1. The shapes of long-run average cost and average variable cost curves can be attributed to the law of diminishing marginal returns. 2. If laborers shirk, output will be lower than if they do not shirk and total labor costs will be higher for a given output, while total fixed costs remain unchanged. 3. If a firm's total fixed costs increase, average fixed costs will rise but marginal costs will fall.

1. 1. The shapes of which cost curves can be attributed to the law of diminishing marginal product
(or returns)?
2. If a firms management permits its laborers to shirk and its laborers choose to do so, then:
i. MPL and APL will be greater than the MPL and APL that result if laborers do not shirk
ii. the level of output will be less than the level of output if laborers do not shirk
iii. the total labor costs required to produce a given level of output will be greater than if laborers
do not shirk but total fixed costs will be unaffected
3. If a firms total fixed costs increase, then:
4. The first, second, and third workers employed by a firm add 14, 8, and 5 units to total product,
respectively. Therefore, the:
i. marginal product of the second worker is 22
ii. marginal product of the third worker is 5
iii. average product of the three workers is 9
5. Suppose a firms production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100
units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given
this information, the firms short run production function is:
6. Suppose a firms production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100
units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given
this information, the firms total cost function is:
A: total fixed cost, total variable cost, average variable cost, marginal cost, and average total
cost
Solution
1. B:total cost, average variable cost, average fixed cost, average total cost, and marginal cost
2. G
3. D:average fixed costs would rise, but marginal costs will fall

2. 4. option C only correct
5. B
6. A