IE 5 - Firms in the Marketplace I

In the short run, at least one factor of production is:

• Variable

• Fixed

• Eliminated

• Unused

Which of the following is considered a variable cost?

• Rent

• Loan repayment

• Raw materials

• Salaries of permanent employees

(Scenario) A bakery produces cakes. It recently hired additional workers but kept its ovens and workspace unchanged. After hiring a certain number of workers, it noticed that each additional worker contributed less to total output than the previous worker. This is an example of:

• Economies of scale

• Law of diminishing marginal returns

• Fixed cost behavior

• Price elasticity of demand

In the long run, firms can:

• Change only labor inputs

• Change all inputs, including fixed costs

• Only increase production but not decrease it

• Avoid economies of scale

(Scenario) A furniture company finds that as it expands production and builds larger factories, its average cost per chair decreases. This is an example of:

• Diseconomies of scale

• The law of diminishing marginal returns

• Economies of scale

• The substitution effect

Marginal cost (MC) is calculated as:

• Change in total revenue / Change in output

• Change in total cost / Change in output

• Total cost / Quantity produced

• Variable cost / Quantity produced

If marginal cost (MC) is less than average total cost (ATC), then ATC will:

• Increase

• Decrease

• Remain constant

• Be equal to marginal cost

(Scenario) A small café is experiencing losses, but it is still able to cover its variable costs. The best decision for the café in the short run is to:

• Shut down immediately

• Continue operating to cover some of its fixed costs

• Increase prices dramatically

• Stop paying wages to workers

Total cost (TC) is the sum of:

• Fixed costs and marginal costs

• Fixed costs and variable costs

• Variable costs and opportunity costs

• Explicit and implicit costs

(Scenario) A tech startup invests money into research and development instead of putting the funds into a safe savings account that earns interest. The lost interest earnings represent the company's:

• Fixed cost

• Explicit cost

• Implicit cost

• Marginal cost