Question 1

Average fixed costs
A) are the costs associated with producing an additional unit of output.
B) provide a per unit measure of costs.
C) fall as output rises.
D) reach their minimum at the output level where the average fixed cost curve is intersected by the marginal cost curve.

Accepted Answer

Average fixed costs are the fixed costs of production (such as rent, salaries, insurance, etc.) divided by the quantity of output produced. As output rises, fixed costs are spread over a larger quantity of output, causing average fixed costs to fall. They do not directly relate to producing an additional unit (A), and they are not a per unit measure of costs (B). Additionally, the intersection of the average fixed cost curve and the marginal cost curve does not necessarily indicate the minimum point of average fixed costs (D).

Question 2

Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets?
A) $300
B) $305
C) $500
D) $800

Accepted Answer

D

Question 3

Economists usually assume that ________ is a fixed input in the ________ run.
A) labor; short
B) capital; short
C) labor; long
D) capital; long

Accepted Answer

In the short run, it is assumed that capital is a fixed input as it cannot be easily adjusted. However, in the long run, both labor and capital are considered to be variable inputs as firms can adjust their usage of both inputs based on the level of output they want to produce.

Question 4

Refer to the information provided in Figure 8.1 below to answer the questions that follow.  Figure 8.1
-Refer to Figure 8.1 above. The total fixed costs for Cyndy's Floral Arrangements are $1,000. If Cyndy's Floral Arrangements produces 200 silk flower arrangements, the average fixed costs are
A) $0.20.
B) $5.
C) $20.
D) $200.

Accepted Answer

The average fixed cost is calculated by dividing the total fixed costs by the number of units produced. So, $1,000 / 200 = $5.

Question 5

Dana spends $10,000 on remodeling a storefront that she then opens as a shoe store. The business has not been very successful, and she needs an additional $3,000 to keep the shoe store open. Which of the following is true?
A) The $10,000 Dana spent on remodeling represents a part of the total variable cost of her business.
B) The $3,000 represents her marginal costs of production.
C) The $10,000 Dana spent on remodeling is a fixed cost of her business.
D) The $3,000 Dana needs to keep the deli open represents her total fixed costs.

Accepted Answer

The $10,000 Dana spent on remodeling is a fixed cost because it is a one-time expense that does not change based on the level of production or sales. The $3,000 she needs to keep the shoe store open could be considered a variable cost or an operating expense, but it is not a marginal cost of production as there is no mention of producing additional units or changing production levels.

Question 6

Amy spends $5,000 on remodeling a storefront that she then opens as a take-out deli. Business has not been very successful, and she needs an additional $1,000 to keep the deli open. Which of the following is true?
A) The $5,000 Amy spent on remodeling represents a part of the total variable cost of her business.
B) The $5,000 Amy spent is a fixed cost of her business.
C) The $1,000 represents her marginal costs of production.
D) The $1,000 Amy needs to keep the deli open represents her total fixed costs.

Accepted Answer

The $5,000 Amy spent on remodeling is a one-time cost, and is a fixed cost of her business. Fixed costs do not vary with the level of production, and Amy would have incurred this cost regardless of how much she sells.
Therefore, choices A, C, and D are incorrect.

Question 7

The Lawn Ranger, a landscaping company, has total costs of $5,000 and total fixed costs of $3,000. The Lawn Ranger's total variable costs are
A) $2,000.
B) $3,000.
C) $5,000.
D) indeterminate because the firm's output level is not known.

Accepted Answer

Total costs = Fixed costs + Variable costs
$5,000 = $3,000 + Variable costs
Variable costs = $2,000

Question 8

The Farley Farm, a dairy company, has total costs of $15,000 and total variable costs of $2,000. The Farley Farm's total fixed costs are
A) $0.
B) $13,000.
C) $17,000.
D) indeterminate because the firm's output level is not known.

Accepted Answer

Total fixed costs can be calculated by subtracting total variable costs ($2,000) from total costs ($15,000), so: 
Total fixed costs = Total costs - Total variable costs 
Total fixed costs = $15,000 - $2,000 
Total fixed costs = $13,000. Therefore, choice B is the correct answer.

Question 9

The formula for total fixed cost is
A) TFC = TC + TVC.
B) TFC = TVC -TC.
C) TFC = TC/TVC.
D) TFC = TC -TVC.

Accepted Answer

Total fixed cost (TFC) is the cost that does not vary with changes in the level of output. It includes expenses such as rent, salaries, and insurance premiums. The formula for TFC is simply TC (total cost) minus TVC (total variable cost), as fixed cost is a component of total cost that does not change with changes in output, unlike variable cost which does change with changes in output. Therefore, option D is the correct formula for total fixed cost.

Question 10

Which statement is true? Fixed costs
A) do NOT exist in the long run.
B) depend on the firm's level of output.
C) are zero if the firm is producing nothing.
D) are the difference between total costs and average variable costs.

Accepted Answer

In the long run, all costs are variable, so fixed costs do not exist.

Question 11

Firms have ________ over their ________ costs in the short run.
A) control; fixed
B) no control; fixed
C) control; overhead
D) no control; variable

Accepted Answer

In the short run, firms have no control over their fixed costs, as these costs do not change with the level of output produced. Fixed costs, such as rent or salaries, must be paid regardless of the firm's level of production.

Question 12

The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are
A) $0.
B) $3,000.
C) $5,000.
D) indeterminate because the firm's output level is not known.

