Question 1

A software company spends $1,000,000 on developing a new app, regardless of how many copies it sells. Each additional copy sold costs $1 in server fees. What type of cost is the $1,000,000, and what type is the $1 per copy?

Accepted Answer

The $1,000,000 is a fixed cost; the $1 per copy is a variable cost.

Question 2

Which formula correctly calculates total cost ($TC$) in the short run?

Accepted Answer

$TC = TFC + TVC$

Question 3

A concert venue has high fixed costs and low marginal costs. Which of the following is most likely a fixed cost for the venue?

Accepted Answer

Booking the stadium for the season

Question 4

If a firm’s total fixed cost ($TFC$) is $500$ and it produces $10$ units, what is its average fixed cost ($AFC$)?

Accepted Answer

$AFC = 500 / 10 = 50$

Question 5

Which statement best describes the behavior of average fixed cost ($AFC$) as output increases?

Accepted Answer

AFC decreases as output increases.

Question 6

A firm’s total variable cost ($TVC$) for producing 5 units is $200$. What is its average variable cost ($AVC$)?

Accepted Answer

$AVC = 200 / 5 = 40$

Question 7

In the short run, why does the marginal cost ($MC$) curve eventually rise as output increases?

Accepted Answer

Because of diminishing returns to variable inputs.

Question 8

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

Accepted Answer

$AVC$ decreases.

Question 9

A perfectly competitive firm faces a market price of $P = 10$. Its marginal cost ($MC$) at 100 units is $8$, and at 120 units is $10$. What is the profit-maximizing output?

Accepted Answer

120 units

Question 10

Which equation represents the profit-maximizing condition for a perfectly competitive firm?

Accepted Answer

$MR = MC$

Question 11

If a firm’s total cost ($TC$) is $600$ and it produces $20$ units, what is its average total cost ($ATC$)?

Accepted Answer

$ATC = 600 / 20 = 30$

Question 12

In perfect competition, the marginal revenue ($MR$) curve for a firm is:

Accepted Answer

Horizontal at the market price

Question 13

A bakery’s total fixed cost ($TFC$) is $200$ and total variable cost ($TVC$) for 50 loaves is $150$. What is the total cost ($TC$) for 50 loaves?

Accepted Answer

$TC = 200 + 150 = 350$

Question 14

Which of the following best describes 'spreading overhead'?

Accepted Answer

Dividing total fixed costs by more units of output

Question 15

If a firm’s marginal cost ($MC$) is above its average total cost ($ATC$), what happens to $ATC$ as output increases?

Accepted Answer

$ATC$ increases.

Question 16

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

Accepted Answer

Firms have control over market price.

Question 17

A firm’s total revenue ($TR$) is $500$ and its total cost ($TC$) is $400$. What is its profit?

Accepted Answer

$500 - 400 = 100$

Question 18

Which curve represents the short-run supply curve for a perfectly competitive firm?

Accepted Answer

The marginal cost curve above the shutdown point

Question 19

A factory’s marginal cost ($MC$) for the 10th unit is $12$, and the market price is $15$. Should the factory produce the 10th unit?

Accepted Answer

Yes, because $MC < P$

Question 20

If a firm’s average variable cost ($AVC$) is $8$ and average fixed cost ($AFC$) is $2$, what is its average total cost ($ATC$)?

Accepted Answer

$ATC = 8 + 2 = 10$

Chapter 8: Short-Run Costs and Output Decisions – Principles of Microeconomics

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