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Plotting of cost curves

1.
Given the output and Total Cost Data in the Table below, Complete the following columns: Variable cost , Fixed Costs, marginal Cost, Average Total Cost columns. Then on a graph, plot the marginal and average costs data. (Plot them on the same graph, not on two separate graphs). Then from the graph identify the level of output at which Marginal Cost equals Average Cost.
Total
Output Cost
0 50
1 60
2 75
3 100
4 150
5 225
6 400

2. Which of the following statements best represents a difference between short-run and long-run cost?
a. Less than one year is considered the short run; more than one year the long run.
b. There are no fixed costs in the long run.
c. In the short-run labor must always be considered the variable input and capital the fixed input.
d. In the short run, all inputs could be variable.
e. All of the above are true.

3. In economic theory, if an additional worker adds less to the total output than the previous workers hired, it is because
a. there may be less that this person can do, given the fixed capacity of the firm.
b. he/she is less skilled than the previously hired workers.
c. everyone is getting in each other's way.
d. the firm is experiencing diminishing returns to scale.

4. Which of the following relationships is correct?
a. When marginal product starts to decrease, marginal cost starts to decrease.
b. When marginal cost starts to increase, average cost starts to increase.
c. When marginal cost starts to increase, average variable cost starts to increase.
d. When marginal product starts to decrease, marginal cost starts to increase

5. The total cost (TC) of producing computer software diskettes (Q) is given by TC + 200 + 5Q. What is the fixed cost?
a. 200
b. 5Q
c. 5
d. 5 + (200/Q)
e. none of the above

6. Which of the following relationships implies that a firm's short-run cost function is linear?
a. MC = AC
b. MC = AVC
c. AC = AFC + AVC
d. MC > AC

7. A Production Function represents
a. the method used to convert inputs into outputs.
b. the amounts of output that can be created by various amounts of inputs.
c. the optimum mix of inputs to maximize output.
d. All of the above.

8. If total cost equals $2000 and quantity produced is 100 units,
a. then fixed cost is $200 and average variable cost is $18.
b. then fixed cost is $600 and average variable cost is $14.
c. then fixed cost is $500 and marginal cost is $15.
d. then either A or B can be correct.

9. Diseconomies of scale can be caused by
a. the law of diminishing returns.
b. bureaucratic inefficiencies.
c. increasing advertising and promotional costs.
d. All of the above.

10. In a call center, which of the following would be considered to be a variable input in the short run?
a. the level of computer-telephony software being utilized
b. the number of call center representatives on duty at the center
c. the number of call center managers or supervisors
d. the size (e.g. square footage) of the call center

11. When a firm's MC curve shifts to the right, it implies that
a. new firms are entering the market.
b. labor productivity is decreasing.
c. labor productivity is increasing.
d. the firm's overhead costs are decreasing.
e. labor productivity is constant.

Solution Preview

1.
Given the output and Total Cost Data in the Table below, Complete the following columns: Variable cost , Fixed Costs, marginal Cost, Average Total Cost columns. Then on a graph, plot the marginal and average costs data. (Plot them on the same graph, not on two separate graphs). Then from the graph identify the level of output at which Marginal Cost equals Average Cost.
Total
Output Cost
0 50
1 60
2 75
3 100
4 150
5 225
6 400

Variable costs are created by increasing inputs needed at each level of production. So, at each level of production, we subtract the fixed cost (50) to determine the variable cost:
1 10
2 15
3 50
4 100
5 175
6 350

The marginal cost is the change in variable cost from one level of procution to the next. To find it, we subtract the variable ...

Solution Summary

Plotting of cost curves; multiple choice questions related to long-run costs, short-run costs, and shifts in the MC curve

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