Accepted Answer

The formula for total costs is:
Total Costs = Fixed Costs + Variable Costs
By rearranging the formula, we get:
Fixed Costs = Total Costs – Variable Costs
Substituting the given values, we get:
Fixed Costs = $4,000 - $1,000 = $3,000
Therefore, the Lawn Ranger's total fixed costs are $3,000.

Question 13

As output increases, average fixed costs
A) decrease.
B) initially decrease and then increase.
C) remain constant.
D) increase.

Accepted Answer

Average fixed costs decrease as output increases because the total fixed costs are spread over a larger number of units, reducing the cost per unit.

Question 14

Both Kate and John own saltwater taffy factories. Kate'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 taffy at the same total cost. Complete the following statement with the correct answer. If each produces
A) less, their costs will be equal.
B) more, their costs will be equal.
C) more, the costs of Kate's factory will exceed those of John's factory.
D) less, the costs of Kate's factory will exceed those of John's factory.

Accepted Answer

Since Kate's factory has low fixed costs and high variable costs, producing more boxes of taffy will result in a greater increase in total cost compared to John's factory with high fixed costs and low variable costs. Therefore, if both factories produce more, the costs of Kate's factory will exceed those of John's factory. If they produce less, their costs will not be equal because of the difference in cost structures between the two factories.

Question 15

Refer to the information provided in Figure 8.2 below to answer the questions that follow.  Figure 8.2
-Refer to Figure 8.2 above. The total fixed costs for The Barber Shop are $3,000. If The Barber Shop produces 300 haircuts, the average fixed costs are
A) $0.20.
B) $5.
C) $10.
D) $100.

Accepted Answer

Average fixed costs can be calculated by dividing the total fixed costs by the quantity produced. Therefore, the average fixed costs for The Barber Shop at 300 haircuts would be $3,000/300 = $10.

Question 16

Economists usually assume that labor is ________ input in the ________ run.
A) a fixed; short
B) a fixed; long
C) a variable; short
D) part fixed and part variable; long

Accepted Answer

In the short run, firms can adjust their output levels by changing the amount of variable inputs used, such as labor. However, in the long run, all inputs are variable, which means that firms can adjust their production levels by changing the amount of both fixed and variable inputs. Therefore, labor is considered a variable input in the short run.

Question 17

Total cost is calculated as
A) the sum of total fixed cost and total variable cost.
B) the product of average total cost and price.
C) the sum of all the firm's explicit costs.
D) the sum of average fixed cost and average variable cost.

Accepted Answer

Total cost is the sum of total fixed cost and total variable cost. Total fixed cost is the cost that remains constant regardless of the level of output, while total variable cost changes with the level of output. Therefore, the sum of fixed and variable costs gives us the total cost of producing a certain quantity of output.

Question 18

In the short run
A) existing firms do NOT face limits imposed by a fixed input.
B) all firms have costs that they must bear regardless of their output.
C) new firms can enter an industry.
D) existing firms can exit an industry.

Accepted Answer

In the short run, firms have fixed costs that they must pay regardless of their level of output. These costs are associated with fixed inputs that cannot be changed in the short run.

Question 19

Which statement is NOT true? Variable costs
A) are equal to total costs in the long run.
B) are zero if output is zero.
C) are equal to the difference between total cost and total fixed cost.
D) remain constant as output goes up.

Accepted Answer

Variable costs change with the level of output, so they do not remain constant as output increases.

Question 20

The formula for average fixed costs is
A) TFC - q.
B) TFC/q.
C) q/TFC.
D) Δq/ΔTFC.

Accepted Answer

Average fixed costs (AFC) is equal to total fixed costs (TFC) divided by the quantity produced (q). Therefore, the formula for AFC is TFC/q, which corresponds to choice B.

Quiz 8: Short-Run Costs and Output Decisions

Average fixed costs

Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets?

Economists usually assume that is a fixed input in the run.

Refer to the information provided in Figure 8.1 below to answer the questions that follow. Figure 8.1 -Refer to Figure 8.1 above. The total fixed costs for Cyndy's Floral Arrangements are $1,000. If Cyndy's Floral Arrangements produces 200 silk flower arrangements, the average fixed costs are

Dana spends $10,000 on remodeling a storefront that she then opens as a shoe store. The business has not been very successful, and she needs an additional $3,000 to keep the shoe store open. Which of the following is true?

Amy spends $5,000 on remodeling a storefront that she then opens as a take-out deli. Business has not been very successful, and she needs an additional $1,000 to keep the deli open. Which of the following is true?

The Lawn Ranger, a landscaping company, has total costs of $5,000 and total fixed costs of $3,000. The Lawn Ranger's total variable costs are

The Farley Farm, a dairy company, has total costs of $15,000 and total variable costs of $2,000. The Farley Farm's total fixed costs are

The formula for total fixed cost is

Which statement is true? Fixed costs

Firms have over their costs in the short run.

The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are

As output increases, average fixed costs

Refer to the information provided in Figure 8.2 below to answer the questions that follow. Figure 8.2 -Refer to Figure 8.2 above. The total fixed costs for The Barber Shop are $3,000. If The Barber Shop produces 300 haircuts, the average fixed costs are

Economists usually assume that labor is input in the run.

Total cost is calculated as

In the short run

Which statement is NOT true? Variable costs

The formula for average fixed costs is