51. Which of the following cost curves is never U-shaped?

a. the average total cost curve

b. the average fixed cost curve
c. the marginal cost curve
d. the average variable cost curve

52. Economies of scale are said to exist when inputs are increased by some percentage and output
increases by a(n) __________ percentage, causing unit costs to __________.
a. greater; fall
b. smaller; fall
c. greater; rise
d. smaller; rise
e. equal; fall

53. Diseconomies of scale are said to exist when inputs are increased by some percentage and output
increases by a(n) __________ percentage, causing unit costs to __________.
a. greater; fall
b. smaller; fall
c. greater; rise
d. smaller; rise
e. equal; fall

Exhibit 22-2

(1) (2) (3) (4) (5)

Variable Total Variable Cost Total Fixed Cost Marginal Cost
Input Output
1 $30 $100 20
2 $60 $100 50 (A)
3 $90 $100 90 (B)
4 $120 $100 120 (C)
5 $150 $100 140 (D)

54. Refer to Exhibit 22-2. The dollar amounts that go in blanks (A) and (B) are, respectively,
a. $30.00 and $40.00.
b $3.33 and $2.50.
.
c. $1.00 and $0.75.
d $10.00 and $10.00.
.
e. $6.67 and $5.00.

55. Refer to Exhibit 22-2. The dollar amounts that go in blanks (C) and (D) are, respectively,
a. $10.00 and $1.00.
b $30.00 and $34.00.
.
c. $3.00 and $4.00.
d $6.67 and $10.00.
.
e. $1.00 and $1.50.
56. Refer to Exhibit 22-2. Diminishing marginal returns set in with the addition of which unit of the
variable input?
a. the first
b the second
.
c. the third
d the fourth
.
e. the fifth

57. Refer to Exhibit 22-2. What is the average total cost of producing 140 units of output?
a. $1.79
b $7.33
.
c. $4.23
d $10.00
.
e. There is not enough information provided to answer the question.

58. Refer to Exhibit 22-2. What is the average total cost of producing 120 units of output?
a. $0.67
b $1.83
.
c. $1.07
d $12.50
.
e. There is not enough information provided to answer the question.

59. Refer to Exhibit 22-2. What is the average total cost of producing 90 units of output?
a. $4.75
b $1.17
.
c. $1.07
d $2.11
.
e. There is not enough information provided to answer the question.

60. Refer to Exhibit 22-2. What is the average variable cost of producing 90 units of output?
a. $1.00
b $1.17
.
c. $1.59
d $1.44
.
e. There is not enough information provided to answer the question.

61. Refer to Exhibit 22-2. What is the average variable cost of producing 120 units of output?
a. $0.67
b $1.17
.
c. $1.00
d $1.44
.
e. There is not enough information provided to answer the question.
 Situation 22-1
Diane's Donuts will begin selling donuts next week. Diane figures that the average variable cost to
make each donut will be constant at $0.30. She has already paid $20,000 for the donut-making
machinery and one year's rent.

62. Refer to Situation 22-1. What will Diane's total variable costs be if she sells 36,500 donuts in one
year?
a. $10,950
b. $18,450
c. $22,080
d. $12,500

63. Refer to Situation 22-l. What will Diane's total costs be if she sells 2,500 donuts in her first week and
then goes out of business?
a. $20,750
b. $10,950
c. $20,880
d. $30,500

64. Refer to Situation 22-l. What will Diane's approximate average fixed costs be if she sells 36,500
donuts in one year?
a. $0.30
b $0.088
.
c. $0.138
d $0.55
.

65. Refer to Situation 22-l. What will Diane's average total costs be if she sells 2,500 donuts in her first
week and then goes out of business?
a. $8.30
b. $1.81
c. $1.08
d. $9.71

66. If inputs are increased by 10 percent and output increases by 10 percent, then __________ are said to
exist.
a. economies of scale
b constant returns to scale
.
c. diseconomies of scale
d diminishing marginal returns
.

67. If inputs are increased by 10 percent and output increases by 20 percent, then __________ are said to
exist.
a. economies of scale
b constant returns to scale
.
c. diseconomies of scale
d diminishing marginal returns
 .

68. Average variable cost equals

a. average total cost minus average fixed cost.
b. total variable cost divided by the change in output.
c. total variable cost divided by output.
d. price of the variable input times the quantity of the variable
input.
e. a and c

69. Constant returns to scale are said to exist when inputs are increased by some percentage and output
increases by a(n) __________ percentage, causing unit costs to __________.
a. greater; fall
b smaller; fall
.
c. greater; rise
d smaller; rise
.
e. equal; remain constant

70. Minimum efficient scale refers to the

a. smallest plant size a firm can utilize and still maintain production.
b lowest point on a given SRATC curve.
.
c. output level at which the LRATC curve touches each SRATC curve.
d lowest output level at which average total costs are minimized.
.

71. If the LRATC curve is falling, then

a. the law of diminishing marginal returns is operating.
b economies of scale are present.
.
c. constant returns to scale are present.
d diseconomies of scale are present.
.

