Q: Suppose a rock concert incurs $$100,000 in fixed costs and 5 $$per ticket in variable costs. If 10,000 tickets are sold, what is the total cost of the concert?

$$100,000 + (10,000 \times 5) = 150$$,000$

Q: A firm’s total cost (TC) is given by $$TC = TFC + TVC. If$$ $$TFC = 200$$ and $$TVC = 50Q$$, what is the average total cost (ATC) when $$Q = 10$$?

$$ATC = \frac{200 + 50 \times 10}{10} = 52$$

Question 1

Which of the following best describes a fixed cost in the short run?

Accepted Answer

A cost that does not depend on the firm’s level of output.

Question 2

Suppose a rock concert incurs $$100,000 in fixed costs and 5 $$per ticket in variable costs. If 10,000 tickets are sold, what is the total cost of the concert?

Accepted Answer

$$100,000 + (10,000 	imes 5) = 150$$,000$

Question 3

Which equation correctly defines average variable cost (AVC)?

Accepted Answer

$$AVC = \frac{TVC}{Q}$$

Question 4

A firm’s marginal cost (MC) curve in the short run eventually rises because:

Accepted Answer

Diminishing returns to variable inputs set in as output increases.

Question 5

If a perfectly competitive firm faces a market price of $5 per unit, what is its marginal revenue (MR) for each additional unit sold?

Accepted Answer

$$MR = 5$$

Question 6

Which of the following statements is TRUE about the relationship between marginal cost (MC) and average total cost (ATC)?

Accepted Answer

MC intersects ATC at ATC’s minimum point.

Question 7

A firm’s total cost (TC) is given by $$TC = TFC + TVC. If$$ $$TFC = 200$$ and $$TVC = 50Q$$, what is the average total cost (ATC) when $$Q = 10$$?

Accepted Answer

$$ATC = \frac{200 + 50 	imes 10}{10} = 52$$

Question 8

In a perfectly competitive market, if a firm raises its price above the market equilibrium, what will happen to the quantity demanded for its product?

Accepted Answer

It will drop to zero.

Question 9

Which of the following is the profit-maximizing rule for a perfectly competitive firm?

Accepted Answer

$$P = MC$$

Question 10

If marginal cost (MC) is below average variable cost (AVC), what happens to AVC as output increases?

Accepted Answer

AVC decreases.

Question 11

A firm’s total fixed cost (TFC) is $1,000. If the firm produces 10 units, what is the average fixed cost (AFC)?

Accepted Answer

$$AFC = \frac{1,000}{10} = 100$$

Question 12

Which of the following best describes 'spreading overhead'?

Accepted Answer

Dividing total fixed costs by more units of output, causing average fixed cost to decline.

Question 13

Suppose a firm’s total variable cost (TVC) increases from $$20 to 38 $$when output increases from 1 to 2 units. What is the marginal cost (MC) of the second unit?

Accepted Answer

$$MC = 18$$

Question 14

Which of the following is NOT a characteristic of perfect competition?

Accepted Answer

Each firm has some control over the market price.

Question 15

If a firm’s marginal cost (MC) is above its average total cost (ATC), what will happen to ATC as output increases?

Accepted Answer

ATC will increase.

Question 16

A software company spends $$1,000,000 on developing a program (fixed cost) and 1 $$per additional copy sold (variable cost). Which statement is correct?

Accepted Answer

The marginal cost of producing an extra copy is $1.

Question 17

Which formula correctly expresses total revenue (TR) for a firm?

Accepted Answer

$$TR = P 	imes Q$$

Question 18

If a firm’s total cost (TC) is $$500 when producing 5 units, and total fixed cost (TFC) is 200$$, what is the average variable cost (AVC)?

Accepted Answer

$$AVC = \frac{TC - TFC}{Q} = \frac{500 - 200}{5} = 60$$

Question 19

Which of the following is true about the short-run supply curve of a perfectly competitive firm?

Accepted Answer

It is the portion of the marginal cost curve above average variable cost.

Question 20

A bakery’s total fixed cost is $500 per month. If it produces 100 loaves, what happens to average fixed cost (AFC) if it increases production to 200 loaves?

Accepted Answer

AFC decreases from $$5 to 2.50.$$

Short-Run Costs and Output Decisions in Microeconomics

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