variable cost plus fixed cost.: fixed cost.
5. The vertical distance between the average variable cost and average total cost curves:
is everywhere equal to total fixed costs. is
everywhere equal to marginal cost. increases at a
decreasing rate.
decreases as quantity increases.: decreases as quantity increases.
6. Output for a simple production process is given by Q = 2KL, where K denotes capital, and L
denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The
price of labor is $5 per unit. What is the total cost of producing 80 units of output?:
$525
$200
$233
$225: $225
, EC 301 final Exam
7. The slope of a ray from the origin to a point on the total cost curve is the:
average fixed cost of producing the corresponding level of output. average total cost of
producing the corresponding level of output. marginal cost of producing the
corresponding level of output.
variable cost of producing the corresponding level of output.: average total cost of producing the
corresponding level of output.
8. Marginal cost is defined as:
the rate at which average cost changes with output.
the rate at which total variable cost changes with output. the rate at which
fixed cost changes with output.
total cost minus variable cost.: the rate at which total variable cost changes with output.
9. When marginal
cost is less than average total cost, as output in-
creases.:
average total cost must be increasing average variable
cost must be decreasing average fixed cost must be
increasing
average total cost must be decreasing: average total cost must be decreasing
10. In order to divide a given production quota between two production processes in such a way as
to produce the quota at the lowest possible cost, one should produce the output where:
average costs are equal for both processes.
average cost is equal to marginal cost for both processes. marginal costs are
equal in both processes.
marginal costs are at least equal to ATC in each process.: marginal costs are equal in both
processes.
11. The long-run total cost of zero output is equal to:
variable cost.
fixed cost. zero.
the marginal revenue product of labor.: zero
12. Markets characterized by declining long-run average costs are often re- ferred to as:
, EC 301 final Exam
perfect competition.
diseconomies of scale. natural
monopolies.
nonprofit organizations.: natural monopolies.
13. ATC equals:
AVC - AFC.
FC/Q.
(TFC + TVC)/Q.
MC + AFC.: (TFC + TVC)/Q.
14. At one unit of output AVC is:
zero.
infinite.
equal to marginal cost.
less than marginal cost.: equal to marginal cost.
15. If the total variable cost curve is a straight line then the:
total cost curve will also be a straight line.
total cost curve may or may not be a straight line. marginal cost function is
downward sloping.
marginal cost function is upward sloping.: total cost curve will also be a straight line.
16. Let the TC curve be given by the equation TC(Q) = 20 + 5Q. The variable cost curve can be
expressed as:
20 + 5Q.
20.
5Q.
5.: 5Q
17. Let the TC curve be given by the equation TC(Q) = 5 + Q. The ATC curve can be expressed as:
(1/Q) + 5.
(5/Q) + 1.
5.
Q.: (5/Q) + 1.
18. Let the TC curve be given by the equation TC(Q) = 10 + 5Q. The average variable cost can be
expressed as:
, EC 301 final Exam
10.
(10/Q) + 5.
10 + (5/Q).
It cannot be determined.: (10/Q) + 5.
19. Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of
output. Subsequent hires add 5 units less to production than the previous worker. Thus the second
worker adds 15, the third adds 10 etc. If the fifth laborer adds 25 units to the short run production
output and the sixth laborer adds 20 units to the total output and the firm can hire all the labor it
wants at the going wage we can be sure that:
marginal cost is increasing. average total cost
is increasing. average variable cost is
increasing.
None of these is correct because all the costs listed are decreasing.: marginal cost is increasing.
20. SKIP ON HW 6:
21. Producing an additional unit whose marginal cost exceeds the average total cost incurred
thus far has the effect of pulling the:
average cost up. total
cost down. average cost
down.
fixed cost up.: average cost up.
22. The total cost curve:
increases at a decreasing rate due to diminishing returns. is a horizontal line.
is parallel to and above the total variable cost curve.
is parallel to the total fixed cost curve.: is parallel to and above the total variable cost curve.
23. Total cost is broken down into two components:
average cost and marginal cost. variable
cost and marginal cost. average cost and
fixed cost.
variable cost and fixed cost.: variable cost and fixed cost.
