spartan1

Marginal cost is most accurately defined as the:

A) cost that a consumer must incur to consume an additional unit of a good or service.

B) value of the good or service that a consumer must forego in order to consume an additional unit of a good or service.

C) cost of producing one more unit of a good or service.

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Marginal cost is the cost of producing one more unit of output.

spartan1

Which of the following most accurately describes the relationship between the average total cost (ATC) curve and the average variable cost (AVC) curve? The vertical distance between the ATC and AVC curves:

A) increases as output increases.

B) increases and then decreases as output increases.

C) decreases as output increases.

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The vertical distance between the ATC curve and AVC cost curve is average fixed cost, which decreases as output increases because more output is averaged over the same cost.

spartan1

If marginal cost is above the average cost, when you produce your next unit:

A) average cost will decline.

B) average cost will increase.

C) average cost will be flat.

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If marginal cost is above the average cost, when you produce your next unit, average cost will increase. Because marginal cost is the cost of producing the next unit, and because this cost is above the firm's average cost per unit, the average cost per unit must increase, if only slightly. Based on the information provided in the question, there is no way to know what will happen to the marginal cost of future units produced.

spartan1

Which of the following most accurately describes the shape of the average fixed cost (AFC) curve? The AFC curve:

A) becomes flatter as output increases.

B) is always below the average variable cost curve.

C) intersects the marginal cost curve at the marginal cost curve’s minimum.

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The AFC curve declines initially, but as output increases it flattens because a fixed cost is being averaged over more and more units of output.

spartan1

Which of the following most accurately describes the shapes of the average variable cost (AVC) and average total cost (ATC) curves?

A) The AVC curve is U-shaped whereas the ATC curve declines initially then flattens.

B) The AVC and ATC curves are both U-shaped.

C) The AVC and ATC curves both decrease initially, and then flatten.

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The AVC curve is U-shaped, declining at first due to efficiency, but eventually increasing due to diminishing returns. The AFC curve decreases as output increases, and eventually flattens out. The ATC is U-shape because it is the sum of the decreasing-to-flat AFC curve plus the U-shaped AVC curve. ATC = AFC + AVC.

spartan1

Which of the following statements regarding marginal costs (MC) and average variable costs (AVC) is most accurate?

A) MC = AVC when average total cost is at its minimum.

B) MC = AVC when AVC is at its minimum.

C) MC = Average total cost when AVC is at its minimum.

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MC = AVC at minimum average variable cost. MC = ATC at minimum average total cost.

spartan1

A firm realizes that it is producing more than the profit maximizing level of output and makes a short-run decision to decrease its output. Which of the firm’s cost measures is least likely to decrease as a result?

A) Average fixed cost.

B) Average variable cost.

C) Marginal cost.

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A short-run decrease in output will cause a firm’s average fixed costs to increase because its fixed costs are spread over a smaller number of units. In terms of cost curves, average fixed cost never slopes upward, so a decrease in output never reduces average fixed costs. The average variable cost, average total cost, and marginal cost curves all have upward sloping components along which a lower level of output would result in a lower cost.

spartan1

Holding other input quantities constant, which of a firm’s factors of production most likely exhibit diminishing marginal productivity as the firm uses an increasing quantity of the input(s)?

A) Both labor and capital.

B) Labor only.

C) Capital only.

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Both labor and capital inputs exhibit diminishing marginal productivity as input quantities increase, holding other input quantities constant.

spartan1

Marginal revenue is equal to price for firms operating in which market structure(s)?

A) Both perfect competition and imperfect competition.

B) Neither perfect competition nor imperfect competition.

C) Perfect competition only.

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In perfectly competitive markets, firms can sell the entire quantity they produce at the market price, so marginal revenue is equal to the market price. In imperfect competition, firms are price searchers in that they can increase their quantity sold only by decreasing the selling price per unit. As a result, marginal revenue is less than price.

spartan1

Under which pair of conditions is a factor of production least likely to earn economic rent?

Supply curve

Demand curve

A) Perfectly elastic Downward sloping

B) Perfectly inelastic Perfectly elastic

C) Upward sloping Downward sloping

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If the supply of a productive resource is perfectly elastic, it earns no economic rent. Elasticity of demand is not directly related to economic rent.