American Airlines makes numerous nonstop flights from Chicago’s O’Hare Airport to the
airport at Dallas-Fort Worth. The distance between those two cities is 1,000 miles. The
only variable cost, fuel, costs $.06 for each passenger-mile it flies. Bob, on his way to an
emergency business meeting, buys a ticket in coach class for $1,300 at the very last
minute. The marginal cost of flying Bob from Chicago to Dallas-Fort worth is
b.higher than the average cost of previous passengers
142. The marginal cost is an important piece of information for firms and economists to know
a.determines the size of the plant you should build
b.is the only cost that increases as production increases
c.helps determine precisely which production level maximizes profit
d.incorporates fixed costs into the production decision
e.is a measure of labor productivity
143. When the cost curves have the usual shapes, at the point where marginal cost equals
average total cost,
a.average total cost is at its maximum
b.marginal cost is falling
c.average total cost is at its minimum
d.average variable cost is falling
e.the fixed cost has been fully depreciated
144. Suppose there is a firm that has no fixed costs. At the point where marginal cost equals
average variable cost,
a.fixed cost is rising
b.marginal cost is rising
c.average total cost is rising
d.average variable cost is falling
e.there is no total cost
145. Suppose there are two firms that make automobiles, Ferrari and General Motors. Ferrari
has one assembly plant with only a few hundred employees. General Motors has several
assembly plants and thousands of employees. If there are economies of scale in
automobile production, which statement is true?
a.General Motors should produce fewer cars to improve its efficiency.
b.Efficiency allows General Motors to use fewer raw materials per automobile.
c.The output level that makes Ferrari most efficient also makes General Motors most
d.When the ATC curves of the two firms cross, General Motor’s ATC curve is falling.
e.The average fixed cost curve for Ferrari is higher because they produce fewer cars.
146. Suppose the sweater manufacturing technology enables sweater makers to experience
constant returns to scale over the range between 4,000 and 10,000. If their long-run
average total cost curve is U-shaped, what must be true?
a.Long-run average costs will be lowest when the firm produces as many sweaters as
b.The total cost of producing 10,000 sweaters is more than the total cost of producing
c.The total cost of producing 2,000 sweaters is half the total cost of producing 4,000.
d.The ATC of producing 3,000 sweaters is the same as the ATC of producing 11,000.
e.Producing fewer than 4,000 or more than 10,000 sweaters is not efficient.
147. If a manufacturer has a U-shaped long-run average total cost curve, then
a.it cannot correctly calculate the position of its fixed cost curve
b.there is an output level such that producing one more unit increases average total
c.there must be a large range of production over which the firm experiences constant
returns to scale
d.no two quantities of output can have the same average total cost
e.there does not exist an output level such that producing one more unit decreases
average total cost
148. Paul and Diane are two fishing fanatics who also supply local restaurants with fresh
brook salmon. Paul uses a $20 rod and reel and catches 20 fish in one day. Diane places a
$100 net all the way across the stream and at the end of the day she has caught 5,000 fish.
Diane’s ingenuity is an example of
a.constant returns to scale in fish production
b.increasing marginal cost
c.the difference between short- and long-run costs
d.the existence of economies of scale in fishing technology
e.unfair trade practices
149. Since the 1980s, Wal-Mart stores have appeared in almost every community in America.
Wal-Mart buys their goods in large quantities and therefore at cheaper prices. Walmart
also locates its stores where land prices are low, usually outside of the community
business district. Many customers shop at Wal-Mart because of low prices and free
parking. Local retailers, like the neighborhood drug store, often go out of business
because they lose customers. This story demonstrates that
a.consumers are boycotting local retailers
b.Wal-Mart engages in illegal acts of monopolization
c.there are diseconomies of scale in retail sales
d.there are economies of scale in retail sales
e.Wal-Mart is managed by ruthless business people
150. Margo and Stephanie are starting separate T-shirt companies. Both will pay the same
prices for shirts and stencils, but Margo chooses a more expensive silk screening machine
that is capable of producing multiple shirts at once. Stephanie chooses an inexpensive
machine that only makes one shirt at a time. Each machine can be operated by one
person. What can we infer about their two operations?
a.Customers will prefer Stephanie’s shirts to Margo’s.
b.Stephanie’s shirts will cost less than Margo’s.
c.If Margo and Stephanie each only make one shirt, Stephanie’s ATC will be higher
than Margo’s ATC.
d.The minimum of Stephanie’s ATC will be lower than the minimum of Margo’s ATC.
e.At some level of output the average total cost for Margo will be lower than the
average total cost for Stephanie.
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