Exam 6: Cost Theory and Estimation

In the short run, total cost is equal to zero when output is equal to zero.

Farview Construction, Inc., has the following short-run total cost schedule: (i) What is the firm's average fixed cost when Q = 10? (ii) What is the firm's average variable cost when Q = 4? (iii) What is the firm's average total cost when Q = 7? (iv) What is the firm's marginal cost when Q = 9? (v) At what level of output does the firm begin to experience diminishing returns?

The entrepreneur's opportunity cost is an implicit cost.

Long-run marginal cost is equal to short-run marginal cost at the level of output where the corresponding short-run average total cost curve is tangent to the long-run average cost curve.

Bob and Bill are college students. They are trying to decide what to do over the next summer. Bob's father has suggested that they both come and work at his plastics manufacturing company where each will earn $3,600 over the summer. Bill's father, who runs the local farmer's market, suggests that they go to a local resort area and sell fresh fruit and vegetables to tourists. Their markup on the produce would be twenty-five percent, so each $1.00 of revenue would involve a variable cost of $0.80. In addition to purchasing the produce, they would have to rent a location. The cost to rent a small roadside stand for the summer is $2,400. (i) How many dollars worth of produce will they have to sell in order to break even in an accounting sense? (ii) How many dollars worth of produce will they have to sell in order to break even in an economic sense?

Breakeven output is equal to total fixed cost divided by the contribution margin per unit.

The point of inflection of the short-run total variable cost function corresponds to the level of output where marginal cost is at a minimum.

If a ray that is drawn from the origin to a point on a total cost curve is tangent to the total cost curve, then its slope is equal to the minimum average total cost of production.

Which of the following short-run cost curves declines continuously?

If a learning curve is represented by C=aQ^b, then b>0.

The average fixed cost curve is U-shaped.

Fairweather Construction, Inc., has the following short-run total cost schedule: (i) What is the firm's average fixed cost when Q = 5? (ii) What is the firm's average variable cost when Q = 4? (iii) What is the firm's average total cost when Q = 4? (iv) What is the firm's marginal cost when Q = 10? (v) At what level of output does the firm begin to experience diminishing returns?

The long-run total cost curve is derived from the firm's expansion path.

Just-in-time inventory management and globalization have contributed to the emergence and growth of logistics.

Oceanview Construction, Inc., has the following short-run total cost schedule: (i) What is the firm's average fixed cost when Q = 5? (ii) What is the firm's average variable cost when Q = 4? (iii) What is the firm's average total cost when Q = 10? (iv) What is the firm's marginal cost when Q = 8? (v) At what level of output does the firm begin to experience diminishing returns?

Industries in which small and large firms coexist successfully have long-run average cost curves that are nearly horizontal.

Logistics refers to the rational assessment of supply and demand by consumers.

Economic theory suggests that a cubic function is an appropriate form for an empirical short-run total variable cost curve.

Economic cost curves define the minimum economic costs of producing various levels of output.

Logistics is also referred to as supply chain management.