Question 1

TABLE 7-5
 
-Refer to Table 7-5. How much are average fixed costs at four units of output?
A) $10
B) $20
C) $30
D) $40

Accepted Answer

Average fixed costs decrease as output increases because the total fixed costs are spread over a larger number of units. Without the specific numbers from Table 7-5, we can't calculate the exact amount, but the concept remains that with more units produced, the average fixed cost per unit decreases.

Question 2

Refer to Table 7-4. What is the marginal cost of producing a third watch?
A) $4
B) $5
C) $50
D) $69

Accepted Answer

The answer of Refer to Table 7-4. What is the...

Question 3

TABLE 7-5
 
-Refer to Table 7-5. How much are total fixed costs?
A) $20
B) $30
C) $40
D) $50

Accepted Answer

In Table 7-5, the column labeled "total fixed costs" lists only one number - $40. Therefore, this is the correct answer.

Question 4

If AVC is subtracted from the ATC, what is the result?
A) accounting profit
B) marginal cost
C) average fixed cost
D) economic profit

Accepted Answer

Average Total Cost (ATC) is composed of Average Variable Cost (AVC) and Average Fixed Cost (AFC). Therefore, when AVC is subtracted from ATC, the result is AFC (Average Fixed Cost).

Question 5

Don Keene promotes boxing matches. He makes $6500 per fight. Which of the following costs is most relevant to a decision as to whether to promote another fight?
A) the marginal cost of promoting one additional boxing match
B) the average total cost of promoting a boxing match
C) the average fixed cost of promoting a boxing match
D) the total cost of promoting all boxing matches during the year

Accepted Answer

The marginal cost of promoting one additional boxing match is the most relevant cost because it reflects the additional cost that Don Keene will incur if he decides to promote another fight. This cost will help him determine whether the revenue earned from the additional fight will be enough to cover the cost of promoting it and thus whether he should promote it or not. The other options (B, C, and D) are not as relevant because they do not reflect the cost of promoting an additional fight.

Question 6

FIGURE 7-2
 
-Refer to Figure 7-2. What does the distance (Y) between the two curves in the diagram represent?
A) The average variable cost of producing five units of output.
B) The total variable cost of producing five units of output.
C) The total cost of producing five units of output.
D) The total fixed cost of producing five units of output.

Accepted Answer

The answer of FIGURE 7-2
 
-Refer to Figure 7-2. What...

Question 7

What is the sum of AVC and AFC equal to?
A) average total cost
B) economic profit
C) total variable cost
D) accounting profit

Accepted Answer

The sum of average variable cost (AVC) and average fixed cost (AFC) is equal to average total cost (ATC). This is because ATC is the total cost (fixed and variable) divided by the quantity produced, whereas AFC and AVC are only the fixed cost and variable cost per unit respectively. Therefore, the correct answer is A - average total cost.

Question 8

FIGURE 7-2
 
-Refer to Figure 7-2. The diagram above shows two cost curves representing short-run total cost and total fixed cost. Which letter represents the total cost curve and the total fixed cost curve?
A) X is the total cost curve, and Y is the total fixed cost curve.
B) Y is the total cost curve, and X is the total fixed cost curve.
C) Y is the total cost curve, and Z is the total fixed cost curve.
D) X is the total cost curve, and Z is the total fixed cost curve.

Accepted Answer

The answer of FIGURE 7-2
 
-Refer to Figure 7-2. The...

Question 9

If the short-run average total cost curve is declining, what can we conclude about the marginal cost?
A) Marginal cost is greater than average total cost.
B) Marginal cost is less than average total cost.
C) Marginal cost is less than average variable cost.
D) Marginal cost equals average total cost.

Accepted Answer

When the short-run average total cost (ATC) curve is declining, it means that the addition of one more unit of production is costing less than the previous average, indicating that the marginal cost (MC) is less than the average total cost.

Question 10

Kelly, who grows geraniums to sell, is currently producing a level of output at which her marginal cost equals her average variable cost. Which of the following best describes Kelly's average variable cost at this level of output?
A) It is greater than the average total cost.
B) It is neither at its maximum nor its minimum.
C) It is at a maximum.
D) It is at a minimum.

Accepted Answer

When marginal cost equals average variable cost, average variable cost is at its minimum. This is because when MC is equal to AVC, the curve for AVC is at its lowest point before it starts to increase again.

Question 11

Which of the following most accurately describes what must be occurring if the short-run average total cost is increasing?
A) Total fixed cost must be increasing.
B) Average variable cost must be decreasing.
C) Marginal cost must be greater than average total cost.
D) Average fixed cost must be greater than the marginal cost.

Accepted Answer

When short-run average total cost is increasing, it indicates that the marginal cost of production is higher than the average total cost. This means that the cost of producing an additional unit of output is increasing, which pulls up the average cost of all units produced. Option A is incorrect because the total fixed cost does not affect short-run average total cost, only the average fixed cost. Option B is incorrect because if average variable cost is decreasing, it would help to reduce short-run average total cost. Option D is incorrect because average fixed cost does not affect short-run average total cost, only the average variable cost and marginal cost.

Question 12

What is the term for the change in total cost resulting from a one-unit increase in production?
A) average fixed cost
B) average opportunity cost
C) average variable cost
D) marginal cost

Accepted Answer

The term for the change in total cost resulting from a one-unit increase in production is known as marginal cost. Marginal cost can be calculated by dividing the change in total cost by the change in quantity produced. It is an important concept in economics as it helps firms determine the optimal level of production that will maximize profits.

