Q: If a firm's total cost (TC) is $1,200 when producing 100 units, and its total fixed cost (TFC) is $400, what is its average variable cost (AVC)?

$AVC = \frac{TC - TFC}{Q} = \frac{1,200 - 400}{100} = 8$

Q: Which of the following best describes the relationship between marginal cost (MC) and average total cost (ATC)?

When $MC > ATC$, $ATC$ is rising.

Question 1

Suppose a firm's marginal cost (MC) curve intersects its average total cost (ATC) curve at a quantity of 200 units. If the market price is $15, what is the firm's profit-maximizing output and why?

Accepted Answer

Produce where MC equals market price, so output is at the quantity where MC = $15, which may not be 200 units.

Question 2

A perfectly competitive firm will shut down in the short run if:

Accepted Answer

Price is less than average variable cost ($P < AVC$).

Question 3

If a firm's total cost (TC) is $1,200 when producing 100 units, and its total fixed cost (TFC) is $400, what is its average variable cost (AVC)?

Accepted Answer

$AVC = \frac{TC - TFC}{Q} = \frac{1,200 - 400}{100} = 8$

Question 4

Which of the following best describes the relationship between marginal cost (MC) and average total cost (ATC)?

Accepted Answer

When $MC > ATC$, $ATC$ is rising.

Question 5

A monopoly is characterized by which of the following?

Accepted Answer

There is only one seller in the market.

Question 6

If a firm produces 250 units, its total cost (TC) is $2,000, and its total fixed cost (TFC) is $500, what is its average total cost (ATC)?

Accepted Answer

$ATC = \frac{TC}{Q} = \frac{2,000}{250} = 8$

Question 7

In the short run, a firm should continue to operate even if it is making a loss as long as:

Accepted Answer

Price covers average variable cost ($P \geq AVC$).

Question 8

If the market price is $20 and the average total cost (ATC) at the profit-maximizing output is $15, what is the firm's profit per unit?

Accepted Answer

$20 - 15 = 5$

Question 9

Which of the following is true about the marginal cost (MC) curve?

Accepted Answer

It intersects the average total cost (ATC) curve at the minimum point of ATC.

Question 10

A firm makes a profit when:

Accepted Answer

$P > ATC$

Question 11

If a firm's total revenue (TR) is $2,500 and its total cost (TC) is $2,000, what is its profit?

Accepted Answer

$Profit = TR - TC = 2,500 - 2,000 = 500$

Question 12

If a perfectly competitive firm faces a market price of $10, and its marginal cost (MC) at 150 units is $10, what should the firm do?

Accepted Answer

Produce 150 units, since $P = MC$ at that output.

Question 13

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

Accepted Answer

$AFC = \frac{TFC}{Q}$

Question 14

If a firm's total variable cost (TVC) is $1,200 and it produces 300 units, what is its average variable cost (AVC)?

Accepted Answer

$AVC = \frac{TVC}{Q} = \frac{1,200}{300} = 4$

Question 15

In a perfectly competitive market, the firm's demand curve is:

Accepted Answer

Perfectly elastic at the market price.

Question 16

If a firm's marginal cost (MC) is $8 and its average variable cost (AVC) is $10 at a given output, what is happening to AVC?

Accepted Answer

AVC is falling.

Question 17

Which of the following is a characteristic of perfect competition?

Accepted Answer

There are many buyers and sellers.

Question 18

If a firm's total fixed cost (TFC) is $600 and it produces 200 units, what is its average fixed cost (AFC)?

Accepted Answer

$AFC = \frac{600}{200} = 3$

Question 19

If a firm's average total cost (ATC) is $12 and it sells its product for $10, what is the firm's profit per unit?

Accepted Answer

$10 - 12 = -2$

Question 20

Which of the following equations correctly represents profit?

Accepted Answer

$Profit = Total Revenue - Total Cost$

Cost Structures, Profit Maximization, and Market Types in Macroeconomics

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