Q: A musical production incurs $$10,000 in fixed costs and 2 $$per ticket in variable costs. If 1,000 tickets are sold, what is the total cost?

$$ TC = 10,000 + (2 \times 1,000) = 12,000 $$

Question 1

Which of the following best describes fixed costs in the short run?

Accepted Answer

Costs that do not depend on the firm’s level of output and must be paid even if output is zero.

Question 2

A firm produces 4 units of output. Its total fixed cost (TFC) is $100. What is its average fixed cost (AFC)?

Accepted Answer

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

Question 3

If the total variable cost (TVC) for producing 2 units is $$38 and for 3 units is 53$$, what is the marginal cost (MC) of producing the third unit?

Accepted Answer

$$ MC = 53 - 38 = 15 $$

Question 4

Which equation correctly represents the relationship between total cost, total fixed cost, and total variable cost?

Accepted Answer

$$ TC = TFC + TVC $$

Question 5

In a perfectly competitive market, what is the relationship between price (P), marginal revenue (MR), and marginal cost (MC) at the profit-maximizing output?

Accepted Answer

$$ P = MR = MC $$

Question 6

A musical production incurs $$10,000 in fixed costs and 2 $$per ticket in variable costs. If 1,000 tickets are sold, what is the total cost?

Accepted Answer

$$ TC = 10,000 + (2 	imes 1,000) = 12,000 $$

Question 7

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

Accepted Answer

AVC decreases.

Question 8

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

Accepted Answer

Each firm has significant control over market price.

Question 9

A firm’s total revenue (TR) is calculated as:

Accepted Answer

$$ TR = P 	imes q $$

Question 10

If a firm’s total cost (TC) is $$120 and its total revenue (TR) is 150$$, what is its profit?

Accepted Answer

$$ Profit = TR - TC = 150 - 120 = 30 $$

Question 11

Which cost concept is defined as the increase in total cost that results from producing one additional unit of output?

Accepted Answer

Marginal cost (MC)

Question 12

If a firm faces diminishing returns to variable inputs, what happens to marginal cost (MC) as output increases?

Accepted Answer

MC increases.

Question 13

Which formula correctly calculates average variable cost (AVC)?

Accepted Answer

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

Question 14

A firm’s average total cost (ATC) is $$26.85 when producing 10 units. If total cost (TC) is 268.50$$, what is the formula used?

Accepted Answer

$$ ATC = \frac{TC}{q} = \frac{268.50}{10} = 26.85 $$

Question 15

In the short run, what happens to average fixed cost (AFC) as output increases?

Accepted Answer

AFC declines.

Question 16

Which of the following statements about the marginal cost curve in the short run is correct?

Accepted Answer

It eventually rises with output due to diminishing returns.

Question 17

If a firm’s marginal revenue (MR) is less than its marginal cost (MC), what should the firm do to maximize profit?

Accepted Answer

Reduce output.

Question 18

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

Accepted Answer

MC intersects ATC at ATC’s minimum point.

Question 19

In a perfectly competitive market, what does the marginal cost curve represent for the firm?

Accepted Answer

The firm’s short-run supply curve.

Question 20

A firm’s total fixed cost (TFC) is $$100, and its total variable cost (TVC) is 75 $$when producing 5 units. What is its average total cost (ATC)?

Accepted Answer

$$ ATC = \frac{TC}{q} = \frac{100 + 75}{5} = 35 $$

Short-Run Costs and Output Decisions in Perfect Competition

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