Deck 6: Production Costs

Question 1

When total revenue minus total cost is equal to zero, the firm is:

A) earning above-average economic profit.
B) earning a normal profit.
C) losing too much money to stay in business.
D) earning abnormally low profits.

Answer 1

B

Question 2

Which of the following would be considered an implicit cost?

A) Health insurance of employees paid for by the firm
B) The water bill of the firm
C) The salaries paid to the managers of the firm
D) Foregone rent on assets owned by the firm

Answer 2

D

Question 3

The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's:

A) economic profit.
B) accounting profit.
C) opportunity cost of capital.
D) long-run average total cost.

Answer 3

A

Question 4

What is the difference between economic and accounting profit? Why is a distinction between them important?

Question 5

Variable inputs are defined as any resource that:

A) varies with the size of the firm's plant.
B) cannot be changed as output changes.
C) can be changed as output changes.
D) can be increased or decreased hourly.

Question 6

Suppose that a small business takes in monthly revenue of $100,000. Labor, rental, energy, and other purchased input costs are $70,000. The owner/entrepreneur could earn $5,000 per month in another job, and the owner/entrepreneur could get a return of $5,000 each month if she sold her business and invested the net proceeds in a financial asset, such as a treasury bond. Which of the following correctly describes her monthly economic profit?

A) $90,000.
B) $80,000.
C) $25,000.
D) $20,000.

Question 7

Paul's Plumbing is a small business that employs 12 people. Which of the following is the best example of an implicit cost incurred by this firm?

A) The tax payments on property owned by the firm.
B) The wages paid to the 12 employees.
C) The half of the payroll taxes on the wages of the 12 employees paid by the employers, but not the half paid by the employees.
D) The accounting services provided free of charge to the firm by Paul's wife, who is an accountant.

Question 8

Monetary payments to nonowners of a firm are called:

A) implicit costs.
B) accounting costs.
C) explicit costs.
D) economic costs.

Question 9

A firm has $200 million in total revenue and explicit costs of $190 million. Suppose its owners have invested $100 million in the company at an opportunity cost of 10 percent interest rate per year. The firm's economic profit is:

A) $400 million.
B) $100 million.
C) $80 million.
D) zero.

Question 10

The opportunity costs associated with the use of resources owned by a firm are:

A) externalities.
B) implicit costs.
C) explicit costs.
D) sunk costs.

Question 11

Unlike implicit costs, explicit costs:

A) reflect opportunity costs.
B) include the value of the owner's time.
C) are not included in the accounting statement of the firm.
D) are actual cash payments.

Question 12

Cash payments to a steel mill for steel used in production would be an example of:

A) entrepreneurial costs.
B) fixed costs.
C) explicit costs.
D) implicit costs.

Question 13

Which of the following represents the key difference between the short run and the long run?

A) In the long run, the firm makes commitments to a certain type of production technology which are represented as fixed costs in the long run. For example, they have signed a lease on a particular production facility. These fixed costs do not exist in the short run.
B) In the short run, the firm makes commitments to a certain type of production technology, which are represented as fixed costs in the short run. For example, they have signed a lease on a particular production facility. These fixed costs do not exist in the long run.
C) The short run refers to less than two years and the long run is over two years.
D) In the short run, all costs are fixed but in the long run, capital costs are variable.

Question 14

Sam quits his job as an airline pilot and opens his own pilot training school. He was earning $40,000 as a pilot. He withdraws $10,000 from his savings where he was earning 6 percent interest and uses the money in his new business. He uses a building he owns as a hanger and could rent it out for $5,000 per year. He rents a computer for $1,200, buys office supplies for $500, rents an airplane for $6,000, pays $1,300 for fuel and maintenance, and hires one worker for $30,000. Sam's total revenue from pilot training classes this year equaled $90,400. Sam's accounting profit this year equals:

A) $45,600.
B) $51,400.
C) $39,000.
D) $44,800.

Question 15

Two friends, Diane and Sam, own and run a bar. Diane tends bar on Monday, Wednesday, and Friday and receives a wage in addition to tips. Sam tends bar on Tuesday, Thursday, and Saturday and receives only tips. Which of the following represents an implicit cost of operating the bar?

A) Diane's wage.
B) Sam's time.
C) Diane's tips.
D) Sam's tips.

Question 16

Implicit costs are:

A) the opportunity costs of using resources owned by the entrepreneur in his/her own business.
B) payments the business owner must make on borrowed funds.
C) costs which vary as the level of output varies.
D) those payments the business owner makes in cash.

