Micro Review 2

According to the law of diminishing marginal returns, eventually

• output must fall and then rise as additional units of input are employed

• additional inputs will no longer generate average output

• the additional output generated by additional units of an input will diminish

• the additional inputs necessary to produce an additional unit of output will diminish

At what point does marginal product equal average product?

• where average product is equal to its minimum value

• where average product is equal to its maximum value

• where marginal product is equal to its minimum value

• where marginal product is equal to its maximum value

A firm has fixed costs of $500. Its average variable cost is $2.00. At an output of 500 units its average total cost is

• $3.00

• $5.00

• $10.00

• $500

Marginal cost:

• equals both average variable cost and average total cost at their respective minimums

• is the difference between total cost and total variable cost

• rises for a time, but then begins to decline when diminishing returns set in

• declines continuously as output increases

If a technological advance reduces the amount of variable resources needed to produce any level of output, then the

• AVC curve will shift upward

• MC curve will shift downward

• ATC curve will shift upward

• AFC curve will shift downward

If a firm doubles its output in the long run and its per unit costs of production decline, we can conclude that

• technological progress has occurred

• the firm is encountering diminishing returns.

• diseconomies of scale are being encountered

• economies of scale are being realized

Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?

• Price must be at least equal to average total cost

• Price times quantity produced must be equal to or greater than total variable cost for some level of output or the firm will close down in the short run

• Price may be equal to, greater than, or less than average total cost

• Price must be equal to or greater than minimum average variable cost for the firm to continue producing

Which relationship exists for purely competitive firms in long run equilibrium

• P=MR=min ATC

• MC=MR=min AVC

• P>MC>ATC

• MC=TC=TR

Which of the following is true for a perfectly competitive firm but not true for a monopoly?

• The firm’s price is equal to its average revenue

• The firm cannot affect the market price of its product

• It is difficult for other firms to enter the industry

• The demand curve for the firm’s product is unit elastic

Which of the following will not hold true for a competitive firm in long-run equilibrium?

• P equals AFC

• P equals minimum ATC

• MC equals minimum ATC

• P equals MC