Economics Micro & Macro (CliffsAP)

14. What is marginal cost?

A. The initial cost of producing one more unit

B. The initial cost of producing variable costs

C. The cost of increasing labor

D. The cost of increasing returns to scale

E. The overall cost of producing units

15. Which of the following best describes a long-run marginal cost curve?

A. Initially, costs increase, then decrease to fit production.

B. Initially costs decrease, then increase because of economies of scale.

C. The curve slopes downward because costs continually decrease.

D. The curve slopes upward because costs continually increase.

E. The curve resembles an individual demand curve.

Answers to Review Questions

1. A.Average total cost is a measure of the impact an additional input has on output.


2. A.As Diana eats donuts, her utility from donut to donut decreases; therefore, her first donut will bring more
   satisfaction than her second donut.


3. D. It is U shaped because of economies to scale. The curve indicates that in the long run, initially costs will
   decrease because of increased levels of production and output.


4. C.Pure profit is total revenue minus implicit and explicit costs.


5. D. When the quantities of a resource are increasing and the output is decreasing, we have diminishing marginal
   returns.


6. B.By total costs, economists are describing the implicit and explicit costs a firm has to consider.


7. D. A marginal cost that is less than the total cost will decrease both total cost and average total cost.


8. E.Cost curves are shifted by resource prices. Cotton, ink, labor, and machines are all resource prices.


9. C.Revenue is calculated by multiplying quantities of a product sold by the price of the product.


10. C.Miscommunication can result when a firm becomes too large. Increases in paperwork, labor, and even
    bureaucracy can result in diseconomies of scale.


11. E.Economists describe the long run as being a point where costs are variable because firms have enough time to
    adjust inputs. The short run is fixed because there isn’t enough time to adjust all capital.


12. C.Labor is a short-run cost because it can be adjusted relatively quickly.


13. A.Average total cost is calculated by dividing total cost by quantity to get the cost per unit.


14. A.Marginal cost is the initial cost of producing one more unit.


15. B.Initially, costs decrease and then increase because of economies of scale. The initial period is a result of
    economies to scale, which is followed by constant returns to scale and then diseconomies of scale.

Part III: Microeconomics