Theory of the Firm: Production & Cost Analysis Quiz

What is the basic form of the production function?

• Q = AL^aK^b

• Q = f(X_1, X_2, X_3, ..., X_n)

• Q = TC + TVC

• Q = AFC + AVC

Which of the following describes increasing returns to scale?

• Output increases less than proportionally

• Output increases proportionally

• Output increases more than proportionally

• Output remains constant

What does the Law of Diminishing Returns state?

• Additional variable resource units yield declining marginal returns

• Additional variable resource units yield increasing marginal returns

• Total Product remains constant

• Marginal Product is always increasing

What is the formula for Average Total Cost (ATC)?

• ATC = TC / Q

• ATC = TFC / Q

• ATC = TVC / Q

• ATC = MC / Q

Which of the following is an example of an implicit cost?

• Utilities expenses

• Opportunity cost of self-owned resources

• Rent paid for office space

• Wages paid to employees

What happens to Average Total Cost (ATC) when Marginal Cost (MC) is less than ATC?

• ATC is rising

• ATC is falling

• ATC remains constant

• ATC is at its minimum

What is the definition of Marginal Product (MP)?

• Change in Total Product / Change in Labor Input

• Total Cost / Total Output

• Total Product / Units of Labor

• Total quantity of output produced

Which of the following is NOT a type of economies of scale?

• Labor economies

• Financial economies

• Managerial economies

• Purchasing economies

What characterizes the long-run average total cost (LRAC) curve?

• It is a straight line

• It is U-shaped

• It is always increasing

• It is always decreasing

What is the relationship between Marginal Cost (MC) and Average Variable Cost (AVC) at the minimum point?

• MC is greater than AVC

• MC is less than AVC

• MC intersects AVC

• MC is equal to AVC