Question 1

Which of the following best describes the relationship between average fixed cost (AFC) and output, as shown in the cost curves?

Accepted Answer

AFC decreases as output increases because fixed costs are spread over more units.

Question 2

Suppose a firm’s total cost (TC) is given by $$TC = 100 + 5Q + Q^2$. What is the marginal cost (MC) when Q = 10$?

Accepted Answer

$$MC = 5 + 2Q = 5 + 2(10) = 25$$

Question 3

Which cost curve is always downward sloping and never touches the horizontal axis?

Accepted Answer

Average Fixed Cost (AFC)

Question 4

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

Accepted Answer

ATC decreases.

Question 5

A firm experiences economies of scale when:

Accepted Answer

Long-run average cost decreases as output increases.

Question 6

Which of the following is a correct formula for Average Variable Cost (AVC)?

Accepted Answer

$$AVC = \frac{TVC}{Q}$$

Question 7

If a firm’s total fixed cost (TFC) is $$200$$ and it produces $$20$$ units, what is its average fixed cost (AFC)?

Accepted Answer

$$AFC = \frac{200}{20} = 10$$

Question 8

Which of the following statements about marginal cost (MC) is correct?

Accepted Answer

MC is the change in total cost resulting from producing one more unit of output.

Question 9

In the short run, which cost must always be paid even if output is zero?

Accepted Answer

Total Fixed Cost (TFC)

Question 10

Suppose a firm’s total cost (TC) is $$500$$ when producing $$10$$ units and $$520$$ when producing $$11$$ units. What is the marginal cost (MC) of the 11th unit?

Accepted Answer

$$MC = 20$$

Question 11

Which of the following best explains why the average total cost (ATC) curve is typically U-shaped?

Accepted Answer

ATC first decreases due to spreading fixed costs, then increases due to rising variable costs.

Question 12

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

Accepted Answer

$$ATC = 15 + 5 = 20$$

Question 13

Which of the following is NOT a characteristic of fixed costs?

Accepted Answer

They increase as output increases.

Question 14

A firm’s total cost (TC) is $$TC = 300 + 20Q. $$What is the average total cost (ATC) when $$Q = 10$$?

Accepted Answer

$$ATC = \frac{300 + 20(10)}{10} = \frac{500}{10} = 50$$

Question 15

Which of the following best describes the law of diminishing marginal returns?

Accepted Answer

As more units of a variable input are added to fixed inputs, the additional output from each new unit eventually decreases.

Question 16

If the marginal cost (MC) curve intersects the average total cost (ATC) curve at its minimum point, what does this imply?

Accepted Answer

ATC is at its lowest value.

Question 17

Which of the following is a real-world example of a fixed cost for a bakery?

Accepted Answer

Monthly rent for the bakery building.

Question 18

Suppose a firm’s total variable cost (TVC) is $$400$$ when producing $$20$$ units. What is the average variable cost (AVC)?

Accepted Answer

$$AVC = \frac{400}{20} = 20$$

Question 19

Which of the following statements about the short run and long run in production is correct?

Accepted Answer

In the short run, at least one input is fixed; in the long run, all inputs are variable.

The Economic Analysis of Cost in Microeconomics

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