Question 17

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000, for food and $2,000 for gas and electricity. What is the sum of his implicit costs?

A) $26,000.
B) $66,000.
C) $78,000.
D) $52,000.

Question 18

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What is the sum of his explicit costs?

A) $26,000.
B) $66,000.
C) $78,000.
D) $52,000.

Question 19

A firm's opportunity cost of using resources provided by the firm's owners is called:

A) sunk costs.
B) fixed costs.
C) explicit costs.
D) implicit costs.

Question 20

Economic profit is:

A) total revenues minus variable costs.
B) total revenues minus implicit costs.
C) total revenues minus explicit costs.
D) total revenues minus explicit costs minus implicit costs.

Question 21

Exhibit 6-1 Production of pizza data $$\begin{array} { | c | c | } \hline \text { Workers } & \text { Pizzas } \\\hline 0 & 0 \\1 & 4 \\2 & 10 \\3 & 15 \\4 & 18 \\5 & 19 \\\hline\end{array}$$ Exhibit 6-1 shows the change in the short-run production of pizzas as more workers are hired. The table shows the marginal product of the labor input is decreasing with the hiring of the third worker. A possible reason for this diminishing marginal product is:

A) decreases in labor productivity.
B) increases in plant size.
C) decreases in fixed cost.
D) increased division of labor as additional workers are hired.

Question 22

Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crops twice during the growing season and notices that the second layer of fertilizer increases his crop, but not as much as the first layer. What economic concept best explains this observation?

A) The law of diminishing marginal utility.
B) The law of diminishing returns.
C) Return equalization principle.
D) The principal-agent problem.

Question 23

During the short-run period of the production process, a firm will be:

A) unable to vary any of its factors of production.
B) able to vary some of its factors of production.
C) able to vary all of its factors of production.
D) able to vary the size of its plant.

Question 24

As a fishing firm hires its first, second, and third workers, it could find that marginal product actually rises. The reason for this is:

A) diminishing returns have set in.
B) the division of labor creates greater productivity.
C) less qualified workers are becoming available.
D) all workers perform identical tasks.

Question 25

The law of diminishing marginal returns implies that, in the short run:

A) output must fall beyond a certain point.
B) price must fall beyond a certain point.
C) the marginal product of the variable input must eventually decrease.
D) wages of workers must eventually increase.

Question 26

Suppose when a car wash has 2 washing stations and 5 workers and is able to wash 100 cars per day. When it adds a third station, but no more workers, it is able to wash 150 cars per day. The marginal product of the third washing station is:

A) 100 cars per day.
B) 150 cars per day.
C) 5 cars per day.
D) 50 cars per day.

Question 27

Exhibit 6-1 Production of pizza data $$\begin{array} { | c | c | } \hline \text { Workers } & \text { Pizzas } \\\hline 0 & 0 \\1 & 4 \\2 & 10 \\3 & 15 \\4 & 18 \\5 & 19 \\\hline\end{array}$$ Exhibit 6-1 shows the change in the production of pizzas as more workers are hired. The marginal product of the second employee equals:

A) 4.
B) 10.
C) 14.
D) 6.

Question 28

The long run is a period of:

A) at least one year.
B) sufficient length to allow a firm to expand output by hiring additional workers.
C) sufficient length to allow a firm to alter its plant size and capacity and all other factors of production.
D) sufficient length to allow a firm to transform economic losses into economic profits by hiring better workers.

Question 29

The short run is a period of time:

A) in which a firm uses at least one fixed input.
B) that is long enough to permit changes in the firm's plant size.
C) in which production occurs within one year.
D) in which production occurs within six months.

Question 30

Exhibit 6-3 A marginal product curve

As shown in Exhibit 6-3, the law of diminishing returns applies where there are:

A) more than 5 workers per day.
B) fewer than 2 workers per day.
C) fewer than 5 workers per day.
D) between 2 and 5 workers per day.

Question 31

A farm is able to produce 5,000 bushels of peaches per season on 100 acres. Assume it adds one more acre and is able to produce 6,000 bushels per season. The marginal product of the additional acre of land for this farm is:

A) 6,000 bushels per acre per year.
B) 5,000 bushels per acre per year.
C) 1,000 bushels per acre per year.
D) 11,000 bushels per acre per year.