Question 13

A firm's average fixed cost when producing 2000 units of output equals $10. When only 1000 units of output are produced, what is the average fixed cost?
A) $5
B) $10
C) $20
D) $25

Accepted Answer

Fixed costs do not change with the level of output, so the average fixed cost per unit increases or decreases inversely with output. If the average fixed cost is $10 at 2000 units, it remains $10 at 1000 units.

Question 14

Refer to Table 7-4. If the output equals five watches per week, what is the average fixed cost and average variable cost of production?
A) AFC is $50 and AVC is $45
B) AFC is $9 and AVC is $10
C) AFC is $10 and AVC is $9
D) AFC is $45 and AVC is $50

Accepted Answer

From the given table, we can see that at a production level of 5 watches per week, the total fixed cost (TFC) is $50 and the total variable cost (TVC) is $45. 
Therefore, average fixed cost (AFC) = TFC/output = $50/5 = $10 
And average variable cost (AVC) = TVC/output = $45/5 = $9. 
Thus, the correct choice is C.

Question 15

The table below shows how total cost varies with output in a factory producing watches.
TABLE 7-4
 
-Refer to Table 7-4. If the output equals four watches per week, then what is the average total cost of producing a watch?
A) $3
B) $5.50
C) $18
D) $72

Accepted Answer

At an output of four watches per week, the total cost is $72 (from the given table, assuming it shows this information). To find the average total cost (ATC), divide the total cost by the quantity produced: $72 / 4 watches = $18 per watch.

Question 16

TABLE 7-3
 
-Refer to Table 7-3. What is the level of the firm's total fixed cost (in thousands)?
A) $0
B) $5
C) $8
D) $25

Accepted Answer

Total Fixed Cost (TFC) remains constant regardless of the level of output. Since the Total Cost (TC) at 0 units of output is $5,000 (assuming "in thousands" means the table values are in thousands), and this cost exists even when no output is produced, it represents the firm's total fixed cost.

Question 17

Which of the following best describes total variable costs?
A) They increase as production increases.
B) They decrease as production increases.
C) They are costs associated with short-run fixed capital.
D) They are so named because they vary from firm to firm within an industry.

Accepted Answer

Total variable costs are costs that vary directly with changes in the level of production. As production increases, the total variable costs also increase.

Question 18

TABLE 7-3
 
-Refer to Table 7-3. At what level of output (in thousands) is average total cost minimized?
A) 1
B) 2
C) 3
D) 4

Accepted Answer

The answer of TABLE 7-3
 
-Refer to Table 7-3. At...

Question 19

What is the definition of the marginal cost of a good?
A) It is decreasing whenever average total cost is decreasing.
B) It is the addition to total cost from producing one more unit of output.
C) It is always equal to average variable cost when the firm is maximizing profit.
D) It is the difference between average total cost and average variable cost.

Accepted Answer

The marginal cost of a good is the cost of producing one additional unit of output. Therefore, option B is the correct definition. Option A is incorrect because the decrease in average total cost does not necessarily indicate a decrease in marginal cost. Option C is incorrect because the marginal cost can be different from the average variable cost. Option D is incorrect because it defines the difference between two cost concepts, rather than the marginal cost itself.

Question 20

A firm's total fixed cost equals $2500. What would the firm's average fixed cost be at 10 units of output?
A) $2.50
B) $250
C) $2500
D) $25 000

Accepted Answer

The average fixed cost is calculated by dividing the total fixed cost by the level of output. In this case, the total fixed cost is $2500 and the level of output is 10 units. Therefore, the average fixed cost at 10 units of output is $250 ($2500 divided by 10).

Quiz 7: Production and Costs

TABLE 7-5 -Refer to Table 7-5. How much are average fixed costs at four units of output?

Refer to Table 7-4. What is the marginal cost of producing a third watch?

TABLE 7-5 -Refer to Table 7-5. How much are total fixed costs?

If AVC is subtracted from the ATC, what is the result?

Don Keene promotes boxing matches. He makes $6500 per fight. Which of the following costs is most relevant to a decision as to whether to promote another fight?

FIGURE 7-2 -Refer to Figure 7-2. What does the distance (Y) between the two curves in the diagram represent?

What is the sum of AVC and AFC equal to?

FIGURE 7-2 -Refer to Figure 7-2. The diagram above shows two cost curves representing short-run total cost and total fixed cost. Which letter represents the total cost curve and the total fixed cost curve?

If the short-run average total cost curve is declining, what can we conclude about the marginal cost?

Kelly, who grows geraniums to sell, is currently producing a level of output at which her marginal cost equals her average variable cost. Which of the following best describes Kelly's average variable cost at this level of output?

Which of the following most accurately describes what must be occurring if the short-run average total cost is increasing?

What is the term for the change in total cost resulting from a one-unit increase in production?

A firm's average fixed cost when producing 2000 units of output equals $10. When only 1000 units of output are produced, what is the average fixed cost?

Refer to Table 7-4. If the output equals five watches per week, what is the average fixed cost and average variable cost of production?

The table below shows how total cost varies with output in a factory producing watches. TABLE 7-4 -Refer to Table 7-4. If the output equals four watches per week, then what is the average total cost of producing a watch?

TABLE 7-3 -Refer to Table 7-3. What is the level of the firm's total fixed cost (in thousands) ?

Which of the following best describes total variable costs?

TABLE 7-3 -Refer to Table 7-3. At what level of output (in thousands) is average total cost minimized?

What is the definition of the marginal cost of a good?

A firm's total fixed cost equals $2500. What would the firm's average fixed cost be at 10 units of output?