Question 1

Average total cost is

Accepted Answer

Average total cost (ATC) is the sum of average fixed cost (AFC) and average variable cost (AVC), which is represented by the formula ATC = AFC + AVC.

Question 2

The Framing Gallery frames posters and has total fixed costs of $1,000. The Framing Gallery is currently framing ________ posters if its average variable cost is $20 and its average total cost is $30.

Accepted Answer

The average total cost (ATC) is the sum of the average fixed cost (AFC) and the average variable cost (AVC). Given that the ATC is $30 and the AVC is $20, the AFC must be $10 ($30 - $20). Since the total fixed costs are $1,000, dividing this by the AFC ($10) gives the number of posters being framed, which is 100 posters.

Question 3

Twenty-five students in a class take a test for which the average grade is 75. Then a twenty-sixth student enters the class, takes the same test, and scores 70. The test average grade calculated with 26 students will

Accepted Answer

The average falls because the twenty-sixth student's score (70) is below the original average (75), thus lowering the overall average.

Question 4

If the average variable cost curve is below the marginal cost curve, then

Accepted Answer

When the average variable cost (AVC) curve is below the marginal cost (MC) curve, it indicates that the marginal cost is higher than the average, which pulls the average up. This typically happens when marginal costs are increasing.

Question 5

If marginal cost equals average variable cost, average variable cost will

Accepted Answer

When marginal cost equals average variable cost, it indicates that average variable cost is at its minimum point. This is because the marginal cost curve intersects the average variable cost curve at its lowest point.

Question 6

The law of diminishing marginal returns results in average total cost eventually

Accepted Answer

The law of diminishing marginal returns implies that as more units of a variable input are added to fixed inputs, the additional output from each new unit of input will eventually decrease. This leads to higher costs for each additional unit produced, causing average total costs to increase at an increasing rate.

Question 7

Average variable and average total costs get farther apart as output decreases because ________ as output decreases.

Accepted Answer

As output decreases, the total fixed costs are spread over fewer units, causing the average fixed cost per unit to increase. Since average total cost includes both average variable cost and average fixed cost, but average variable cost does not, the gap between average total cost and average variable cost widens as the average fixed cost per unit increases.

Question 8

A short-run total cost schedule is a total variable cost schedule shifted ________ by the amount of total fixed cost cost.

Accepted Answer

A short-run total cost schedule is obtained by adding total variable costs and total fixed costs together. Since total fixed cost is a constant amount added to the total variable cost, this shifts the total cost curve upward, not in any horizontal direction.

Question 9

The short-run average variable cost curve eventually begins to increase at an increasing rate because of

Accepted Answer

The short-run average variable cost curve eventually begins to increase at an increasing rate due to the diminishing returns phenomena. In the short run, at least one factor of production is fixed, and as more units of the variable inputs are added, the additional output from each new unit of input decreases, leading to higher average variable costs.

Question 10

If marginal cost is above average total cost, average total cost will

Accepted Answer

When marginal cost is above average total cost, it means the cost of producing an additional unit is higher than the current average cost of production. This will pull the average total cost upwards, causing it to increase.

Question 11

A firm is producing output less than the output associated with the minimum point on the firm's short run average variable cost curve. At this level of output the firm uses its fixed capital input ________ and its variable labor input ________.

Accepted Answer

Producing output less than the output at the minimum point on the short run average variable cost curve indicates inefficiency in the use of both fixed capital (since the firm is not achieving economies of scale) and variable labor (since the average variable cost is not minimized).

Question 12

The average variable cost of producing 250 sundaes is $5. At this level of output, average variable cost is minimized. Which of the following statements is true?

Accepted Answer

The answer of The average variable cost of producing 250...

Question 13

The ________ curve intersects the average variable cost curve at the minimum value of the average variable cost curve.

Accepted Answer

The marginal cost curve intersects the average variable cost curve at its minimum point because when marginal cost is below average variable cost, it pulls the average down, and when it is above, it pulls the average up. Thus, the intersection point marks the minimum of the average variable cost curve.

Question 14

If a firm's total costs are $100 when 10 units of output are produced and $105 when 11 units of output are produced, the marginal cost of the 11th unit is

Accepted Answer

The marginal cost of producing the 11th unit is the additional cost incurred by producing that unit, calculated as the change in total costs divided by the change in quantity. Here, it's ($105 - $100) / (11 - 10) = $5.

Question 15

In the short run, a firm using variable labor and fixed capital inputs achieves the ________ level of output at the minimum point on its average total cost curve.

Accepted Answer

In the short run, a firm achieves the efficient level of output at the minimum point on its average total cost curve because this point represents the most cost-effective combination of inputs (given the firm's fixed capital) for producing output.

Question 16

________ cost refers to the full economic costs of production.

Accepted Answer

Total cost refers to the full economic costs of production, encompassing both fixed and variable costs.

Question 17

TC/q is

Accepted Answer

TC/q, where TC is total cost and q is the quantity of output, represents average total cost (ATC). ATC is calculated by dividing the total cost by the quantity of output produced.

Question 18

________ is the average cost of producing each unit of output.

Accepted Answer

Average total cost is the cost per unit of output, calculated by dividing the total cost of production by the number of units produced.

Question 19

If a firm's total costs are $75 when it produces 10 units of output and $80 when it produces 11 units of output, then the marginal cost of producing the 11th unit is

Accepted Answer

The marginal cost of producing the 11th unit is calculated by subtracting the total cost of producing 10 units from the total cost of producing 11 units, which is $80 - $75 = $5.

Question 20

If the average variable cost of the fifth hat is $50, then the total variable cost of five hats is

Accepted Answer

The average variable cost of the fifth hat being $50 implies that the total variable cost for producing five hats is $250 (5 hats x $50/hat). This is because the average variable cost is the total variable cost divided by the quantity produced, assuming the cost per unit is constant.

Quiz 8: Short-Run Costs and Output Decisions