Deck 20: Cost Curves

Question 1

The area under the marginal cost curve measures total fixed costs.

Answer 1

False

Question 2

A firm has a short-run cost function c(y) = 3y + 11 for y > 0 and c(0) = 8. The firm's quasi-fixed costs are

A) $8.
B) $11.
C) $3.
D) $7.
E) They are not possible to determine from this information.

Answer 2

C

Question 3

The cost function C(y) = 100 + 3y2 has marginal cost less than average cost for all positive levels of output.

Answer 3

False

Question 4

The production function of a competitive firm is described by the equation y = The factor prices are p1 = $1 and p2 = $4 and the firm can hire as much of either factor it wants at these prices. The firm's marginal cost is

A) constant and equal to .50.
B) constant and equal to 3.
C) increasing.
D) decreasing.
E) None of the above.

Question 5

A competitive firm has the short-run cost function c(y) = 2y3 - 16y2 + 128y + 10. The firm will produce a positive amount in the short run if and only if the price is greater than

A) $192.
B) $48.
C) $99.
D) $96.
E) $95.

Question 6

A goatherd has the cost function c(y) = 4y2, where y is the number of tubs of goat cheese she makes per month. She faces a competitive market for goat cheese,with a price of $40 a tub. How many tubs should she produce per month?

A) The square root of 40
B) 16
C) 5
D) The square root of 10
E) 2.50

Question 7

A firm has a short-run cost function c(y) = 3y + 14 for y > 0 and c(0) = 10. The firm's quasi-fixed costs are

A) $10.
B) $4.
C) $9.
D) $14.
E) They are not possible to determine from this information.

Question 8

If a competitive firm uses two inputs and has the production function F(x1, x2) = 1 + 2, then its marginal cost curve is horizontal.

Question 9

A goatherd has the cost function c(y) = 2y2, where y is the number of tubs of goat cheese she makes per month. She faces a competitive market for goat cheese,with a price of $40 a tub. How many tubs should she produce per month?

A) 10
B) The square root of 40
C) 4
D) The square root of 20
E) 5

Question 10

Average cost can never rise while marginal costs are declining.

Question 11

If the average cost curve is U-shaped, then the marginal cost curve must cross the average cost curve at the bottom of the U.

Question 12

The marginal cost curve of a firm is MC = 8y. Total variable costs to produce 11 units of output are

A) $484.
B) $484.
C) $176.
D) $88.
E) $30.

Question 13

The marginal cost curve passes through the minimum point of the average fixed cost curve.

Question 14

The following relationship must hold between the average total cost (ATC) curve and the marginal cost curve (MC):

A) If MC is rising, ATC must be rising.
B) If MC is rising, ATC must be greater than MC.
C) If MC is rising, ATC must be less than MC.
D) If ATC is rising, MC must be greater than ATC.
E) If ATC is rising, MC must be less than ATC.

Question 15

If marginal costs increase as output increases, then the average fixed cost curve will be U-shaped.

Question 16

The marginal cost curve of a firm is MC = 6y. Total variable costs to produce 10 units of output are

A) $120.
B) $300.
C) $80.
D) $400.
E) $26.

Question 17

A competitive firm has the short-run cost function c(y)= 2y3 - 16y2 + 64y + 50. The firm will produce a positive amount in the short run if and only if the price is greater than

A) $16.
B) $64.
C) $32.
D) $35.
E) $31.

Question 18

The cost function C(y) = 10 + 3y has marginal cost less than average cost for all levels of output.

Question 19

The average variable cost curve must always be U-shaped.

Question 20

Average fixed cost curves will be U-shaped if the marginal cost curve is upward sloping.

Question 21

Mr. Dent Carr's total costs are 2s² + 40s + 40. If he repairs 10 cars, his average variable costs will be

A) $60.
B) $64.
C) $80.
D) $120.
E) $40.