Question 32

Exhibit 6-2 Cost schedule for pizza production $$\begin{array} { | c | c | c | c | } \hline \text { Pizzas } & \begin{array} { c } \text { Labor } \\\text { Cost }\end{array} & \begin{array} { c } \text { Energy } \\\text { Cost }\end{array} & \begin{array} { c } \text { Materials } \\\text { Cost }\end{array} \\\hline 0 & \$ 10 & \$ 0 & \$ 0 \\1 & 10 & 12 & 4 \\2 & 24 & 22 & 8 \\3 & 40 & 30 & 12 \\4 & 60 & 36 & 16 \\5 & 90 & 40 & 20 \\\hline\end{array}$$ Exhibit 6-2 shows the labor, energy, and materials cost of making various quantities of pizzas. The table shows that the labor cost of making pizzas will:

A) increase at a decreasing rate.
B) decrease at a decreasing rate.
C) decrease at an increasing rate.
D) increase at an increasing rate.

Question 33

The long run is a planning period:

A) during which the firm can vary all inputs including its plant size.
B) less than six months.
C) less than one year.
D) less than five years.

Question 34

Which of the following best describes a production function?

A) The relationship between consumer preferences and market demand.
B) The relationship between the quantity of labor employed and total cost.
C) The relationship between the maximum amounts of output a firm can produce and various quantities of inputs.
D) The relationship between price and quantity supplied by sellers in a market.

Question 35

If two workers can produce 22 units of output, and the addition of a third worker increases output to 30 units, the marginal product of the third worker is:

A) 8 units.
B) 10 units.
C) 22 units.
D) 30 units.

Question 36

Exhibit 6-1 Production of pizza data $$\begin{array} { | c | c | } \hline \text { Workers } & \text { Pizzas } \\\hline 0 & 0 \\1 & 4 \\2 & 10 \\3 & 15 \\4 & 18 \\5 & 19 \\\hline\end{array}$$ Exhibit 6-1 shows the change in the production of pizzas as more workers are hired. The marginal product of the labor input begins to fall with the employment of the

A) first worker.
B) second worker.
C) third worker.
D) fourth worker.

Question 37

Marginal product measures the change in:

A) total cost brought about by changing production by one unit.
B) product price brought about by changing production by one unit.
C) a firm's revenue brought about by changing production by one unit.
D) the firm's output brought about by employing one additional unit of input.

Question 38

Which of the following factors of production is not variable in the long run?

A) the size of the firm's plant.
B) property taxes on the assets of the firm.
C) highly trained labor.
D) All factors of production are variable in the long run.

Question 39

For the law of diminishing returns to be present, we must have:

A) at least one factor of production to be fixed.
B) output decreasing as more laborers are hired.
C) the price of labor increasing as more workers are hired.
D) simultaneous changes in labor and capital.

Question 40

During the course of a week, McDonald's has enough time to hire or layoff workers, but it does not have enough time to expand its kitchen or add an additional seating area. In this situation, McDonald's:

A) has no fixed costs.
B) is in the short run.
C) suffers an economic loss.
D) earns a large profit.

Question 41

Which of the following is true if the total variable cost curve is increasing at an increasing rate?

A) Average fixed cost is increasing.
B) Marginal cost is decreasing.
C) Marginal cost is increasing.
D) Average fixed cost is constant.

Question 42

Exhibit 6-4 A marginal product curve

As shown in Exhibit 6-4, the law of diminishing returns applies in the range of:

A) over 1 workers per day.
B) over 3 workers per day.
C) between 0 and 3 workers per day.
D) between 0 and 5 workers per day.

Question 43

Which statement about the total variable cost curve is true ?

A) It begins at the origin and increases before decreasing again.
B) The total variable cost curve is the same at all levels of output.
C) The total variable cost curve is increasing but at a decreasing rate.
D) It begins at the origin and is always increasing.

Question 44

In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be:

A) $25.
B) $2,500.
C) $5,000.
D) $7,500.

Question 45

The total fixed cost curve:

A) varies with the quantity of inputs used.
B) decreases with output.
C) increases with output.
D) remains constant regardless of output.

Question 46

The total fixed cost remains constant as which of the following varies (as depicted on the x-axis of the relevant graph)?

A) cost of resources
B) time
C) output in a given period of time
D) profit

Question 47

If fixed cost is $200,000 and variable cost is $30 per unit over the relevant range of output, when 10,000 units are produced, the average total cost will be:

A) $20.
B) $30.
C) $50.
D) $70.

Question 48

Which of the following is true about average fixed cost?

