End of Chapter Assessment

Chapter 5: Revenue and the Cost of Production

Part I. True or False: Write TRUE beside the number if the statement is correct. Otherwise, write FALSE.

_________________1. Total Cost is the difference between fixed and variable costs

_________________2. Average costs are cost per unit, not lump sum

_________________3. Prices may be allocative and rational

_________________4. Accounting profit is generally greater than economic profit

_________________5. Initially in the short run, all costs are variable

_________________6. Production function establishes the relationship between inputs and outputs

_________________7. Diseconomies of scale results from long-run total fixed cost increase as the quantity of
goods produced increases

_________________8. Price and quantity drive total revenue

_________________9. LRATC means Long-Run Average Total Cost

_________________10. People are to incentives while businesses are to profit.

Part II. Multiple Choice: Encircle the letter of the correct answer.

1 The quantity that minimizes average total cost

. A. Marginal Utility
B. Quantity of output
C. Average variable cost
D. Efficient scale

2 A situation in which the marginal product of an input decreases as the quantity of input increases.
. A. Law of scarcity
B. Law of diminishing marginal product
C. Law of diminishing marginal returns
D. Law of diminishing marginal utility

3 The change in total cost (TC) from on additional unit of production

. A. ATC
B. FC
C. MC
D. VC

4 Costs that are considered in computing accounting profit

. A. Explicit
B. Implicit
C. Marginal
D. Economic

5 The author of Wealth of Nations

. A. John Maynard Keynes
B. Adam Smith
C. John Smith
D. Smith Allen