Chapter 14: The cost of production

At which number of workers does diminishing marginal product begin?

• 1

• 2

• 3

• 4

A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000,

• average variable cost is $2.

• average fixed cost is 50 cents

• average total cost is $2.50

• average total cost is 50 cents

The graph illustrates a typical

• total-cost curve

• production possibilities frontier

• marginal product of labor curve

• production function

Why doesn't the total cost curve begin at the origin (the point 0,0)?

• Because the firm is producing at the efficient scale

• Because the firm is maximizing profits

• Because fixed costs are positive when output is zero

• Because variable costs are positive when output is zero

Diminishing marginal product exists when the production function becomes flatter as inputs increase.

• True

• False

Average total cost is increasing whenever

• marginal cost is increasing

• marginal cost is greater than average total cost

• marginal cost is less than average total cost

• total cost is increasing

Diminishing marginal product exists when the total cost curve becomes horizontal as outputs increases

• True

• False

If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would

• slope downward

• be horizontal

• slope upward

• slope downward for low output levels and upward for high output levels

The following figure depicts average total cost functions for a firm that produces automobiles

The firm experiences economies of scale at which output levels?

• Output levels between M and N

• Output level greater than M

• Output levels greater than N

• Output levels less than M

The opportunity cost of capital is an implicit cost almost every business incurs

• True

• False