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Yr11 IBDP Economics - Recap Product and Cost Curves

Total questions: 67

Worksheet time: 43mins

Name
Class
Date
1.

Which of the following is the best definition of the short run in cost theory?

a)

Where all factors of production are variable

b)

Time period where full adjustment for changes in wages and prices has not taken place

c)

Less than a one-month time frame in business decision making

d)

Where at least one factor of production is fixed

2.
Short run marginal costs eventually increase because of the effects of:
a)
increasing marginal product
b)
diminishing marginal product
c)
increasing fixed costs
d)
diseconomies of scale
3.
At 100 units of output, a firm's total cost is $10,000. If the firm's total fixed cost is $4,000, its average variable cost is equal to:
a)
$140
b)
$100
c)
$60
d)
$40
4.
The most profitable level of output for any firm operating in the short run is the level of output at which:
a)
marginal revenue exceeds marginal cost by the highest amount 
b)
marginal revenue equals marginal cost 
c)
price exceeds average cost by the highest amount
d)
price equals marginal cost 
5.

If a new tax on capital increases a firm’s fixed cost of production, which of the following will occur in the short run?

a)

Average total cost will increase

b)

Marginal cost will increase

c)

Average variable cost will increase

d)

The profit-maximizing level of output will increase

6.
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
a)
total cost is increasing
b)
marginal cost is increasing
c)
average fixed cost is decreasing
d)
marginal product of labor is decreasing 
7.

The graph above shows the marginal product (MP) and the average product (AP) of labor for a firm that uses labor as the only variable input. At which quantity of labor does marginal cost change from decreasing to increasing?

a)

L1

b)

L2

c)

L3

d)

L5

8.
Shelby is an entrepreneur who has decided to open a small advertising firm. She rents office space at a cost of $25,000 per year, she has employed an assistant at a salary of $30,000 per year, and she incurs annual utility and office supply expenses of $20,000. Her best alternative is to work elsewhere and to earn a salary of $50,000 per year. How much annual revenue must her firm receive so that Shelby earns zero economic profit? 
a)

$50,000

b)

$75,000

c)

$100,000

d)

$25,000

9.
A firm produces 400 books and sells each book for $15. If the explicit cost of producing the books is $4,500 and the implicit cost is $1,000, the firm’s economic profit is:
a)
$0
b)
$500
c)
$1,000
d)
$1,500
10.
A firm is producing 100 units of output at a total cost of $400. The firm’s average variable cost is $3 per unit. What is the firm’s total fixed cost? 
a)
$100
b)
$1
c)
$300
d)
$50
11.
Assume that the fixed cost is $50. Based on the cost and output data in the table, what is the marginal cost when the firm increases its output from three to four units AND the average total cost of producing 4 units (respectively)? 
a)
MC=$35; ATC=$40
b)
MC=$35; ATC=$35
c)
MC=$25; ATC=$35
d)
MC=$25; ATC=$25
12.
Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the firm hires additional workers, one would expect the marginal product to: 
a)
fall initially, but eventually rise
b)
rise initially, but eventually fall
c)
rise consistently due to diminishing returns
d)
rise consistently due to the advantages of specialization
13.
In the short run, which of the following costs must continuously decrease as output produced increases? 
a)
Total variable cost 
b)
Total fixed cost 
c)
Average total cost 
d)
Average fixed cost 
14.

Consider the product data in the table. Which of the following is not true from the information given by the data?

a)

Law of diminishing returns sets in when the fifth worker is employed

b)

Marginal product of the second workers is 15 units

c)

Law of diminishing returns sets in when the third worker is added

d)

Average product when four workers are employed is 9 units

15.

Which of the following is the best description of variable costs?

a)

Costs that do not change when output changes

b)

Cost of maintaining machinery

c)

Cost of maintenance workers on the production line

d)

Costs that change as output changes

16.

Which of the following is not a fixed cost?

a)

Workers on the production line

b)

Interest cost on a loan

c)

Rent of an office building

d)

Purchase cost of a new machine

17.

Which of the following equations would you use to calculate marginal cost ?

a)

Change in TFC / change in Q

b)

Change in TC / change in Q

c)

TC / Q

d)

TVC / Q

18.

Using the cost data below, which of the following is not correct?

AFC = $30; output = 200 units; TVC = $8,000

a)

AVC = $40

b)

ATC = $70

c)

TFC = $5,000

d)

TC = $14,000

19.

Which of the following is least likely to be an economy of scale?

a)

An extra worker employed being more productive than a previous worker

b)

Being able to secure at a lower rate of interest

c)

Moving goods by sea in large tankers

d)

Managers specialising in a particular function

20.

