Question 1

The Lawn Ranger, a landscaping company, has total costs of $5,000 and total fixed costs of $3,000. The Lawn Ranger's total variable costs are
A) $2,000.
B) $3,000.
C) $5,000.
D) indeterminate because the firm's output level is not known.

Accepted Answer

Total variable costs are calculated by subtracting total fixed costs from total costs, which is $5,000 - $3,000 = $2,000.

Question 2

Economists usually assume that ________ is a fixed input in the ________ run.
A) labor; short
B) capital; short
C) labor; long
D) capital; long

Accepted Answer

In the short run, economists typically assume that capital (such as machinery, buildings, and other durable equipment) is a fixed input, meaning its quantity cannot be easily changed. Labor, on the other hand, is considered a variable input that can be adjusted more readily.

Question 3

Firms have ________ over their ________ costs in the short run.
A) control; fixed
B) no control; fixed
C) control; overhead
D) no control; variable

Accepted Answer

In the short run, firms have no control over their fixed costs, as these costs do not change with the level of output produced. Fixed costs, such as rent or salaries, must be paid regardless of the firm's level of production.

Question 4

The formula for total fixed cost is
A) TFC = TC + TVC.
B) TFC = TVC -TC.
C) TFC = TC/TVC.
D) TFC = TC -TVC.

Accepted Answer

Total fixed cost (TFC) is the sum of all the expenses that remain constant regardless of changes in production or sales volume. It includes expenses like rent, property taxes, salaries of permanent staff, insurance, etc. The formula for TFC is TFC = TC - TVC, where TC is total cost and TVC is total variable cost. This is because total cost is the sum of fixed cost and variable cost, and variable cost varies with the level of production, while fixed cost remains constant. Therefore, subtracting TVC from TC gives us TFC.

Question 5

The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are
A) $0.
B) $3,000.
C) $5,000.
D) indeterminate because the firm's output level is not known.

Accepted Answer

The total fixed costs can be found by subtracting the total variable costs from the total costs: 
Total fixed costs = Total costs - Total variable costs
Total fixed costs = $4,000 - $1,000
Total fixed costs = $3,000

Question 6

Total cost is calculated as
A) the sum of total fixed cost and total variable cost.
B) the product of average total cost and price.
C) the sum of all the firm's explicit costs.
D) the sum of average fixed cost and average variable cost.

Accepted Answer

Total cost is composed of both fixed costs (costs that do not vary with output) and variable costs (costs that do vary with output). Therefore, the sum of total fixed cost and total variable cost provides the best calculation for total cost.

Question 7

Refer to the information provided in Figure 8.2 below to answer the question(s) that follow.  Figure 8.2
-Refer to Figure 8.2 above. The total fixed costs for The Barber Shop are $3,000. If The Barber Shop produces 300 haircuts, the average fixed costs are
A) $0.20.
B) $5.
C) $10.
D) $100.

Accepted Answer

Average fixed costs = Total fixed costs ÷ Quantity produced
= $3,000 ÷ 300 haircuts
= $10 per haircut.

Question 8

Amy spends $5,000 on remodeling a storefront that she then opens as a take-out deli. Business has not been very successful, and she needs an additional $1,000 to keep the deli open. Which of the following is true?
A) The $5,000 Amy spent on remodeling represents a part of the total variable cost of her business.
B) The $5,000 Amy spent is a fixed cost of her business.
C) The $1,000 represents her marginal costs of production.
D) The $1,000 Amy needs to keep the deli open represents her total fixed costs.

Accepted Answer

The $5,000 spent on remodeling is a one-time cost and does not vary with the level of output, making it a fixed cost. The $1,000 needed to keep the deli open represents a variable cost, as it varies with the level of output and is needed to sustain ongoing operations. The term "marginal cost" refers to the additional cost incurred by producing one more unit of output, so it is not applicable in this scenario. Total fixed costs would include the initial $5,000 spent on remodeling as well as any ongoing fixed expenses such as rent or equipment leases.

Question 9

Which type of cost does depend on a firm's output?
A) variable cost
B) total cost
C) marginal cost
D) all of the above

Accepted Answer

Variable cost, total cost, and marginal cost all depend on a firm's output. Variable costs change with the level of output, total cost includes both fixed and variable costs and thus changes as output changes, and marginal cost is the cost of producing one more unit of a good, which also varies with the level of production.

Question 10

Which type of cost does not depend on a firm's output?
A) fixed cost
B) variable cost
C) total cost
D) marginal cost

Accepted Answer

Fixed costs are expenses that do not vary with the level of output, such as rent, property taxes, and salaries of top management. These costs remain constant regardless of whether the firm produces zero, some, or maximum output. In contrast, variable costs, total costs, and marginal costs all depend on the level of a firm's output.

Question 11

Refer to the information provided in Figure 8.2 below to answer the question(s) that follow.  Figure 8.2
-Refer to Figure 8.2 above. If The Barber Shop produces more than 300 hair cuts, the average fixed costs are
A) < $10.
B) $10.
C) > $10.
D) There is not enough information in the graph to answer this question.

Accepted Answer

Average fixed costs decrease as the quantity of output increases because the total fixed costs are spread over a larger number of units. Therefore, if The Barber Shop produces more than 300 haircuts, the average fixed cost per haircut would be less than $10.

Question 12

Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets?
A) $300
B) $305
C) $500
D) $800

Accepted Answer

The answer of Wilbur's Widgets, a widget company, produces 100...

Question 13

Total variable cost ________ as output increases, and total fixed cost ________ as output increases.
A) increases; increases
B) increases; decreases
C) increases; does not change
D) does not change; does not change

Accepted Answer

Total variable cost increases as output increases because variable costs depend on the level of production. Total fixed cost does not change as output increases because fixed costs are incurred regardless of the level of production.

