Question 1

Table 5.5
-Refer to Table 5.5. The total variable cost of producing five units of output is

Accepted Answer

The total variable cost for producing five units of output is the sum of the variable costs for each unit up to the fifth unit. Without the specific values from Table 5.5, the correct answer cannot be determined from the information provided. However, based on the options given and assuming B) $43 is marked as the correct answer, it suggests that when adding the variable costs for producing one through five units, the total comes to $43. This is a typical calculation in economics to understand how costs accumulate as production increases.

Question 2

When does a firm's average variable cost exceed the average total cost?

Accepted Answer

Average variable cost can never exceed average total cost because average total cost includes average variable cost plus average fixed cost.

Question 3

The effect of diminishing marginal returns outweighing the effect of spreading out the fixed costs is illustrated by the ________ average cost curve ________.

Accepted Answer

The effect of diminishing marginal returns outweighing the effect of spreading out fixed costs is illustrated by the short-run average cost curve increasing. This is because, in the short run, there are fixed inputs, and as production increases, the benefits of spreading out fixed costs are eventually outweighed by the increasing costs of using variable inputs more intensively, leading to diminishing marginal returns.

Question 4

Table 5.5
-Refer to Table 5.5. The firm experiences diminishing returns beginning with the ________ unit.

Accepted Answer

The answer of  Table 5.5
-Refer to Table 5.5. The...

Question 5

Average fixed costs in the short run

Accepted Answer

Average fixed costs decrease as the quantity produced increases because fixed costs are spread over a larger number of units, reducing the cost per unit.

Question 6

Table 5.5
-Refer to Table 5.5. The marginal cost of the third unit of output is

Accepted Answer

The marginal cost of producing an additional unit of output is the change in total cost that comes from producing one more unit. To find the marginal cost of the third unit, you subtract the total cost of producing two units from the total cost of producing three units.

Question 7

Suppose that your firm's marginal cost of producing a pencil is 5 cents and the average cost of producing a pencil is 3 cents. If your firm is interested in minimizing average total costs, what should your firm do?

Accepted Answer

In order to minimize average total costs, the firm should decrease production. This is because average total cost is calculated by dividing total cost by the quantity produced. As the quantity produced decreases, the fixed costs are spread over a lesser number of pencils, leading to a higher average cost. However, the marginal cost of producing a pencil is still lower than the average cost, so as long as the firm produces at least one more pencil, its total costs will be reduced. Therefore, the firm should produce at the level where marginal cost equals average total cost, which is at a quantity less than the current level of production.

Question 8

Table 5.5
-Refer to Table 5.5. The total fixed cost of producing two units is

Accepted Answer

The answer of  Table 5.5
-Refer to Table 5.5. The...

Question 9

Average variable costs are minimized when

Accepted Answer

Average variable costs represent the variable costs per unit of output, and marginal cost represents the additional cost of producing one extra unit. As output increases, the average variable costs initially decrease due to economies of scale, but eventually start increasing due to diseconomies of scale. At the point where marginal cost equals average variable cost (MC=AVC), the average variable costs are minimized. Therefore, the correct answer is D: marginal cost equals average variable cost.

Question 10

The effect of spreading out the fixed costs outweighing the effect of diminishing returns is illustrated by the ________ average cost curve ________.

Accepted Answer

The answer of The effect of spreading out the fixed...

Question 11

Suppose that your firm's marginal cost of producing a pencil is 5 cents and the average cost of producing a pencil is 7 cents. If your firm is interested in minimizing average total costs, what should your firm do?

Accepted Answer

When marginal cost is below average cost, increasing production will lower the average cost until it equals the marginal cost, thus minimizing average total costs.

Question 12

The marginal cost curve intersects the short-run average total cost curve where

Accepted Answer

The intersection of the marginal cost curve and the short-run average total cost curve occurs at the minimum point of the average total cost curve. This is where the firm is producing at the most efficient point in the short run, which minimizes the average total cost. Therefore, the correct choice is C, where average total costs are minimized in the short run.

Question 13

If the marginal cost of producing the next unit of output exceeds the average total cost, then

Accepted Answer

If the marginal cost of producing the next unit of output exceeds the average total cost, it means that the average total cost is increasing. This is because the marginal cost is the cost of producing an additional unit, which may be higher due to diminishing returns. As a result, the average total cost curve will be pulled upward.

Question 14

If the marginal cost of producing the next unit of output is less than the average total cost, then

Accepted Answer

If the marginal cost of producing the next unit of output is less than the average total cost, it means that the average total cost curve is decreasing. This is because the marginal cost is contributing less to the overall cost compared to the previous units produced, leading to a decrease in the average total cost.

Question 15

Suppose you know that at the current level of production average total cost equals marginal cost, then you know that it is also TRUE that

Accepted Answer

If average total cost equals marginal cost, then the firm is producing at the minimum efficient scale and therefore producing at the point where average total cost is minimized. Therefore, choice D is the correct answer. Choices A and B have no relation to the given information, and choice C is false since increasing production beyond the minimum efficient scale will lead to an increase in average total cost.

Question 16

Table 5.5
-Refer to Table 5.5. The average variable cost of producing five units of output is

Accepted Answer

The average variable cost (AVC) is calculated by dividing the total variable cost (TVC) by the quantity of output produced. Without the specific details from Table 5.5, we can't calculate the exact figure. However, if the correct answer is provided as B) $8.60, it means that for producing five units, the total variable cost divided by 5 units equals $8.60. This indicates that the total variable costs for producing those five units must be $43 ($8.60 * 5).

Question 17

The short-run average total cost curve is U-shaped because average fixed costs ________ and average variable costs ________ eventually as quantity produced increases.

Accepted Answer

The U-shape of the short-run ATC curve is due to the fact that AFC decreases as output increases (because it gets spread over more units of output), while AVC eventually increases due to the law of diminishing marginal returns. Therefore, the overall shape is a result of the combination of these two opposing tendencies.

Question 18

You observe that at your current production of lunch boxes, the average total cost of producing lunch boxes is $5 and the marginal cost of producing lunch boxes is $2. What should always happen if you increase lunch box production?

Accepted Answer

When the marginal cost of producing an additional unit is less than the average total cost, increasing production will decrease the average total cost. This is because the lower cost of the additional units brings down the overall average cost.

Question 19

Average total costs are minimized when

Accepted Answer

When marginal cost equals average total cost, the average total cost curve is at its minimum. This is because if marginal cost is below average total cost, it will pull the average down, and if marginal cost is above average total cost, it will push the average up. Therefore, minimizing average total cost requires that marginal cost is equal to average total cost.

Question 20

You observe that at your current production of rutabaga, the average total cost of producing rutabaga is $1 and the marginal cost of producing rutabaga is $2. What should always happen if you increase rutabaga production?

Accepted Answer

When the marginal cost of producing an additional unit (in this case, $2) is higher than the current average total cost ($1), increasing production will raise the average total cost. This is because the new, higher marginal cost pulls the average cost up.

Quiz 5: Production Technology and Cost

Table 5.5 -Refer to Table 5.5. The total variable cost of producing five units of output is

When does a firm's average variable cost exceed the average total cost?

The effect of diminishing marginal returns outweighing the effect of spreading out the fixed costs is illustrated by the average cost curve .

Table 5.5 -Refer to Table 5.5. The firm experiences diminishing returns beginning with the ________ unit.

Average fixed costs in the short run

Table 5.5 -Refer to Table 5.5. The marginal cost of the third unit of output is