Question 1

The graph above shows three cost curves (ATC, AVC, and MC) for a firm. Which of the following statements is correct regarding the relationship between the Marginal Cost (MC) curve and the Average Total Cost (ATC) and Average Variable Cost (AVC) curves?

Accepted Answer

The MC curve intersects both the ATC and AVC curves at their minimum points.

Question 2

Suppose a firm's total cost (TC) is given by $$TC = 100 + 5Q + Q^2$. What is the marginal cost (MC) when output increases from Q = 3$ to Q = 4$?

Accepted Answer

$$MC = TC(4) - TC(3) = [100 + 5(4) + 4^2$] - [100 + 5(3) + 3^2$] = [100 + 20 + 16] - [100 + 15 + 9] = 136 - 124 = 12$$

Question 3

If the Average Variable Cost (AVC) curve is always below the Average Total Cost (ATC) curve, what does the vertical distance between these two curves represent?

Accepted Answer

Average Fixed Cost (AFC)

Question 4

Which of the following best describes the shape of the Marginal Cost (MC) curve in the short run?

Accepted Answer

It is typically U-shaped due to the law of diminishing marginal returns.

Question 5

If the Marginal Cost (MC) is below the Average Total Cost (ATC), what will happen to the ATC as output increases?

Accepted Answer

ATC will decrease.

Question 6

Given the following cost data for a firm: $$TC = 200$$, $$TVC = 150$$, and $$Q = 10$$, what is the Average Fixed Cost (AFC)?

Accepted Answer

$$AFC = \frac{TC - TVC}{Q} = \frac{200 - 150}{10} = \frac{50}{10} = 5$$

Question 7

If a firm’s marginal cost (MC) is rising and is above both the AVC and ATC, what can you infer about the behavior of AVC and ATC?

Accepted Answer

Both AVC and ATC are rising.

Question 8

Which of the following is true about the relationship between the Marginal Cost (MC) curve and the Average Variable Cost (AVC) curve?

Accepted Answer

The MC curve intersects the AVC curve at the AVC curve’s minimum point.

Question 9

If the Average Total Cost (ATC) at $$Q = 10 is$$ $$20$$ and the Marginal Cost (MC) at $$Q = 10 is$$ $$15$$, what will happen to the ATC if output increases?

Accepted Answer

ATC will decrease.

Question 10

Suppose a firm’s cost data for producing 5 and 6 units of output are $$TC(5) = 120$$ and $$TC(6) = 140. $$What is the marginal cost of producing the 6th unit?

Accepted Answer

$$MC = TC(6) - TC(5) = 140 - 120 = 20$$

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