ECON7100-M50 Spring 2015

Self-Study04

1. 
   The vertical distance between ATC and AVC gets smaller at higher output level because
   1. AFC is getting smaller.
   2. MC is getting smaller.
   3. it is only an optical illusion.
   4. AVC is getting smaller.
2. Which of the following is correct?
   1. When the fixed input has very large capacity, diminishing returns will quickly set in.
   2. When the fixed input has very limited capacity, increasing returns will quickly set in.
   3. When average total cost is falling due to increasing returns, marginal cost is below the average total cost.
   4. When the fixed input has very large capacity, total cost will soon increase at an increasing rate.
3. 
   MC can be measured on either TC or TVC in the short run because
   1. MTC (marginal total cost) is equal to MVC (marginal variable cost) when the cost of fixed input stays the same.
   2. TC's origin starts from zero but TVC's origin starts from the fixed cost.
   3. TVC is identical to TC when some cost is fixed.
   4. fixed cost is not part of TC.
4. 
   Which of the following statements is correct?
   1. When AC (AVC or ATC) is rising, MC is always below it.
   2. When AC (AVC or ATC) is falling, MC is always below it.
   3. Both A and B.
   4. When AC (AVC or ATC) is rising, MC is rising and when AC is falling, MC is falling.
5. TC is equal to
   1. TVC + TFC.
   2. sum of marginal variable cost and marginal fixed cost.
   3. MC + AVC.
   4. AFC + AVC.
6. Buyers of legal software must cover at least the __________ in the long run, while pirates pay for only the _______ of copying the software.
   1. average fixed cost; marginal cost
   2. average variable cost; marginal cost
   3. average total cost; average variable cost
   4. average total cost; marginal cost
7. In the short run, average variable cost excludes ______, while average total cost includes ________.
   1. fixed cost; fixed cost
   2. fixed cost; only variable cost
   3. variable cost; only variable cost
   4. Both A and B.
8. Which of the following is correct in the short run when some input is fixed?
   1. Marginal cost is the increase in total variable cost.
   2. Average total cost (ATC) increases with increasing returns.
   3. Average total cost (ATC) decreases with diminishing returns.
   4. Diminishing returns refers to diminishing marginal cost.
9. 
   Which of the following statements is correct?
   1. When AC (AVC or ATC) is rising, MC is always above it.
   2. When AC (AVC or ATC) is falling, MC is always rising.
   3. Both A and B.
   4. When AC is rising, MC is rising and when AC (AVC or ATC) is falling, MC is falling.
10. Which of the following industries is likely to have high fixed cost but low marginal cost?
    1. Non- bioengineered pharmaceuticals
    2. Cars
    3. Live concerts
    4. Original paintings
    5. Both A and B.
11. Which of the following is correct in the short run when some input is fixed?
    1. Diminishing returns refers to diminishing marginal cost.
    2. Average total cost (ATC) increases with increasing returns.
    3. When total variable cost increases, marginal cost will increase.
    4. When total variable cost increases at an increasing rate, marginal cost will increase.
12. Major networked airlines are susceptible to price competition from niche startups because
    1. startups can sustain loss much longer than the major airlines.
    2. startups can challenge the majors on thinly traveled routes.
    3. startups can offer more connections than the majors.
    4. the major airlines have high fixed network costs.
13. Mass piracy is most likely to occur when
    1. The marginal cost (MC) of reproduction is high but the R and D cost (i.e., fixed cost) of coming up with the original is low.
    2. Every item is unique and expensive to produce.
    3. The price charged is much higher than the marginal cost (MC) of piracy.
    4. All of the above.
    5. Both A and C.
14. What might prolong the dominance of networked or standards-based products?
    1. user lock-in due to high switching cost.
    2. government protection.
    3. increasing average total cost for large output.
    4. users are independent of each other.
15. Offering rebates and coupons to home owners to purchase more energy-efficient home appliances
    1. makes sense to local utility companies if it cost more to build new energy generating plants than to encourage energy conservation.
    2. makes sense to local utility companies because they make home appliances.
    3. is a case of price discrimination.
    4. makes sense to local utility companies because they make more money selling appliances than energy.
16. Flexible work schedules to match customer traffic
    1. require little adjustment of the personal lives of workers.
    2. turns fixed labor cost into variable labor cost.
    3. can lead to lower labor productivity from the same number of workers.
    4. turns variable labor cost into fixed labor cost.
17. In the short run, diminishing returns sets in because
    1. marginal product is bound to fall after a while.
    2. variable input is increasing.
    3. the capacity of fixed input has been exceeded.
    4. fixed input is increasing.
18. 
    Average total cost includes ______, while marginal cost ignores ______ in the short run.
    1. fixed cost; fixed cost
    2. fixed cost; variable cost
    3. variable cost; variable cost
    4. All of the above.
19. Load pricing is
    1. easy to implement at little detection cost.
    2. a way to force consumers to internalize the external congestion cost at peak hours.
    3. a way to price according to average cost rather than marginal cost.
    4. possible only for pricing electricity.
20. What might prolong natural monopoly?
    1. user lock-in due to low switching cost.
    2. government protection.
    3. increasing average total cost for large output.
    4. network externalities.