Multiple-Choice Questions

Circle the letter that corresponds to the best answer.

1. The lowest point on the average variable cost curve is

a. always when it is crossed by the marginal cost curve

b. sometimes when it is crossed by the marginal cost curve

c. never when it is crossed by the marginal cost curve

2. A firm will always produce at that output at which

a. marginal cost equals marginal revenue

b. it minimizes its costs

c. it operates at peak efficiency

d. it maximizes its total revenue

3. Total revenue divided by output equals

a. marginal cost

b. average total cost

c. price

d. average variable cost

e. none of the above

4. As output is increased, eventually

a. average total cost will rise because the increase in average variable cost will be larger than the decline in average fixed cost

b. average fixed cost will exceed average variable cost

c. average total cost will rise as long as marginal cost is rising

d. marginal cost will rise because average fixed cost is declining

5. The lowest point on a firm's short-run supply curve is at the

a. break-even point

b. shutdown point

c. most profitable output point

d. lowest point on the marginal cost curve

6. As output increases, eventually

a. economies of scale become larger than diseconomies of scale

b. diseconomies of scale become larger than economies of scale

c. economies of scale and diseconomies of scale both increase

d. economies of scale and diseconomies of scale both decrease

7. When marginal cost is rising, but marginal cost is less than average total cost, we are definitely below the

a. shutdown point

b. break-even point

c. maximum profit point

8. The marginal cost curve intersects the average variable cost curve at the

a. shutdown point

b. break-even point

c. maximum profit point

9. In Figure 1, if you wanted to produce an output of 100, in the long run you would choose a plant whose size was represented by

a. ATC₁

b. ATC₂

c. ATC₃

d. ATC₄

e. ATC₅

10. In Figure 1, if you wanted to produce an output of 200, in the long run you would choose a plant whose size was represented by

a. ATC₁

b. ATC₂

c. ATC₃

d. ATC₄

e. ATC₅

11. The firm's long-run supply curve runs along its ____________curve.

a. ATC

b. AVC

c. MC

d. MR

12. The MC curve intersects the AVC and ATC curves at their minimum points

a. none of the time

b. some of the time

c. most of the time

d. all of the time

13. Which statement is true?

a. AFC declines with output.

b. ATC declines with output.

c. AFC - AVC = ATC.

d. Output divided by fixed cost = AFC.

14. AVC reaches a minimum at

a. the same output as ATC

b. a lower output than ATC

c. a higher output than ATC

15. In general, a firm's

a. total cost rises as output rises up to a certain point, and then begins to decline

b. marginal cost rises as output rises up to a certain point, and then begins to decline

c. average total cost declines as output rises up to a certain point, and then begins to rise

16. If AVC is declining,

a. marginal cost must be less than AVC

b. marginal cost must be greater than ATC

c. AVC must be greater than AFC

d. ATC must be declining

17. The firm's long-run planning envelope curve

a. is based on the assumption that a plant's size cannot be altered in the long run

b. exists only in theory, but never in reality

c. consists of many different plant sizes

d. is identical to the firm's short-run position

18. Adam Smith noted each of the following economics of scale except

a. specialization

b. employment of expensive equipment

c. saving of time not spent going from one task to another

d. diminishing returns