Marginal cost & average cost

What is marginal cost (MC)?

• The change in total output that results from additional variable inputs

• The change in total costs that result from additional units of outputs being produced

• The initial upward slope of the marginal product curve

• The division of labour and specialisation

Answer explanation

The marginal cost (MC) is the change in total costs that result from additional units of outputs being produced.

What does the marginal product curve represent initially?

• A downward sloping curve due to diminishing returns

• An upward sloping curve due to increased specialisation

• A constant slope due to fixed resources

• An upward sloping curve due to division of labour and specialisation

Answer explanation

The marginal product curve represents an upward sloping curve due to division of labour and specialisation.

According to the law of diminishing returns, what happens when additional variable resources are added to a set of fixed resources?

• The variable resources become more productive

• The fixed resources become more productive

• The variable resources are forced to 'share' the fixed resources and become less productive

• The fixed resources are forced to 'share' the variable resources and become more productive

Answer explanation

According to the law of diminishing returns, when additional variable resources are added to fixed resources, the variable resources are forced to 'share' the fixed resources, leading to decreased productivity.

What is the shape of the marginal product curve due to the law of diminishing returns?

• Downward sloping initially, then upward sloping

• Constant slope throughout

• Upward sloping initially, then downward sloping

• A straight line that represents constant returns

Answer explanation

The shape of the marginal product curve due to the law of diminishing returns is upward sloping initially, then downward sloping.

Why does the marginal cost curve slope downwards initially?

• Because of increasing returns due to division of labour and specialisation

• Because of decreasing returns due to division of labour and specialisation

• Because of diminishing returns as additional variable resources share fixed resources

• Because of constant returns as additional variable resources are added

Answer explanation

The marginal cost curve slopes downwards initially due to diminishing returns as additional variable resources share fixed resources.

What does productivity refer to in economic terms?

• The cost of producing one unit of output

• The effectiveness of a productive effort, as measured in terms of the rate of output per unit of input

• The total revenue generated by a firm

• The wages paid to labor

Answer explanation

Productivity in economic terms refers to the effectiveness of a productive effort, measured by the rate of output per unit of input.

What is the relationship between the marginal cost curve and the marginal product curve?

• Direct relationship

• Inverse relationship

• No relationship

• Proportional relationship

Answer explanation

The marginal cost curve and the marginal product curve have an inverse relationship, meaning as the marginal product increases, the marginal cost decreases, and vice versa.

How is average cost calculated?

• By dividing the total costs of producing all output by the maximum quantity of output

• By adding the total costs of producing all output and dividing by the price of the output

• By dividing the total costs of producing all output by the quantity of output

• By multiplying the total costs of producing all output by the quantity of output

Answer explanation

Average cost is calculated by dividing the total costs of producing all output by the quantity of output, giving the cost per unit produced.

At what point does productive efficiency occur according to the average cost curve?

• At the maximum point of the average cost curve

• At the minimum point of the average cost curve

• At the point where the average cost curve starts to rise

• At the point where the average cost curve intersects the marginal cost curve

Answer explanation

Productive efficiency occurs at the minimum point of the average cost curve, indicating the lowest cost of production per unit.

At what point does the marginal cost curve intersect the average cost curve?

• At its maximum point

• At its minimum point

• At the midpoint of the average cost curve

• At the starting point of the average cost curve

Answer explanation

The marginal cost curve intersects the average cost curve at its minimum point, indicating the point where average cost is at its lowest.