Q: Which equation correctly defines average total cost (ATC)?

$$\text{ATC} = \frac{\text{Total Cost}}{\text{Quantity}}$$

Question 1

Which of the following best describes the production function in microeconomics?

Accepted Answer

The relationship between the quantity of inputs a firm uses and the quantity of output it produces.

Question 2

Suppose a bakery hires one additional worker and its output increases from 36 to 51 loaves of bread per day. What is the marginal product of labor for this worker?

Accepted Answer

$$	ext{MPL} = 51 - 36 = 15$$

Question 3

In the short run, which of the following statements is true?

Accepted Answer

At least one input is fixed.

Question 4

A firm experiences diminishing returns to labor when:

Accepted Answer

Adding an additional worker increases output, but by less than the previous worker.

Question 5

Which of the following is a fixed cost for a car manufacturing company in the short run?

Accepted Answer

Monthly lease payment for the factory building.

Question 6

If the total cost (TC) of producing 4 units is $$300 and the total cost of producing 3 units is 216$$, what is the marginal cost (MC) of producing the 4th unit?

Accepted Answer

$$	ext{MC} = 300 - 216 = 84$$

Question 7

Why is the marginal cost curve typically upward sloping in the short run?

Accepted Answer

Because of diminishing returns to the variable input.

Question 8

Which equation correctly defines average total cost (ATC)?

Accepted Answer

$$	ext{ATC} = \frac{	ext{Total Cost}}{	ext{Quantity}}$$

Question 9

If marginal cost (MC) is below average total cost (ATC), what happens to ATC as output increases?

Accepted Answer

ATC decreases.

Question 10

A firm is deciding between two plant sizes. At low levels of output, which plant size is likely to have the lower average total cost?

Accepted Answer

The plant with lower fixed costs.

Question 11

Which of the following best explains economies of scale?

Accepted Answer

Long-run average total cost decreases as output increases.

Question 12

Suppose a firm’s long-run average total cost remains unchanged as output increases. This situation is known as:

Accepted Answer

Constant returns to scale.

Question 13

Which of the following is most likely to be a variable input for a restaurant in the short run?

Accepted Answer

Ingredients used to prepare meals.

Question 14

If a firm’s average fixed cost (AFC) is $$20 and its average variable cost (AVC) is 30 at a $$certain output level, what is its average total cost (ATC)?

Accepted Answer

$$	ext{ATC} = 20 + 30 = 50$$

Question 15

A firm’s total cost of producing 0 units is $108. What does this value represent?

Accepted Answer

Fixed cost.

Question 16

Which of the following best describes the spreading effect as output increases?

Accepted Answer

Average fixed cost decreases as output increases.

Question 17

If a firm increases its output and experiences higher long-run average total costs, it is experiencing:

Accepted Answer

Diseconomies of scale.

Question 18

Which of the following is true about the long-run average total cost (LRATC) curve?

Accepted Answer

It shows the lowest possible average total cost for each output level when the firm can choose its fixed cost.

Question 19

A firm’s marginal cost curve intersects its average total cost curve at:

Accepted Answer

The minimum point of the average total cost curve.

Question 20

A real-world example: A tech company is deciding whether to build a small or large data center. If it expects to serve a small number of clients, which option minimizes average total cost and why?

Accepted Answer

A small data center, because lower fixed costs are spread over a small output.

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