Using the diagram, which of the following is true?

a)

The green curve is MC

b)

The red curve is AFC

c)

The blue curve is ATC

d)

The yellow curve is AVC

21.
Total Costs / Quantity = _____
a)
Marginal Cost
b)
Average Total Cost
c)
Implicit Cost
d)
Explicit Cost
22.
Variable Cost/Quantity = _______
a)
Marginal Variable Cost
b)
Average Fixed Cost
c)
Average Variable Cost
d)
Marginal Total Cost
23.
Costs that do not change when the quanity of output produced changes?
a)
Fixed Costs
b)
Variable Costs
c)
Explicit Costs
d)
Implicit Costs
24.
The market value of all the inputs a firm uses in production.
a)
Implicit Costs
b)
Explicit Costs
c)
Total Costs
d)
Marginal Costs
25.
Time period in which one of the costs is fixed?
a)
Long Run
b)
Short Run
26.
Additional cost associated by producing one additional unit of product.
a)
Fixed Costs
b)
Average Costs
c)
Marginal Costs
d)
Emplicit Costs
27.
Input costs that may not have a direct outlay of money.  Value of the opportunity cost.
a)
Fixed Cost
b)
Variable Cost
c)
Implicit Cost
d)
Explicit Cost
28.
Period of time in which all costs are variable.
a)
Long Run
b)
Short Run
29.
Costs that change as the quantity of outputs changes.
a)
Fixed Costs
b)
Variable Costs
30.
Fixed Cost divided by the quantity of output.
a)
Average Fixed Cost
b)
Average Variable Cost
c)
Marginal Cost
d)
Marginal Fixed Cost
31.

What is the formula for Average Product (AP)

a)

TP / Units of variable input (e.g. labour)

b)

▵TP / ▵Units of variable input

c)

= TFC / Q

d)

= TVC / Q

32.

What is the formula for Marginal Product (MP)

a)

TP / Units of variable input (e.g. labour)

b)

▵TP / ▵Units of variable input

c)

= TFC / Q

d)

= TVC / Q

33.

What is the formula for Total Costs (TC)

a)

= TFC + TVC

b)

▵TP / ▵Units of variable input

c)

= TFC / Q

d)

= TVC / Q

34.

What is the formula for Average Fixed Costs (AFC)

a)

= TC / Q

b)

= ▵TC / ▵Q

c)

= TFC / Q

d)

= TVC / Q

35.

What is the formula for Average Variable Costs (AVC)

a)

= TC / Q

b)

= ▵TC / ▵Q

c)

= TFC / Q

d)

= TVC / Q

36.

What is the formula for Average Total Costs (ATC)

a)

= TC / Q

b)

= ▵TC / ▵Q

c)

= AFC + AVC

d)

= TVC / Q

37.

What is the formula for Marginal Costs (MC)

a)

= TC / Q

b)

= ▵TP / ▵Units of variable input

c)

= AFC + AVC

d)

= ▵TC / ▵Q

38.

What is the definition for implicit costs?

a)

Sacrificed income for the use of a factor of production (input) that is owned by the firm for use in production

b)

Payment of money by a firm to obtain a factor of production (input) for use in production

c)

Explicit Costs + Implicit Costs

d)

the extra or additional cost of producing one more unit of output

39.

What is the definition for explicit costs?

a)

Sacrificed income for the use of a factor of production (input) that is owned by the firm for use in production

b)

Payment of money by a firm to obtain a factor of production (input) for use in production

c)

Explicit Costs + Implicit Costs

d)

the extra or additional cost of producing one more unit of output

40.

What is the definition for economic costs?

a)

Sacrificed income for the use of a factor of production (input) that is owned by the firm for use in production

b)

Payment of money by a firm to obtain a factor of production (input) for use in production

c)

the sum of explicit and implicit costs, or total opportunity costs incurred by a firm for its use of resources, whether purchased or self-owned

d)

the extra or additional cost of producing one more unit of output

41.

You start a cupcake business in your home, which of the following costs are implicit costs?

a)

opportunity cost of entrepreneurial talent

b)

interest on loan

c)

purchase of supplies and materials

d)

foregone rental income from spare room

42.

You start a cupcake business in your home, which of the following costs are explicit costs?

a)

the salary you pay your assistant

b)

interest on loan

c)

purchase of supplies and materials

d)

opportunity cost of your foregone salary

43.
Occurs when each addition of an input results in declining quantity of the output
a)
Diminishing Marginal Utility
b)
Diminishing Marginal Costs
c)
Diminishing Marginal Returns
d)
Diminishing Marginal Profits
44.
Period of time in which all costs are variable.
a)
Long Run
b)
Short Run
45.

If you own a home, you must pay for electricity you use. The amount you pay changes every month depending on how much you use. This is an example of a...

a)

fixed cost

b)

variable cost

46.