Question 22

A firm's production function is given by q = min{M, }, where M is the number of machines and L is the amount of labor that it uses. The price of labor is $1and the price of machines is $2 per unit. The firm's long-run marginal cost curve is

A) a straight line with slope 2.
B) upward sloping and gets flatter as Q increases.
C) upward sloping and gets steeper as Q increases.
D) a straight line with slope 1.
E) a straight line with slope 2.

Question 23

A firm has the production function Q = In the short run it must use exactly 35 units of factor 2. The price of factor 1 is $105 per unit and the price of factor 2 is $3 per unit. The firm's short-run marginal cost function is

A) MC(Q) = 105.
B) MC(Q) =.
C) MC(Q) = 105 + 105Q2.
D) MC(Q) = 3Q.
E) MC(Q) = 35.

Question 24

Mary Magnolia from your workbook has variable costs equal to , where y is the number of bouquets she sells per month and where F is the number of square feet of space in her shop. If Mary has signed a lease for a shop with 200 square feet, if she is not able to get out of the lease or to expand her store in the short run, and if the price of a bouquet is $6 per unit, how many bouquets per month should she sell in the short run?

A) 200
B) 100
C) 600
D) 900
E) 660

Question 25

A firm has the short-run total cost function c(y) = 4y2 +100. At what quantity of output is short-run average cost minimized?

A) 5
B) 2
C) 25
D) 0.40
E) None of the above.

Question 26

I29. In the reclining chair industry (which is perfectly competitive), two different technologies of production exist. These technologies exhibit the following total cost functions: C1(Q) = 500 + 560Q - 40Q2 + Q3
C2(Q) = 600 + 280Q - 20Q2 + Q3
Due to foreign competition, the market price of reclining chairs has fallen to $170. In the short run, firms using technology 1

A) and firms using technology 2 will remain in business.
B) will remain in business and firms using technology 2 will shut down.
C) will shut down and firms using technology 2 will remain in business.
D) and firms using technology 2 will shut down.
E) More information is needed to make a judgment.

Question 27

Touchie McFeelie from your workbook has a production function (0.1) , where J is the number of old jokes used and L is the number of hours of cartoonists' labor. Touchie is stuck with 400 old jokes for which he paid 6 dollars each. If the hourly wage rate for cartoonists is 4 dollars, then the total cost of producing 16 comics books is

A) 2,464 dollars.
B) 1,232 dollars.
C) 2,480 dollars.
D) 3,696 dollars.
E) 616 dollars.

Question 28

Touchie McFeelie from your workbook has a production function (0.1) , where J is the number of old jokes used and L is the number of hours of cartoonists' labor. Touchie is stuck with 400 old jokes for which he paid 4 dollars each. If the hourly wage rate for cartoonists is 5 dollars, then the total cost of producing 16 comics books is

A) 1,680 dollars.
B) 840 dollars.
C) 2,520 dollars.
D) 1,696 dollars.
E) 420 dollars.

Question 29

A firm has the production function Q = In the short run it must use exactly 15 units of factor 2. The price of factor 1 is $75 per unit and the price of factor 2 is $2 per unit. The firm's short-run marginal cost function is

A) MC(Q) =.
B) MC(Q) = 30.
C) MC(Q) = 30 + 75Q2.
D) MC(Q) = 2Q.
E) MC(Q) = 15.

Question 30

In the reclining chair industry (which is perfectly competitive), two different technologies of production exist. These technologies exhibit the following total cost functions: C1(Q) = 1,000 + 600Q - 40Q2 + Q3
C2(Q) = 200 + 145Q - 10Q2 + Q3
Due to foreign competition, the market price of reclining chairs has fallen to $190. In the short run, firms using technology 1

A) and firms using technology 2 will remain in business.
B) will remain in business and firms using technology 2 will shut down.
C) will shut down and firms using technology 2 will remain in business.
D) and firms using technology 2 will shut down.
E) More information is needed to make a judgment.

Question 31

Mr. Dent Carr's total costs are 2s² + 45s + 30. If he repairs 15 cars, his average variable costs will be

A) $77.
B) $75.
C) $150.
D) $105.
E) $52.50.