72. Which of the following is probably not an acceptable solution to the problem of diseconomies of
scale?
a. reorganization
b. building a larger
plant
c. dividing operations
d. hiring new managers

73. If the "minimum efficient scale" in an industry is at 25 percent of market sales, what is the maximum
number of efficient firms the economy can support in this industry?
a. 75
b 25
.
c. 10
d 4
.
74. Economic profit is
a. total revenue minus total cost (including both explicit and implicit
costs).
b the same as accounting profit.
.
c. accounting profit plus implicit costs.
d accounting profit minus implicit costs.
.
e. a and d

75. Implicit cost is a

a. cost that is incurred when a monetary payment is made.
b. cost incurred in the past that cannot be changed by current decisions and therefore cannot be
recovered.
c. cost that represents the value of resources used in production for which no monetary payment is
made.
d. sunk cost.
e. b and d

76. The short run is

a. a period of time in which all inputs are fixed.
b. a period of time in which all inputs are
variable.
c. a period of time in which some inputs are fixed.
d. always less than a year.
e. a and d

77. Marginal cost is the change in

a. total cost that results from a change in output.
b. total revenue that results from a change in
output.
c. fixed cost that results from a change in output.
d. a and b
e. all of the above

78. The law of diminishing marginal returns

a. is a short run concept.
b. is a long run concept.
c. is both a short run and a long run
concept.
d. does not hold in the real world.

Exhibit 22-3

Marginal Physical Total Total

Variable Fixed Product of Variable Fixed Variable Marginal
Input Input Output Input Cost Cost Cost
(units) (units) (units) (units) (dollars) (dollars) (dollars)
0 1 0 $500   $0
1 1 10 (A) $500 $200 (F)
2 1 25 (B) $500 $400 (G)
3 1 45 (C) $500 $600 (H)
4 1 60 (D) $500 $800 (I)
 5 1 70 (E) $500 $1000 (J)

79. Refer to Exhibit 22-3. The average fixed cost of producing 10 units of output is
a. $50.00.
b. $10.00.
c. $2.50.
d. $1.00.
e. $500.00.

80. Refer to Exhibit 22-3. The average fixed cost of producing 25 units of output is
a. $500.00.
b. $20.00.
c. $50.00.
d. $2.50.
e. indeterminable with the information
given.

81. Refer to Exhibit 22-3. The average variable cost of producing 10 units of output is
a. $2.00.
b $1.75.
.
c. $20.00.
d $2.25.
.
e. $2.50.

82. Refer to Exhibit 22-3. The average variable cost of producing 45 units of output is
a. $1.33.
b $1.60.
.
c. $2.00.
d $2.44.
.
e. $13.33.

83. Refer to Exhibit 22-3. The total cost of producing 45 units of output is
a. $1,100.
b $950.
.
c. $1,050.
d $900.
.
e. $1,000.

84. Refer to Exhibit 22-3. The marginal physical product figures in blanks (B) and (C) are, respectively,
a. 10 and 15.
b 15 and 20.
.
c. 20 and 15.
d 15 and 10.
.
 e. 10 and 10.

85. Refer to Exhibit 22-3. The marginal physical product figures in blanks (D) and (E) are, respectively,
a. 10 and 10.
b 10 and 15.
.
c. 15 and 20.
d 20 and 15.
.
e. 15 and 10.

86. Refer to Exhibit 22-3. Diminishing marginal returns set in with the addition of the __________ unit of
the variable input.
a. first
b second
.
c. third
d fourth
.
e. fifth

87. Refer to Exhibit 22-3. The marginal cost figures in blanks (F) and (G) are, respectively,
a. $2.00 and $1.33.
b $2.00 and $1.60.
.
c. $20.00 and $13.33.
d $2.00 and $2.66.
.
e. none of the above

88. Refer to Exhibit 22-3. The marginal cost figures in blanks (I) and (J) are, respectively,
a. $5.33 and $10.00.
b. $1.33 and $2.00.
c. $1.33 and $1.43.
d. $13.33 and $20.
e. none of the above

89. Refer to Exhibit 22-3. What is the average total cost of producing 45 units of output?
a. $25.11
b $24.44
.
c. $21.11
d $21.33
.

90. Refer to Exhibit 22-3. What is the average total cost of producing 60 units of output?
a. $21.67
b $1.33
.
c. $24.17
d $12.50
.
91. Refer to Exhibit 22-3. What level of output exhibits the lowest average total cost?
a. 10 units
b 25 units
.
c. 45 units
d 60 units
.
e. 70 units

92. The law of diminishing marginal returns states that as ever larger amounts of a variable input are
combined with
a. fixed inputs, the marginal physical product of the variable input rises.
b other variable inputs, the marginal physical product of the variable input declines.
.
c. fixed inputs, eventually the marginal physical product of the variable input declines.
d other variable inputs, eventually the marginal physical product of the variable input declines.
.

Exhibit 22-4

93. Refer to Exhibit 22-4. Curve A is a(n) __________ cost curve.

a. marginal
b average variable
.
c. average total
d average fixed
.

94. Refer to Exhibit 22-4. Curve B is a(n) __________ cost curve.

a. marginal
b average variable
.
c. average total
d average fixed
.

95. Refer to Exhibit 22-4. Curve C is a(n) __________ cost curve.

 a. marginal
b average variable
.
c. average total
d average fixed
.

96. Refer to Exhibit 22-4. Curve D is a(n) __________ cost curve.

a. marginal
b average variable
.
c. average total
d average fixed
.

97. Diseconomies of scale are present when the __________ average total cost curve is __________.
a. short-run; falling
b. short-run; rising
c. long-run; falling
d. long-run; rising
e. b and d

Exhibit 22-5

98. Refer to Exhibit 22-5. The minimum efficient scale is at

a. point A.
b. point B.
c. point C.
d. point D.
e. points B and C.

99. Refer to Exhibit 22-5. Economies of scale are present between

a. points A and B.
b. points A and C.
c. points B and C.
d. points B and D.
e. points C and D.
100. Refer to Exhibit 22-5. Constant returns to scale are present between
a. points A and B.
b. points A and C.
c. points B and C.
d. points B and D.
e. points C and D.