Multiple Choice Questions
1. Raj opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor's lawn for $40. Raj has an accounting profit of ______ and an economic profit of ______.
a. $50, $10
b. $90, $50
c. $10, $50
d. $50, $90
2. Diminishing marginal product explains why, as a firm's output increases,
a. The production function and total-cost curve both get steeper.
b. The production function and total-cost curve both get flatter.
c. The production function gets steeper, while the total-cost curve gets flatter.
d. The production function gets flatter, while the total-cost curve gets steeper
3. A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?
a. Marginal cost is $5, and average variable cost is $8.
b. Marginal cost is $8, and average variable cost is $5.
c. Marginal cost is $5, and average total cost is $8.
d. Marginal cost is $8, and average total cost is $5.
4. A firm is producing 20 units with an average total cost of $25 and marginal cost of $15. If it were to increase production to 21 units, which of the following must occur?
a. Marginal cost would decrease.
b. Marginal cost would increase.
c. Average total cost would decrease.
d. Average total cost would increase.
5. The government imposes a $1,000 per year license fee on all pizza restaurants. Which cost curves shift as a result?
a. Average total cost and marginal cost
b. Average total cost and average fixed cost
c. Average variable cost and marginal cost
d. Average variable cost and average fixed cost
6. If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ________ of scale and ________ average total cost.
a. Economies, falling
b. Economies, rising
c. Diseconomies, falling
d. Diseconomies, rising