QUESTION 1

A firm with fixed costs produces at the lowest point on its U-shaped average variable cost curve. If it raises output by 1 unit, then

• average total cost will decrease.
• average fixed cost will increase.
• average total cost will be less than average variable cost.
• average fixed cost will necessarily be below average variable cost.

10 points
QUESTION 2

An industry is expected to expand if firms in the industry are earning positive

• accounting profits.
• normal profits.
• economic profits.
• total revenues.

10 points
QUESTION 3

Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are \$10.

Output ATC

• 1 \$ 40
• 2 27
• 3 29
• 4 31
• 5 38

2. The total cost of producing 4 units of output is

• \$31.
• \$137.
• \$87.
• \$124.

10 points
QUESTION 4

Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are \$10.

Output ATC

• 1 \$ 40
• 2 27
• 3 29
• 4 31
• 5 38

2. The average variable cost of 4 units of output is

• \$19.00.
• \$21.00.
• \$28.50.
• \$33.50.

10 points
QUESTION 5

Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are \$10.

Output ATC

• 1 \$ 40
• 2 27
• 3 29
• 4 31
• 5 38

2. The profit-maximizing level of output for this firm

• is 3.
• cannot be determined from the information given.
• is 4.
• is 5.

10 points
QUESTION 6

Answer the question on the basis of the following cost data.

Ouput Total Cost

• 0 \$ 24
• 1 33
• 2 41
• 3 48
• 4 54
• 5 61
• 6 69

2. The marginal cost of producing the sixth unit of output is

• \$12.
• \$45.
• \$8.
• \$24.

10 points
QUESTION 7

Answer the question on the basis of the following cost data.

Output Average Fixed Cost Average Variable Cost

1. \$ 50.00     \$ 100.00
2. 25.00           80.00
3. 16.67             66.67
4. 12.50             65.00
5. 10.00            68.00
6. 8.37              73.33
7. 7.14               80.00
8. 6.25              87.50

2. Total fixed cost is

• \$6.25.
• \$50.00.
• \$150.00.
• \$100.00.

10 points
QUESTION 8

Answer the question on the basis of the following cost data.

Output Average Fixed Cost Average Variable Cost

1. \$ 50.00          \$ 100.00
2. 25.00                 80.00
3. 16.67                  66.67
4. 12.50                  65.00
5. 10.00                  68.00
6. 8.37                   73.33
7. 7.14                   80.00
8. 6.25                   87.50

2. The average total cost of 5 units of output is

• \$78.
• \$10.
• \$69.
• \$3.

10 points
QUESTION 9

Answer the question on the basis of the following cost data.

Output Average Fixed Cost Average Variable Cost

1. \$ 50.00            \$ 100.00
2. 25.00                  80.00
3. 16.67                   66.67
4. 12.50                   65.00
5. 10.00                  68.00
6. 8.37                    73.33
7. 7.14                     80.00
8. 6.25                   87.50

2. The total cost of four units of output is

• \$310.
• \$260.
• \$215.
• \$77.5.

10 points
QUESTION 10

Answer the question on the basis of the following cost data.

Output Average Fixed Cost Average Variable Cost

1. \$ 50.00        \$ 100.00
2. 25.00               80.00
3. 16.67                66.67
4. 12.50                65.00
5. 10.00               68.00
6. 8.37                  73.33
7. 7.14                  80.00
8. 6.25                 87.50

2. The marginal cost curve would intersect the average variable cost curve at about

• 7 units of output.
• 4 units of output.
• 2 units of output.
• 6 units of output.

10 points
QUESTION 11

Answer the question on the basis of the following information.

Number of Workers Total Product Marginal Product

0    0    —
1    8    8
2    1     0
3    2    5
4    3    0
5    3
6    3    4

2. When two workers are employed,

• total product is 18.
• total product cannot be determined from the information given.
• average product is 10.
• total product is 20.

10 points
QUESTION 12

Answer the question on the basis of the following information.

Number of Workers Total Product Marginal Product

1. 0      —
2. 8       8
3.         10
4. 25
5. 30
6.          3
7. 34

2. The average product when there are two workers

• is 9.
• is 10.
• is 28.
• cannot be determined from the information given.

10 points
QUESTION 13

Answer the question on the basis of the following information.

TFC = Total Fixed Cost Q = Quantity of Output
MC = Marginal Cost P = Product Price
TVC = Total Variable Cost
Average total cost is _______.

• TVC / Q
• TVC − MC
• TFC + TVC / Q
• TVC − TFC / Q

10 points
QUESTION 14

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed.
Number of Workers Units of Output

• 0       0
• 1      40
• 2     90
• 3     126
• 4     150
• 5     165
• 6    180

2. The marginal product of the fourth worker is

• 24 units of output.
• 37.5 units of output.
• 15 units of output.
• 36 units of output.

10 points
QUESTION 15

As output increases, average fixed costs

• increase.
• remain constant.
• decrease.
• first increase and then decrease.

10 points
QUESTION 16

If a firm produces 10 units of output, total costs are \$1,030, and average fixed costs are \$10, then total variable costs are

• \$1,040.
• \$104.
• \$930.
• \$1,130.

10 points
QUESTION 17

If you operated a small bakery, which of the following would be a variable cost in the short run?

• baking ovens
• annual lease payment for use of the building
• baking supplies (flour, salt, etc.)

10 points
QUESTION 18

If you owned a small farm, which of the following would most likely be a fixed cost?

• hail insurance
• harvest labor
• seed
• fertilizer

10 points
QUESTION 19

The ability of Intel to spread product development and other “start-up” costs over a larger number of units of output results in

• economies of scale.
• diseconomies of scale.
• constant returns to scale.
• minimum efficient scale.

10 points
QUESTION 20

The long run is a period of time, or a time frame, in which

• the capacity of the production plant is fixed.
• the level of output is variable.
• all resources are fixed in quantity.
• the amount of all resources can be varied.

10 points
QUESTION 21

The law of diminishing returns explains why

• total cost eventually reaches a maximum point.
• total cost eventually rises faster and faster.
• total cost eventually rises more and more slowly.
• total cost eventually falls.

10 points
QUESTION 22

Zero economic profits mean that the firm is earning

• revenues that are equal to its accounting profits.
• revenues that just cover all of its actual expenses.
• as much as what it would have earned in its best alternative business venture.
• accounting profits that are equal to its accounting costs.

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