Question 14

Refer to the information provided in Figure 8.1 below to answer the question(s) that follow.  Figure 8.1
-Refer to Figure 8.1 above. If Cyndyʹs Floral Arrangements produces 100 silk flower arrangements, the average fixed costs are
A) $0.10.
B) $10.
C) $1,000.
D) There is not enough information in the graph to answer this question.

Accepted Answer

Looking at the graph, at a quantity of 100, the average total cost intersects with the average variable cost at approximately $10. This means that the fixed cost would be $10 per 100 units.

Question 15

The formula for average fixed costs is
A) TFC - q.
B) TFC/q.
C) q/TFC.
D) Δq/ΔTFC.

Accepted Answer

The formula for average fixed cost is Total Fixed Cost (TFC) divided by quantity (q). Therefore, the correct choice is B.

Question 16

Average fixed costs
A) are the costs associated with producing an additional unit of output.
B) provide a per unit measure of costs.
C) fall as output rises.
D) reach their minimum at the output level where the average fixed cost curve is intersected by the marginal cost curve.

Accepted Answer

Average fixed costs represent the fixed costs per unit of output. As output increases, the fixed costs are spread over more units, causing the average fixed cost to decrease. However, they do not directly impact the cost of producing an additional unit of output (Answer A). Additionally, they do not provide a per unit measure of total costs, only fixed costs (Answer B). Finally, the minimum point of the average fixed cost curve does not correspond with the intersection of the marginal cost curve (Answer D).

Question 17

In the short run
A) existing firms do not face limits imposed by a fixed input.
B) all firms have costs that they must bear regardless of their output.
C) new firms can enter an industry.
D) existing firms can exit an industry.

Accepted Answer

In the short run, all firms have fixed costs that they must bear regardless of their output level, such as rent, salaries, and loan payments. These costs are incurred even if the firm produces nothing.

Question 18

The Farley Farm, a dairy company, has total costs of $15,000 and total variable costs of $2,000. The Farley Farm's total fixed costs are
A) $0.
B) $13,000.
C) $17,000.
D) indeterminate because the firm's output level is not known.

Accepted Answer

Total Costs = Fixed Costs + Variable Costs
$15,000 = Fixed Costs + $2,000
Fixed Costs = $15,000 - $2,000
Fixed Costs = $13,000

Question 19

Refer to the information provided in Figure 8.1 below to answer the question(s) that follow.  Figure 8.1
-Refer to Figure 8.1 above. The total fixed costs for Cyndy's Floral Arrangements are $1,000. If Cyndy's Floral Arrangements produces 200 silk flower arrangements, the average fixed costs are
A) $0.20.
B) $5.
C) $20.
D) $200.

Accepted Answer

The average fixed cost is calculated by dividing the total fixed costs by the number of units produced. So, $1,000 / 200 = $5.

Question 20

Dana spends $10,000 on remodeling a storefront that she then opens as a shoe store. The business has not been very successful, and she needs an additional $3,000 to keep the shoe store open. Which of the following is true?
A) The $10,000 Dana spent on remodeling represents a part of the total variable cost of her business.
B) The $3,000 represents her marginal costs of production.
C) The $10,000 Dana spent on remodeling is a fixed cost of her business.
D) The $3,000 Dana needs to keep the deli open represents her total fixed costs.

Accepted Answer

The $10,000 Dana spent on remodeling is a fixed cost of her business because it was a one-time expense that does not vary with the level of production or sales. The $3,000 she needs to keep the shoe store open would be considered a variable cost or possibly a marginal cost of production, as it would need to be paid to continue operating the business.

Quiz 8: Short-Run Costs and Output Decisions

The Lawn Ranger, a landscaping company, has total costs of $5,000 and total fixed costs of $3,000. The Lawn Ranger's total variable costs are

Economists usually assume that is a fixed input in the run.

Firms have over their costs in the short run.

The formula for total fixed cost is

The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are

Total cost is calculated as

Refer to the information provided in Figure 8.2 below to answer the question(s) that follow. Figure 8.2 -Refer to Figure 8.2 above. The total fixed costs for The Barber Shop are $3,000. If The Barber Shop produces 300 haircuts, the average fixed costs are

Amy spends $5,000 on remodeling a storefront that she then opens as a take-out deli. Business has not been very successful, and she needs an additional $1,000 to keep the deli open. Which of the following is true?

Which type of cost does depend on a firm's output?

Which type of cost does not depend on a firm's output?

Refer to the information provided in Figure 8.2 below to answer the question(s) that follow. Figure 8.2 -Refer to Figure 8.2 above. If The Barber Shop produces more than 300 hair cuts, the average fixed costs are

Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets?

Total variable cost as output increases, and total fixed cost as output increases.

Refer to the information provided in Figure 8.1 below to answer the question(s) that follow. Figure 8.1 -Refer to Figure 8.1 above. If Cyndyʹs Floral Arrangements produces 100 silk flower arrangements, the average fixed costs are

The formula for average fixed costs is

Average fixed costs

In the short run

The Farley Farm, a dairy company, has total costs of $15,000 and total variable costs of $2,000. The Farley Farm's total fixed costs are

Refer to the information provided in Figure 8.1 below to answer the question(s) that follow. Figure 8.1 -Refer to Figure 8.1 above. The total fixed costs for Cyndy's Floral Arrangements are $1,000. If Cyndy's Floral Arrangements produces 200 silk flower arrangements, the average fixed costs are

Dana spends $10,000 on remodeling a storefront that she then opens as a shoe store. The business has not been very successful, and she needs an additional $3,000 to keep the shoe store open. Which of the following is true?