Theory of Cost
1. In the short run, a firm’s fixed cost a. is zero. b. cannot be escaped. c. can be escaped only by cutting production to zero. d. is not correctly described by any of the above.
2. When average total cost rises from $10 to $30 as total production rises from 100 to 300 units, average variable cost a. cannot be calculated. b. equals $10. c. equals $20. d. equals $30.
When answering the next four questions (3-6), refer to the following graph.
3. When total product equals 0A, a. variable cost equals BC. b. average variable cost equals BC divided by 0A. c. fixed cost equals CD. d. all of the above are true.
4. When total product equals 0A, the associated marginal cost a. cannot be determined from this graph. b. exceeds average total cost. c. equals DA divided by 0A. d. equals the slope of the variable-cost curve at C.
5. According to this graph, a. marginal cost is positive at all levels or output. b. marginal cost is falling whenever total product rises. c. marginal cost exceeds average total cost at all levels of output. d. all of the above are true.
6. According to this graph, a. average total cost exceeds marginal cost at all levels of output. b. average total cost exceeds average variable cost at all levels of output. c. average fixed cost is the same at all levels of output. d. average fixed cost exceeds average variable cost when total product equals 0A.
When answering the next 3 questions (7-9), refer to the graph below:
7. Line B represents a. marginal cost. b. average variable cost. c. average fixed cost. d. average total cost.
8. The vertical difference, at any level of output, between lines B and C represents a. marginal cost. b. average variable cost. c. average total cost. d. average fixed cost.
9. When output equals 0f, a. total cost equals 0f times fe. b. fixed cost equals 0f times fe. c. total variable cost equals 0f times fe. d. marginal cost equals ed.
10. At the point where a straight line from the origin is tangent to the variable-cost curve a. marginal cost equals average total cost. b. marginal cost equals average fixed cost. c. marginal cost equals average variable cost. d. average total cost is minimized.
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