A) Average fixed cost has a U-shape, and marginal cost crosses average fixed cost at its minimum point.
B) Average fixed cost does not vary as output increases.
C) Average fixed cost is the difference between marginal cost and average total cost.
D) Average fixed cost is total fixed cost divided by the quantity of output produced, and it declines steadily as output increases.

Question 49

Bill is an accountant for a small machine shop. His boss has asked him to calculate the shop's total fixed cost. Which method will get Bill the correct answer?

A) subtracting total variable costs from total revenue
B) calculating the product of average total cost and quantity
C) subtracting the average variable cost from the total cost
D) subtracting the total variable cost from the total cost

Question 50

Which of the following best describes total fixed cost?

A) Costs that do not vary as output varies.
B) Total cost divided by the quantity of output produced.
C) Total variable cost divided by the quantity of output produced.
D) Total fixed cost divided by the quantity of output produced.

Question 51

Exhibit 6-5 Workers and output data $$\begin{array} { | c | c | } \hline \text { Laborers } & \begin{array} { c } \text { Total } \\\text { Product }\end{array} \\\hline 0 & 0 \\1 & 8 \\2 & 20 \\3 & 25 \\4 & 28 \\5 & 29 \\\hline\end{array}$$ In Exhibit 6-5, diminishing returns set in when the ____ worker is hired.

A) first
B) second
C) third
D) fourth

Question 52

Which of the following is an example of a fixed cost for a fishing company?

A) The cost of hiring a fishing crew.
B) The fuel costs of running the boat.
C) The monthly loan payment on the boat.
D) The supply of nets, hooks, and fishing lines.

Question 53

Exhibit 6-5 Workers and output data $$\begin{array} { | c | c | } \hline \text { Laborers } & \begin{array} { c } \text { Total } \\\text { Product }\end{array} \\\hline 0 & 0 \\1 & 8 \\2 & 20 \\3 & 25 \\4 & 28 \\5 & 29 \\\hline\end{array}$$ In Exhibit 6-5, the marginal product of the second worker is:

A) 8.
B) 10.
C) 12.
D) 20.

Question 54

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be:

A) $40.
B) $60.
C) $6,000.
D) $8,000.

Question 55

Which of the following is most likely to be a fixed cost for a business?

A) expenditures on low-skill labor.
B) shipping charges for the delivery of products.
C) materials costs.
D) property taxes on the firm's buildings.

Question 56

Barbara owns a small shop where dresses are made. At the end of a given month, she has 250 dresses. Her expenses for the month are $1,000 for rent, $6,000 for wages, $1,500 for fabric and thread, and $500 for electricity. Her total variable costs for the month are:

A) $8,000.
B) $4,000.
C) $32 per dress.
D) $7,500.

Question 57

Suppose a publisher faces the following costs of producing 10,000 newspapers each month: $5,500 cost of labor; $2,200 monthly mortgage payment; $250 cost of electricity to run the printing presses; $800 for ink and paper; and $200 in city property taxes (based on the value of the building and land). Its total variable costs are:

A) $8,950.
B) $8,750.
C) $6,550.
D) $6,300.

Question 58

Which of the following statements is true?

A) TC = TFC − TVC
B) AVC = TC / Q
C) TFC = TC − TVC
D) MC equals the change in ATC divided by the change in Q.

Question 59

Distinguish the short run from the long run. Generally, what causes costs of production to vary with output in the short run? What generally causes costs of production to vary in the long run?

Question 60

When costs that vary with the level of output are divided by the output, you have calculated:

A) total changing cost.
B) total fixed cost.
C) average fixed cost.
D) average variable cost.

Question 61

Exhibit 6-9 Cost schedule for firm X $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { Quantity }\end{array} & \begin{array} { c } \text { Total Fixed } \\\text { Cost }\end{array} & \begin{array} { c } \text { Total Variable } \\\text { Cost }\end{array} \\\hline 0 & \$ 100 & \$ 0 \\1 & 100 & 50 \\2 & 100 & 84 \\3 & 100 & 108 \\4 & 100 & 127 \\5 & 100 & 150 \\\hline\end{array}$$ As shown in Exhibit 6-9, the marginal cost of producing the third unit is:

A) $50.
B) $16.
C) $24.
D) $23.

