AP Microeconomics Quiz: Short Run Production Costs

What this quiz covers

This quiz focuses on Short Run Production Costs, giving you a quick way to practice the rules, question types, and explanations that matter most for AP Microeconomics.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. The monthly lease payment for its factory space.
2. The cost of electricity to operate its machinery. (correct answer)
3. The salary of its chief executive officer.
4. The annual premium on its business liability insurance.

Explanation: Variable costs are costs that change with the level of production. The amount of electricity needed to run machinery will increase as the firm produces more goods, making it a variable cost. Lease payments, CEO salaries, and insurance premiums are typically fixed costs in the short run as they do not vary with output.

Question 2

1. the existence of significant economies of scale.
2. the effect of increasing marginal returns to a variable input.
3. the law of diminishing marginal utility for consumers.
4. the law of diminishing marginal returns to a variable input. (correct answer)

Explanation: The law of diminishing marginal returns states that as more units of a variable input (like labor) are added to fixed inputs (like capital), the marginal product of the variable input will eventually decrease. This means more of the variable input is needed for each additional unit of output, which causes the marginal cost of production to increase, leading to an upward-sloping MC curve.

Question 3

1. increasing marginal returns due to specialization and division of labor. (correct answer)
2. the rapid decline in average fixed costs as production begins.
3. the presence of significant diseconomies of scale in production.
4. the law of diminishing marginal utility affecting input prices.

Explanation: Initially, as a firm adds variable inputs like labor to its fixed capital, workers can specialize in tasks. This specialization and division of labor lead to increasing marginal product (each worker adds more to output than the previous one), which in turn causes the marginal cost of production to fall.

Question 4

1. $208$
2. $5.07$
3. $8$ (correct answer)
4. $5$

Explanation: Marginal cost (MC) is the change in total cost (ΔTC) divided by the change in quantity (ΔQ). Here, ΔTC = $208 - $$200$ $=$ $8$ $, and ΔQ = 41 - 40 = 1. Therefore, the marginal cost of the 41st loaf is$ $8$ $/ 1 =$ $8$ $.

Question 5

1. the marginal cost curve is at its minimum value.
2. the average total cost curve is at its minimum value.
3. the average fixed cost curve begins to increase.
4. the marginal cost curve intersects the average variable cost curve. (correct answer)

Explanation: A standard geometric property of cost curves is that the marginal cost (MC) curve intersects the average variable cost (AVC) curve at the AVC curve's minimum point. When MC is below AVC, AVC is falling; when MC is above AVC, AVC is rising.

Question 6

1. average total cost is decreasing.
2. average total cost is at its minimum value.
3. average total cost is increasing. (correct answer)
4. average variable cost must be decreasing.

Explanation: When marginal cost (MC) is greater than average total cost (ATC), the cost of producing the next unit is higher than the current average cost. This pulls the average cost up. Therefore, at this level of output, the firm's average total cost must be increasing.

Question 7

1. The marginal cost curve and the average variable cost curve only.
2. The average fixed cost curve and the average total cost curve only. (correct answer)
3. The marginal cost curve and the average total cost curve only.
4. The average variable cost curve and the average total cost curve only.

Explanation: Rent is a fixed cost because it does not vary with the level of output. An increase in a fixed cost raises the total fixed cost (TFC) and thus the average fixed cost (AFC). Since average total cost (ATC) is the sum of AFC and average variable cost (AVC), the ATC curve also shifts upward. Marginal cost (MC) and AVC are unaffected because they are derived from variable costs.

Question 8

1. The average fixed cost curve will shift upward.
2. The marginal cost curve will shift downward.
3. The average total cost and marginal cost curves will shift upward. (correct answer)
4. The average total cost curve will shift upward, but the marginal cost curve will not be affected.

Explanation: Wood is a raw material, which is a variable input. An increase in the price of a variable input raises the firm's total variable cost (TVC) and its marginal cost (MC) for every unit of output. Consequently, the MC, average variable cost (AVC), and average total cost (ATC) curves will all shift upward. The average fixed cost (AFC) curve is unaffected.

Question 9

1. Total cost and total variable cost are both equal to zero.
2. Total variable cost is equal to total cost, which is greater than zero.
3. Total cost is equal to total fixed cost, which is greater than zero. (correct answer)
4. Total cost and total fixed cost are both equal to zero.

Explanation: In the short run, a firm has both fixed and variable costs. If it produces zero output, its variable costs will be zero, but it must still pay its fixed costs. Therefore, its total cost (TC = TFC + TVC) will be equal to its total fixed cost (TFC), which is a positive value.

Question 10

1. decreasing because each worker is paid the same wage.
2. increasing because each additional unit costs more to produce. (correct answer)
3. constant because the wage rate for labor is constant.
4. equal to the wage rate divided by average product.

Explanation: There is an inverse relationship between marginal product (MP) and marginal cost (MC), given by the formula MC = Wage / MP of labor. If the marginal product of labor is decreasing (due to diminishing marginal returns), then the denominator in the formula is getting smaller, which means the value of MC must be increasing.

