Question 1

Use the following to answer questions below:
 
-Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost increasing?
A) 1
B) 4
C) 8
D) None of the above is correct.

Accepted Answer

Marginal cost is increasing when the slope of the total cost or total variable cost curve becomes steeper. This typically occurs at higher levels of output, such as at 8 units, where the curve starts to rise more sharply.

Question 2

Use the following to answer questions below:
 
-Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost decreasing?
A) 1
B) 4
C) 8
D) None of the above is correct.

Accepted Answer

Marginal cost decreases when the total cost curves are getting closer together, which happens as output increases from 0 to 1.

Question 3

Use the following to answer questions below:
 
-Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost equal to average total cost?
A) 9.5
B) 10
C) 11
D) None of the above is correct.

Accepted Answer

Marginal cost equals average total cost at the output level where the average total cost is at its minimum. This typically occurs at the point where the marginal cost curve intersects the average total cost curve. In this scenario, it is given as 10.

Question 4

Use the following to answer questions below:
 
-Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost equal to average variable cost?
A) 9.5
B) 10
C) 11
D) None of the above is correct.

Accepted Answer

Marginal cost is equal to average variable cost at the minimum point of the average variable cost curve. The minimum point of the average variable cost curve is at an output level of 9.5.

Question 5

Use the following to answer questions below:
 
-Refer to the graph of the short-run total cost and total variable cost curves. At approximately what level of output is marginal cost closest to its minimum value?
A) 2
B) 4
C) 8
D) 11

Accepted Answer

Marginal cost reaches its minimum where the total cost curve begins to increase at an increasing rate, which is typically at the point where the total variable cost curve starts to steepen significantly. This occurs around the output level of 4.

Question 6

Use the following to answer questions below:
 
-Refer to the short-run per-unit cost curves graph. Which of the four curves represents average total cost?
A) Curve A
B) Curve B
C) Curve C
D) Curve D

Accepted Answer

The answer of Use the following to answer questions below:
...

Question 7

Use the following to answer questions below:
 
-Refer to the short-run per-unit cost curves graph. Which of the four curves represents average variable cost?
A) Curve A
B) Curve B
C) Curve C
D) Curve D

Accepted Answer

Curve B typically represents the average variable cost (AVC) in the short run per-unit cost curves graph. The AVC curve is characterized by its U-shape, starting high, decreasing as production increases due to economies of scale, and then increasing again due to diseconomies of scale.

Question 8

Use the following to answer questions below:
 
-Refer to the short-run per-unit cost curves graph. Which of the four curves represents average fixed cost?
A) Curve A
B) Curve B
C) Curve C
D) Curve D

Accepted Answer

Average fixed cost (AFC) decreases as output increases, which is typically represented by a downward-sloping curve. Curve D, which slopes downward, represents AFC.

Question 9

Use the following to answer questions below:
 
-Refer to the short-run per-unit cost curves graph. Which of the four curves represents marginal cost?
A) Curve A
B) Curve B
C) Curve C
D) Curve D

Accepted Answer

Marginal cost typically first decreases as output increases due to increasing efficiency and then increases as output continues to rise due to diminishing returns. Curve C shows this behavior, initially decreasing and then increasing, which is characteristic of marginal cost.

Question 10

Use the following to answer questions below:
 
-Refer to the long-run average cost (LAC) curve graph. At which level of output is the firm experiencing increasing returns to scale?
A) Output level A
B) Output level B
C) Output level C
D) None of the above is correct.

Accepted Answer

At Output level A, the firm is experiencing increasing returns to scale because this is the portion of the LAC curve where costs are decreasing as output increases.

Question 11

Use the following to answer questions below:
 
-Refer to the long-run average cost (LAC) curve graph. At which level of output is the firm experiencing decreasing returns to scale?
A) Output level A
B) Output level B
C) Output level C
D) None of the above is correct.

Accepted Answer

Decreasing returns to scale occur when the long-run average cost curve is upward sloping, indicating that costs per unit are increasing as output increases.

Question 12

Use the following to answer questions below:
 
-Refer to the long-run average cost (LAC) curve graph. At which level of output is the firm experiencing constant returns to scale?
A) Output level A
B) Output level B
C) Output level C
D) None of the above is correct.

Accepted Answer

At output level B, the firm is experiencing constant returns to scale because this is typically where the long-run average cost (LAC) curve is flat, indicating that increasing the scale of production neither decreases nor increases the average cost of production per unit.

Question 13

A firm that has total fixed costs of $40,000 sells its output for $250 per unit and has an average variable cost of $150. If the firm's cost and revenue curves are linear, how much output must the firm produce to break even?
A) 500
B) 400
C) 300
D) The firm cannot break even.

Accepted Answer

The answer of A firm that has total fixed costs...

Question 14

A firm that has total fixed costs of $20,000 sells its output for $150 per unit and has an average variable cost of $200. If the firm's cost and revenue curves are linear, how much output must the firm produce to break even?
A) 500
B) 400
C) 300
D) The firm cannot break even.

Accepted Answer

Given the average variable cost ($200) is higher than the price per unit ($150), the firm incurs a loss on each unit sold, making it impossible to break even regardless of the quantity produced.

Question 15

A firm that has total fixed costs of $40,000 sells its output for $250 per unit and has an average variable cost of $150. If the firm's cost and revenue curves are linear and output is equal to 500 units, what is the firm's degree of operating leverage?
A) 5
B) 4
C) 3
D) None of the above is correct.

