Micro Economics Study Questions

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Figure 10-1

[pic]

a) Refer to Figure 10-1. The marginal product of the 3rd worker is ______ b) Refer to Figure 10-1. The marginal product of the 7th worker is ______ c) Refer to Figure 10-1. The average product of the 4th worker ______ d) Diminishing marginal productivity sets in after ______

15) If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is ______

16) If 11 workers can produce 53 units of output while 12 workers can produce 56 units of output, what is the marginal product of the 12th worker?

17) If another worker adds 9 units of output to a group of workers who had an average product of 7 units, then the average product of labor A) will remain the same.
B) will increase.
C) will decrease.
D) and what will happen to it cannot be determined.

18) In the short run, marginal product of labor increases at first and then falls because A) as more labor is hired, they are not as skilled as the first ones hired. B) there are fewer opportunities for division of labor and specialization when fewer workers are hired. C) managerial inefficiency sets in when a firm gets too large. D) the new workers do not have as much experience as those who have been with the firm for a long time and therefore are not as productive.

Figure 10-2

8) Which of the following costs will not change as output changes? A) marginal cost
B) total variable cost
C) average variable cost
D) average fixed cost
E) total fixed cost

9) Average fixed costs of production
A) remain constant.
B) will rise at a fixed rate as more is produced.
C) graph as a U-shaped curve.
D) fall as long as output is increased.

10) If fixed costs do not change, then marginal cost
A) also remains constant.
B) equals the change in variable cost divided by the change in output. C) equals the change in average variable cost divided by the change in output. D) equals the change in average fixed cost divided by the change in output.

11) The marginal cost curve is U-shaped because of the law of increasing opportunity costs. (TRUE/FALSE)

12) In the short run, if marginal product is below average product, then average variable cost is increasing. (TRUE/FALSE)

13) In the short run, if average product is at its maximum, then average variable cost is at its minimum. (TRUE/FALSE)

14) If marginal cost is above the average variable cost, then average variable cost is decreasing. (TRUE/FALSE)

15) If the marginal product of labor is decreasing, then marginal cost of production must be rising. (TRUE/FALSE)

16) Describe the relationship between marginal cost and average cost. Answer: If marginal cost for a given output is below average cost, average cost will decrease as output increases but if marginal cost is above average cost, average cost will increase as output increases. If marginal cost equals average cost, average cost is at its minimum value.

1) Average total cost is equal to
A) average fixed cost minus average variable cost.
B) total cost divided by the level of output.
C) marginal cost plus variable cost.
D) total cost divided by the number of workers.

2) When the average total cost is $16 and the total cost is $800, then the number of units the firm is producing is A) impossible to determined with the information given.
B) 12,800.
C) 784.
D) 50.

3) Adam rents an equipment for his small business for $10,000, "Adam's Fitness Studio". Membership at his fitness center is very low and each member costs him $1,000 per year to keep his studio open.  Which of the following is true? A) The fixed cost of running the studio is $11,000.

B) The variable cost of running the studio is $10,000.
C) The $10,000 Adam spent on rental of equipment is a fixed cost of business and the $1,000 he'll need to continue operations is a variable cost. D) The $10,000 Adam spent on rental of...
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