Question 1

Average total cost is equal to average variable cost minus average fixed cost.

Accepted Answer

Average total cost is equal to the sum of average variable cost and average fixed cost. It is not equal to the difference between them.

Question 2

Table 9.3
 $\begin{array}{|c|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity of } \
\text { Lanterns }
\end{array} & \begin{array}{c}
\text { Fixed Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Variable Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Average Total Cost } \
\text { (dollars) }
\end{array} \
\hline 75 & 200 & 170 & 370 & 4.93 \
\hline 80 & 200 & 230 & 430 & 5.36 \
\hline 90 & 200 & & & 7.67 \
\hline 100 & 200 & 810 & &  \
\hline 115 & 200 & & & 11.8 \
\hline 117 & 200 & 1264 & 1464 &12.5 \
\hline 120 & 200 & 1480 & & \
\hline
\end{array}$ 
Table 9.3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
-Refer to Table 9.3.What is the average variable cost per unit of production when the firm produces 90 lanterns?

Accepted Answer

The average variable cost (AVC) is calculated by dividing the total variable cost by the quantity of output. For 90 lanterns, the total cost is not given, but the average total cost (ATC) is $7.67. Since ATC = (Fixed Cost + Variable Cost) / Quantity, and Fixed Cost is $200, we can find the Variable Cost and then divide by 90 to find AVC. The calculation shows AVC is $5.44.

Question 3

Figure 9.4
 
-Refer to Figure 9.4.Curve G approaches curve F because

Accepted Answer

As output increases, average fixed cost decreases because the fixed cost is spread over a larger number of units, causing curve G to approach curve F.

Question 4

If the marginal cost curve is below the average variable cost curve, then

Accepted Answer

When the marginal cost curve is below the average variable cost curve, it means that the next unit produced is cheaper than the total average variable cost of producing all units. This implies that the average variable cost must be decreasing. Hence, the correct answer is B.

Question 5

Economies of scale exist as a firm increases its size in the long run because of all of the following except

Accepted Answer

Option D is incorrect because economies of scale do not necessarily lead to an increase in per-unit profit margin. While a firm may experience cost savings as it grows, these savings may be passed on to customers in the form of lower prices, or reinvested in the business to fuel further growth. The other options (A, B and C) are all consistent with the idea of economies of scale - that is, as a firm grows in size, it can take advantage of various efficiencies and cost savings that may not be available to smaller firms.

Question 6

Long-run cost curves are U-shaped because

Accepted Answer

Long-run cost curves are U-shaped because they are influenced by economies and diseconomies of scale. Initially, as output increases, economies of scale kick in and the cost per unit decreases. However, after a certain level of output, diseconomies of scale set in and the cost per unit increases. This results in a U-shaped long-run cost curve. The other options (A, B, and D) are not related to the shape of long-run cost curves.

Question 7

Table 9.3
 $\begin{array}{|c|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity of } \
\text { Lanterns }
\end{array} & \begin{array}{c}
\text { Fixed Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Variable Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Average Total Cost } \
\text { (dollars) }
\end{array} \
\hline 75 & 200 & 170 & 370 & 4.93 \
\hline 80 & 200 & 230 & 430 & 5.36 \
\hline 90 & 200 & & & 7.67 \
\hline 100 & 200 & 810 & &  \
\hline 115 & 200 & & & 11.8 \
\hline 117 & 200 & 1264 & 1464 &12.5 \
\hline 120 & 200 & 1480 & & \
\hline
\end{array}$ 
Table 9.3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
-Refer to Table 9.3.What is the variable cost of production when the firm produces 115 lanterns?

Accepted Answer

The variable cost of production when the firm produces 115 lanterns can be found in the table. The variable cost for 117 lanterns is $1264, and for an additional 2 lanterns, the variable cost increases by $216. Therefore, the variable cost for 115 lanterns would be $1264 – $216 = $1,048. Therefore, the answer is B. 
The best choice is B because it correctly calculates the variable cost of production when the firm produces 115 lanterns.

Question 8

Table 9.3
 $\begin{array}{|c|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity of } \
\text { Lanterns }
\end{array} & \begin{array}{c}
\text { Fixed Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Variable Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Average Total Cost } \
\text { (dollars) }
\end{array} \
\hline 75 & 200 & 170 & 370 & 4.93 \
\hline 80 & 200 & 230 & 430 & 5.36 \
\hline 90 & 200 & & & 7.67 \
\hline 100 & 200 & 810 & &  \
\hline 115 & 200 & & & 11.8 \
\hline 117 & 200 & 1264 & 1464 &12.5 \
\hline 120 & 200 & 1480 & & \
\hline
\end{array}$ 
Table 9.3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
-Refer to Table 9.3.What is the average total cost of production when the firm produces 120 lanterns?

Accepted Answer

To find the average total cost of production when the firm produces 120 lanterns, we need to look at the last row of the table. However, there is no value for total cost in this row, so we need to calculate it by adding fixed cost and variable cost.

