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CHAPTER 21 COSTS AND THE SUPPLY OF GOODS
168.The law of diminishing returns indicates why
a.beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller amounts of additional satisfaction.
b.the firm’s total fixed costs do not change with output in the short run.
c.a firm’s long-run average total cost curve is U-shaped. *d.a firm’s marginal costs will eventually increase as the firm expands output in the short run. 169.The short run is a time period of insufficient length for the firm to change its

a.output.
b.amount of labor employed.
*c.plant size and heavy equipment.
d.price.
170.Sunk or “historical” costs are costs
a.associated with current operational decisions.
*b.that have already been incurred as the result of past decisions.
c.that add to the firm’s marginal costs.
d.that form the major component of the firm’s variable costs. 171.Advantages of the corporate form of business organization include
a.the ease of transferring ownership in a corporation.
b.the limited liability concept that protects the stockholder from potential debts incurred by the corporation.
c.the lack of employee shirking that occurs in corporations. *d.both a and b.
172.The average variable cost curve and average total cost curve become closer together as output increases because
a.the marginal cost curve intersects the average total cost curve at its minimum.
b.average fixed cost remains constant as output rises.
*c.average fixed cost, which is the difference between them, declines with output.
d.output is rising more rapidly than inputs are being increased. 173.Which of the following factors would not shift the cost curves of an automobile company upward?
a.a regulation requiring all automobiles be equipped with improved safety equipment
b.an increase in the price of steel used to make automobiles
c.an increase in the property tax on buildings and equipment used by the automobile company *d.An employee develops a new method of installing doors on the cars that requires half as many workers as before. 174.The firm’s average total costs will be a minimum at the output level where the

a.firm just begins to confront diminishing returns to the variable factors.
b.marginal costs are a minimum.
c.firm’s average fixed costs are at their minimum.
*d.marginal cost curve crosses the firm’s average total cost curve. 175.The law of diminishing returns states that
a.as we continually add variable factors to a fixed amount of other resources, output eventually increases at a decreasing rate.
b.as we increase plant size, costs must diminish.
c.the additional output generated by the employment of additional units of a variable input eventually decline. *d.both a and c are correct.
Use the figure to answer the following questions.
Figure 13
The following cost curves are for one very small firm in a large market.
176.According to Figure 13, if the firm produces 10 units of output, its average total cost is
a.$6.
b.$7.
c.$12.
*d.$13.
177.According to Figure 13, if the firm produces 15 units of output, its average fixed cost is *a.$4.
b.$5.
c.$6.
d.$60.
178.According to Figure 13, if the firm produces 10 units of output, its total cost is
a.$7.
b.$13.
c.$70.
*d.$130.
179.According to Figure 13, if the firm produces 10 units of output, its total fixed cost is
a.$6.
*b.$60.
c.$70.
d.$130.
180.According to Figure 13, the marginal cost of producing the tenth unit is *a.$7.
b.$13.
c.$70.
d.$130.
181.This firm, illustrated in Figure 13, minimizes its per-unit costs of production at an output level of
a.Q = 6.
b.Q = 10.
*c.Q = 15.
d.none of the above.
182.Diminishing returns to the variable factor of production for this firm in Figure 13 set in at *a.Q = 6.
b.Q = 10.
c.Q = 15.
d.none of the above.
183.A...
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