Question 32

Touchie McFeelie's production function for comic books is (0.1) , where J is the number of jokes and L is the number of hours of cartoonists labor that he uses. If Touchie can vary both jokes and cartoonists' labor and if old jokes cost $3 each and cartoonists' labor costs $18 per hour, then the cheapest way to produce comics books requires using jokes and labor in the ratio =

A)6
B)8
C)2
D)2/3
E) 4.

Question 33

A firm's production function is given by q = min{M, }, where M is the number of machines and L is the amount of labor that it uses. The price of labor is $1and the price of machines is $4 per unit. The firm's long-run marginal cost curve is

A) upward sloping and gets flatter as Q increases.
B) a straight line with slope 2.
C) a straight line with slope 1.
D) upward sloping and gets steeper as Q increases.
E) a straight line with slope 4.

Question 34

A firm has the short-run total cost function c(y) = 9y2 +144. At what quantity of output is short-run average cost minimized?

A) 4
B) 16
C) 0.75
D) 3
E) None of the above.

Question 35

Rex Carr could pay $10 for a shovel that lasts one year and pay $5 a car to his brother Scoop to bury the cars, or he could buy a low-quality car smasher that costs $200 a year to own and that smashes cars at a marginal cost of $1 per car. If it were also possible for Rex to buy a high-quality hydraulic car smasher that cost $550 per year to own and if with this smasher he could dispose of cars at a cost of $.67 per car, it would be worthwhile for him to buy this high-quality smasher if he needed to dispose of

A) no more than 525 cars per year.
B) no more than 1,050 cars per year.
C) at least 1,060 cars per year.
D) at least 1,050 cars per year.
E) at least 525 cars per year.

Question 36

Rex Carr could pay $10 for a shovel that lasts one year and pay $5 a car to his brother Scoop to bury the cars, or he could buy a low-quality car smasher that costs $200 a year to own and that smashes cars at a marginal cost of $1 per car. If it were also possible for Rex to buy a high-quality hydraulic car smasher that cost $650 per year to own and if with this smasher he could dispose of cars at a cost of $.67 per car, it would be worthwhile for him to buy this high-quality smasher if he needed to dispose of

A) at least 1,350 cars per year.
B) no more than 675 cars per year.
C) at least 1,360 cars per year.
D) no more than 1,350 cars per year.
E) at least 675 cars per year.

Question 37

Touchie McFeelie's production function for comic books is (0.1) , where J is the number of jokes and L is the number of hours of cartoonists labor that he uses. If Touchie can vary both jokes and cartoonists' labor and if old jokes cost $2 each and cartoonists' labor costs $18 per hour, then the cheapest way to produce comics books requires using jokes and labor in the ratio =

A)3
B)12
C)9
D).2/3
E) 6.

Question 38

The production function of a competitive firm is described by the equation y = The factor prices are p1 = $1 and p2 = $36 and the firm can hire as much of either factor it wants at these prices. The firm's marginal cost is

A) decreasing.
B) constant and equal to 19.
C) constant and equal to 3.
D) increasing.
E) None of the above.

Question 39

A firm has the long-run cost function C(Q) = 4Q2 + 64.In the long run, it will supply a positive amount of output, so long as the price is greater than

A) $64.
B) $72.
C) $16.
D) $32.
E) $37.

Question 40

Mary Magnolia from your workbook has variable costs equal to , where y is the number of bouquets she sells per month and where F is the number of square feet of space in her shop. If Mary has signed a lease for a shop with 600 square feet, if she is not able to get out of the lease or to expand her store in the short run, and if the price of a bouquet is $4 per unit, how many bouquets per month should she sell in the short run?

A) 600
B) 1,800
C) 300
D) 1,200
E) 1,320

Question 41

North American Manufacturing has the production function Q = min{0.25K, 0.5L}, where K is units of
capital and L is hours of labor.
a. Without any warning, the price of capital doubles.What should North American Manufacturing do in response?
b. If North American were planning a new manufacturing plant, would there be any advantages to a larger facility?