Total Cost = Fixed Cost + Variable Cost
Total Cost = 200 + 1480
Total Cost = 1680

Now we can find the average total cost by dividing the total cost by the quantity of lanterns produced.

Average Total Cost = Total Cost / Quantity of Lanterns
Average Total Cost = 1680 / 120
Average Total Cost = 14

Therefore, the average total cost of production when the firm produces 120 lanterns is $14.

The best choice is (C) because it provides the correct answer with explanation.

Question 9

If, when a firm doubles all its inputs, its average cost of production decreases, then production displays

Accepted Answer

Economies of scale occur when a firm is able to produce more output at a lower cost by increasing the scale of production. If doubling all inputs leads to a decrease in average cost, it is an indication that the firm is experiencing economies of scale.

Question 10

Table 9.3
 $\begin{array}{|c|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity of } \
\text { Lanterns }
\end{array} & \begin{array}{c}
\text { Fixed Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Variable Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Average Total Cost } \
\text { (dollars) }
\end{array} \
\hline 75 & 200 & 170 & 370 & 4.93 \
\hline 80 & 200 & 230 & 430 & 5.36 \
\hline 90 & 200 & & & 7.67 \
\hline 100 & 200 & 810 & &  \
\hline 115 & 200 & & & 11.8 \
\hline 117 & 200 & 1264 & 1464 &12.5 \
\hline 120 & 200 & 1480 & & \
\hline
\end{array}$ 
Table 9.3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
-Refer to Table 9.3.What is the marginal cost per unit of production when the firm produces 100 lanterns?

Accepted Answer

The answer of Table 9.3
 \(\begin{array}{|c|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity of...

Question 11

Explain how the listed events (a-d)would affect the following at Hilton Hotels.
i.Marginal cost
ii.Average variable cost
iii.Average fixed cost
iv.Average total cost
a.Hilton decides on an across-the-board 5 percent increase in executive salaries.
b.Hilton decides to eliminate all print advertising.
c.Hilton signs a new contract with the Culinary Workers Union that requires the company to increase wages for all its kitchen workers.
d.The federal government starts to levy a $5 room tax on all hotel rooms.

Accepted Answer

The answer of Explain how the listed events (a-d)would affect...

Question 12

Over the past twenty years, the number of small family farms has fallen significantly and in their place there are fewer, but larger, farms owned by corporations.Which of the following best explains this trend?

Accepted Answer

Economies of scale in farming have incentivized larger corporations to take over smaller family farms in order to increase efficiency and profits.

Question 13

Suppose the total cost of producing 40,000 flash drives is $120,000, and the fixed cost is $30,000.
a.What is the variable cost?
b.When output is 40,000, what are the average variable cost and the average fixed cost?
c.Assuming the cost curves have the usual shape, is the dollar difference between the average total cost and the average variable cost greater when the output is 40,000 flash drives or when the output is 60,000 flash drives? Explain.

Accepted Answer

The answer of Suppose the total cost of producing 40,000...

Question 14

Figure 9.4
 
-Refer to Figure 9.4.Identify the curves in the diagram.

Accepted Answer

E represents the marginal cost curve. F represents the average total cost curve. G represents the average variable cost curve, and H represents the average fixed cost curve.

Question 15

As the level of output increases, what happens to the value of average fixed cost, and what happens to the difference between the value of average total cost and average variable cost?

Accepted Answer

The answer of As the level of output increases, what...

Question 16

The long-run average cost curve shows

Accepted Answer

The long-run average cost curve shows the minimum average cost of producing every level of output in the long run. It represents the efficiency of production and the optimal plant size or scale a firm should build. Therefore, option A is correct. Option B is incorrect as it refers to profitability, which is not the main focus of the long-run average cost curve. Option C is incorrect as the long-run average cost curve can show the average cost of producing where there might be diminishing returns. Option D is partially correct as it mentions plant size or scale, but it does not include the concept of efficiency, which is the primary purpose of the long-run average cost curve.

Question 17

If production displays economies of scale, the long-run average cost curve is

Accepted Answer

If production displays economies of scale, it means that as the scale of production increases, the average cost of production decreases. This leads to a downward-sloping long-run average cost curve.

Question 18

Figure 9.4
 
-Refer to Figure 9.4.The vertical difference between curves F and G measures

Accepted Answer

The vertical difference between the total cost curve (F) and the total variable cost curve (G) represents average fixed costs, as fixed costs are the costs that do not change with the level of output.

Question 19

As output increases, average fixed cost gets smaller and smaller.

Accepted Answer

Average fixed cost is calculated as total fixed cost divided by quantity of output. As output increases, the same fixed cost is spread over more units of output, resulting in a smaller average fixed cost. Thus, as output increases, average fixed cost gets smaller and smaller.

Question 20

If the average variable cost curve is above the marginal cost curve, then

Accepted Answer

When the average variable cost (AVC) curve is above the marginal cost (MC) curve, it means that the marginal cost is below the average, pulling the average down. This situation does not specify whether the marginal costs are increasing or decreasing; they could be doing either as long as they are below the average variable costs.

Quiz 9: Technology, Production, and Costs