AP Microeconomics Cost Practice

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is

• 5.00

• 11.67

• 13.33

• 15.00

• 20.00

As output of a firm increases, the difference between the firm’s average total cost and its average variable cost gets smaller because the firm’s

• total cost is increasing

• marginal cost is increasing

• average fixed cost is decreasing

• marginal product of labor is decreasing

• long-run average total cost is decreasing

Which of the following statements about short-run costs is always true as a firm increases its production?

• Average fixed cost decreases.

• Average variable cost decreases.

• Average total cost decreases.

• Marginal cost is lower than the average variable cost.

• Marginal cost is lower than the average total cost.

Which of the following MUST be true of the long run?

• It is at least one year in duration.

• All factors of production are variable.

• At least one factor of production is fixed.

• Marginal costs are constant.

• Average total costs are constant.

Which of the following is true for a firm that uses labor as a variable input and capital as a fixed input in the short run?

• If the marginal product of labor is negative, the average product of labor must also be negative.

• If the marginal product of labor is rising, the average product of labor must be greater than the marginal product of labor.

• If the average product of labor is rising, the marginal product of labor must be rising.

• If the average product of labor is falling, the marginal product of labor must be less than the average product of labor.

• The average product of labor can never be equal to the marginal product of labor.

Suppose a firm’s production process exhibits diseconomies of scale. How and why will costs change if the firm reduces its output?

• Long-run average total cost will increase because it becomes more difficult for the firm to manage its workforce.

• Long-run average fixed costs will increase because the firm produces fewer units of output.

• Long-run average total cost will decrease because it becomes easier for the firm to manage its workforce.

• Long-run average fixed costs will decrease because the firm produces fewer units of output.

• Long-run average total cost will decrease because it becomes more difficult for the firm to manage its workforce.

In the short run, which of the following is true of a firm's average total cost of production?

• It is equal to marginal cost plus average variable cost.

• It is equal to marginal cost plus average fixed cost.

• It is equal to average fixed cost plus average variable cost.

• It always increases when a firm increases production.

• It is zero if the firm shuts down.

Which of the following must be true if at the tenth unit of output, marginal cost is 130 and average total cost is 150?

• ATC of producing the ninth unit is higher than 150.

• ATCof producing the ninth unit is less than 150.

• MC of producing the ninth unit is higher than 130.

• The average variable cost of producing the tenth unit is higher than 150.

• The average variable cost of producing the tenth unit is equal to 20.

Which of the following is always true of the relationship between average and marginal costs?

• Average total costs are increasing when marginal costs are increasing.

• Marginal costs are increasing when average variable costs are higher than marginal costs.

• Average variable costs are increasing when marginal costs are increasing.

• Average variable costs are increasing when marginal costs are higher than average variable costs.

• Average total costs are constant when marginal costs are constant.

Which of the following is true about a firm's average variable cost?

• It will rise if marginal cost is less than average variable cost.

• It will never equal the firm's marginal cost.

• It will decline when the firm's marginal product declines.

• It will be negative if marginal revenue declines.

• It will equal average total cost when fixed costs are zero.