Seminar 3: Firm and Analysis of Costs

Question 1

True or False: Variable costs are related to the volume of sales

Answer 1

True

Question 2

True or False: The sum of the variable cost and the fixed cost is called economic cost

Answer 2

False

Question 3

True or False: As the sales volume of a firm increases, the profit becomes progressively less negative

Answer 3

True

Question 4

Which of the following expenditures can be considered as a variable cost?

a. Shipping Charge
b. Rent Paid to an apartment owner
c. Purchasing a car for personal conveyance
d. License fee
e. Insurance Premium

Answer 4

Shipping charge

Question 5

Which of the following can be considered as a fixed cost incurred by a firm?

a. Electricity
b. Spare parts
c. Heavy machinery
d. Incentives to workers
e. Gasoline

Answer 5

Heavy Machinery

Question 6

If average variable cost is increasing with increases in output, total fixed cost will:

A. increase with increases in output.
B. decrease with increases in output.
C. remain unchanged with increases in output.
D. increase ini<ally and then decrease with increases in output.
E. decrease ini<ally and then increase with increases in output.

Answer 6

remain unchanged with increases in output.

Question 7

Teal Talkies, a manufacturer of designer cell phones, has determined that its total cost of
produc<on is TC = 1,000 + 500Q –1 + 15Q2. At 5 units of output, the firm’s average cost is

A. $330.
B. $130.
C. $200.
D. $295.
E. $300.

Answer 7

$295

Plug In
TC = 1,000 + 500 (5)^-1 + 15 (5)^2

Question 8

Short-run marginal cost eventually increases with increasing output because

A. eventually marginal returns will diminish.
B. not all variable inputs increase at the same rate.
2
C. diseconomies of scale usually set in immediately.
D. of diseconomies of scope.
E. eventually diseconomies of scale set in.

Answer 8

eventually marginal returns will diminish

Question 9

When average total cost is at its minimum

A. average variable cost is declining with increases in output.
B. average variable cost plus average fixed cost is declining with increases in output.
C. average total cost is equal to average variable cost.
D. marginal cost is equal to average variable cost.
E. marginal cost is equal to average total cost.

Answer 9

marginal cost is equal to average total cost

Question 10

Marginal cost is equal to the

A. change in total variable cost divided by the change in output.
B. total variable cost divided by the level of output.
C. price of the input divided by the average product of the variable input.
D. price of the input divided by the total product of the variable input.
E. total variable cost divided by the change in output levels.

Answer 10

change in total variable cost divided by the change in output

Question 11

Minimum efficient scale is the output at which

A. long-run average cost is first minimized.
B. long-run average cost first equals long-run marginal cost.
C. short-run average cost equals long-run average cost for the first time.
D. short-run marginal cost equals long-run marginal cost for the first time.
E. diseconomies are first overcome and then economies of scale set in.

Answer 11

long-run average cost is first minimized

Question 12

Economies of scope exist when it is cheaper to produce

A. with a large fixed plant and equipment.
B. at increasing rates of output.
C. given quantities of two different products together than to produce the same quantities
separately.
D. given quantities of two different products separately than to produce the same quantities
together.
E. using more than one technique.

Answer 12

given quantities of two different products together than to produce the same quantities separately