Question 1

If there are no fixed costs and variable costs are constant at $1.00 per unit over the relevant range of output,what will the average total cost be after 1 unit of output is produced?
A)$0
B)$1
C)$1.50
D)$2

Accepted Answer

Since there are no fixed costs, the total cost will only consist of the variable cost which is constant at $1.00 per unit. Therefore, after 1 unit of output is produced, the average total cost will be equal to the total cost which is $1.00. Thus, the best choice is (B).

Question 2

Total fixed cost is the same regardless of:
A)how many new machines a firm purchases.
B)how many facilities a firm shuts down.
C)how much new capital a firm rents.
D)how much output the firm produces.

Accepted Answer

Total fixed cost is independent of the level of output produced. It remains constant regardless of the level of production. Therefore, the total fixed cost remains the same even if the firm increases or decreases its output levels, rents more capital or shuts down some facilities.

Question 3

Which of the following most completely describes the cost to a firm associated with the use of its resources in a particular way?
A)Its monetary outlay for inputs
B)Its explicit cost
C)The implicit cost of not renting its own resources
D)The opportunity cost of its resources

Accepted Answer

The opportunity cost of a firm's resources is the cost of the next best alternative use of those resources. It takes into account both explicit costs (monetary outlay for inputs) and implicit costs (such as the cost of not renting out the firm's own resources) and provides a more complete picture of the true cost of resource use for the firm.

Question 4

If total fixed costs are $1,000,variable costs are constant at $5.00 per unit over the relevant range of output and average total cost is $6,what is total variable cost?
A)$100
B)$1,000
C)$5,000
D)$6,000

Accepted Answer

The answer of If total fixed costs are $1,000,variable costs...

Question 5

The monetary cost of the space a restaurant rents to produce meals can be categorized as a:
A)variable cost.
B)marginal cost.
C)fixed cost.
D)opportunity cost.

Accepted Answer

The monetary cost of the space rented by a restaurant is a fixed cost because it does not change with the amount of output produced.

Question 6

Jane Doe has her own law practice.She pays $1,500 in rent for her offices per month.She also pays $4,000 a month in salaries to secretaries and staff,utility bills worth $500 a month,and miscellaneous bills worth $1,000 a month.She recently received an offer to work for a legal firm for $8,000 a month,but she declined that in order to run her own practice.Which of the following most completely describes the cost Jane incurs per month to run her own practice?
A)$15,000
B)$7,000
C)$5,500
D)$6,000

Accepted Answer

The answer of Jane Doe has her own law practice.She...

Question 7

Marico Corp.can manufacture 45,000 ball bearings per day at one of its production facilities.If the company uses the same facility for manufacturing rivets,a total of 30,000 rivets can be produced each day.Calculate Marico Corp.'s implicit cost per day of producing rivets at this facility.
A)The monetary value of 45,000 ball bearings
B)The monetary value of 30,000 rivets
C)The monetary value of 15,000 ball bearings
D)The monetary value of 15,000 rivets

Accepted Answer

The implicit cost of producing rivets is the opportunity cost of not producing ball bearings, which is the monetary value of the 45,000 ball bearings that could have been produced instead.

Question 8

If fixed costs are $1,000 and variable costs are constant at $1.00 per unit over the relevant range of output,what will the average total cost be when 2,000 units are produced?
A)$0.50
B)$1.00
C)$1.50
D)$2.00

Accepted Answer

Total cost = Fixed cost + Variable cost
Variable cost per unit = $1.00
Number of units produced = 2,000
Variable cost = $1.00 x 2,000 = $2,000
Total cost = $1,000 + $2,000 = $3,000
Average total cost = Total cost / Number of units produced
Average total cost = $3,000 / 2,000 = $1.50

Question 9

Which of the following can be classified as an implicit cost of production?
A)The cost of raw materials
B)Rent forgone on the office building
C)Interest paid on debt
D)Salary paid to workers

Accepted Answer

Implicit costs are the opportunity costs of using self-owned resources in production; rent forgone on the office building is an example of an implicit cost as it represents the opportunity cost of using owned property for the business instead of renting it out.  The cost of raw materials, interest paid on debt, and salary paid to workers are all explicit costs as they involve actual expenditure of money or resources.

Question 10

A firm's costs are determined by:
A)its production function.
B)the market price of its product.
C)the market demand curve.
D)its production possibility frontier.

