Q: Given the following data: Total Cost (TC) = $$500$$, Output (Q) = $$50$$, Average Variable Cost (AVC) = $$8. $$What is the Average Fixed Cost (AFC)?

AFC = $$\frac{TC - (AVC \times Q)}{Q} = \frac{500 - (8 \times 50)}{50} = \frac{500 - 400}{50} = \frac{100}{50} = 2$$

Question 1

Suppose the United States produces 100 tons of wheat using 10 workers, while Canada produces 80 tons of wheat using 10 workers. Which country has the absolute advantage in wheat production?

Accepted Answer

United States, because it produces more wheat with the same number of workers.

Question 2

If Brazil can produce either 10 units of coffee or 5 units of sugar with one day of labor, and Colombia can produce either 8 units of coffee or 8 units of sugar with one day of labor, what is the opportunity cost of producing 1 unit of coffee in Brazil?

Accepted Answer

Opportunity cost is $$\frac{1}{2}$$ unit of sugar.

Question 3

A country specializes in producing cars, which it can produce at a lower opportunity cost than other countries. According to the theory of comparative advantage, what should this country do?

Accepted Answer

Export cars and import goods for which it does not have a comparative advantage.

Question 4

Which of the following is NOT a source of comparative advantage for a country?

Accepted Answer

High tariffs on imports

Question 5

If the world price of steel is below the domestic equilibrium price, what happens when a country allows imports of steel?

Accepted Answer

Domestic consumers benefit from lower prices, and domestic producers lose market share.

Question 6

A government imposes a tariff on imported shoes. Which of the following is a likely effect?

Accepted Answer

Consumer surplus decreases, producer surplus increases, and deadweight loss occurs.

Question 7

Which of the following best describes autarky?

Accepted Answer

A situation where a country does not engage in international trade.

Question 8

A new machine allows a bakery to produce twice as many loaves of bread with the same amount of flour and labor. This is an example of:

Accepted Answer

Positive technological change

Question 9

In the short run, which of the following is true?

Accepted Answer

At least one input is fixed.

Question 10

Given the following data: Total Cost (TC) = $$500$$, Output (Q) = $$50$$, Average Variable Cost (AVC) = $$8. $$What is the Average Fixed Cost (AFC)?

Accepted Answer

AFC = $$\frac{TC - (AVC 	imes Q)}{Q} = \frac{500 - (8 	imes 50)}{50} = \frac{500 - 400}{50} = \frac{100}{50} = 2$$

Question 11

If the marginal product of labor (MPL) is increasing, what happens to marginal cost (MC)?

Accepted Answer

Marginal cost falls.

Question 12

A firm’s production function shows:

Accepted Answer

The maximum output that can be produced from given inputs.

Question 13

Suppose a firm’s total cost increases from $$200 to$$ $$250$$ when output increases from $$10 to$$ $$12. $$What is the marginal cost (MC) of producing each additional unit?

Accepted Answer

MC = $$\frac{\Delta TC}{\Delta Q} = \frac{250 - 200}{12 - 10} = \frac{50}{2} = 25$$

Question 14

Which of the following best describes economies of scale?

Accepted Answer

Long-run average cost falls as output increases.

Question 15

A firm faces constant returns to scale. What happens to its average total cost (ATC) as it increases output?

Accepted Answer

ATC remains unchanged.

Question 16

If a firm’s average total cost (ATC) is $$15$$ and it produces $$20$$ units, what is its total cost (TC)?

Accepted Answer

TC = $$ATC 	imes Q = 15 	imes 20 = 300$$

Question 17

Which of the following is a reason why countries may not fully specialize in production, even if they have a comparative advantage?

Accepted Answer

Increasing opportunity costs as specialization increases.

Question 18

A country imposes a quota on imported cars. What is a likely effect?

Accepted Answer

Domestic car prices rise, and domestic producers benefit.

Question 19

If a firm’s fixed cost (FC) is $$100$$, and it produces $$25$$ units, what is its average fixed cost (AFC)?

Accepted Answer

AFC = $$\frac{FC}{Q} = \frac{100}{25} = 4$$

Question 20

Which of the following is most likely to cause diseconomies of scale in a large firm?

Accepted Answer

Management becomes inefficient as the firm grows.

Comparative Advantage, International Trade, and Production Costs: Study Guide for ECON 201

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