AS Economics: Costs of Production

Diminishing marginal product refers to the fact that
1. the marginal product of an input decreases as the quantity of the input increases
2. the marginal product of an input increases as the quantity of the input increases.
3. the marginal product of an input does not change as the quantity of the input increases
4. output will increase at an increasing rate as more inputs are hired
When marginal cost is above average variable cost
1. average variable cost must be falling
2. average variable cost must be rising
3. average variable cost may be rising or falling
4. average fixed cost must be rising
As output increases in the short run, we know that
1. total fixed costs decline
2. average total costs will always decline
3. average variable costs will always decline
4. average fixed costs will always decline
When a firm's long-run average cost curve exhibits internal economies of scale in the long run
1. the long-run average cost curve (LRAC) is horizontal
2. the long-run average cost curve (LRAC) is downward sloping
3. the long-run average cost curve (LRAC) is upward sloping
4. the long-run average cost equals the short-run average cost for all levels of output
A firm has £400 million in revenues and total costs of £150 million. Its owners have invested £200 million in the company. This could have been invested at 10 percent per year. The firm's economic profit is
1. £250 million
2. £230 million
3. £200 million
4. Zero
If a producer's long-run average cost rises as its scale of operations increases, the producer is experiencing
1. diminishing returns
2. diseconomies of scale
3. economies of scale
4. falling profits
Which of the following is not a variable cost in the short run?
1. raw materials
2. capital spending on new technology
3. the labour costs of part time workers employed by the hour
4. energy costs
____________are the sum of _____________ and _____________
1. Marginal costs (MC), fixed costs (FC), variable costs (VC)
2. Total costs (TC), fixed costs (FC), variable costs (VC)
3. Fixed costs (FC), variable costs (VC), marginal costs (MC)
4. Variable costs (VC), fixed costs (FC), marginal costs (MC)
If we assume that production in the short run is subject to increasing and then diminishing returns to the variable factor, then the general shape of the short run marginal cost curve is that it ____________________ and then ____________________
1. declines, rises
2. is horizontal, rises
3. rises, declines
4. is horizontal, declines
When ATC declines as a result of a merger or integration of two businesses that are not producing the same type of product, the new firm experiences
1. economies of scale
2. economies of scope
3. economies of hope
4. economies of expectation
The break-even point or output for a business in both the short and the long run occurs when _____________
1. Price = Average Variable Cost
2. Price = Average Fixed Cost
3. Price = Average Total Cost
4. Price = Marginal Cost
Diseconomies of scale occur in the long run when
1. a firm pays a higher price for inputs as its level of production increases.
2. a firm faces a high level of sunk costs
3. the workforce demands a higher share of company profits as output increases
4. a firm's long run average total cost increases with increased production.
At levels of output where the firm's short-run average cost curve is increasing,
1. the marginal cost curve is above the short-run average cost curve
2. the marginal cost curve is below the short-run average cost curve
3. the marginal cost curve is falling
4. the firm has lost all control of its costs
The minimum efficient scale of production (MES) represents
1. the lowest price a business can charge consumers and still make normal profit.
2. the highest number of employees a firm can employ before productivity starts to fall
3. the output at which the long run average total cost curve becomes horizontal
4. the output at which no further increases in output are possible
The variable costs of a business
1. are dependent upon the level of fixed costs in the long-run
2. are always equal to the company's total average costs in the long-run
3. are determined by quantity of output produced by a firm
4. decrease as production increases
If the firm is experiencing diminishing returns to labour (in the short run), then total output is ________, and marginal cost is __________.
1. increasing, increasing
2. increasing, decreasing
3. increasing, constant
4. constant, constant
Which one of the following is classified as a fixed cost?
1. Royalties paid by a radio station to a recording company everytime it plays one of its records
2. Costs of raw materials and components paid by a manufacturer of children's toys
3. Interest charges paid by an air charter company on a bank loan to buy an aircraft
4. The taxes paid by a firm on its profits
In economy theory, the short run differs from the long run in that, in the short run
1. All costs are fixed
2. All costs are variable
3. All factor inputs are variable
4. At least one factor input is fixed
Which if the following could lead to diseconomies of scale?
1. Labour shortages
2. A limited size of market
3. Difficulties in coordinating production
4. An increase in the market prices of important raw materials
Which one of the following is a financial economy of scale?
1. Less risk due to a business diversifying
2. Lower costs in raising extra financial capital to pay for expansion
3. Lower unit marketing and advertising costs
4. Lower average total costs arising from using bulky units of capital equipment
In 1999, the high street retailers Our Price and WH Smith typically charged £12.99 for a compact disc, whereas Amazon, the internet retailer, charged £9.99 per disc. The short run effect of Amazon's pricing strategy is likely to
1. Increase producer surplus
2. Make the demand for compact discs from high street retailers less elastic
3. Increase consumer surplus
4. Increase the market share of high street retailers
Which one of the following is not an external economy of scale?
1. Cheaper loans from a local bank resulting from a merger
2. Improvements to the local transport network
3. Specialist research and development facilities provided by a local university
4. The availability of specialist skilled labour force in a particular region of the economy
In the production of personal computers (PCs) external economies of scale arise when
1. benefits accrue to all PC users and not only to the owners of PCs
2. specialised component suppliers of components locate and develop close to PC manufacturers
3. output is sold in international markets
4. expansion of production by the industry raises the costs of individual producers of PCs

AS Economics: Costs of Production

Economics Multiple-choice Quiz