Answer To: Marks: 1 So long as a firm is enjoying increasing marginal returns, a one unit increase in output...
David answered on Dec 21 2021
Marks: 1
So long as a firm is enjoying increasing marginal returns, a one unit increase in output will cause
marginal costs to ________ and total costs to ________.
Choose one answer.
a. increase; decrease
b. decrease; decrease
c. decrease; increase
d. increase; increase
Question 2
Marks: 1
Fred is considering opening a ski shop in Colorado. Assume Fred will incur the following costs: building
rent = $100,000/year, inventory = $250,000/year, energy = $50,000/year, and labor (one clerk) =
$10,000/year. In addition, Fred's current income as a computer programmer is $40,000 per year.
Assuming Fred would earn $460,000 in revenues, he could expect to earn:
Choose one answer.
a. an economic profit of $50,000 per year.
b. an economic profit of $10,000 per year.
c. an accounting profit of $60,000 per year.
d. an accounting profit of $10,000 per year.
Calculation:
Revenue 460,000
Less: Cost
Rent 100,000
Inventory 250,000
Energy 50,000
Labor 10,000
Accounting Profit 50,000
Less: Current Income 40,000
Economic Profit 10,000
Question 3
Marks: 1
Scenario 3:
Total Product (Q): 0 1 2 3 4 5 6
Total Cost (TC): $50 $80 $105 $125 $155 $195 $250
Refer to Scenario 3. The average variable cost of producing three units of output is:
Choose one answer.
a. $25.
b. $75.
c. $41.67 (approximate).
d. $15.
Calculation:
Total Variable cost for 3 units = 125-50 = $75
Average Variable Cost = 75/3 = $25
Question 4
Marks: 1
Scenario 3:
Total Product (Q): 0 1 2 3 4 5 6
Total Cost (TC): $50 $80 $105 $125 $155 $195 $250
Refer to Scenario 3. The marginal cost of producing the sixth unit of output is:
Choose one answer.
a. $250.
b. $200.
c. $33.33 (approximate).
d. $55.
Calculation:
Marginal Cost of 6th unit = $250-$195 = $55
Question 5
Marks: 1
Scenario 3:
Total Product (Q): 0 1 2 3 4 5 6
Total Cost (TC): $50 $80 $105 $125 $155 $195 $250
Refer to Scenario 3. The average total cost of 5 units of output is
Choose one answer.
a. $10.
b. $39.
c. $8.
d. $29.
Calculation:
Total Cost of 5 units = $195
Average Cost = $195/5 = $39
Question 6
Marks: 1
Scenario 3:
Total Product (Q): 0 1 2 3 4 5 6
Total Cost (TC): $50 $80 $105 $125 $155 $195 $250
Refer to Scenario 3. Diminishing marginal returns are incurred when output is increased from:
Choose one answer.
a. 4 to 5 units of output.
b. 3 to 4 units of output.
c. 1 to 2 units of output.
d. 2 to 3 units of output.
Calculation:
Units Total Cost Change
0 50
1 80 30
2 105 25
3 125 20
4 155 30
5 195 40
6 250 55
Thus Diminishing marginal returns are incurred when output is increased from 3 to 4
Question 7
Marks: 1
Assume a firm is currently producing 100 units of output, total fixed costs are $10,000, and average
variable costs are $8. Based on this information we can conclude, with certainty, that the firm's:
Choose one answer.
a. total costs are $10,800.
b. total variable costs are $8000.
c. average fixed costs are $2.
d. marginal costs are $8.
Calculation:
Total Fixed Cost = $10000
Total Variable Cost = 100*8 = $800
Total Cost = $10800
Question 8
Marks: 1
If a firm experiences constant returns to the variable input in the short run,
Choose one answer.
a. marginal cost will be less than average variable cost, but the two will become more equal as
output increases.
b. marginal cost and average variable cost will be equal over the range of output in question.
c. marginal cost will be greater than average variable cost, but the two will become more equal as
output increases.
d. marginal cost will be greater than average variable cost, and the difference between the two will
become larger as output increases.
Question 9
Marks: 1
Production functions A and B result in the same average total costs of production. However, production
function A is twice as capital intensive as production function B. In this case, all else constant:
Choose one answer.
a. marginal costs will be higher in A than they are in B.
b. marginal costs will be...