Question 1

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was

Accepted Answer

Fixed costs = Total costs - Variable costs = $45,000 - $28,000 = $17,000. Average fixed cost = Fixed costs / Quantity = $17,000 / 7,000 = $2.43.

Question 2

Why would labor be treated as a variable cost?

Accepted Answer

Labor is considered a variable cost because as the production volume changes, the amount of labor required typically changes as well. For instance, producing more goods or services usually necessitates hiring more workers, hence increasing the labor cost.

Question 3

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

Accepted Answer

Variable costs vary with the level of output, while fixed costs remain constant regardless of output. The physical space for the gallery represents a fixed cost, as it does not change with the amount of art sold or displayed. Costs of purchasing artwork, wages for part-time employees, and accountant's fees for preparing tax returns can all vary depending on the level of business activity, making them variable costs.

Question 4

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

Accepted Answer

The marginal cost curve is typically upward-sloping due to the principle of diminishing marginal returns, which states that as more units of a good are produced, the cost of producing an additional unit increases.

Question 5

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

Accepted Answer

The total cost is $40,000, and the variable cost is $24,000. The fixed cost is $40,000 - $24,000 = $16,000. The average fixed cost per pizza is $16,000 / 8,000 = $2.00.

Question 6

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?

Accepted Answer

Variable costs are those that vary directly with the level of production, such as costs related to labor and physical inputs. Research and development costs, however, do not typically vary directly with the quantity produced and are therefore not considered variable costs.

Question 7

-The graph above illustrates the total cost function for GoodieCookie Co. The changing slope of the total cost curve reflects this company's

Accepted Answer

A changing slope in the total cost curve typically indicates changes in marginal costs. If the slope is decreasing, it suggests that marginal costs are decreasing, meaning the cost of producing one more unit is getting lower as production increases. This is because the slope of the total cost curve represents the marginal cost at any given level of output. Fixed costs do not change with the level of output and thus do not affect the slope of the total cost curve. Average total costs and average variable costs are not directly related to the slope of the total cost curve in the same way that marginal costs are.

Question 8

The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct?

Accepted Answer

The answer of The table below sets out cost information...

Question 9

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

Accepted Answer

Dividing total costs into fixed costs, which can't be changed in the short run, and variable costs, which can be, provides a clear understanding of how costs behave and how they are influenced by production levels. Fixed costs remain constant regardless of output, while variable costs change with the level of production. This distinction is crucial for short-term financial planning and decision-making.

Question 10

-Refer to the graph shown above. Based on the information illustrated in the graph, which of the following is correct?

Accepted Answer

The answer of 
-Refer to the graph shown above. Based...

Question 11

-The graph above illustrates the total cost function for GoodieCookie Co. How are the company's fixed costs represented in this graph?

Accepted Answer

Fixed costs are represented as the point where the total cost curve touches the vertical axis, indicating the costs incurred by the company even when the production level is zero.

Question 12

Mindy's company manufactures rubber balls used by elementary schools for playground activities. The table below sets out her firm's production cost information. Some values are missing. Which of the following statements is correct?

Accepted Answer

The answer of Mindy's company manufactures rubber balls used by...

Question 13

Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?

Accepted Answer

The answer of Which of the following falls outside of...

Question 14

Refer to the table below.

If the firm sells 5 units at a price of $30 each, then the marginal unit produced

Accepted Answer

The answer of Refer to the table below.

If the firm...

Question 15

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was

Accepted Answer

The answer of I'MaGadgetCo. produces and sells widgets. Last year,...

Question 16

Refer to the table below.

If this information were used to create a total cost graph, the curve should

Accepted Answer

The answer of Refer to the table below.

If this information...

Question 17

Refer to the table below.

If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal?

Accepted Answer

The answer of Refer to the table below.

If the firm...

Question 18

Refer to the table below.

If the firm produces 5 units that it sells for $39.00 each, what will its profits or losses equal?

Accepted Answer

The answer of Refer to the table below.

If the firm...

Question 19

-Refer to the diagram above. Based on the information illustrated in the graph, which of the following is correct?

Accepted Answer

The transition point where the Marginal Cost (MC) curve intersects the Average Cost (AC) curve always occurs at the minimum point of the AC curve. This is because when MC is below AC, it pulls the AC down, and when MC is above AC, it pushes the AC up. The point of intersection, therefore, represents the minimum AC.

Question 20

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

Accepted Answer

Variable costs are directly tied to production levels, so if production stops, these costs (like raw materials and labor) drop to zero. Fixed costs, such as rent and salaries, continue regardless of production levels.

Quiz 7: Cost and Industry Structure

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was

Why would labor be treated as a variable cost?

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

The marginal cost curve is generally , because diminishing marginal returns implies that additional units are __________.

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?

-The graph above illustrates the total cost function for GoodieCookie Co. The changing slope of the total cost curve reflects this company's

The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct?

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

-Refer to the graph shown above. Based on the information illustrated in the graph, which of the following is correct?

-The graph above illustrates the total cost function for GoodieCookie Co. How are the company's fixed costs represented in this graph?

Mindy's company manufactures rubber balls used by elementary schools for playground activities. The table below sets out her firm's production cost information. Some values are missing. Which of the following statements is correct?

Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?

Refer to the table below. If the firm sells 5 units at a price of $30 each, then the marginal unit produced

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was

Refer to the table below. If this information were used to create a total cost graph, the curve should

Refer to the table below. If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal?

Refer to the table below. If the firm produces 5 units that it sells for $39.00 each, what will its profits or losses equal?

-Refer to the diagram above. Based on the information illustrated in the graph, which of the following is correct?

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?