Explain why the marginal cost curve intersects a U-shaped average cost curve at its minimum point. What will be an ideal response? ANSWER At low quantities, the average cost curve declines as the quantity increases. The marginal cost is below the average cost. The marginal cost represents the cost of an additional unit of […]
The marginal cost curve intersects the average fixed cost curve at its minimum. Indicate whether the statement is true or false ANSWER False. Marginal cost intersects average variable cost (and average cost) at its minimum.
Every point on the joint production possibilities frontier represents A) an initial endowment. B) inefficient production. C) the marginal rate of substitution of goods for each producer. D) at least one producer specializing in production. ANSWER D
Suppose the current market wage rate (w) is $4. In the short run, a firm’s marginal cost at the current output level is $2. What is this firm’s marginal product of labor? A) MPL = 0.5 B) MPL = 1 C) MPL = 2 D) MPL = 8 ANSWER C
In the long run, fixed costs are A) sunk. B) avoidable. C) larger than in the short run. D) not included in production decisions. ANSWER B
Assume a government likes a particular equilibrium along the contract curve. It can achieve that equilibrium through competition and income redistribution. Indicate whether the statement is true or false ANSWER True . This statement is called the Second Welfare Theorem.
In the short run, a firm ‘s output level is 10 units. Its total cost is $4000 and its average fixed cost is $100. What is this firm’s average variable cost (AVC) of producing 10 units? A) AVC = $250 B) AVC = $275 C) AVC = $300 D) AVC = $400 ANSWER C […]
Consider a society consisting of just a farmer and a tailor. The farmer has 10 units of food but no clothing. The tailor has 20 units of clothing but no food. Suppose each has the utility function U = F C. The price of clothing is always $1. If the price of food is […]
What are the functions for MC and AC if TC = 40 + 10q + 5q2? A) MC = 10q; AC = 10 + 5q B) MC = 10 + 10q; AC = 40/q + 10 + 10q C) MC = 10 + 10q; AC = 40/q + 10q2 D) MC = 20 + 10q; […]
A specific tax of $1 per unit of output will affect a firm’s A) average total cost, average variable cost, average fixed cost, and marginal cost. B) average total cost, average variable cost, and average fixed cost. C) average total cost, average variable cost, and marginal cost. D) marginal cost only. ANSWER C