Question 42

If Green Acres Turf Farm's total cost of producing acres of sod is TC = 5Q2 + 25Q + 40, the marginal cost of producing the 10th acre of sod is

A) $125.
B) $40.
C) $25.
D) $75.
E) $275.

Question 43

Florence's Restaurant estimates that its total costs of providing Q meals per month is given by TC = 8,000 +6Q. If Florence charges $7 per meal, what is its break even level of output?

A) 1,333.33 meals
B) 1,142.86 meals
C) 615.38 meals
D) 16,000 meals
E) 8,000 meals

Question 44

A firm has the long-run cost function C(Q) = 4Q2 +196. In the long run, it will supply a positive amount of output, so long as the price is greater than

A) $120.
B) $112.
C) $56.
D) $28.
E) $61.

Question 45

If Green Acres Turf Farm's total cost of producing acres of sod is TC = 4Q2 + 25Q + 30, the marginal cost of producing the 20th acre of sod is

A) $30.
B) $25.
C) $105.
D) $185.
E) $345.

Question 46

A competitive firm has the short-run cost function c(y)= y3 -2y2 + 5y + 6. Write down equations for:
a. The firm's average variable cost function
b. The firm's marginal cost function
c. At what level of output is average variable cost minimized?
d. Graph the short-run supply function for this firm, being careful to label the key points on the graph with the numbers specifying the exact prices and quantities at these points.

Question 47

The VCR manufacturing business is perfectly competitive. Suppose that currently, firms that manufacture VCRs utilize either technology 1 or technology 2, whose cost functions are TC1(Q) = 1,120 - 60Q + Q2
TC2(Q) = 300 - 20Q + Q2
In the long run, assuming no new manufacturing technologies,what will happen in this industry?

A) Firms utilizing technology 1 and firms utilizing technology 2 will stay in business.
B) Firms utilizing technology 1 will shut down, but firms utilizing technology 2 will stay in business.
C) Firms utilizing technology 1 will stay in business, but firms utilizing technology 2 will shut down.
D) Firms utilizing technology 1 and firms utilizing technology 2 will shut down.
E) None of the above.

Question 48

The VCR manufacturing business is perfectly competitive.Suppose that currently, firms that manufacture VCRs utilize either technology 1 or technology 2,whose cost functions are TC1(Q) = 340 - 20Q + Q2
TC2(Q) = 405 - 30Q + Q2
In the long run, assuming no new manufacturing technologies,what will happen in this industry?

A) Firms utilizing technology 1 and firms utilizing technology 2 will stay in business.
B) Firms utilizing technology 1 will stay in business, but firms utilizing technology 2 will shut down.
C) Firms utilizing technology 1 will shut down, but firms utilizing technology 2 will stay in business.
D) Firms utilizing technology 1 and firms utilizing technology 2 will shut down.
E) None of the above.

Question 49

Not long ago, the Canadian edition of a famous textbook on principles of economics had a diagram depicting a U-shaped average fixed cost curve. This occasioned great mirth around the campfires of some economists in the Great White North and did much to shorten a long hard winter. Explain what is wrong with drawing a U-shaped average fixed cost curve.

Question 50

Hildegard, an intelligent and charming Holstein cow,grazes in a very large, mostly barren pasture with a few patches of lush grass. When she finds a new grassy area, the amount of grass she gets from it is equal to the square root of the number of hours, h, that she spends grazing there. Finding a new patch of grass on which to graze takes her 1 hour. Since Hildegard does not have pockets, the currency in which her costs are measured is time.
a. What is the total cost to Hildegard of finding a new plot of grass and getting y units of grass from it?
b. Find an expression for her marginal costs and her average cost per patch of grass as a function of the amount of grass she gets from each patch.
c. How much time would she spend in each plot if she wanted to maximize her food intake? (Hint: Minimize average costs per unit of grass eaten.)

Question 51

Florence's Restaurant estimates that its total costs of providing Q meals per month is given by TC = 8,000 +5Q. If Florence charges $9 per meal, what is its break even level of output?

A) 4,000 meals
B) 571.43 meals
C) 888.89 meals
D) 1,600 meals
E) 2,000 meals