Question 1

Suppose a firm is producing 200 units with an average total cost (ATC) of $30 and a marginal cost (MC) of $25. If the firm increases production by one unit, what will happen to the average total cost?

Accepted Answer

ATC will decrease because MC is less than ATC.

Question 2

If the marginal cost (MC) of producing the next unit is higher than the average total cost (ATC), what happens to the ATC?

Accepted Answer

ATC increases.

Question 3

A restaurant faces a new government inspection fee of $10,000 per year. Which cost curves will be affected by this fee?

Accepted Answer

Average total cost and average fixed cost.

Question 4

Given the following cost formulas, which one correctly represents average total cost (ATC)?

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

Accepted Answer

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

Question 5

If a firm increases output and its average variable cost (AVC) falls, what does this imply about marginal cost (MC)?

Accepted Answer

MC is less than AVC.

Question 6

A firm is producing 1,000 units at a total cost of $8,000. If producing one more unit increases total cost to $8,010, what is the marginal cost (MC) of the 1,001st unit?

$
MC = TC_{n+1} - TC_n
$

Accepted Answer

$MC = 10$

Question 7

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

Accepted Answer

When MC is above AC, AC rises.

Question 8

If a firm’s average fixed cost (AFC) is $5 and its average variable cost (AVC) is $15 at a certain output level, what is its average total cost (ATC)?

$
ATC = AFC + AVC
$

Accepted Answer

$ATC = 20$

Question 9

A firm is producing 500 units at a total cost of $7,500. If the average variable cost (AVC) is $10, what is the total fixed cost (TFC)?

$
TC = TFC + TVC
$
$
AVC = \frac{TVC}{Q}
$

Accepted Answer

$TFC = 2,500$

Question 10

If output increases and average fixed cost (AFC) falls, what happens to total fixed cost (TFC)?

Accepted Answer

TFC remains constant.

Question 11

A firm is producing 100 units with an average total cost (ATC) of $44 and a marginal cost (MC) of $52. If it increases production to 101 units, which of the following must be true?

Accepted Answer

Average total cost would increase.

Question 12

If a firm’s marginal cost (MC) is equal to its average total cost (ATC), what can be said about the ATC curve at that point?

Accepted Answer

ATC is at its minimum.

Question 13

Suppose a firm’s total cost (TC) is given by $TC = 100 + 5Q + Q^2$. What is the marginal cost (MC) function?

$
MC = \frac{dTC}{dQ}
$

Accepted Answer

$MC = 5 + 2Q$

Question 14

If a firm’s average variable cost (AVC) is rising, what must be true about marginal cost (MC)?

Accepted Answer

MC is above AVC.

Question 15

A firm is producing 1,500 units at a total cost of $15,000. If increasing production to 1,501 units raises total cost to $15,012, what are the marginal cost (MC) and average total cost (ATC) at 1,501 units?

$
MC = TC_{n+1} - TC_n$
$
ATC = \frac{TC_{n+1}}{Q_{n+1}}
$

Accepted Answer

Marginal cost is $12 and average total cost is $10.

Question 16

Which of the following best describes the effect of a lump-sum increase in fixed costs on a firm’s cost curves?

Accepted Answer

It shifts the average total cost and average fixed cost curves upward.

Average Cost, Marginal Cost, and Cost Curves in Microeconomics

Study Guide - Practice Questions

Study Guide - Flashcards