Question 1

Which of the following best explains why economic profit is usually less than accounting profit for a firm?

Accepted Answer

Economic profit includes both explicit and implicit costs, while accounting profit includes only explicit costs.

Question 2

A bakery owner invests $50,000 of her own savings into her business. If the interest rate is 4%, what is the annual implicit cost of this investment?

Accepted Answer

$2,000

Question 3

Suppose a firm’s total cost is given by $$TC = FC + VC$$, where $$FC is $$fixed cost and $$VC is $$variable cost. If $$FC = 20$$ and $$VC = 5Q$$, what is the total cost when $$Q = 10$$?

Accepted Answer

$$TC = 70$$

Question 4

Which of the following best describes the shape of the marginal cost (MC) curve and the average total cost (ATC) curve for a typical firm?

Accepted Answer

MC is upward sloping and ATC is U-shaped.

Question 5

If the marginal cost (MC) of producing an additional unit is less than the average total cost (ATC), what happens to ATC as output increases?

Accepted Answer

ATC decreases.

Question 6

A firm’s production function gets flatter as more workers are hired. What economic principle does this illustrate?

Accepted Answer

Diminishing marginal product

Question 7

Given the following data for a coffee shop: When output increases from 4 to 5 cups per hour, total cost rises from $$6.00 to 7.50. $$What is the marginal cost (MC) of the 5th cup?

Accepted Answer

$$1.50$$

Question 8

Which of the following is an example of an explicit cost for a business?

Accepted Answer

The monthly rent paid for the store

Question 9

If a firm’s average fixed cost (AFC) is $$2$$ when producing $$10$$ units, what is the total fixed cost (FC)?

Accepted Answer

$$FC = 20$$

Question 10

Which of the following best describes economies of scale?

Accepted Answer

Long-run average total cost falls as output increases.

Question 11

A firm’s total revenue is $$TR = P 	imes Q. If $$the price per unit is $$8$$ and the firm sells $$50$$ units, what is the total revenue?

Accepted Answer

$$TR = 400$$

Question 12

Which of the following statements is true about the relationship between short-run and long-run average total cost curves?

Accepted Answer

Long-run average total cost curves are much flatter than short-run average total cost curves.

Question 13

If a firm experiences diseconomies of scale, what happens to its long-run average total cost as output increases?

Accepted Answer

It rises.

Question 14

Suppose a firm’s average variable cost (AVC) is $$3$$ and average fixed cost (AFC) is $$2$$ when producing $$100$$ units. What is the average total cost (ATC)?

Accepted Answer

$$ATC = 5$$

Question 15

Which of the following is NOT considered an implicit cost?

Accepted Answer

Wages paid to employees

Question 16

If the marginal product of labor is decreasing as more workers are hired, what is happening to the total-cost curve?

Accepted Answer

It becomes steeper.

Question 17

A firm’s marginal cost (MC) curve crosses its average total cost (ATC) curve at:

Accepted Answer

The minimum of ATC

Question 18

Which of the following best describes constant returns to scale?

Accepted Answer

Long-run average total cost stays the same as output increases.

Question 19

If a firm’s total cost increases from $$100 to$$ $$120$$ when output increases from $$10 to$$ $$15$$ units, what is the marginal cost (MC) per unit for this range?

Accepted Answer

$$MC = 4$$

Question 20

Which of the following is true about average fixed cost (AFC) as output increases?

Accepted Answer

AFC decreases.

The Costs of Production: Microeconomics Study Notes

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