B 17. What happens to average total cost (ATC) when marginal cost (MC) is less than ATC? A) ATC is increasing C) ATC remains constant B) ATC is decreasing D) ATC becomes negative A 18. What is the primary reason for the increasing part of the LAC curve? A) Diminishing returns to scale C) Fixed costs becoming variable B) Economies of scale D) Inefficient management B 19. What does the learning curve illustrate? A) The relationship between fixed costs and output B) The relationship between cumulative output and inputs needed per unit C) The inverse relationship between total costs and average costs D) The fixed costs incurred by a firm over time B 20. A car manufacturer is assessing its production costs and finds that its marginal cost is higher than its average total cost. What should the manufacturer expect to happen to the average total cost if production continues at this level? A) ATC will increase B) ATC will decrease C) ATC will remain the same D) ATC will fluctuate randomly A 21 A small bakery has fixed costs of 500 per month and variable costs that vary with output. If the bakery produces 100 loaves of bread in a month,what is its average fixed cost (AFC)? A) 85 B) 2 C) 10 D) 50 B 22A manufacturing firm has an average variable cost (AVC) curve that is U-shaped. If the firm is producing at a quantity where AVC is increasing, what can be inferred about the firm's production process? A) The firm is experiencing economies of scale. B) The firm is experiencing diminishing marginal returns. C) The firm is operating at maximum efficiency. D) The firm should reduce its fixed inputs. 23. If a firm produces 200,000 units and sells them for 10 each, with explicit costs of 1,500,000 and implicit costs of 300,000 what is the accounting profit? A) 500,000 B) 400,000 C) 300,000 D) 200,000

B 17. What happens to average total cost (ATC) when marginal cost (MC) is less than ATC?
B) ATC is decreasing

When the marginal cost (MC) is less than the average total cost (ATC), it means that the cost of producing one more unit is less than the average cost of all previous units. This causes the average total cost to decrease.

A 18. What is the primary reason for the increasing part of the LAC curve?
A) Diminishing returns to scale

The primary reason for the increasing part of the long-run average cost (LAC) curve is the law of diminishing returns to scale. As the firm increases its scale of production, it experiences diminishing returns, which causes the average cost to increase.

B 19. What does the learning curve illustrate?
B) The relationship between cumulative output and inputs needed per unit

The learning curve illustrates the relationship between cumulative output and the inputs needed per unit. As the firm gains experience and improves its production process, the inputs required per unit decrease, leading to a decrease in average costs.

B 20. A car manufacturer is assessing its production costs and finds that its marginal cost is higher than its average total cost. What should the manufacturer expect to happen to the average total cost if production continues at this level?
A) ATC will increase

If the car manufacturer's marginal cost is higher than its average total cost, it means that the cost of producing one more unit is higher than the average cost of all previous units. This will cause the average total cost to increase if production continues at this level.

A 21. A small bakery has fixed costs of $$\$500$$ per month and variable costs that vary with output. If the bakery produces 100 loaves of bread in a month, what is its average fixed cost (AFC)?
D) $$\$5$$

The average fixed cost (AFC) is calculated by dividing the total fixed costs by the quantity of output. In this case, the total fixed costs are $$\$500$$ and the quantity of output is 100 loaves of bread. Therefore, the AFC is $$\$500 / 100 = \$5$$ .

B 22. A manufacturing firm has an average variable cost (AVC) curve that is U-shaped. If the firm is producing at a quantity where AVC is increasing, what can be inferred about the firm's production process?
B) The firm is experiencing diminishing marginal returns.

When the average variable cost (AVC) curve is U-shaped, it indicates that the firm is experiencing diminishing marginal returns. This means that as the firm increases its production, the additional output gained from each additional unit of input decreases, leading to an increase in AVC.

A 23. If a firm produces 200,000 units and sells them for $$\$10$$ each, with explicit costs of $$\$1,500,000$$ and implicit costs of $$\$300,000$$ , what is the accounting profit?
D) $$\$200,000$$

Accounting profit is calculated by subtracting the explicit costs from the total revenue. In this case, the total revenue is $$\$10 \times 200,000 = \$2,000,000$$ . The explicit costs are $$\$1,500,000$$ , and the implicit costs are $$\$300,000$$ . Therefore, the accounting profit is $$\$2,000,000 - \$1,500,000 = \$500,000$$ .