Question 62

Exhibit 6-9 Cost schedule for firm X $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { Quantity }\end{array} & \begin{array} { c } \text { Total Fixed } \\\text { Cost }\end{array} & \begin{array} { c } \text { Total Variable } \\\text { Cost }\end{array} \\\hline 0 & \$ 100 & \$ 0 \\1 & 100 & 50 \\2 & 100 & 84 \\3 & 100 & 108 \\4 & 100 & 127 \\5 & 100 & 150 \\\hline\end{array}$$ As shown in Exhibit 6-9, the total cost of producing 4 units is:

A) zero.
B) $227.
C) $250.
D) $100.

Question 63

Exhibit 6-6 Total cost curves

In Exhibit 6-6, the total fixed cost is:

A) 0.
B) 1,000.
C) 3,000.
D) 5,000.

Question 64

Exhibit 6-11 Short-run cost schedule for pizzeria's hourly production $$\begin{array} { | c | r | } \hline \begin{array} { c } \text { Total } \\\text { Product }\end{array} & \begin{array} { r } \text { Total } \\\text { Cost }\end{array} \\\hline 0 \text { pizzas } & \$ 20 \\10 & 70 \\20 & 100 \\30 & 150 \\40 & 250 \\\hline\end{array}$$ In Exhibit 6-11, the average total cost or producing 40 pizzas per hour is equal to:

A) $5 per pizza.
B) $5.75 per pizza.
C) $6.25 per pizza.
D) $10 per pizza.

Question 65

Exhibit 6-10 Short-run cost schedule for book publisher's hourly production $$\begin{array} { | c | c | r | } \hline \begin{array} { c } \text { Total } \\\text { Output }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost }\end{array} \\\hline \text { 0 cases of books } &\$0 & \$ 200 \\1 & 100 & 300 \\2 & 150 & 350 \\3 & 250 & 450 \\4 & 450 & 650 \\\hline\end{array}$$ In Exhibit 6-10, the average variable cost of producing 2 cases of books is:

A) $50 per case.
B) $75 per case.
C) $100 per case.
D) $150 per case.

Question 66

Exhibit 6-9 Cost schedule for firm X $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { Quantity }\end{array} & \begin{array} { c } \text { Total Fixed } \\\text { Cost }\end{array} & \begin{array} { c } \text { Total Variable } \\\text { Cost }\end{array} \\\hline 0 & \$ 100 & \$ 0 \\1 & 100 & 50 \\2 & 100 & 84 \\3 & 100 & 108 \\4 & 100 & 127 \\5 & 100 & 150 \\\hline\end{array}$$ As shown in Exhibit 6-9, the average total cost of producing 5 units is:

A) $20.
B) $30.
C) $50.
D) $250.

Question 67

Suppose the fixed cost of building a nuclear power plant is $1 billion. Suppose also that the only variable cost is the labor of Homer Simpson, and he earns $10 per hour. If the plant generates 1,000 kilowatts each hour, and has already generated 1 billion kilowatts, what can you say about the marginal cost of the next kilowatt?

A) The marginal cost is falling.
B) The marginal cost is equal to $.01.
C) The marginal cost is equal to $1.01.
D) The marginal cost is rising.

Question 68

The change in total cost that results from the production of one additional unit is called:

A) marginal revenue.
B) average variable cost.
C) marginal cost.
D) average total cost.

Question 69

When the marginal cost is higher than the average total cost,

A) the average fixed cost must exceed the average variable cost.
B) the average variable cost must also be higher than the average total cost.
C) the higher additional value causes the average to rise.
D) the higher additional value causes the average to fall.

Question 70

The marginal cost intersects the average variable cost

A) and the average total cost through their upward-sloping sections.
B) in its upward-sloping section and the average total cost through its downward-sloping section.
C) through its minimum point and the average total cost through its maximum point.
D) and the average total cost through their minimum points.

Question 71

Use the table below to answer the following question. $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Units of } \\\text { Output }\end{array} & \begin{array} { c } \text { Total Fixed } \\\text { Cost (dollars) }\end{array} & \begin{array} { c } \text { Total Variable } \\\text { Cost (dollars) }\end{array} \\\hline 1 & 1,000 & 1,200 \\2 & 1,000 & 2,400 \\3 & 1,000 & 3,600 \\4 & 1,000 & 5,000 \\5 & 1,000 & 6,600 \\\hline\end{array}$$ What is the average total cost at an output level of four units?

A) $1,200.
B) $1,400.
C) $1,500.
D) $2,000.

