Economics Tutorial Set 4 Essay

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Economics for Decision-Making 1303AFE Semester 1 2012

TUTORIAL QUESTIONS – TUTORIAL FOUR in WEEK FIVE ASSESSMENT: Worth 1.5%. You must hand in your completed answer sheet (pages 6-7) to the tutor at the beginning of the relevant tutorial. You must attend for the full period of the tutorial to which you have been assigned. PURPOSE of this Tutorial To enable you to: a. to increase your knowledge of production concepts, especially the short-run relationship between outputs and variable inputs and b. the cost side of the firm Note: You are encouraged to work on these questions and problems with fellow students but the answers must be hand-written into the spaces provided on the printed answer sheet and handed in individually. A. Multiple-choice Questions 1. At its current level of output, Q, a firm’s marginal costs (MC) are rising. This also means that at Q the firm’s: (a) Average Fixed Costs (AFC) and Average Variable Costs (AVC) are both falling (b) Average Fixed Costs (AFC) and Average Variable Costs (AVC) are both rising (c) AFC is falling but Average Variable Costs (AVC) are rising (d) AFC is equal to zero (e) none of the above
Hint: it may help you to look at the appropriate diagram(s) in the lecture

2. An example of an opportunity cost of production for a bakery is: (a) the cost of raw materials for producing bread in the bakery (b) the cost of a delivery truck for the bakery (c) the income the bakery owner could have earned working for someone else (d) none of the above are correct 3. In economics a production function describes: (a) the efficiency frontier between quantity of inputs and the resulting quantity of output (b) how inputs are most profitably used in production (c) the relationship between a firm’s revenue and level of production (d) all of the above (e) none of the above

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4. The existence of a diminishing marginal product of labour is most accurately represented by a situation where: (a) workers are discouraged about poor working conditions (b) increasingly congested office space reduces the productivity of additional office workers (c) workers are told to increase their work effort if they want higher wage rates (d) only new workers are trained in using the most productive capital 5. At any level of output, the cost of producing one additional unit of output can be termed the: (a) marginal cost of production (MC) (b) average total cost of production (ATC) (c) unit cost of production (d) internal costs of production excluding any transportation and distribution costs to the firm 6. When marginal cost is less than average total cost: (a) marginal cost must be falling (b) average total cost is falling (c) average total cost is rising (d) average total cost must be equal to marginal cost (e) none of the above is correct
Hint: it may help you to look at the appropriate diagram(s) in the lecture

7. The average total costs of production (ATC) are $10 when the firm produces 5 units of output. They are $12 when the same firm produces 6 units of output. This means the marginal cost of increasing output from 5 to 6 units is: (a) $120 (b) $22 (c) $12 (d) $2 (e) impossible to calculate from the information provided (f) none of the above
Hint: marginal cost (MC) is the change in total cost (TC) resulting from producing one more unit of output).

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8. In the diagram below, of the four curves shown, (they represent the firm’s MC, ATC, AFC and the AVC curves) which two of the four curves are the firm’s MC and AVC curves in the order (MC, AVC)? (a) A and B (b) B and C (c) C and D (d) C and A (e) A and C (f) none of the above
Hint: it may help you to refer to the appropriate diagram(s) in the lecture

A Costs B

C

D

Output

9. In the diagram below which are the firm’s Total Product Curve (TPC); its Average Product Curve (APC), and its Marginal Product Curve (MP) in the order (TPC, APC, MPC)? (a) A, B, C (b) B, C, D (c) A, C, D (d) C, A, D (e) A, C, B (f) none of the above is correct…