Kelly makes and sells quilted blankets out of her home. She charges $50 per blanket. For each blanket she makes, she must spend $1 on thread, $2 in electricity and $12 on cloth. This month she made and sold 15 blankets. What is Kelly's total cost?

a)

$25

b)

$225

c)

$375

d)

$750

47.

Which of the following would be an example of a fixed cost on a farm?

a)

Mortgage on the land

b)

Cost of seed

c)

Fuel to operate machinery

d)

Fertilizer

48.

Which of the following describes an eventual decline in the productivity of factor inputs as additional units of variable factors are added to fixed resources?

a)

Law of diminishing marginal utility

b)

Law of diminishing marginal returns

c)

Laffer curve

d)

Law of diminishing total product

49.

Concentration of economic activity on the production of a few particular goods or services is

a)

diminishing returns

b)

specialization

c)

comparative advantage

d)

utility

50.

A time period when at least one factor of production is held constant is called

a)

Market period

b)

Very short period

c)

Short run

d)

Long run

51.

Which of the following is an example of a variable cost?

a)

Permanent labour which remains employed at all levels of output

b)

Land on which the factory is located

c)

Machinery which does not change easily

d)

None of the above

52.
The property whereby long-run average total cost falls as the quantity of output increases.
a)
Economies of Scale
b)
Efficient Scale
c)
Constant Returns to Scale
d)
Diseconomies of Scale
53.
The property whereby long-run average total cost rises as the quantity of output increases.
a)
Economies of Scale
b)
Effecient Scale
c)
Constant Returns to Scale
d)
Diseconomies of Scale
54.
The property whereby long-run average total cost stays the same as the quanity of output changes.
a)
Constant Returns to Scale
b)
Economies of Scale
c)
Efficient Scale
d)
Diseconomies of Scale
55.
Period of time in which all costs are variable.
a)
Long Run
b)
Short Run
56.
Time period in which one of the costs is fixed?
a)
Long Run
b)
Short Run
57.

Which levels of output are produced at the minimum possible cost per unit?

a)

q1

b)

q2

c)

q3

d)

All of the above.

58.

Use the following two statements to answer this question:

I. Increasing returns to scale cause economies of scale.

II. Economies of scale cause increasing returns to scale.

a)

Both I and II are true.

b)

I is true, and II is false.

c)

I is false, and II is true.

d)

Both I and II are false.

59.

The LRAC (long run average cost) and LRMC (long run marginal cost) curves in the diagram below are consistent with a production function that exhibits:

a)

decreasing returns to scale.

b)

constant returns to scale.

c)

increasing returns to scale.

d)

increasing returns to scale for small levels of output, then constant returns to scale, and eventually decreasing returns to scale as output increases.

e)

decreasing returns to scale for small levels of output, then constant returns to scale, and eventually increasing returns to scale as output increases.

60.

Which factors are reasons for the occurrence of economies of scale?

a)

Specialisation of labour and management

b)

Indivisibilities of capital equipment and efficient processes

c)

Co-ordination and monitoring difficulties

d)

Poor worker motivation

61.

Which factors are reasons for the occurrence of diseconomies of scale?

a)

Communication difficulties

b)

Efficiency of capital equipment

c)

Co-ordination and monitoring difficulties

d)

Poor worker motivation

62.

The U shape of the long run average total cost (LRATC) curve has nothing to do with diminishing returns

a)

True - diminishing returns are a feature of only short-run production and costs

b)

False - diminishing returns causes economies of scale

63.

Based on the diagram the downward sloping portion of the curve represents ____

a)

Economy of scale - the average cost rises proportionately less to output.

b)

Constant economy of scale - average cost rises proportionately to output

c)

Diseconomy of scale - average cost rises proportionately faster than output

64.

Based on the diagram the upward sloping portion of the curve represents ____

a)

Economy of scale - the average cost rises proportionately less to output.

b)

Constant economy of scale - average cost rises proportionately to output

c)

Diseconomy of scale - average cost rises proportionately faster than output

65.

Based on the diagram at POINT C there is ______

a)

Economy of scale - the average cost rises proportionately less to output.

b)

Constant economy of scale - average cost rises proportionately to output

c)

Diseconomy of scale - average cost rises proportionately faster than output

66.

The diagram is for a farmer who produces with two inputs, land and labour. In this diagram what does the SRATC represent?

a)

The possible options of farm sizes

b)

The lowest possible average cost that can be attained by a firm for any level of output

c)

The point at which a firm achieves minimum efficient scale

67.

Which farm sizes should the farmer select?

a)

SRAC4 - as at this point the firm has its lowest long run total average costs

b)

SRAC9 - as the firm is producing the most amount of output

c)

SRAC3 - as this is when the firm is still experiencing increasing returns to scale

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