Accepted Answer

The degree of operating leverage is calculated as the percentage change in EBIT divided by the percentage change in sales. In this case, the percentage change in EBIT is equal to the percentage change in revenue minus the percentage change in variable costs. The percentage change in revenue is equal to the change in revenue divided by the original revenue, which is (250 - 150) / 250 = 0.4. The percentage change in variable costs is equal to the change in variable costs divided by the original variable costs, which is (150 - 100) / 100 = 0.5. Therefore, the percentage change in EBIT is 0.4 - 0.5 = -0.1. The percentage change in sales is equal to the change in sales divided by the original sales, which is (500 - 400) / 400 = 0.25. Therefore, the degree of operating leverage is -0.1 / 0.25 = -0.4.

Question 16

A firm that has total fixed costs of $2,000 sells its output for $25 per unit and has an average variable cost of $20. If the firm's cost and revenue curves are linear and output is equal to 600 units, what is the firm's degree of operating leverage?
A) 5
B) 4
C) 3
D) None of the above is correct.

Accepted Answer

The answer of A firm that has total fixed costs...

Question 17

A firm currently produces 2,500 units of output per week. After an additional worker is hired, output rises to 2,620 units per week. If the weekly wage paid to a worker is $480, what is the firm's short-run marginal cost?
A) $4
B) $120
C) $480
D) None of the above is correct.

Accepted Answer

The marginal cost is the change in total cost divided by the change in output. The change in output is 120 units (2,620 - 2,500), and the change in cost is $480 (the wage of the additional worker). Therefore, the marginal cost is $480 / 120 units = $4 per unit.

Question 18

A firm currently produces 3,500 units of output per week. After an additional worker is hired, output rises to 3,750 units per week. If the weekly wage paid to a worker is $500, what is the firm's short-run marginal cost?
A) $500
B) $250
C) $2
D) None of the above is correct.

Accepted Answer

The marginal cost is the change in total cost divided by the change in output. The additional worker increases output by 250 units (3,750 - 3,500), and the cost of hiring the worker is $500. Therefore, the marginal cost is $500 / 250 = $2 per unit.

Question 19

A firm has determined, from past experience, that the learning curve for a new electronic component has a log-linear form with a slope coefficient of -0.10. What is the predicted short-run average variable cost after 10,000 units of a new product have been produced? The beginning short-run average total cost of the product is expected to be $1,000.
A) $398
B) $1,000,000
C) $10,000,000
D) None of the above is correct.

Accepted Answer

The learning curve equation is:SAC = a * Q^bwhere:SAC = short-run average costa = beginning short-run average total costQ = cumulative outputb = slope coefficientGiven:a = $1,000b = -0.10Q = 10,000 unitsSubstituting these values into the equation, we get:SAC = $1,000 * 10,000^(-0.10)SAC = $1,000 * 0.398SAC = $398Therefore, the predicted short-run average variable cost after 10,000 units of a new product have been produced is $398.

Question 20

A firm has determined, from past experience, that the learning curve for a new electronic component has a log-linear form with a slope coefficient of -0.05. What is the predicted short-run average variable cost after 12,000 units of a new product have been produced? The beginning short-run average total cost of the product is expected to be $400.
A) $250
B) $8,894
C) $4,800,000
D) None of the above is correct.

Accepted Answer

The correct answer is A because the short-run average variable cost after 12,000 units of a new product have been produced is $250.

Quiz 8: Cost Theory and Estimation

Use the following to answer questions below: -Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost increasing?

Use the following to answer questions below: -Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost decreasing?

Use the following to answer questions below: -Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost equal to average total cost?

Use the following to answer questions below: -Refer to the graph of the short-run total cost and total variable cost curves. At what level of output is marginal cost equal to average variable cost?

Use the following to answer questions below: -Refer to the graph of the short-run total cost and total variable cost curves. At approximately what level of output is marginal cost closest to its minimum value?

Use the following to answer questions below: -Refer to the short-run per-unit cost curves graph. Which of the four curves represents average total cost?

Use the following to answer questions below: -Refer to the short-run per-unit cost curves graph. Which of the four curves represents average variable cost?

Use the following to answer questions below: -Refer to the short-run per-unit cost curves graph. Which of the four curves represents average fixed cost?

Use the following to answer questions below: -Refer to the short-run per-unit cost curves graph. Which of the four curves represents marginal cost?

Use the following to answer questions below: -Refer to the long-run average cost (LAC) curve graph. At which level of output is the firm experiencing increasing returns to scale?

Use the following to answer questions below: -Refer to the long-run average cost (LAC) curve graph. At which level of output is the firm experiencing decreasing returns to scale?

Use the following to answer questions below: -Refer to the long-run average cost (LAC) curve graph. At which level of output is the firm experiencing constant returns to scale?

A firm that has total fixed costs of $40,000 sells its output for $250 per unit and has an average variable cost of $150. If the firm's cost and revenue curves are linear, how much output must the firm produce to break even?

A firm that has total fixed costs of $20,000 sells its output for $150 per unit and has an average variable cost of $200. If the firm's cost and revenue curves are linear, how much output must the firm produce to break even?

A firm that has total fixed costs of $40,000 sells its output for $250 per unit and has an average variable cost of $150. If the firm's cost and revenue curves are linear and output is equal to 500 units, what is the firm's degree of operating leverage?

A firm that has total fixed costs of $2,000 sells its output for $25 per unit and has an average variable cost of $20. If the firm's cost and revenue curves are linear and output is equal to 600 units, what is the firm's degree of operating leverage?

A firm currently produces 2,500 units of output per week. After an additional worker is hired, output rises to 2,620 units per week. If the weekly wage paid to a worker is $480, what is the firm's short-run marginal cost?

A firm currently produces 3,500 units of output per week. After an additional worker is hired, output rises to 3,750 units per week. If the weekly wage paid to a worker is $500, what is the firm's short-run marginal cost?