#1
Which of the following is a fixed cost?
Rent for the factory
ExplanationFixed costs remain constant regardless of the level of production.
#2
What is the primary factor that distinguishes short-run production from long-run production?
The duration of the production period
ExplanationShort run has fixed inputs, while long run allows all inputs to vary.
#3
What is the key feature of the short-run production function?
Some inputs are variable, while others are fixed.
ExplanationIn the short run, some factors are fixed and cannot be changed.
#4
In the short run, what happens to a firm's fixed costs as production increases?
Fixed costs remain constant.
ExplanationFixed costs do not change with changes in output in the short run.
#5
What is the formula for calculating average variable cost?
Total Variable Cost / Quantity of Output
ExplanationAverage variable cost represents the variable cost per unit of output.
#6
In the short run, a firm's average total cost curve may be U-shaped due to which phenomenon?
Diminishing marginal returns
ExplanationDiminishing marginal returns cause costs to increase initially, then decrease.
#7
What is the relationship between marginal cost and average variable cost?
Marginal cost equals average variable cost at the minimum point of the average variable cost curve.
ExplanationAt the minimum of the AVC curve, MC intersects AVC.
#8
In the long run, firms may experience increasing returns to scale when:
Inputs are increased more than proportionately.
ExplanationIncreasing returns to scale occur when output increases proportionately more than inputs.
#9
What is the law of diminishing marginal returns?
As the quantity of a variable input increases, the marginal product of that input decreases.
ExplanationAdditional units of a variable input yield diminishing additional output.
#10
What is the difference between explicit and implicit costs in economics?
Explicit costs involve actual cash payments, while implicit costs do not.
ExplanationExplicit costs are tangible expenses, whereas implicit costs are opportunity costs.
#11
Which cost is relevant for short-term decision-making, such as whether to continue or discontinue a product line?
Marginal cost
ExplanationMarginal cost helps determine the impact of producing one more unit.
#12
When does a firm experience economies of scale?
When average total cost decreases as output increases.
ExplanationEconomies of scale result in decreased per-unit costs as production increases.
#13
What is the difference between short-run and long-run production costs?
Short-run costs only include variable costs, while long-run costs include both fixed and variable costs.
ExplanationShort run involves fixed inputs, while long run involves all inputs.
#14
What is the main objective of cost minimization for a firm?
Minimizing total cost
ExplanationFirms aim to minimize the sum of all costs to maximize profits.