Cost theory: short-run and long-run curves - One Line Questions
1.
The Marginal Cost (MC) is the change in total cost resulting from: —
A one-unit increase in output
2.
The shape of the LRAC curve is often described as: —
A saucer
3.
Average Total Cost (ATC) is the sum of which two averages? —
AFC and AVC
4.
The law of diminishing marginal returns explains the shape of which short-run cost curves? —
AVC, ATC, and MC
5.
What is the primary characteristic of the short run in cost theory? —
At least one factor of production is fixed.
6.
When a firm changes its plant size to produce a different level of output in the long run, it moves: —
From one SRAC curve to another, tracing the LRAC
7.
When MC is above AVC, what happens to AVC? —
AVC increases
8.
When MC is below AVC, what happens to AVC? —
AVC decreases
9.
Marginal Cost can be calculated as: —
Change in TC / Change in Output
10.
Which of the following is a short-run cost? —
Cost of raw materials for production
11.
The downward-sloping portion of the LRAC curve is attributed to: —
Economies of scale
12.
The Average Variable Cost (AVC) curve is typically: —
U-shaped
13.
The Average Total Cost (ATC) curve is: —
U-shaped
14.
The horizontal portion of the LRAC curve, if it exists, represents: —
Constant returns to scale
15.
In the short run, total cost (TC) is the sum of which two components? —
Fixed Cost (FC) and Variable Cost (VC)
16.
The Total Variable Cost (TVC) curve typically starts from the origin because: —
Variable costs are zero at zero output.
17.
The relationship where LRAC is falling is associated with: —
Increasing returns to scale
18.
The relationship where LRAC is rising is associated with: —
Decreasing returns to scale
19.
Which cost is considered a 'sunk cost' in short-run decision making? —
Rent on a building
20.
Diseconomies of scale occur when: —
Long-run average costs increase as output increases.
21.
Economies of scale occur when: —
Long-run average costs decrease as output increases.
22.
The LRAC curve represents the: —
Lowest cost per unit of output for a given scale of plant
23.
The ATC curve reaches its minimum point when: —
Marginal Cost (MC) equals Average Total Cost (ATC)
24.
What is the relationship between the slope of the TVC curve and the MC curve? —
MC is equal to the slope of the TVC curve.
25.
What is the relationship between SRATC and LRATC at the minimum efficient scale? —
Multiple SRATC curves touch LRATC at its minimum.
26.
In the long run, a firm can adjust: —
All its inputs
27.
The long-run cost curve is often referred to as the: —
Envelope curve
28.
The 'envelope curve' refers to the: —
Long-run average cost curve
29.
The concept of 'planning horizon' is most relevant to which cost curve? —
Long-run Average Cost
30.
Which of the following statements about short-run and long-run cost curves is FALSE? —
The long-run average cost curve is always below the short-run average cost curves.
31.
What is a common reason for diseconomies of scale? —
Communication and coordination problems
32.
Which factor is NOT a source of economies of scale? —
Diseconomies of management
33.
The short-run cost curves (AFC, AVC, ATC, MC) are typically U-shaped due to: —
The law of diminishing returns
34.
When a firm expands output in the short run, it moves along: —
A specific SRAC curve
35.
In the long run, the LRMC curve intersects the LRAC curve at: —
The minimum point of LRAC
36.
The point where MC = AC in the short run indicates: —
The minimum point of the AC curve
37.
The minimum point of the LRAC curve signifies: —
All of the above
38.
The long-run average cost (LRAC) curve is derived from: —
The tangent points of various short-run average total cost curves
39.
The long-run marginal cost (LRMC) curve is derived from: —
The rate of change of total cost in the long run
40.
The Marginal Cost (MC) curve typically intersects the AVC and ATC curves at: —
Their minimum points
41.
In the long run, what is the defining characteristic of all factors of production? —
They are all variable.
42.
Average Variable Cost (AVC) is calculated as: —
Total Variable Cost / Output
43.
What is the definition of Average Fixed Cost (AFC)? —
Total Fixed Cost divided by the level of output
44.
Which of the following costs does NOT change with the level of output in the short run? —
Total Fixed Cost
45.
If a firm produces zero output, which cost is still incurred? —
Total Fixed Cost
46.
The Average Fixed Cost (AFC) curve is: —
Downward sloping and approaches zero
47.
The long-run average cost curve is typically: —
U-shaped
48.
The shape of the Total Variable Cost (TVC) curve in the short run is generally: —
Upward sloping and initially convex, then concave
49.
When does the AVC curve reach its minimum point? —
When MC equals AVC