Accepted Answer

A firm's costs are determined by its production function, which describes the relationship between inputs (such as labor and capital) and outputs (such as goods and services). The production function affects the firm's total cost and marginal cost, which in turn affect the firm's pricing decisions and profitability. The market price of the product and market demand curve may influence the firm's revenue and sales, but they do not directly determine its costs. The production possibility frontier is a graphical representation of the trade-offs between different production options, and does not directly determine the firm's costs either.

Question 11

Suppose you quit your job as an accountant earning an annual salary of $50,000 to buy foreclosed homes,fix them up,and then resell them.You have $200,000 of your own money to invest in this,half of which you use to purchase three homes for a combined $500,000 (borrowing the remaining $400,000),and spend the remaining $100,000 of your money on materials.Over the course of one year you fix up all three homes and resell them for a total of $700,000.Assume that your loan to purchase the homes is payable in one lump sum at the end of one year.If you can borrow and lend money at a 6% annual rate of interest,what was your total cost of renovating these three homes?
A)$572,000
B)$600,000
C)$624,000
D)$686,000

Accepted Answer

The answer of Suppose you quit your job as an...

Question 12

If total fixed costs are $1,000,variable costs are constant at $5.00 per unit over the relevant range of output and the average total cost is $6,how many units are being produced?
A)10
B)100
C)1,000
D)1,100

Accepted Answer

The answer of If total fixed costs are $1,000,variable costs...

Question 13

If fixed costs are $10,000 and variable costs are constant at $1.00 per unit over the relevant range of output,what will the average total cost be when 10,000 units are produced?
A)$0.20
B)$2.00
C)$5.00
D)$1.00

Accepted Answer

Average total cost (ATC) = (Total fixed cost + Total variable cost) / Quantity
When producing 10,000 units: 
Total variable cost = 10,000 x $1.00 = $10,000 
Total fixed cost = $10,000 
Quantity = 10,000 units 
ATC = ($10,000 + $10,000) / 10,000 = $2.00

Question 14

A firm's production cost equaling the opportunity cost of its resources reflects the fact that:
A)resources are best-suited to producing one particular good.
B)firms typically make one primary product.
C)resources can be used to make many different products.
D)firms often make more than one product.

Accepted Answer

If a firm's production cost equals the opportunity cost of its resources, it means that the firm is using its resources in the most efficient way possible. Since resources can be used to make many different products, this means that the firm is using them to produce the most valuable product based on the market demand and the cost of producing other goods with those resources. This also implies that the firm is not wasting any of its resources by inefficiently using them to produce goods that would result in a lower value.

Question 15

Suppose a builder constructs a house that he hopes to sell to a prospective future buyer before he finishes building it.After spending six months and $300,000 in acquiring the land and constructing the house,market conditions change and the builder fails to find a buyer willing to pay his asking price of $360,000.The builder further realizes that by investing $300,000 in a bank deposit he would have been able to earn $4,500 as interest.Which of the following is the economically efficient way for the builder to view his investment?
A)The $300,000 is a sunk cost and should be ignored when negotiating a price for the home.
B)The $300,000 is the builder's opportunity cost and he should not accept any offer below that.
C)He should advertise more heavily in an attempt to sell the home for at least $300,000.
D)He should raise the price even further to better reflect the additional opportunity costs of his time and capital expenditures.

Accepted Answer

The $300,000 cost is a sunk cost, which means it has already been incurred and cannot be recovered. It should not be factored into negotiations for the sale price of the home. The builder should focus on finding a price that reflects the current market conditions and the value of the finished home. Investing the money in a bank deposit and earning interest is not relevant to the decision on selling the home.

Question 16

Ben decides to expand his ice cream store so he can begin selling sub sandwiches.He spends $20,000 in preparing his new sandwich shop.His marginal cost of selling sub sandwiches is $3 and he estimates that he can sell 10,000 subs for $6 each.He soon learns of a nearby store that is now selling identical subs for $3.50 each.Ben should:
A)quit selling subs since his average total cost of selling subs is greater than the $3.50 price he would now have to charge.
B)sell subs for $3.50 each,considering the $20,000 to be a sunk cost and ignoring it.
C)sell subs as long the price he receives exceeds his average fixed costs of selling subs.
D)lower his price to $5 to cover his average total cost of selling subs.

