Questions 16- 18 refer to the following:

Suppose that a firm is hiring 20 workers at a wage rate of $60. The average product of labor is 30, the last worker added 12 units of total output and total fixed cost is $3,600.

16. What is marginal cost?

a. $.20 b. $5.00 c. $240.00 d. $720.00 e. none of them

17. What is average total cost?

a. $2 b. $8 c. $600d. $1,800 e. none of them

18. Which of the following is true?

a. Marginal cost is increasing.

b. Marginal cost is decreasing.

c. Average variable cost is increasing.

d. Average variable cost is decreasing.

19. A short - run cost function assumes that:

a. the level of output is fixed

b. at least one input is fixed in supply

c. all inputs are fixed in supply

d. both a and b

e. both b and c

20. A fixed cost is:

a. the cost of any inputs with a fixed price per unit

b. a cost which increases in a fixed proportion as output increases

c. a cost the firm must pay even if output is zero

d. both b and c

e. all of the above

21. Which of the following is an example of an implicit cost?

I. value of time worked by sole proprietor

II.wages and salaries paid to employed

III. foregone rent on property owned by firm

a. I only

b. III only

c. both I and II

d. both I and III

e. all of the above

22. Diseconomies of scale:

I. exist when fixed cost increases as output increases

II. exist when average cost increases as output increases

III. result eventually as the firm uses more and more labor with a fixed capital stock

a. I only

b. II only

c. both I and III

d. both II and III

e. all of the above

23. If a firm is producing the level of output at which long-run average cost equals long-run marginal cost:

a. long-run marginal cost is at its minimum point

b. long-run average cost is at its minimum point

c. long-run total cost is at its minimum point

d. both a and b

e. all of the above

24. Long-run total cost:

a. represents the lowest possible cost of producing a given level of output

b. is always equal to or greater than short-run total cost

c. is tangent to short-run total cost when short-run total cost is at its minimum point.

d. both a and b

e. all of the above

25. If a firm is producing the level of output at which short-run average cost equals long-run average cost:

a. the firm has chosen the cost-minimizing combination of inputs to produce this level of output.

b. with a fixed amount of capital, short-run total cost

c. the firm has chosen the profit-maximizing level of output

d. both a and b

e. all of the above

Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed input is $500 (answer question 26-28).

26. What is average variable cost?

a. $.63 b. $1.60 c. $3.20 d. $10.00 e. none of them

27. What is the marginal cost?

a. $.63 b. $ .94 c. $1.60 d. $3.20 e. none of them

28. What is the average total cost?

a. $.825 b. $ .63 c. $1.80 d. $4.10 e. none of them