Microeconomics: Production and Costs

Topics in this chapter

• Production Function and Inputs
• Short-Run Production and Variable Proportions
• Long-Run Production and Returns to Scale
• Cost Concepts and Classification
• Short-Run Costs and Cost Curves
• Cost-Based Output Decisions

Cheat sheet

Practice questions

1. Question 1Q-83110B

   In the short run, which of the following is a fixed cost for a firm?

   1. A.Cost of raw materials
   2. B.Rent of the factory building
   3. C.Wages paid to daily-wage workers
   4. D.Cost of electricity used in production
   See the answer and solution
2. Question 2Q-886980

   A firm's total product is 10 units with one worker, 24 units with two workers, 33 units with three workers, and 40 units with four workers. What are the marginal product of the fourth worker and the average product when four workers are employed?

   1. A.Marginal product is 7 units and average product is 10 units; average product rises.
   2. B.Marginal product is 7 units and average product is 10 units; average product falls.
   3. C.Marginal product is 10 units and average product is 7 units; average product falls.
   4. D.Marginal product is 40 units and average product is 10 units; average product remains constant.
   See the answer and solution
3. Question 3Q-90696D

   Assuming smooth cost curves, which relationship must hold at the output level where a firm's average cost is at its minimum?

   1. A.Marginal cost is greater than average cost.
   2. B.Marginal cost is less than average cost.
   3. C.Marginal cost is equal to average cost.
   4. D.Total fixed cost is equal to total variable cost.
   See the answer and solution
4. Question 4Q-512A7C

   Why does the marginal product of a variable factor generally first increase and then decrease when more units of that factor are combined with a fixed factor in the short run?

   See the answer and solution
5. Question 5Q-846410

   A firm doubles all its inputs and its output rises from 100 units to 240 units. This situation represents:

   1. A.Constant returns to scale
   2. B.Increasing returns to scale
   3. C.Decreasing returns to scale
   4. D.Negative returns to scale
   See the answer and solution