Q: Which formula correctly calculates marginal cost (MC)?

$$MC = \\frac{\\Delta TC}{\\Delta Q}$$

Q: If a business increases output from 50 to 60 units and total cost rises from $$1,000 to 1$$,150, what is the marginal cost of the 10 additional units?

$$MC = \\frac{1,150 - 1,000}{60 - 50} = \\frac{150}{10} = 15$$

Q: If the total cost of producing 20 units is $$400 and the total cost of producing 21 units is 420$$, what is the marginal cost of the 21st unit?

$$MC = \\frac{420 - 400}{21 - 20} = 20$$

Q: If a firm’s total cost is $$800$$ for 40 units and $$1,000$$ for 50 units, what is the average cost at 50 units?

$$AC = \\frac{1,000}{50} = 20$$

Question 1

Which of the following best describes the difference between accounting profit and economic profit?

Accepted Answer

Accounting profit is total revenue minus explicit costs, while economic profit is total revenue minus both explicit and implicit costs.

Question 2

Suppose a business has fixed costs of $$500 and variable costs of 1$$,200 for producing 100 units. What is the total cost of production?

Accepted Answer

$1,700

Question 3

If the average variable cost (AVC) is $$10 and the average fixed cost (AFC) is 5 $$for a firm producing 200 units, what is the average total cost (ATC)?

Accepted Answer

$15

Question 4

Which formula correctly calculates marginal cost (MC)?

Accepted Answer

$$MC = \frac{\Delta TC}{\Delta Q}$$

Question 5

A firm’s total cost (TC) function is $$TC = 100 + 4Q$$, where $$Q is $$the quantity produced. What is the marginal cost (MC)?

Accepted Answer

$$MC = 4$$

Question 6

If a business increases output from 50 to 60 units and total cost rises from $$1,000 to 1$$,150, what is the marginal cost of the 10 additional units?

Accepted Answer

$$MC = \frac{1,150 - 1,000}{60 - 50} = \frac{150}{10} = 15$$

Question 7

Which of the following statements about the U-shaped average cost curve is correct?

Accepted Answer

The U-shape reflects economies and diseconomies of scale as output increases.

Question 8

In a spreadsheet, which formula would you use to calculate average cost (AC) if total cost (TC) is in cell B2 and quantity (Q) is in cell C2?

Accepted Answer

$$AC = \frac{B2}{C2}$$

Question 9

If a firm’s marginal cost is below its average total cost, what will happen to the average total cost as output increases?

Accepted Answer

Average total cost will decrease.

Question 10

Which of the following best explains why fixed costs do not affect marginal cost?

Accepted Answer

Fixed costs do not change with output, so they do not affect the cost of producing one more unit.

Question 11

A business is considering expanding production. Which cost should it focus on to decide whether to produce one more unit?

Accepted Answer

Marginal cost

Question 12

If the total cost of producing 20 units is $$400 and the total cost of producing 21 units is 420$$, what is the marginal cost of the 21st unit?

Accepted Answer

$$MC = \frac{420 - 400}{21 - 20} = 20$$

Question 13

Which of the following is NOT a variable cost for a manufacturing firm?

Accepted Answer

Monthly rent for the factory

Question 14

If a firm’s total cost function is $$TC = 200 + 10Q + Q^2$, what is the marginal cost function?

Accepted Answer

$$MC = 10 + 2Q$$

Question 15

Which of the following best describes the relationship between average cost and marginal cost at the minimum point of the average cost curve?

Accepted Answer

Marginal cost equals average cost.

Question 16

A firm’s spreadsheet shows total cost in column B and output in column C. Which formula would you use to calculate average cost in column D?

Accepted Answer

$$D2 = \frac{B2}{C2}$$

Question 17

If a firm’s average cost is $$20 at 100 $$units and $$18 at 120 $$units, what does this suggest about marginal cost between 100 and 120 units?

Accepted Answer

Marginal cost is less than average cost between 100 and 120 units.

Question 18

Which of the following is the correct formula for average cost (AC)?

Accepted Answer

$$AC = \frac{TC}{Q}$$

Question 19

If a firm’s total cost is $$800$$ for 40 units and $$1,000$$ for 50 units, what is the average cost at 50 units?

Accepted Answer

$$AC = \frac{1,000}{50} = 20$$

Cost Concepts and Profit Analysis in Economics

Study Guide - Practice Questions

Study Guide - Flashcards