Managerial economics

Managerial economics
Question 1

The relationship between MC and AC can best be described as follows:

when MC increases, AC starts to increase.
when AC increases, MC starts to increase.
when MC exceeds AC, AC starts to increase.
when MC decreases, AC decreases.

0.5 points
Question 2

Diminishing marginal product suggests that the marginal

a. cost of an extra worker is less than the previous worker’s marginal cost.

b. product of an extra worker is less than the previous worker’s marginal product.

c. product of an extra worker is greater than the previous worker’s marginal product.

d. cost of an extra worker is unchanged.
0.5 points
Question 3

If marginal cost is greater than average total cost, then

a. average total cost is increasing.

b. average total cost remains constant.

c. economies of scale are becoming greater.

d. profits are increasing.
0.5 points
Question 4

The law of diminishing returns begins first to affect a firm’s short-run cost structure when

average cost begins to increase.
average fixed cost begins to decrease.
average variable cost begins to increase.
marginal cost begins to increase.

0.5 points
Question 5

If a firm’s rent increases, it will affect its cost structure in the following way:

All of the above will increase.

MC will increase.
AVC will increase.
TFC will increase.

0.5 points
Question 6

A total-cost curve shows the relationship between the

a. total cost of production and total revenue.

b. quantity of output produced and the total cost of production.

c. quantity of an input used and the total cost of production.

d. total cost of production and profit.
0.5 points
Question 7

When a firm increased its output by unit, its AFC decreased. This is an indication that

the law of diminishing returns has taken effect.
MC < AFC.
AVC < AFC.
the firm is spreading out its total fixed cost.

0.5 points
Question 8

Economies of scale occur when

a. average fixed costs are falling.

b. long-run average total costs rise as output increases.

c. long-run average total costs fall as output increases.

d. average fixed costs are constant.
0.5 points
Question 9

Marginal cost is equal to average total cost when

a. marginal cost is at its minimum.

b. average fixed cost is rising.

c. average variable cost is falling.

d. average total cost is at its minimum.
0.5 points
Question 10

Table 13-11
Teacher’s Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several
small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month.
Output
(Instructional
Modules
per Month)

Fixed
Costs

Variable
Costs

Total
Cost
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost

Marginal
Cost
0 $1,080
1 $1,080 $ 400 $1,480 $400
2 $965 $450
3 $1,350 $2,430
4 $1,900 $475
5 $2,500 $216
6 $4,280 $700
7 $4,100
8 $5,400 $135
9 $7,300
10 $10,880 $980
Refer to Table 13-11. What is the average variable cost for the month if 6 instructional modules are produced?

a. $700.00

b. $533.33

c. $713.33

d. $180.00
0.5 points
Question 11

Which of the following relationships is correct?

When marginal cost starts to increase, average variable cost starts to increase.
When marginal product starts to decrease, marginal cost starts to increase.
When marginal cost starts to increase, average cost starts to increase.
When marginal product starts to decrease, marginal cost starts to decrease.

0.5 points
Question 12

Figure 13-6

Refer to Figure 13-6. Which of the following can be inferred from the figure above?
(i) Marginal cost is increasing at all levels of output.
(ii) Marginal product is increasing at low levels of output.
(iii) Marginal product is decreasing at high levels of output.

a. (ii) and (iii) only

b. (i) and (iii) only

c. (i) and (ii) only

d. (ii) only
0.5 points
Question 13

If a firm produces nothing, which of the following costs will be zero?

a. total cost

b. opportunity cost

c. variable cost

d. fixed cost
0.5 points
Question 14

When a firm experiences diseconomies of scale,

a. long-run average total cost decreases as output increases.

b. short-run average total cost is minimized.

c. long-run average total cost increases as output increases.

d. long-run average total cost is minimized.
0.5 points
Question 15

Which of the following cost relationships is not true?

AFC = AC – MC
TVC = TC – TFC
The change in TVC/the change in Q = MC.
The change in TC/ the change in Q = MC.

Question 16
Give a real world example of a firm or industry which is related to economies of scale. Briefly discuss how the firm or industry obtained economies of scale and what
advantages the economics of scale has brought.

Question 17
There were many examples of firms which were monopolies or near-monopolies but became a subject of antitrust actions or were affected by changing economics. Give one
of the examples. Explain how the firm lost certain market power. What lesson or lessons managers can learn from the example?
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