20-1.

Which of the following are factors of

production?
Output in a production function
Productivity
Land, labor, capital, and entrepreneurship
Implicit and explicit costs

20-2. The period in which at least one input is

fixed in quantity is the:
Long run.
Production run.
Short run.
Investment decision.

20-3. The change in total output associated with

one additional unit of input is the:
Opportunity cost of the output.
Average productivity.
Marginal physical product.
Marginal cost.

20-4. If a firm could hire all the workers it

wanted at a zero wage (i.e., the workers are
volunteers), the firm should hire:
Enough workers to produce the output where
diminishing returns begin.
Enough workers to produce the output where
worker productivity is the highest.
Enough workers to produce where the MPP
equals zero.
All the workers that can fit into the factory.

20-5. Ceteris paribus, the law of diminishing

returns states that beyond some point, the:
Returns on stocks and bonds diminish with
higher security prices.
Addition to total utility diminishes as more
units of a good are consumed.
Marginal physical product of a factor of
production diminishes as more of that factor is
used.
Output of any good increases as more of a
variable input is used.

20-6. Which of the following is the best

explanation of why the law of diminishing
returns does not apply in the long run?
In the long run, firms can increase the
availability of space and equipment to keep up
with the increase in variable inputs.
The MPP does not change in the long run.
In the long run, firms have enough time to
find the most qualified workers.
All factors of production are fixed in the long
run.

20-7. The most desirable rate of output for a

firm is the output that:
Minimizes total costs.
Maximizes total profit.
Minimizes marginal costs.
Maximizes total revenue.

20-9. If an additional unit of labor costs $20 and

has a MPP of 15 units of output, the marginal
cost is:
$0.75.
$1.33.
$30.00.
$300.00.

20-8. The shape of the marginal cost curve

reflects the:
Law of diminishing returns.
Competitiveness of the firm.
Law of diminishing marginal utility.
Law of demand.

20-10. If marginal physical product (MPP) is

falling, then the:
Marginal cost of each unit of output is falling.
Marginal cost of each unit of output is rising.
Total cost of each unit of output is falling.
Total cost of each unit of output is rising.

20-2. The short run is the period in which the

quantity (and quality) of some inputs can't be
changed, or in other words inputs are fixed.

20-1. Factors of production are resources used to

produce goods and services, such as land, labor,
capital, and entrepreneurship.

20-4. Marginal physical product (MPP) is the

change in total output that results from
employing one more unit of input. As long as
MPP is positive, a firm can add to its total output
by employing the worker.

20-3. The marginal physical product (MPP) is the

change in total output associated with one
additional unit of input.

20-6. The problems of crowded facilities apply to

most production processes in the short run
because of fixed resources. In the long run, all
resources can be changed.

20-5. The law of diminishing returns says that

the marginal physical product of a variable input
declines as more of it is employed along with a
constant quantity of other (fixed) inputs.

20-8. Whenever marginal physical product is

increasing, the marginal cost of producing a
good must be falling and so the marginal cost
curve will be downward-sloping. At the point of
diminishing marginal returns, the marginal
physical product declines and the marginal cost
increases, so the marginal cost curve will be
upward-sloping.

20-7. The most desirable rate of output is the

one that maximizes total profitthe difference
between total revenue and total costs.

20-10. At the point of diminishing marginal

returns, the marginal physical product declines
and the marginal cost increases.

20-9. Marginal cost is the increase in total cost

associated with a one-unit increase in
production and can be found by dividing the
change in total cost by the MPP. If an additional
unit of labor costs $20 and has a MPP of 15 units
of output, the marginal cost is 20/15 or $1.33

20-11. In the short run, when a firm produces

zero output, total cost equals:
Zero.
Variable costs.
Fixed costs.
Marginal costs.

20-12. Which of the following is most likely a

fixed cost?
Raw materials cost
Labor cost
Energy cost
Property taxes

20-13. Changes in short-run total costs result

from changes in:
Variable costs.
Fixed costs.
Profit.
The price elasticity of demand.

20-14. In the short run, which of the following is

most likely a variable cost?
Contractual lease payments
Labor and raw materials costs
Property taxes
Interest payments on borrowed funds

20-15. A U-shaped average total cost curve

implies:
First, diminishing returns, and then,
increasing returns.
First, marginal cost below average total cost,
and then marginal cost above average total
cost.
That total costs are at a minimum at the
minimum of the average cost curve.
A linear total cost curve.

20-16. When the average total cost curve is

rising, then the marginal cost curve will be:
Below the average fixed cost curve.
Falling with greater output.
Above the average total cost curve.
Below the average total cost curve.

20-17. Implicit costs:

Include only payments to labor.
Are the sum of actual monetary payments
made for resources used to produce a good.
Include the value of all resources used to
produce a good.
Are the value of resources used to produce a
good but for which no monetary payment is
made.

20-18. Accounting costs and economic costs

differ because:
Economic costs include implicit costs and
accounting costs do not.
Accounting costs include implicit costs and
economic costs do not.
Economic costs include explicit costs and
accounting costs do not.
Accounting costs include explicit costs and
economic costs do not.

20-19. Megan used to work at the local pizzeria for

$15,000 per year but quit in order to start her own
deli. To buy the necessary equipment, she withdrew
$20,000 from her inheritance, (which paid 8
percent interest). Last year she paid $25,000 for
ingredients and $500 per month rent but had
revenue of $50,000. She asked her dad the
accountant and her mom the economist to
calculate her costs for her.
Dad says her cost is $25,000 and Mom says
her cost is $16,600.
Dad says her cost is $31,000 and Mom says
her cost is $47,600.

