1) In the short run, _____ do not increase with the quantity of output being pro
ID: 1221997 • Letter: 1
Question
1) In the short run, _____ do not increase with the quantity of output being produced.
marginal costs
variable costs
fixed costs
implicit costs
2) At very low production volumes, it is likely that:
the average cost will be high.
the average fixed cost will be low.
the variable cost will form a major portion of the total cost.
the resources will be efficiently used.
3) To sustain in a perfectly competitive market, a firm should:
have a long-run average cost curve which is falling throughout.
operate close to its capacity level.
charge a price equal to its average variable cost.
produce where the price is greater than the marginal cost.
4) All costs involved in the long-run production decisions are considered:
variable costs.
opportunity costs.
fixed costs.
accounting costs.
5) The scale of a business is its target production level when:
the business is using capital-intensive mode of production.
the business is earning positive economic profit.
the business is able to effectively resize its operations in the long run.
the business is operating at the minimum point on its average variable curve.
6) A firm increases all its factors of production by 12 percent. The output increases by 10 percent. In the future, the firm is most likely to experience:
constant economies of scale.
diseconomies of scale.
increasing returns to factors.
increasing returns to scale.
7) Which of the following commodity bundles is an example of joint products?
Shoe and shoe polish
Golf clubs and golf balls
Meat and fish
Skimmed milk and butter
Explanation / Answer
1. Option C is correct.
Fixed costs is that costs which do not vary with the level of output. It remains fixed in the short run irrespective of the output produced.
2. Option A is correct.
This is because average cost = total cost/output, at initial level of production the efficiency is not reached as the variable cost increases at the decreasing rate. So the numerator (total cot) is increasing faster than the denominator (output).
3. Option B is correct.
Producing closest to its capacity level would imply that the firm is producing at the efficient scale which would minimise its costs and it would thereby able to sustain its the market.
4. Option A is correct.
All costs in the long run are considered as variable because in the long run it is possible to change the scale of production. For example, land in the short run is considered as fixed cost but in th long run , more land could be purchased and the production could be expanded, hence variable cost.
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