Question 1

If a firm cannot cover its variable costs,it will

Accepted Answer

If a firm cannot cover its variable costs, it will shut down in the short run because it will continue to incur variable costs even if it produces no output. In the long run, it will go out of business because it cannot sustain losses indefinitely.

Question 2

Which statement is false?

Accepted Answer

The MC (Marginal Cost) curve intersects both the ATC (Average Total Cost) and AVC (Average Variable Cost) curves at their minimum points, but it does not intersect the AFC (Average Fixed Cost) curve at its minimum point because the AFC curve continuously declines as output increases.

Question 3

A variable input is an input that can change

Accepted Answer

A variable input, by definition, is an input that can be changed or varied. This holds true regardless of the time period under consideration. Therefore, the input can change in both the long and short run. Option D is incorrect because a change in a variable input can affect the level of output.

Question 4

The basic characteristic of the short run is that

Accepted Answer

In the short run, firms can adjust the amount of labor or materials they use but cannot change their plant size or capacity, which is a fixed input during this period.

Question 5

Which is most clearly a variable cost?

Accepted Answer

Wages of production workers are directly related to the level of production, which makes them a variable cost. The other options are fixed costs, as they do not vary based on the level of production.

Question 6

Which statement is true?

Accepted Answer

Continuing to operate is a short run option because it involves maintaining the business operations in the present market conditions without making any significant changes in the long term. Shutting down and going out of business are both long run options as they involve a more permanent cessation of business activities.

Question 7

Fixed costs are best defined as

Accepted Answer

Fixed costs are those costs that do not vary with the level of output or production in the short run. These costs remain the same even if the firm produces nothing or produces a large quantity. Examples of fixed costs include rent or lease payments for a facility, salaries of permanent employees, and property taxes.

Question 8

If average variable cost of production falls as output grows

Accepted Answer

When average variable cost (AVC) is falling, it means the additional unit of output is being produced at a lower cost than the average of all previous units, indicating that marginal cost (MC) is below the AVC.

Question 9

Both Jill and John own toothpick factories.Jill's factory has low fixed costs and high variable costs.John's factory has high fixed costs and low variable costs.Currently each factory is producing 1,000 boxes of toothpicks at the same total cost.Complete the following statement with the correct answer.If each produces

Accepted Answer

Since Jill's factory has low fixed costs and high variable costs, it means that the cost per unit increases with the production of more units. On the other hand, John’s factory has high fixed costs, so the cost per unit decreases with the production of more units.

Therefore, if both factories produce more than 1,000 boxes of toothpicks, the cost per unit in Jill’s factory will exceed that of John’s factory. Hence, the correct choice is D.

Question 10

Average variable cost is equal to

Accepted Answer

Average variable cost is calculated by subtracting average fixed cost from average total cost.

Question 11

Which statement is true?

Accepted Answer

In the long run, a firm can decide whether to continue operating or to exit the market entirely, making "going out of business or not going out of business" long run options. This is because, in the long run, all inputs are variable, and firms can make decisions about entering or exiting an industry based on profitability.

Question 12

As output rises,average fixed cost

Accepted Answer

Average fixed cost (AFC) is calculated by dividing the fixed cost by the output. Since fixed cost remains the same regardless of the level of output, as output rises, the fixed cost is spread over a larger number of units, causing the average fixed cost to fall.

Question 13

When MC is rising but still below AVC,then

Accepted Answer

When MC (Marginal Cost) is below AVC (Average Variable Cost) and rising, it means that the cost of producing an additional unit is increasing but is still less than the average variable cost per unit. This scenario typically occurs when AVC is declining because the MC must cross AVC at its minimum point. Thus, as MC approaches AVC from below, AVC is decreasing.

Question 14

Marginal cost may be defined as

Accepted Answer

Marginal cost is the change in total cost that happens when one more unit of output is produced. It takes into account both variable and fixed costs. Option A is incorrect as it refers to average total cost instead of marginal cost. Option B is incorrect as it only considers the change in variable cost and not the total cost. Option D is incorrect as total fixed cost does not change with changes in output.

Question 15

Which is most clearly a fixed cost?

Accepted Answer

Insurance premiums are usually paid at a fixed rate for a specified time period, regardless of the level of production or sales. It is a cost that stays the same, regardless of the volume produced or sold.

Question 16

Jimmy,Walter,Mike,and Bill run a school for political candidates.The school has fixed costs of $10 million,variable costs of $4 million,and total revenue of $15 million.In the short run the school will _____ and in the long run the school will ___.

Accepted Answer

In the short run, the school will continue to operate since it is generating enough revenue to cover its variable costs and make some contribution towards its fixed costs. However, in the long run, the school may need to reevaluate its operations since it is not making enough profit to cover all of its costs. It may need to make changes or adjustments, such as increasing tuition fees or reducing variable costs, in order to stay in business in the long run.

Question 17

The average fixed cost curve

Accepted Answer

Average fixed cost (AFC) decreases as output increases because the total fixed cost is spread over a larger number of units, leading to a downward slope of the AFC curve.

Question 18

As a firm's output expands,the

Accepted Answer

When a firm's output expands, the AVC will reach a minimum before the ATC. This is because as output increases, the fixed costs get spread out over a larger quantity of output, causing the ATC to decrease. However, as output increases beyond a certain point, the marginal cost (MC) of producing each additional unit of output starts to increase, causing the AVC to increase as well. This increase in AVC ultimately causes the ATC to start increasing again, but only after the minimum point of AVC has been reached. Thus, the AVC curve reaches its minimum before the ATC curve.

Question 19

When the average total cost is at its minimum,it is

Accepted Answer

When the average total cost curves becomes the steepest, it reaches its minimum point. At this point, the marginal cost equals the average total cost. Therefore, the answer is B- Equal to MC.

Question 20

Fixed cost is sometimes referred to as

Accepted Answer

Fixed cost is sometimes referred to as a "sunk cost," as it is a cost that has already been incurred and cannot be recovered. Sunk costs should not be considered when making current or future business decisions, as they cannot be changed.

Quiz 20: Cost

If a firm cannot cover its variable costs,it will

Which statement is false?

A variable input is an input that can change

The basic characteristic of the short run is that

Which is most clearly a variable cost?

Which statement is true?

Fixed costs are best defined as

If average variable cost of production falls as output grows

Average variable cost is equal to

Which statement is true?

As output rises,average fixed cost

When MC is rising but still below AVC,then

Marginal cost may be defined as

Which is most clearly a fixed cost?

Jimmy,Walter,Mike,and Bill run a school for political candidates.The school has fixed costs of $10 million,variable costs of $4 million,and total revenue of $15 million.In the short run the school will ___ and in the long run the school will _.

The average fixed cost curve

As a firm's output expands,the

When the average total cost is at its minimum,it is

Fixed cost is sometimes referred to as