Question 1

The marginal cost curve:

Accepted Answer

The marginal cost curve generally falls at first and then rises as output expands. This is because initially, with increasing output, there are economies of scale and production becomes more efficient, resulting in a decrease in marginal costs. However, beyond a certain level of output, there are diseconomies of scale and production becomes less efficient, resulting in an increase in marginal costs.

Question 2

Luke realizes that his space taxi service is operating in the region of diminishing marginal product.As he provides more taxi service in the short run, what will happen to the marginal cost of providing the additional service?

Accepted Answer

In the region of diminishing marginal product, each additional unit of input results in a decreasing marginal product and increasing marginal cost. Therefore, as Luke provides more taxi service in the short run, the marginal cost of providing the additional service will increase.

Question 3

When marginal product is rising, marginal costs will:

Accepted Answer

When marginal product is rising, it means that each additional unit of input is producing more output, which typically leads to a decrease in marginal costs, as the cost of producing each additional unit of output falls.

Question 4

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 do average fixed costs equal at 11 units of output?

Accepted Answer

Average total cost = (Total cost) / (Quantity)

Quantity = 10 units
Average variable cost = $20
Therefore, average total cost - average variable cost = average fixed cost
$40 - $20 = $20, which is the average fixed cost at 10 units of output.

At 11 units of output, the marginal cost is $30, which is between the average variable cost ($20) and the average total cost ($40). This means that the average total cost is increasing but the average variable cost is decreasing.

To find the new average fixed cost, we can use the formula:
Average fixed cost = Average total cost - Average variable cost

Average fixed cost at 11 units of output = $40 - $20 = $20

Alternatively, we could calculate the total fixed costs and divide by the quantity, but we don't have enough information to do that.

Question 5

If average variable cost exceeds marginal cost, then:

Accepted Answer

When average variable cost (AVC) exceeds marginal cost (MC), it indicates that the AVC is decreasing. This is because the MC pulls the AVC down when it is below the AVC. Consequently, both AVC and average total cost (ATC) are decreasing.

Question 6

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

Accepted Answer

The Average Fixed Cost (AFC) curve is not generally U-shaped, as it continuously declines as output increases. This is because fixed costs are spread over a larger output, resulting in a lower per-unit fixed cost. The Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC) curves are generally U-shaped, as they initially decrease due to economies of scale and then increase due to diseconomies of scale.

Question 7

Diminishing marginal product first sets in at the minimum point of the

Accepted Answer

The answer of Diminishing marginal product first sets in at...

Question 8

A firm's total fixed cost equals $2,500.The firm's average fixed cost at 1, 5, and 10 units of output, respectively, will be:

Accepted Answer

Average fixed cost is calculated by dividing total fixed cost by the quantity of output. 
At 1 unit of output, average fixed cost = $2,500/1 = $2,500
At 5 units of output, average fixed cost = $2,500/5 = $500
At 10 units of output, average fixed cost = $2,500/10 = $250
Therefore, the correct answer is option B.

Question 9

A firm's average fixed cost curve is:

Accepted Answer

The average fixed cost curve declines as output expands because as output increases, fixed costs are spread over a larger quantity of output, resulting in lower average fixed costs. However, as output approaches a very large quantity, the average fixed cost curve approaches the X-axis because at that point the fixed costs become negligible relative to the large quantity of output.

Question 10

A firm's average fixed cost when producing 2,000 units of output equals $10.When only 1,000 units of output are produced:

Accepted Answer

Average fixed cost (AFC) is calculated by dividing total fixed costs by the number of units produced. If AFC is $10 for 2,000 units, the total fixed cost is $20,000. When producing 1,000 units, AFC becomes $20,000/1,000 = $20.

Question 11

Which of the following is true?

Accepted Answer

The answer of Which of the following is true?
...

Question 12

Which of the following must be true if the short-run average total cost curve is declining?

Accepted Answer

When the short-run average total cost curve is declining, it indicates that the marginal cost is less than the average total cost. This is because the average total cost decreases when the additional cost of producing one more unit (marginal cost) is lower than the current average total cost.

Question 13

The short-run average total cost curve eventually turns upward to form a U shape because:

Accepted Answer

The answer of The short-run average total cost curve eventually...

Question 14

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...

Question 15

If marginal cost is increasing then:

Accepted Answer

When marginal cost is increasing, it indicates that producing additional units is becoming more expensive, but it does not necessarily mean that average variable cost or average total cost must be increasing or decreasing. It also does not imply anything about marginal product directly.

Question 16

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 calculate the total cost of producing 11 units first.

Total cost = Average total cost x Quantity = $40 x 10 = $400

Since the average variable cost is $20, we can calculate the total variable cost as:

Total variable cost = Average variable cost x Quantity = $20 x 10 = $200

To find the total cost of producing 11 units, we need to add the marginal cost of the 11th unit, which is $30:

Total cost = Total variable cost + Marginal cost = $200 + $30 = $230

Finally, we can calculate the average total cost of producing 11 units as:

Average total cost = Total cost / Quantity = $230 / 11 = $20.91

Therefore, the answer is D, $39.09.

Question 17

The vertical distance between the average total cost curve and the average variable cost curve equals:

Accepted Answer

The vertical distance between the average total cost curve and the average variable cost curve represents the average fixed cost. This is because average variable cost includes both variable costs and a portion of fixed costs, while average total cost includes both variable costs and all fixed costs. Therefore, the difference between the two represents only the fixed costs, which is the average fixed cost.

Question 18

As quantity increases, which of the following must be true if average total costs are rising?

Accepted Answer

If average total costs are rising, it means that each additional unit produced is costing more than the previous one. This implies that the marginal cost of the additional unit is higher than the average total cost.

Question 19

Which of the following is true at the output level where diminishing marginal product first set in?

Accepted Answer

The answer of Which of the following is true at...

Question 20

AVC is falling, while ATC is falling

Accepted Answer

The answer of AVC is falling, while ATC is falling
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Quiz 6: Production and Costs