Question 72

Exhibit 6-10 Short-run cost schedule for book publisher's hourly production $$\begin{array} { | c | c | r | } \hline \begin{array} { c } \text { Total } \\\text { Output }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost }\end{array} \\\hline \text { 0 cases of books } &\$0 & \$ 200 \\1 & 100 & 300 \\2 & 150 & 350 \\3 & 250 & 450 \\4 & 450 & 650 \\\hline\end{array}$$ In Exhibit 6-10, the publisher's fixed cost is equal to:

A) $0.
B) $100.
C) $200.
D) The fixed cost cannot be determined with the information provided.

Question 73

Exhibit 6-13 Cost curves

In Exhibit 6-13, TFC is shown by the graph labeled:

A) I.
B) II.
C) III.
D) IV.

Question 74

If the marginal cost of the 10th unit of output is $15 and the average total cost of the 10th unit of output is $15,

A) average total cost is minimized at 10 units of output.
B) average total cost is decreasing at 10 units of output.
C) average total cost is increasing at 10 units of output.
D) average total cost is maximized at 10 units of output.

Question 75

American Airlines makes numerous nonstop flights from Chicago's O'Hare Airport to the airport at Dallas-Fort Worth. The distance between those two cities is 1,000 miles. The only variable cost, fuel, costs $.06 for each passenger-mile it flies. Bob, on his way to an emergency business meeting, buys a ticket in coach class for $1,300 at the very last minute. The marginal cost of flying Bob from Chicago to Dallas-Fort Worth is:

A) $60.
B) $160.
C) $600.
D) $1,300.

Question 76

Exhibit 6-12 Cost schedule for producing pizza $$\begin{array} { | c | c | c | c | } \hline \text { Pizzas } & \begin{array} { c } \text { Fixed } \\\text { Cost }\end{array} & \begin{array} { c } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost }\end{array} \\\hline 0 & \$ & \$ & \$ \\\hline 1 & & & 48 \\\hline 2 & & 17 & \\\hline 3 & & 27 & \\\hline 4 & & & 78 \\\hline 5 & 40 & & \\\hline 6 & & 64 & \\\hline 7 & & 80 & \\\hline\end{array}$$ In Exhibit 6-12, the marginal cost of producing the 3rd pizza

A) is higher than the average total cost of 3 pizzas, so the average total cost curve is increasing at a quantity of 3 pizzas.
B) is lower than the average total cost of 3 pizzas, so the average total cost curve is decreasing at a quantity of 3 pizzas.
C) is equal to the average total cost of 3 pizzas, so the average total cost curve is minimized at a quantity of 3 pizzas.
D) is higher than the average fixed cost of 3 pizzas, so the average fixed cost curve is increasing at a quantity of 3 pizzas.

Question 77

What is the shape of the average total cost curve for a firm in the short run?

A) U-shaped.
B) A horizontal line.
C) A vertical line.
D) A curve that slopes upward to the right.

Question 78

Exhibit 6-11 Short-run cost schedule for pizzeria's hourly production $$\begin{array} { | c | r | } \hline \begin{array} { c } \text { Total } \\\text { Product }\end{array} & \begin{array} { r } \text { Total } \\\text { Cost }\end{array} \\\hline 0 \text { pizzas } & \$ 20 \\10 & 70 \\20 & 100 \\30 & 150 \\40 & 250 \\\hline\end{array}$$ In Exhibit 6-11, the pizzeria's fixed cost is equal to:

A) $20.
B) $30.
C) $50.
D) $70.

Question 79

Exhibit 6-12 Cost schedule for producing pizza $$\begin{array} { | c | c | c | c | } \hline \text { Pizzas } & \begin{array} { c } \text { Fixed } \\\text { Cost }\end{array} & \begin{array} { c } \text { Variable } \\\text { Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost }\end{array} \\\hline 0 & \$ & \$ & \$ \\\hline 1 & & & 48 \\\hline 2 & & 17 & \\\hline 3 & & 27 & \\\hline 4 & & & 78 \\\hline 5 & 40 & & \\\hline 6 & & 64 & \\\hline 7 & & 80 & \\\hline\end{array}$$ In Exhibit 6-12, the AFC of 4 pizzas is:

A) $10.
B) $9.50.
C) $19.50.
D) $40.

Question 80

A bus is mostly filled with passengers and ready to travel from Los Angeles to San Francisco. At the last minute, a person comes running up to the bus and takes a seat. The change in the bus company's total cost as a result of transporting one more passenger on this trip is called:

A) marginal cost.
B) average total cost.
C) variable cost.
D) fixed cost.