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LESSON 4 - 5: COST FUNCTION AND ALL TYPES OF MARKET REVISION: CALCULATION QUESTION PART 0. TAKE NOTE PART A. MULTIPLE CHOICE Question 1. Which of the following statements accurately describes the Law of Diminishing Marginal Product? A. In the long run, increasing all inputs proportionally leads to a less than proportional increase in output. B. As successive units of a variable input are added to a fixed input, total output will inevitably decrease. C. As successive units of a variable input are added to a fixed input, beyond some point, the marginal product of the variable input will decline. D. When a firm doubles all its inputs, its output less than doubles due to management inefficiencies. Question 2. Which of the following scenarios best illustrates the Law of Diminishing Marginal Product? A. A shoe factory doubles its factory size and hires twice as many workers, resulting in three times the output. B. A single chef in a small restaurant struggles to cook 50 meals a night, but with two additional chefs, they can cook 150 meals. C. A bakery with a fixed number of ovens bakes 100 loaves with 5 bakers, 115 loaves with 6 bakers, and 125 loaves with 7 bakers. D. A tech company experiences lower production costs per unit as it expands its operations globally.
Question 3. Which of the following is true regarding the Law of Diminishing Marginal Product? A. It primarily applies in the long run when all factors of production are variable. B. It implies that every additional unit of a variable input will always result in a smaller increase in total output. C. It states that eventually, total output will begin to decline if more variable input is added to fixed input. D. It is a short-run concept that assumes at least one input in the production process is held constant. Question 4. For a bakery producing bread, which of the following is most likely classified as a variable cost in the short run? A. The monthly rent for the bakery building. B. The annual premium for the bakery's property insurance. C. The wages paid to bakers, which are calculated per loaf of bread produced. D. The straight-line depreciation of the industrial ovens. Question 5. A firm's total cost increases from $500 to $620 when its output increases from 20 units to 21 units. What is the marginal cost (MC) of the 21st unit? A. $120 B. $60 C. $12 D. $30 Question 6. If the Marginal Cost (MC) curve is currently above the Average Total Cost (ATC) curve, what does this imply about the Average Total Cost?

Question 10. A natural monopoly typically arises due to: A. Exclusive ownership of a key resource. B. Government-granted exclusive rights. C. Economies of scale over the relevant range of output. D. Aggressive advertising campaigns. Question 11. In a monopolistically competitive market, firms typically engage in product differentiation. This means: A. They sell identical products at the lowest possible price. B. They attempt to make their products slightly different from competitors' products. C. They collude with other firms to set prices and output levels. D. They face significant barriers to entry for new firms. Question 12. In the short run, a firm's Fixed Costs (FC) are best described as: A. Costs that increase as production increases. B. Costs that must be paid even if no output is produced. C. Costs that can be completely avoided if the firm decides not to produce. D. Costs that vary directly with the level of technology used. Question 13. If a firm knows its Total Cost (TC) and Total Fixed Cost (FC) at a given level of output, which formula can be used to calculate its Total Variable Cost (VC)? A. VC = TC / Q B. VC = FC - TC C. VC = TC - FC D. VC = Marginal Cost (MC) × Q