Exam 8: Short-Run Costs and Output Decisions

When XYZ Corporation produces 35 units of output its average variable cost is $5. The marginal cost of the 36th unit of output is $7. If the firm chooses to produce the 36th unit of output, what will happen to average variable cost? Explain.

Explain the relationship between marginal cost and average variable cost.

Martin's Barber Shop faces the following schedule for producing haircuts: Fill in the columns for average fixed cost, average variable cost, average total cost, and marginal cost.

Prove that the total cost curve and the total variable cost curve have the same slope.

Draw two graphs. In the first graph draw a total variable cost curve. In the second graph, draw the corresponding marginal cost and average variable cost curve.

Draw two graphs: one showing how fixed cost varies with output and the other showing how average fixed cost varies with output.

How is average total cost calculated? If the total cost of producing 190 units of output is $355, what is the average total cost?

What does marginal cost measure?

How is average variable cost calculated? If a firm has total variable costs of $19,200 when producing 575 units, what is the firm's average variable cost?

When Little Furniture Company produces 100 chairs - its average variable cost is $25. The marginal cost of the 101st chair is $22. If the firm chooses to produce the 101st chair, what will happen to average variable cost? Explain.

If marginal costs for a firm are constant would the average total cost curve still have be u-shaped? Explain.

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

What is the relationship between average total cost and marginal cost?

What is the formula for calculating average fixed cost? If a firm has fixed costs of $8,500 per month and produces 1,900 units of output per month, what is its average fixed cost?

What is the relationship between average fixed cost and output?

Why does marginal cost eventually rise as output increases?

How is total revenue calculated? If a firm sells 350 units of a product at a price of $8 each, what is the firm's total revenue?

A bank manager advises all of his loan officers that the average cost of funds for the bank over the past year has been 6%. The bank has borrowed $1 million at 5%, another $1 million at 6% and another $1 million at 7%. Future borrowing costs are expected to continue at 7%. The manager however, instructs his loan officers that they are authorized to make loans at interest rates that are equal to or greater than the bank's average cost of borrowing. How would you evaluate the bank manager's decision?

Patty's Pizza Palace faces the following hourly cost schedule: Fill in the column for marginal cost.

What is the relationship between marginal cost and fixed cost?