Deck 8: Cost Analysis

Question 1

Economies of scale exist whenever long-run average costs:

A) Increase as output is increased
B) Remain constant as output is increased
C) Decrease as output is increased
D) Decline and then rise as output is increased
E) None of the above

Answer 1

C

Question 2

The existence of diseconomies of scale (size)for the firm is hypothesized to result from:

A) transportation costs
B) imperfections in the labor market
C) imperfections in the capital markets
D) problems of coordination and control encountered by management
E) All of the above

Answer 2

D

Question 3

For a short-run cost function which of the following statements is (are)not true?

A) The average fixed cost function is monotonically decreasing.
B) The marginal cost function intersects the average fixed cost function where the average variable cost function is a minimum.
C) The marginal cost function intersects the average variable cost function where the average variable cost function is a minimum.
D) The marginal cost function intersects the average total cost function where the average total cost function is a minimum.
E) b and c

Answer 3

B

Question 4

Which of the following is true with regards to a long-run cost function?

A) The shape of the firm's long-run cost function is important in decisions to expand the scale of operations
B) The long-run average cost curve is U-shaped
C) The long-run average cost curve is flatter than the short-run average cost curve.
D) The curve consists of the lower boundary of all the short-run cost curves
E) All of the above

Question 5

Possible sources of economies of scale (size)within a production plant include:

A) specialization in the use of capital and labor
B) imperfections in the labor market
C) transportation costs
D) a and b
E) a and c

Question 6

A firm has determined that its variable costs are given by the following relationship:
VC = .05Q³ ? 5Q² + 500Q
where Q is the quantity of output produced.

Question 7

The cost function is:

A) a means for expressing output as a function of cost
B) a schedule or mathematical relationship showing the total cost of producing various quantities of output
C) similar to a profit and loss statement
D) incapable in being developed from statistical regression analysis
E) none of the above

Question 8

Which of the following statements about cost functions is true?

A) Variable costs will always increase in direct proportion to the quantity of output produced.
B) The less capital equipment employed in the production process relative to labor and other inputs,the longer will be the period of time required to increase significantly the scale of operation.
C) The shape of the firm's long-run cost function is important in decisions to expand the scale of operations.
D) none of the above

Question 9

Which of the following statements concerning the short-run average cost curve of economic theory is true?

A) It is L-shaped
B) It is ∩-shaped
C) It is ∪-shaped
D) It is ∧-shaped
E) It is M-shaped

Question 10

Suppose that total cost is given by TC = 200 + 5Q - 0.4Q² + 0.001Q³

A) Fixed cost (FC)is $200
B) Variable cost (VC)is 5Q - 0.4Q² + 0.001Q³
C) Average variable cost (AVC)is 5 - 0.4Q + 0.001Q²
D) Marginal cost (MC)is 5 - 0.8Q +.003Q²
E) All of the above are correct

Question 11

According to the theory of cost,specialization in the use of variable resources in the short-run results initially in:

A) decreasing returns and declining average and marginal costs
B) increasing returns and declining average and marginal costs
C) increasing returns and increasing average and marginal costs
D) decreasing returns and increasing average and marginal costs
E) none of the above

Question 12

During the last few days the Superior Company has been running into problems with its computer system.The last run of the production cost schedule resulted in the incomplete listing shown below.From your knowledge of cost theory,fill in the blanks.

Question 13

What method of inventory valuation should be used for economic decision-making problems?

A) book value
B) original cost
C) current replacement cost
D) cost or market,whichever is lower
E) historical cost

Question 14

____ are defined as costs which are incurred regardless of the alternative action chosen in a decision-making problem.

A) Opportunity costs
B) Marginal costs
C) Relevant costs
D) Sunk costs
E) None of the above

Question 15

The relevant cost in economic decision-making is the opportunity cost of the resources rather than the outlay of funds required to obtain the resources.

Question 16

Regarding costs,which of the following statements is true?

A) ​costs can be measured in different ways
B) ​costs appropriate for financial reporting purposes are appropriate for decision-making purposes
C) ​the relevant cost in economic decision making is the initial cost
D) ​sunk costs should always be considered in making operating decisions
E) ​none of these is true

Question 17

The Jones Company has the following cost schedule: $$\begin{array} { c c } \begin{array} { c } \text { Output } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Total Cost } \\( \$ )\end{array} \\\hline 0 & 3000 \\50 & 3750 \\100 & 4275 \\150 & 4675 \\200 & 5000 \\250 & 5300 \\300 & 5700 \\350 & 6250 \\400 & 7050 \\450 & 8225\end{array}$$ Prepare (a)average total cost and (b)marginal cost schedules for the firm.

Question 18

If TC = 321 + 55Q - 5Q²,then average total cost at Q = 10 is:

A) 10.2
B) 102
C) 37.1
D) 371
E) 321