Question 1

The average variable cost of producing ice cream sundaes are minimized when 100 sundaes are produced. The total cost of producing 100 sundaes is $500. If fixed cost of production is $200, what is the marginal cost of producing the 100th sundae?
A) $2
B) $3
C) $5
D) indeterminate from the given information

Accepted Answer

Since the average variable cost is minimized at 100 sundaes, the marginal cost at 100 sundaes is equal to the average variable cost at 100 sundaes. Therefore, the total variable cost of producing 100 sundaes is $300 ($500 total cost - $200 fixed cost), and the average variable cost at 100 sundaes is $3 per sundae. Since the marginal cost is equal to the average variable cost at 100 sundaes, the marginal cost of producing the 100th sundae is also $3.

Question 2

In the short run, ________ costs exceed ________ costs.
A) total fixed; total
B) average variable; average total
C) total variable; total
D) average total; average variable

Accepted Answer

In the short run, average total costs include both average fixed costs and average variable costs. Since average fixed costs are always positive, average total costs must exceed average variable costs.

Question 3

Average variable cost and average total costs get closer together as output increases because
A) diminishing returns set in.
B) average fixed costs decrease as output increases.
C) marginal costs decrease as output increases.
D) economies of scale become apparent.

Accepted Answer

As output increases, the fixed costs (which do not change with the level of output) are spread over more units of production, causing the average fixed cost to decrease. Since average total cost is the sum of average variable cost and average fixed cost, as the average fixed cost decreases with increased output, the difference between average total cost and average variable cost narrows.

Question 4

The Framing Gallery frames posters. The Framing Gallery has total fixed costs of $500. The Framing Gallery's average variable cost is $20 and its average total cost is $25. The Framing Gallery is currently framing
A) 5 posters.
B) 25 posters.
C) 100 posters.
D) a number of posters that is indeterminate from this information.

Accepted Answer

The answer of The Framing Gallery frames posters. The Framing...

Question 5

Refer to the information provided in Figure 8.6 below to answer the questions that follow.  Figure 8.6
-Refer to Figure 8.6. Curve 1 is Outdoor Equipment's
A) marginal cost curve.
B) average variable cost curve.
C) average total cost curve.
D) average fixed cost curve.

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 6

Refer to the information provided in Figure 8.5 below to answer the questions that follow.  Figure 8.5
-Refer to Figure 8.5. The marginal cost is equal to average variable cost when ________ ovens are produced.
A) two
B) three
C) six
D) indeterminate from this information

Accepted Answer

The marginal cost is equal to average variable cost when six ovens are produced because at that point, the two curves intersect.

Question 7

Refer to the information provided in Figure 8.5 below to answer the questions that follow.  Figure 8.5
-Refer to Figure 8.5. If three ovens are produced, average variable costs are
A) $166.67.
B) $83.33.
C) $500.
D) $1,500.

Accepted Answer

To find the average variable cost, we divide the total variable cost by the quantity of output. From the graph, we can see that the total variable cost for producing three ovens is $250. Therefore, the average variable cost for producing three ovens is $250/3 = $83.33.

Question 8

Average total cost
A) measures the spread of overhead across output.
B) is the average cost of producing each unit of output.
C) is always increasing.
D) the sum of fixed cost and average variable cost.

Accepted Answer

Average total cost (ATC) is the total cost divided by the quantity produced. This means that it represents the average cost of producing each unit of output. Option A is incorrect because while overhead costs are included in the total cost, the calculation of the ATC is not specifically focused on measuring their spread across output. Option C is also incorrect as while ATC may increase at some levels of output due to decreasing returns to scale, it does not always increase. Finally, option D is incorrect as it is the sum of fixed cost and average variable cost, not total cost.

Question 9

Total cost refers to
A) the full economic costs of production.
B) the sum of average fixed cost and average variable cost.
C) the fixed costs of production.
D) the explicit costs of production.

Accepted Answer

Total cost refers to the full economic costs of production, which includes both explicit costs (e.g. wages, materials, etc.) and implicit costs (e.g. opportunity cost of using resources). It is the sum of all expenses incurred in producing a good or service. Option B refers to average cost while option C is specifically referring to fixed costs. Option D only considers the explicit costs, leaving out the implicit costs.

Question 10

Refer to the information provided in Figure 8.4 below to answer the questions that follow.  Figure 8.4
-Refer to Figure 8.4. If six microwave ovens are produced, Micro Oven's average fixed costs are
A) $33.33.
B) $83.33.
C) $116.67.
D) indeterminate from this information.

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 11

Refer to the information provided in Figure 8.5 below to answer the questions that follow.  Figure 8.5
-Refer to Figure 8.5. If two ovens are produced, average variable costs are
A) $100.
B) $200.
C) $225.
D) indeterminate from this information.

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 12

Refer to the information provided in Figure 8.5 below to answer the questions that follow.  Figure 8.5
-Refer to Figure 8.5. The marginal cost of the sixth oven is
A) $50.00.
B) $66.67.
C) $108.33.
D) indeterminate from this information.

Accepted Answer

Based on the information provided in the graph, the marginal cost of the sixth oven is $66.67, which is the rate of change between the total cost of producing six and seven ovens. Therefore, the best choice would be to produce six ovens, as producing any additional ovens would result in higher costs.

