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Economics - Average Fixed Cost

1. Average fixed cost is:
a.AC minus AVC
b.TC divided by Q
c.AVC minus MC
d.TC minus TVC

2. Economists consider which of the following costs to be irrelevant to a short-run business decision?
a.Opportunity cost
b.Out of pocket cost
c.Historical Cost
d.Replacement Cost

3. When MR=MC
a.Marginal profit is maximized
b.Total profit is maximized
c.Marginal profit is positive
d.Total profit is zero

4. In economic analysis, any amount of profit earned above zero is considered "above normal" because:
a.normally firms are supposed to earn zero profit
b.this would indicate that the firm's revenue exceed both its acoounting and opportunity cost
c.this would indicate that the firm was at least earning a profit equal to its opportunity cost
d.this would indicate that the firm's revenue exceeded its accounting cost

5. Explain why it is sometimes difficult to apply the MR = MC rule in actual business situations.

Solution Preview

1. Average fixed cost is:
a.AC minus AVC
b.TC divided by Q
c.AVC minus MC
d.TC minus TVC

a.AC minus AVC

2. Economists consider which of the following costs to be irrelevant to a short-run business decision?
a.Opportunity cost
b.Out of pocket cost
c.Historical Cost
d.Replacement Cost

c.Historical Cost

3. When MR=MC
a.Marginal ...

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