Question 11

1. the spreading effect of fixed costs over more output, followed by rising input prices.
2. the presence of economies of scale, followed by diseconomies of scale in the long run.
3. the effect of initial increasing marginal returns, followed by eventual diminishing marginal returns. (correct answer)
4. the continuous decline of average fixed cost which is eventually offset by rising marginal cost.

Explanation: The average variable cost (AVC) curve is U-shaped due to the behavior of marginal returns. Initially, increasing marginal returns cause marginal cost (MC) to fall, which pulls AVC down. Eventually, diminishing marginal returns set in, causing MC to rise above AVC, which pulls AVC up.

Question 12

1. increase the firm's marginal cost and average variable cost at all positive output levels.
2. decrease the firm's marginal cost but increase its average total cost at all positive output levels.
3. increase the firm's average total cost but will not affect its marginal cost. (correct answer)
4. increase the firm's marginal cost but will not affect its average total cost.

Explanation: A lump-sum tax is a fixed cost because its amount does not change with the level of output. An increase in fixed costs raises the total fixed cost (TFC) and average fixed cost (AFC), which in turn raises the average total cost (ATC). However, since marginal cost (MC) is the change in cost from producing one more unit, and this tax does not change with output, MC is unaffected.

Question 13

1. $20$
2. $25$
3. $45$ (correct answer)
4. $900$

Explanation: First, calculate the Total Cost (TC) by summing Total Fixed Cost (TFC) and Total Variable Cost (TVC). TC = $500 + $$400$ $ = $900. Then, calculate the Average Total Cost (ATC) by dividing the Total Cost by the quantity of output (Q). ATC = TC / Q = $900 / 20 = $45.

Question 14

1. $600$ (correct answer)
2. $1,400$
3. $6$
4. $10$

Explanation: Total cost (TC) is the sum of total fixed cost (TFC) and total variable cost (TVC). The formula is TC = TFC + TVC. Rearranging for total variable cost gives TVC = TC - TFC. In this case, TVC = $1,000 - $$400$ $ = $600.

Question 15

1. The marginal cost and average total cost curves will shift upward, but the average fixed cost curve will be unchanged. (correct answer)
2. Only the average fixed cost curve and the average total cost curve will shift upward.
3. Only the marginal cost curve will shift upward, while the average cost curves will remain unchanged.
4. The marginal cost curve will be unaffected, but the average total cost and average fixed cost curves will shift upward.

Explanation: A per-unit tax acts as a variable cost because the total tax paid depends directly on the number of units produced. This increase in variable cost will shift the marginal cost (MC), average variable cost (AVC), and average total cost (ATC) curves upward. Since it is not a fixed cost, the average fixed cost (AFC) curve will not be affected.

Question 16

1. initially decrease and then increase as output grows.
2. remain constant because fixed costs do not change with output.
3. always decrease but will never become zero. (correct answer)
4. increase at a decreasing rate across all output levels.

Explanation: Average fixed cost (AFC) is calculated as total fixed cost (TFC) divided by the quantity of output (Q). Since TFC is a constant value in the short run, as Q increases, the value of AFC = TFC/Q must continuously decrease. This effect is often called 'spreading the overhead'. AFC will approach zero as output becomes very large but will never actually be zero.

Question 17

1. Average variable cost must be decreasing. (correct answer)
2. Average variable cost must be increasing.
3. Average total cost must be increasing.
4. Marginal cost must be increasing.

Explanation: The relationship between a marginal and an average value is such that if the marginal value is below the average, it pulls the average down. Therefore, if marginal cost (MC) is less than average variable cost (AVC), the cost of producing the next unit is lower than the current average, causing the AVC to decrease.

Question 18

1. change in total cost resulting from a one-unit change in a fixed input like capital.
2. change in total cost resulting from producing one additional unit of output. (correct answer)
3. total variable cost divided by the total quantity of output produced by the firm.
4. total cost divided by the total quantity of output produced by the firm.

Explanation: Marginal cost (MC) specifically measures the addition to total cost that arises from producing one more unit of a good or service. It is calculated as the change in total cost divided by the change in quantity (ΔTC/ΔQ). The other options define different cost concepts.

Question 19

1. $4.00$
2. $6.00$
3. $10.00$ (correct answer)
4. $1,500.00$

Explanation: First, calculate total cost (TC) by adding total fixed cost (TFC) and total variable cost (TVC): TC = $600 + $$900$ $ = $1,500. Then, calculate average total cost (ATC) by dividing total cost by the quantity of output (Q): ATC = TC / Q = $1,500 / 150 = $10.00.

Question 20

1. $200$
2. $300$ (correct answer)
3. $480$
4. $490$

Explanation: First, find Total Fixed Cost (TFC) using the formula TFC = AFC × Q. TFC = $10 × 20 = $200. Next, use the total cost formula TC = TFC + TVC. To find Total Variable Cost (TVC), rearrange the formula: TVC = TC - TFC. TVC = $500 - $$200$ $ = $300.