Question 13

Refer to the information provided in Figure 8.5 below to answer the questions that follow.  Figure 8.5
-Refer to Figure 8.5. The total fixed costs for Ollie's Ovens are
A) $0.
B) $250.
C) $300.
D) indeterminate from this information.

Accepted Answer

The total fixed costs (TFC) for Ollie's Ovens are $250, as this is the intercept of the total cost (TC) line on the y-axis. The best choice(s) cannot be determined from this information alone, as we do not have information about demand or revenue.

Question 14

Total cost is
A) TFC -TVC.
B) TFC/TVC.
C) TFC + TVC.
D) AFC + AVC.

Accepted Answer

Total cost includes both fixed cost and variable cost. Therefore, it is calculated as the sum of total fixed cost (TFC) and total variable cost (TVC). So, option C is the correct answer.

Question 15

Refer to the information provided in Figure 8.5 below to answer the questions that follow.  Figure 8.5
-Refer to Figure 8.5. The marginal cost of the third oven is
A) $50.
B) $100.
C) $150.
D) indeterminate from this information.

Accepted Answer

The marginal cost of the third oven is the change in total cost from producing 2 ovens to 3 ovens. From the graph, we can see that the total cost of producing 2 ovens is $200 and the total cost of producing 3 ovens is $250. Therefore, the marginal cost of the third oven is $250 - $200 = $50.

Question 16

Refer to the information provided in Figure 8.5 below to answer the questions that follow.  Figure 8.5
-Refer to Figure 8.5. The average total costs are minimized when ________ ovens are produced.
A) exactly six
B) more than six
C) less than six
D) indeterminate from this information

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 17

ATC is
A) TC/q.
B) q/TC.
C) AFC - AVC.
D) ΔTC - Δq.

Accepted Answer

ATC is the average total cost which is TC/q, as it represents the cost of producing one unit of output.

Question 18

Refer to the information provided in Figure 8.4 below to answer the questions that follow.  Figure 8.4
-Refer to Figure 8.4. Average total costs will be minimized at
A) six microwave ovens.
B) an output level between three and six microwave ovens.
C) two microwave ovens.
D) an output level greater than six microwave ovens.

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 19

A short run total cost schedule is a ________ cost schedule shifted upward by the amount of ________ cost.
A) total fixed; marginal
B) marginal; total variable
C) total variable; total fixed
D) total variable; marginal

Accepted Answer

A short run total cost schedule is the sum of total fixed cost and total variable cost. Since total fixed cost does not change with output, only total variable cost contributes to changes in the short run total cost schedule. Therefore, the short run total cost schedule is a total variable cost schedule shifted upward by the amount of total fixed cost.

Question 20

Refer to the information provided in Figure 8.4 below to answer the questions that follow.  Figure 8.4
-Refer to Figure 8.4. The vertical distance AB represents
A) total fixed costs.
B) marginal costs.
C) average fixed costs.
D) average total costs.

Accepted Answer

The vertical distance AB represents total fixed costs, as it is the portion of the total costs that does not change with the level of output.

Quiz 8: Short-Run Costs and Output Decisions

The average variable cost of producing ice cream sundaes are minimized when 100 sundaes are produced. The total cost of producing 100 sundaes is $500. If fixed cost of production is $200, what is the marginal cost of producing the 100th sundae?

In the short run, costs exceed costs.

Average variable cost and average total costs get closer together as output increases because

The Framing Gallery frames posters. The Framing Gallery has total fixed costs of $500. The Framing Gallery's average variable cost is $20 and its average total cost is $25. The Framing Gallery is currently framing

Refer to the information provided in Figure 8.6 below to answer the questions that follow. Figure 8.6 -Refer to Figure 8.6. Curve 1 is Outdoor Equipment's

Refer to the information provided in Figure 8.5 below to answer the questions that follow. Figure 8.5 -Refer to Figure 8.5. The marginal cost is equal to average variable cost when ________ ovens are produced.

Refer to the information provided in Figure 8.5 below to answer the questions that follow. Figure 8.5 -Refer to Figure 8.5. If three ovens are produced, average variable costs are

Average total cost

Total cost refers to

Refer to the information provided in Figure 8.4 below to answer the questions that follow. Figure 8.4 -Refer to Figure 8.4. If six microwave ovens are produced, Micro Oven's average fixed costs are

Refer to the information provided in Figure 8.5 below to answer the questions that follow. Figure 8.5 -Refer to Figure 8.5. If two ovens are produced, average variable costs are

Refer to the information provided in Figure 8.5 below to answer the questions that follow. Figure 8.5 -Refer to Figure 8.5. The marginal cost of the sixth oven is

Refer to the information provided in Figure 8.5 below to answer the questions that follow. Figure 8.5 -Refer to Figure 8.5. The total fixed costs for Ollie's Ovens are

Total cost is

Refer to the information provided in Figure 8.5 below to answer the questions that follow. Figure 8.5 -Refer to Figure 8.5. The marginal cost of the third oven is

Refer to the information provided in Figure 8.5 below to answer the questions that follow. Figure 8.5 -Refer to Figure 8.5. The average total costs are minimized when ________ ovens are produced.

ATC is

Refer to the information provided in Figure 8.4 below to answer the questions that follow. Figure 8.4 -Refer to Figure 8.4. Average total costs will be minimized at

A short run total cost schedule is a cost schedule shifted upward by the amount of cost.

Refer to the information provided in Figure 8.4 below to answer the questions that follow. Figure 8.4 -Refer to Figure 8.4. The vertical distance AB represents