Exam 8: Short-Run Costs and Output Decisions

Mark's Fabrics produces fabric for window curtains. The firm's fixed costs are $500 per day. The firm's variable costs vary with the level of output as follows: Fill in the column for total cost.

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Question 1

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What two things does the level of total variable costs depend on?

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Question 2

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(1.) The techniques of production which are available. (2.) The prices of inputs required by each technology.

Draw average variable cost, average total cost, and marginal cost on the same set of axes.

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Question 3

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Marginal cost intersects average variable cost at minimum average variable cost. Marginal cost intersects average total cost at minimum average total cost. In addition, the average variable cost and average total cost curves become closer as output rises.

Laura's Cookie Company faces the following cost schedule for making cookies by the dozen: Fill in the blanks above.

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Question 4

What is the relationship between total variable cost and marginal cost? Explain.

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Question 5

What is meant by marginal revenue?

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Question 6

The equation for the firm's total variable costs is given by TVC = 5q. The firm's total fixed costs are $10. What is the equation for the firm's TC curve? Draw the firm's TVC, TFC, TC, MC, AVC, and ATC cost curves. Does the firm's cost curve have the usual shape? Why or why not?

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Question 7

What is the shape of the total variable cost curve? Explain.

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Question 8

Using the graph below draw a marginal cost curve that would likely be the result. Use the output level of 200 as a reference point and explain why you drew it the way you did.

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Question 9

What is meant by variable cost? What kinds of things might be included in variable cost?

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Question 10

White Paper Company faces the following cost schedule for producing reams of paper: Fill in the columns for average fixed cost, average variable cost, average total cost, and marginal cost.

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Question 11

Explain how it might be possible for the total variable cost function to be linear? Explain.

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Question 12

If a firm shuts down in the short run, will it have zero costs or not? Explain.

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Question 13

What is meant by spreading overhead?

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Question 14

Assume that you have data on a firm's average fixed cost and average variable cost for various levels of output and you are asked to calculate the total variable cost and total cost of the firm. Would this be enough information to perform this calculation? Explain

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Question 15

What is the relationship between average total cost, average variable cost, and average fixed cost? If average total cost is $5.76 and average fixed cost is $1.35, what is the level of average variable cost?

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Question 16

Assume a firm is operating under conditions of pure competition and faces a marginal cost function that is everywhere below its average total cost. If the firm is producing where marginal revenue equals marginal cost will it be possible for it to make an economic profit? Explain.

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Question 17

If General Motors cuts back production on the Hummer because of high gasoline prices what should you expect to happen to the average fixed cost of production? What about the average total cost?

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Question 18

How is it possible for marginal cost to equal to the slope of either the total variable cost function or the total cost function?

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Question 19

Assume that we only have data on total cost when output is equal to zero and no other cost information at our disposal. How could we possibly know what the fixed costs are for the firm?

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Question 20

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Mark's Fabrics produces fabric for window curtains. The firm's fixed costs are $500 per day. The firm's variable costs vary with the level of output as follows: Fill in the column for total cost.

What two things does the level of total variable costs depend on?

Draw average variable cost, average total cost, and marginal cost on the same set of axes.

Laura's Cookie Company faces the following cost schedule for making cookies by the dozen: Fill in the blanks above.

What is the relationship between total variable cost and marginal cost? Explain.

What is meant by marginal revenue?

The equation for the firm's total variable costs is given by TVC = 5q. The firm's total fixed costs are $10. What is the equation for the firm's TC curve? Draw the firm's TVC, TFC, TC, MC, AVC, and ATC cost curves. Does the firm's cost curve have the usual shape? Why or why not?

What is the shape of the total variable cost curve? Explain.

Using the graph below draw a marginal cost curve that would likely be the result. Use the output level of 200 as a reference point and explain why you drew it the way you did.

What is meant by variable cost? What kinds of things might be included in variable cost?

White Paper Company faces the following cost schedule for producing reams of paper: Fill in the columns for average fixed cost, average variable cost, average total cost, and marginal cost.

Explain how it might be possible for the total variable cost function to be linear? Explain.

If a firm shuts down in the short run, will it have zero costs or not? Explain.

What is meant by spreading overhead?

Assume that you have data on a firm's average fixed cost and average variable cost for various levels of output and you are asked to calculate the total variable cost and total cost of the firm. Would this be enough information to perform this calculation? Explain

What is the relationship between average total cost, average variable cost, and average fixed cost? If average total cost is $5.76 and average fixed cost is $1.35, what is the level of average variable cost?

Assume a firm is operating under conditions of pure competition and faces a marginal cost function that is everywhere below its average total cost. If the firm is producing where marginal revenue equals marginal cost will it be possible for it to make an economic profit? Explain.

If General Motors cuts back production on the Hummer because of high gasoline prices what should you expect to happen to the average fixed cost of production? What about the average total cost?

How is it possible for marginal cost to equal to the slope of either the total variable cost function or the total cost function?

Assume that we only have data on total cost when output is equal to zero and no other cost information at our disposal. How could we possibly know what the fixed costs are for the firm?

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Social Choice

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