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Chapter 5 Questions
1. Define the following terms:
 Marginal product of labor
 Increasing marginal returns
 Diminishing marginal returns
2. What are the two categories of producer’s costs?
3. Define and give examples of a fixed cost.
4. Define and give examples of a variable cost.
5. Why are some employees considered variable costs?
6. What is total cost?
7. Define marginal cost. How does a firm calculate marginal cost?
8. Define marginal revenue.
9. What is the ideal level of output for a company?
10. Use the table below to answer the following questions. (a) What is the total cost when output is 2? (b) What is the
marginal cost of the third unit? (c) How much should this firm produce if the market price is $24?
Output
1
2
3
4
5
Fixed Cost
$5
$5
$5
$5
$5
Variable Cost
$10
$27
$55
$91
$145
11. Why would the supply curve shift to the left? Why would the supply curve shift to the right?
12. Define subsidy. How does a subsidy affect supply?
13. Why would government subsidize producers?
14. Why does the government impose excise taxes?
15. Define regulation. How can regulation affect a producer’s output decisions?