Accepted Answer

Ben should consider the $20,000 as a sunk cost, which means it's a cost that has already been incurred and cannot be recovered. Therefore, when making decisions about pricing and whether to continue selling subs, he should ignore this cost. The key is to look at the marginal cost of producing the subs ($3) and the price he can sell them for ($3.50). As long as the price exceeds the marginal cost, Ben can cover his variable costs and contribute to covering any fixed costs, even if those fixed costs are sunk.

Question 17

If total fixed costs are $1,000,variable costs are constant at $5.00 per unit over the relevant range of output and average total cost is $6,what is average fixed cost?
A)$1
B)$5
C)$10
D)$1,000

Accepted Answer

Average total cost (ATC) = Total cost (TC) / Quantity (Q)

Given, TC = Total fixed cost (TFC) + Total variable cost (TVC)

Since TFC = $1,000 and TVC = $5.00 per unit * Q, we can rewrite the equation as:

ATC = ($1,000 + $5Q) / Q

We are also given that ATC = $6.00.

Substituting $6.00 for ATC in the equation, we can solve for Q:

$6.00 = ($1,000 + $5Q) / Q

$6.00Q = $1,000 + $5Q

$1.00Q = $1,000

Q = 1,000 units

Now, we can calculate average fixed cost (AFC):

AFC = TFC / Q

AFC = $1,000 / 1,000 units

AFC = $1.00

Therefore, the best choice is A) $1.

Question 18

Identify the example of sunk cost from the following.
A)A higher wage demanded by the labor union
B)Failure to meet the annual sales target
C)The lumber used to produce office furniture
D)Raw materials damaged by fire in the warehouse

Accepted Answer

The answer of Identify the example of sunk cost from...

Question 19

Which of the following is correct?
A)Total Fixed Cost = Total Cost + Total Variable Cost
B)Total Cost = Total Variable Cost + Marginal Cost
C)Average Fixed Cost = Average Total Cost - Average Variable Cost
D)Average Total Cost = Marginal Cost + Average Fixed Cost

Accepted Answer

Option A is incorrect because Total Fixed Cost is only a part of Total Cost and Total Variable Cost. Option B is incorrect because Total Cost consists of both fixed and variable costs and is not equal to Total Variable Cost + Marginal Cost. Option D is incorrect because Marginal Cost is a part of Average Variable Cost and Average Total Cost is the sum of Average Fixed Cost and Average Variable Cost. Option C is correct because Average Fixed Cost is calculated by subtracting Average Variable Cost from Average Total Cost.

Question 20

If there are no fixed costs and variable costs are constant at $1.00 per unit over the relevant range of output,what is marginal cost when 1 unit of output is produced?
A)$0
B)$0.50
C)$1
D)$2

Accepted Answer

When there are no fixed costs and variable costs are constant, marginal cost is equal to the variable cost per unit, which in this case is $1.00. Therefore, the marginal cost of producing 1 unit of output is $1.00. Option C is the correct choice.

Quiz 8: The Cost of Production

If there are no fixed costs and variable costs are constant at $1.00 per unit over the relevant range of output,what will the average total cost be after 1 unit of output is produced?

Total fixed cost is the same regardless of:

Which of the following most completely describes the cost to a firm associated with the use of its resources in a particular way?

If total fixed costs are $1,000,variable costs are constant at $5.00 per unit over the relevant range of output and average total cost is $6,what is total variable cost?

The monetary cost of the space a restaurant rents to produce meals can be categorized as a:

Marico Corp.can manufacture 45,000 ball bearings per day at one of its production facilities.If the company uses the same facility for manufacturing rivets,a total of 30,000 rivets can be produced each day.Calculate Marico Corp.'s implicit cost per day of producing rivets at this facility.

If fixed costs are $1,000 and variable costs are constant at $1.00 per unit over the relevant range of output,what will the average total cost be when 2,000 units are produced?

Which of the following can be classified as an implicit cost of production?

A firm's costs are determined by:

If total fixed costs are $1,000,variable costs are constant at $5.00 per unit over the relevant range of output and the average total cost is $6,how many units are being produced?

If fixed costs are $10,000 and variable costs are constant at $1.00 per unit over the relevant range of output,what will the average total cost be when 10,000 units are produced?

A firm's production cost equaling the opportunity cost of its resources reflects the fact that:

If total fixed costs are $1,000,variable costs are constant at $5.00 per unit over the relevant range of output and average total cost is $6,what is average fixed cost?

Identify the example of sunk cost from the following.

Which of the following is correct?

If there are no fixed costs and variable costs are constant at $1.00 per unit over the relevant range of output,what is marginal cost when 1 unit of output is produced?