Question 1

Which of the following best describes 'economic cost' for a firm?

Accepted Answer

Economic cost is the cost of utilizing economic resources in production, including both explicit and opportunity costs.

Question 2

If a firm uses its own building for production instead of renting it out, what type of cost is associated with the forgone rental income?

Accepted Answer

Opportunity cost

Question 3

Which formula correctly expresses the relationship between economic cost, accounting cost, and opportunity cost?

Accepted Answer

$$Economic\ Cost = Accounting\ Cost + Opportunity\ Cost$$

Question 4

A firm purchases specialized equipment for a plant. After a year, the equipment cannot be resold or repurposed. What type of cost is this?

Accepted Answer

Sunk cost

Question 5

Which of the following is true about fixed costs and variable costs?

Accepted Answer

Fixed costs do not vary with output, while variable costs do.

Question 6

Suppose a firm is deciding whether to shut down a plant. Which costs should NOT affect its decision?

Accepted Answer

Sunk costs

Question 7

Which equation correctly defines marginal cost ($$MC$$)?

Accepted Answer

$$MC = \Delta TC / \Delta Q$$

Question 8

A bakery produces 100 loaves of bread at a total cost of $$200. If producing one more loaf increases total cost to 202$$, what is the marginal cost of the 101st loaf?

Accepted Answer

$$MC = \2$

Question 9

Which of the following best describes average total cost ($$ATC$$)?

Accepted Answer

$$ATC = TC / Q$$

Question 10

If a firm's fixed costs are $$100 and it produces 20 units, what is its average fixed cost ($$AFC$)?

Accepted Answer

$$AFC = 100 / 20 = 5$$

Question 11

Which cost concept is most relevant for a firm's decision to increase production in the short run?

Accepted Answer

Marginal cost

Question 12

A firm faces the following costs: fixed cost ($$FC$$) = $$50$$, variable cost ($$VC$$) = $$150$$, and output ($$Q$$) = $$10. $$What is the average total cost ($$ATC$$)?

Accepted Answer

$$ATC = (FC + VC) / Q = (50 + 150) / 10 = 20$$

Question 13

Which of the following is an example of a variable cost for a car manufacturer?

Accepted Answer

Wages paid to assembly line workers

Question 14

Why are sunk costs considered irrelevant to future firm decisions?

Accepted Answer

Because they represent costs that have already been incurred and cannot be changed

Question 15

A firm is considering shutting down in the short run. Which cost will it still have to pay even if it produces nothing?

Accepted Answer

Fixed cost

Question 16

If the marginal cost ($$MC) of $$producing an additional unit is less than the average total cost ($$ATC$$), what happens to $$ATC as $$output increases?

Accepted Answer

$$ATC$$ decreases

Question 17

Which of the following best illustrates the concept of opportunity cost in a real-world scenario?

Accepted Answer

A student chooses to attend college instead of working full-time, giving up potential earnings.

Question 18

Suppose a firm’s total cost ($$TC) $$increases from $$500 to$$ $$550$$ when output ($$Q) $$increases from $$50 to$$ $$55. $$What is the marginal cost ($$MC) of $$the additional units produced?

Accepted Answer

$$MC = (550 - 500) / (55 - 50) = 10$$

Question 19

Which statement is true regarding the difference between fixed costs and sunk costs?

Accepted Answer

Fixed costs can be avoided if the firm shuts down, while sunk costs cannot be recovered.

Microeconomics Study Notes: Costs in Production

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