THEORY OF COSTS & PRODUCTION FUNCTION

Marginal cost is equal to average variable cost when ________________.

• the marginal cost curve rises.

• the average cost curve reaches its minimum point.

• the average variable cost curve reaches its minimum.

• the average cost curve reaches its maximum point.

An increase in total production will cause average fixed costs to _________________.

• increase further.

• decrease further.

• increase, then decrease.

• decrease, then increase.

The law of decreasing returns can explain the shape of a _________________.

• short run marginal cost curve.

• long run marginal cost curve.

• short run average cost curve.

• falling total fixed cost curve.

If the variable input is added to some fixed inputs, beyond some point, the resulting extra output or marginal product will decline. This statement describes ________________.

• economies and diseconomies of scale.

• diseconomies of scale.

• the law of diminishing returns.

• the law of diminishing marginal utility.

When average product curve is rising, _____________________.

• the marginal product curve lies above the average product curve.

• the marginal product curve lies below the average product curve.

• the marginal product curve cut the average product curve.

• none of the above.

In the short run, product curves have all the following characteristics EXCEPT ___________.

• Average product is at its maximum when average product is equal to marginal product.

• Total product is at its maximum when marginal product is equal to zero.

• Total products begin to decrease when average products begin to decrease.

• When average product is equal to marginal product and both are positive, total product must be rising.

From the theory of production, economic efficiency refers to _________________.

• the combination of inputs that will maximize outputs.

• the combination of inputs that involves minimal costs.

• the combination of inputs that involves decreasing costs.

• the combination of inputs that involves a constant cost.

The marginal product of an input is:

• total product divided by the amount of the input used to produce this amount of output.

• the addition to total output that adds nothing to total revenue.

• the addition to total output that adds nothing to profit.

• the addition to total output due to the addition of one unit of all other inputs.

• the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.

According to the law of diminishing returns:

• the total product of an input will eventually be negative.

• the marginal product of an input will eventually be negative.

• the marginal product of an input will eventually decline.

• the total product of an input will eventually decline.

• none of the above

At which point on the total product curve is the average product of labor the highest?

• Point A

• Point B

• Point C

• Point D