Question 1

In the short run,AFC is always greater than

Accepted Answer

In the short run, Average Fixed Cost (AFC) is always greater than zero because fixed costs are spread over a number of units, but they do not become negative or zero.

Question 2

Assume that you know the following cost information about Fred's widget company: Its fixed cost is $9,and its total variable cost is $6 for 1 unit; $11 for 2; $ 15 for 3; 20 for 4; and 26 for 5.Given the above information,

Accepted Answer

Marginal cost is the additional cost incurred in producing one more unit. Looking at the given information, we can see that the marginal cost of the third unit is $4 ($15 - $11), which is greater than the marginal cost of the first unit ($6). Also, the marginal cost of the fourth unit is $5 ($20 - $15), which is the same as the marginal cost of the second unit ($11 - $6 = $5).

Average variable cost is the total variable cost divided by the number of units produced. The average variable cost of three units is ($6 + $11 + $15) / 3 = $10.67. The average variable cost of four units is ($6 + $11 + $15 + $20) / 4 = $13. The two averages are not the same. Therefore, option C is incorrect.

Combining the above analysis, we can see that both options (b) and (c) are incorrect, and the correct choice is D.

Question 3

If the cost of variable inputs used in a firm's production process rose,which of the following would not occur?

Accepted Answer

The average fixed cost (AFC) does not depend on the cost of variable inputs, as it only relates to the fixed costs of production, such as rent or capital equipment. Therefore, the AFC curve would not shift up in response to a rise in the cost of variable inputs. On the other hand, the AVC, ATC, and MC curves would shift up, as the higher cost of variable inputs would lead to a higher cost of producing each unit of output, increasing both the variable and total costs.

Question 4

A firm replaces a machine by hiring 3 hourly production workers instead.

Accepted Answer

When the firm replaces a machine with hourly production workers, the fixed costs will fall as there is no longer a need for machine maintenance and repairs. However, the variable costs will rise as the firm now has to pay wages to the hourly production workers. Therefore, the best choice is D: Its fixed costs will fall and its variable costs will rise.

Question 5

Which of the following is true in the short run?

Accepted Answer

MC = ATC at the lowest point of ATC because ATC is the sum of AVC and AFC, and AFC is constant in the short run. MC = AVC at the lowest point of AVC because AVC is the variable cost per unit of output, and MC is the change in total variable cost per unit of output. When AVC is at its minimum point, ATC is falling because ATC is the sum of AVC and AFC, and AFC is constant in the short run.

Question 6

Assuming fixed costs are positive,over a range of output in which average total costs were constant,

Accepted Answer

The answer of Assuming fixed costs are positive,over a range...

Question 7

Which of the following is most likely a fixed cost?

Accepted Answer

Property insurance premiums are typically a fixed cost, as they are a regular, recurring expense that does not vary based on the level of production or sales. Raw materials costs, shipping charges, and fuel costs are all variable costs, as they will increase with higher levels of production or sales.

Question 8

If a technological change reduced the amount of the variable input needed by a firm to produce a unit of output:

Accepted Answer

A technological change that reduces the amount of variable input needed decreases costs, shifting the AVC, ATC, and MC curves down.

Question 9

If both the marginal cost and the average variable cost curves are U-shaped,at the minimum point of the average total cost curve,the marginal cost curve must be:

Accepted Answer

The answer of If both the marginal cost and the...

Question 10

Assume the following cost information about Fred's widget company: Its fixed cost is $27,and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5.Given this information:

Accepted Answer

The marginal cost for the second unit is $15 ($33 - $18). The total cost for 4 units is $87 ($27 fixed + $60 variable). The average total cost for 5 units is $21 (($27 + $78) / 5).

Question 11

Assume that you know the following cost information about Fred's widget company: Its fixed cost is $9,and its total variable cost is $6 for 1 unit; $11 for 2; $ 15 for 3; 20 for 4; and 26 for 5.Given the above information,

Accepted Answer

A) To calculate the marginal cost, we need to look at the change in total cost between producing 1 unit and 2 units. The change in cost is $11 - $6 = $5. Therefore, the marginal cost of providing the second unit is $5.
B) To calculate the total cost of producing 4 units, we need to add the fixed cost of $9 to the variable costs of producing 4 units, which is $20. Therefore, the total cost of producing 4 units is $29.
C) To calculate the average total cost of producing 5 units, we need to add the fixed cost of $9 to the variable costs of producing 5 units, which is $26. Then, we divide this total cost by the number of units produced, which is 5. Therefore, the average total cost of producing 5 units is ($9 + $26)/5 = $7. 
All three statements are true based on the given cost information, so the correct choice is D.

Question 12

Which of the following cost curves is not generally U-shaped?

