Chapter 20 - Cost

1		When we talk about the cost of a product we are usually referring to
			A)	average total cost.
			B)	average variable cost.
			C)	average fixed cost.
			D)	marginal cost.
			E)	total cost.
2		When we do cost analysis, the least important of these costs is
			A)	average total cost.
			B)	average variable cost.
			C)	average fixed cost.
			D)	marginal cost.
3		When AVC is falling, ATC
			A)	must be falling.
			B)	may be falling.
			C)	must be rising.
			D)	may be rising.
4		As long as output is rising, ______ must be falling.
			A)	ATC
			B)	AVC
			C)	AFC
			D)	marginal cost
5		When output is zero
			A)	fixed cost is zero.
			B)	variable cost is zero.
			C)	total cost is zero.
			D)	average total cost is zero.
6		A drug company spends $50 million develop a diet pill. The main way it will recoup its costs and tack on a nice profit will be to
			A)	spread its fixed cost over a large output.
			B)	charge an exorbitant price for the pill.
			C)	charge more for the pill in the U.S. than in foreign countries.
			D)	look for other medical uses for the pill.
7		If a firm has any fixed costs
			A)	it is definitely in the short run.
			B)	it may be in the short run.
			C)	it is definitely in the long run.
			D)	it may be in the long run.
8		Statement I. There is virtually no difference between shutting down and going out of business. Statement II. Your two options if you are losing money in the short run are shutting down and operating.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
9		The output at which the MC curve intersects the AVC curve is _______ the output at which it intersects the ATC curve.
			A)	higher than
			B)	equal to
			C)	lower than
10		The ATC curve is ___________ U-shaped.
			A)	always
			B)	sometimes
			C)	never
11		When diminishing returns set in, marginal output
			A)	becomes negative.
			B)	becomes zero.
			C)	becomes positive.
			D)	begins to decline.
12		Increasing returns
			A)	are impossible.
			B)	occur when output is very low.
			C)	occur when output is very high.
			D)	occur only after diminishing returns.
13		As a firm expands from a very low output
			A)	it will experience diseconomies of scale and then economies of scale.
			B)	it will experience economies of scale and then diseconomies of scale.
			C)	it will experience neither economies of scale nor diseconomies of scale.
14		When ATC is declining, economies of scale are __________ diseconomies of scale.
			A)	greater than
			B)	equal to
			C)	smaller than
15		Economies of scale are very important in each of these industries except
			A)	computer software.
			B)	pharmaceuticals.
			C)	car-making.
			D)	patent law.