ECO 204                      HOMEWORK 6

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1.      When the total product curve of labor attains its maximum value, the:

        a.      firm incurs only variable costs
        b.      average total cost of output is minimized
        c.      firm enjoys the largest possible profit margin
        d.      marginal physical product of labor is zero
        e.      total cost curve is at its minimum

2.      The idea that the incremental gains in production must eventually decline as extra 
        units of some variable resource are added to some fixed influence on production 
        (e.g., a fixed resource) is known as the:

        a.      law of diminishing marginal returns
        b.      technological advancement boundary
        c.      limits to marginalism
        d.      principle of decreasing marginal cost

3.      If labor is the only short run variable resource and the wage rate is constant, MC:

        a.      consistently exceeds average labor costs per unit of output
        b.      equals: (change in total labor cost)/ (change in output)
        c.      is less than average fixed cost per unit of output
        d.      at first rises, but eventually falls as returns diminish

4.      Hiring additional workers causes no change in output:

        a.      unless the firm experiences increasing returns
        b.      at all labor inputs beyond the point of diminishing returns
        c.      when total product of labor is zero
        d.      when marginal product of labor is zero

5.      When long-run average costs fall as a firm's production grows, there are:

        a.      decreasing cost industries
        b.      economies of scale
        c.      negative externalities
        d.      disadvantages to specialization of labor
       
6.      If average variable costs of production fall as output grows:

        a.      marginal costs must also be declining
        b.      fixed costs must also be declining
        c.      total costs must be rising
        d.      average total costs must be below average variable cost
        e.      marginal costs must be below average variable cost
 
7.      Marginal cost equals average variable cost when:

        a.      marginal cost is at its maximum
        b.      average variable cost is at its maximum
        c.      marginal cost is at its minimum
        d.      average variable cost is at its minimum

8.      As output increases in the short run, marginal cost generally:

        a.      rises
        b.      falls
        c.      falls, then rises
        d.      rises, then falls

9.      As output increases, average fixed cost:

        a.      rises
        b.      falls
        c.      rises, then falls
        d.      doesn't change

10.     Costs incurred only when a firm produces output are known as:

        a.      explicit costs
        b.      fixed costs
        c.      implicit costs
        d.      variable costs