Accepted Answer

The average fixed cost (AFC) curve is not generally U-shaped. This is because fixed costs do not change with changes in output in the short run, so the AFC curve decreases as output increases, eventually becoming very small as output increases. However, the AFC curve will never rise again because fixed costs will not change with further increases in output. The other three cost curves -- average variable cost (AVC), average total cost (ATC), and marginal cost (MC) -- are generally U-shaped.

Question 13

Assume the following cost information about Fred's widget company: Its fixed cost is $27,and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5.Given this information:

Accepted Answer

Average variable cost increases as output increases from four to five, as the additional unit requires more variable cost per unit. However, at the same time, the increase in output allows for spreading of fixed costs over more units, resulting in a decrease in average total cost. Thus, the answer is D.

Question 14

A firm replaces a machine by hiring 3 hourly production workers instead.

Accepted Answer

By replacing the machine with hourly production workers, the firm's fixed costs will fall (as they no longer have to maintain and operate the machine). However, their variable costs will rise, as they now have to pay for the wages of the hourly workers. Therefore, the correct choice is D.

Question 15

If average total costs are $40 and average variable cost are $20 at 10 units of output and the marginal cost of the 11^th unit is $30,what is the average total cost of 11 units?

Accepted Answer

To find the average total cost of 11 units, we need to first calculate the total cost of producing 11 units.

Average variable cost at 10 units = $20

Marginal cost of 11th unit = $30

This means that the cost of producing the 11th unit is $30.

To find the total cost of producing 11 units, we can use the following formula:

Total cost = Total variable cost + Total fixed cost

We do not have information about the total fixed cost, but we can use the information we have to calculate the total variable cost.

Total variable cost = Average variable cost x Quantity

Total variable cost at 10 units = $20 x 10 = $200

Marginal cost of the 11th unit = $30

Total variable cost at 11 units = $200 + $30 = $230

Now that we have the total cost of producing 11 units ($230), we can calculate the average total cost:

Average total cost = Total cost / Quantity

Average total cost at 11 units = $230 / 11 = $20.90 ≈ $39.09

Therefore, the answer is D.

Question 16

If Oscar's company has a lease that runs until six months from now,which of the following would be true?

Accepted Answer

The answer of If Oscar's company has a lease that...

Question 17

In the short run,an expansion of output always causes in an increase in:

Accepted Answer

The answer of In the short run,an expansion of output...

Question 18

In the short run,ATC is not always higher than

Accepted Answer

In the short run, the Average Total Cost (ATC) can be equal to the Marginal Cost (MC) at the minimum point of the ATC curve.

Question 19

If both the marginal cost and the average variable cost curves are U-shaped,which of the following is true over the range of output for which the average variable cost curve has a negative slope?

Accepted Answer

The marginal cost curve is below the average variable cost curve when the average variable cost curve has a negative slope. The average total cost curve must also have a negative slope when the average variable cost curve has a negative slope.

Question 20

In the short run,it is impossible for an expansion of output to cause an increase in:

Accepted Answer

The answer of In the short run,it is impossible for...

Quiz 11: The Firm: Production and Costs

In the short run,AFC is always greater than

Assume that you know the following cost information about Fred's widget company: Its fixed cost is $9,and its total variable cost is $6 for 1 unit; $11 for 2; $ 15 for 3; 20 for 4; and 26 for 5.Given the above information,

If the cost of variable inputs used in a firm's production process rose,which of the following would not occur?

A firm replaces a machine by hiring 3 hourly production workers instead.

Which of the following is true in the short run?

Assuming fixed costs are positive,over a range of output in which average total costs were constant,

Which of the following is most likely a fixed cost?

If a technological change reduced the amount of the variable input needed by a firm to produce a unit of output:

If both the marginal cost and the average variable cost curves are U-shaped,at the minimum point of the average total cost curve,the marginal cost curve must be:

Assume the following cost information about Fred's widget company: Its fixed cost is $27,and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5.Given this information:

Assume that you know the following cost information about Fred's widget company: Its fixed cost is $9,and its total variable cost is $6 for 1 unit; $11 for 2; $ 15 for 3; 20 for 4; and 26 for 5.Given the above information,

Which of the following cost curves is not generally U-shaped?

Assume the following cost information about Fred's widget company: Its fixed cost is $27,and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5.Given this information:

A firm replaces a machine by hiring 3 hourly production workers instead.

If average total costs are $40 and average variable cost are $20 at 10 units of output and the marginal cost of the 11th unit is $30,what is the average total cost of 11 units?

If Oscar's company has a lease that runs until six months from now,which of the following would be true?

In the short run,an expansion of output always causes in an increase in:

In the short run,ATC is not always higher than

If both the marginal cost and the average variable cost curves are U-shaped,which of the following is true over the range of output for which the average variable cost curve has a negative slope?

In the short run,it is impossible for an expansion of output to cause an increase in:

If average total costs are $40 and average variable cost are $20 at 10 units of output and the marginal cost of the 11^th unit is $30,what is the average total cost of 11 units?