20-20. In economics, the long run is considered

to be:
The time period when all costs are variable.
The time period when all costs are explicit.
One year.
More than two years.

20-12. Property tax is an example of a fixed

cost. Once you purchase land, you're obligated
to pay for it, whether or not you use it. Labor,
energy and raw material costs will vary with
output.

20-11. Fixed costs must be paid even if no

output is produced. Variable costs start at zero
therefore when a firm produces zero, total costs
is equal to fixed costs.

20-14. Variable costs are the costs of production

that change when the rate of output is altered,
for example labor or material costs.

20-13. Total cost rises as output increases,

because additional variable costs must be
incurred.

20-16. If the marginal cost is greater than the

average total cost, the average total cost must
be increasing. For instance, if you have a 3.5
GPA (grade point average) and get a 4.0 in your
last (marginal) economics class, your GPA will
rise.

20-15. So long as the marginal cost of producing

one more unit is less than the previous average
cost, average costs must fall. Average total
costs must increase whenever marginal costs
exceed average costs.

20-18. Accounting costs refer to the explicit

dollar outlays made by a producer. Economic
costs, in contrast, refer to the value of all costs,
both explicit and implicit.

20-17. Implicit costs are the value of resources

used, even when no direct payment is made.

20-20. The long run is a period of time long

enough for all inputs to be varied (no fixed
costs).

20-19. Profit is equal to revenue minus costs. An

accountant will only consider explicit costs
where as an economists will consider economic
costs which include explicit and implicit costs.

20-21. Assume a given amount of output can be

produced by several small plants or one large
plant with identical minimum per-unit costs. This
long-run situation reflects the existence of:
Economies of scale.
Diseconomies of scale.
Constant returns to scale.
Diminishing returns.

20-22. Diseconomies of scale are reflected in:

The downward-sloping segment of the longrun average total cost curve.
The downward-sloping segment of the longrun marginal cost curve.
A downward shift of the long-run average
total cost curve.
The upward-sloping segment of the long-run
average total cost curve.

20-23. What is the marginal physical product of

the second unit of labor in Table 20.1?
20
17
35
5

20-24. With which unit of labor do diminishing

marginal returns first appear in Table 20.1?
The first
The second
The third
The fourth

20-25. Average fixed cost at 20 units of output

in Table 20.2 is:
$1.00.
$2.00.
$2.50.
$4.00.

20-27. Above 10 units of output, the average

fixed cost in Table 20.2:
Rises above $2.00.
Remains constant.
Stays below $0.50.
Continues to decline.

20-26. The marginal cost between 20 and 30

units of output in Table 20.2 is:
$1.60.
$4.00.
$1.80.
$18.00.

20-22. When increasing the size (scale) of a

plant reduces operating efficiency, the average
total cost curve will increase.

20-21. When there is no economic advantage to

a large plant, because a large plant is no more
efficient than a small plants, constant returns to
scale exist.

20-23. The marginal physical product is the

difference in total output associated with one
additional unit of input which is 20 (35 - 15).

20-24. The marginal physical product is 15, 20,

10, and 7 when you add each worker
respectively, so diminishing marginal returns
appear with the third worker as 20 is less than
10.

20-25. Average fixed cost is equal to fixed cost

divided by quantity. Fixed cost of 40 (because
total cost is 40 at 0 units of output) divided by
20 is equal to $2.00.
20-26. Marginal cost is equal to the change in
total cost (80 - 62) divided by the change in
quantity (30 - 20) which is $1.80.

20-27. The numerator (fixed costs) is constant

and the denominator (quantity) increases as
output expands, therefore any increase in
output will lower average fixed cost.

20-28. Total fixed costs in Table 20.5 are equal

to:
$0 because the problem involves the long
run.
$15.
$30.
$60.

20-29. The marginal cost of the third unit of

output in Table 20.5 is:
$4.
$3.
$30.
$15.

20-30. What is the marginal cost of the 120th

unit of output in Figure 20.2?
$1.20
$200.00
$208.00
$288.00
20-31. What is the total fixed cost in Figure
20.2?
$80
$10,000
$9,600
$29,600
20-32. What is the total variable cost when
output is 100 units in Figure 20.2?
$9,600
$296
$200
$20,000

20-29. Marginal cost is equal to the change in

total cost (30 - 27) divided by the change in
quantity (3 - 2) which is $3.

20-30. According to the graph, marginal cost is

equal to $288 at the quantity 120.
20-31. AFC can be found at any quantity of
output by taking the difference between ATC
and AVC. Once you have AFC, you can multiply
it by quantity to get FC. For example, at the
quantity of 120, AFC is equal to $80 (288 - 208)
and FC is equal to $9600 ($80 120).
20-32. VC can be found by multiplying AVC by
quantity at any output level. So at an output
level of 100, VC is equal to $20,000 ($200
100).

20-28. The total fixed cost is $15 at any unit of

output because total cost is $15 at 0 units of
output.

20-33. Refer to Figure 20.5. Economies of scale

occur in the following range of factory sizes:
#1 to #2.
#1 to #3.
#3 only.
#1 to #5.

20-34. Refer to Figure 20.5. Diseconomies of

scale begin to occur:
At the minimum points on all five ATC
curves.
After the third factory.
After the fourth factory.
After the first factory.

20-33. Reductions in minimum average costs

that come about through increases in the size
(scale) of plant and equipment occur over the
range of plant sizes 1 through 3.

20-34. Increases in minimum average costs that

come about through increases in the size (scale)
of plant and equipment occur after the third
factory.