Deck 7: Costs

Question 1

A firm has a production function of , the rental rate of capital is $50, and the wage rate is $15. In the short run,
Is fixed at 80 units. The short-run marginal cost function is MC = ____.

A) 400 + (3Q/16)
B) 3/16
C) 3Q/16
D) 400

Answer 1

B

Question 2

Which of the following statements is (are) TRUE?
I) If TC = $40,000 and FC = $18,000, then VC = $58,000.
II) Because fixed cost does not vary with output, the fixed cost curve is a vertical line.
III) The total cost and variable cost curves always have the same shape and slope.
IV) When output is zero, total cost equals fixed costs.

A) I, II, and III
B) III
C) II, III, and IV
D) III and IV

Answer 2

D

Question 3

A firm with a production function Q = KL (where K is units of capital and L is units of labor) has an expansion path that is given by K = 2L. The wage rate (W) is $20 and the rental on capital is $10. Assuming that the firm is using the optimal mix of inputs for any given output level, the quantity of output using three units of labor is ____.

A) 32
B) 18
C) 8
D) 2

Answer 3

B

Question 4

Which of the following statements is (are) TRUE?
I) Accounting profit equals total revenue minus accounting cost.
II) Economic cost equals accounting cost minus opportunity cost.
III) Economic profit equals accounting profit plus opportunity cost.
IV) Economic profit equals total revenue minus economic cost.

A) I and IV
B) I, II, III, and IV
C) II and IV
D) I, III, and IV

Question 5

Use the following table to answer the question. At an output of 4, the average fixed cost is $____.

A) 600
B) 533.33
C) 475
D) 250

Question 6

A coffee shop's production function is given by Q = KL, where MP_L = K and MP_K = L. The barista wage rate is $10 and the rental per square foot is $15. In the short run, store size is fixed at 500 square feet. The short-run average total cost of serving 1,500 cups of coffee is $_____.

A) 6.03
B) 5.02
C) 2.34
D) 0.63

Question 7

Menard quit his high school teaching job, which paid $60,000 per year, to start a business that prepares students for the SAT exam. His first year in business generated the following revenues and costs: Menard's economic profit is $____.

A) 105,000
B) 100,000
C) 20,000
D) 15,000

Question 8

(Figure: Total Cost and Quantity of Output III) Which of the following statements is (are) TRUE? I. At point A, ATC > MC.
II) At point B, ATC = MC.
III) At point C, ATC < MC.

A) I and II
B) I, II, and III
C) III
D) I

Question 9

(Table: Detailers for Cars I) Carl's Detailing is a small business that travels to people's homes to meticulously clean their high-end sports cars. Carl hires detailers (labor) at a wage of $80 per worker per day. A van that is used to carry cleaning supplies to clients' homes has a fixed cost of $20 per day. The table shows the relationship between the number of cars cleaned and the number of detailers. The marginal cost of cleaning the first car is _____, and the marginal cost of cleaning the third car is _____.

A) $80; $480
B) $80; $240
C) $100; $260
D) $100; $300

Question 10

(Figure: Total Cost and Quantity of Output III) The firm's average total cost curve appears in which of the following panels?

A) panel a
B) panel b
C) panel c
D) panel d

Question 11

Use the following table to answer the question. At an output of 2, the variable cost is $____.

A) 1,200
B) 690
C) 380
D) 845

Question 12

Suppose a firm's total cost function is given by TC = 6,000 + 2Q + 0.25Q², where MC = 2 + 0.5Q. The output level that minimizes total cost is ____.

A) 154.9
B) 175
C) 150
D) 0

Question 13

(Figure: Total Cost and Quantity of Output VI) Answer the following question.
At an output level of 1, the average total cost is $____.

A) 5
B) 3.3
C) 2
D) 1

Question 14

Debbie, a popular wedding photographer, is able to photograph a wedding every Saturday of the year. She charges couples $4,000 for a complete set of photographs that cost her $2,200 to print and develop. Suppose that, on one Saturday, Debbie photographs her niece's wedding without charge, but her niece insists on paying Debbie $2,200 to cover her printing and developing costs. What is Debbie's economic cost of photographing her niece's wedding?

A) $0
B) $1,800
C) $2,200
D) $4,000

Question 15

A fixed cost:

A) does not change with the level of the firm's output.
B) is associated with the firm's variable inputs.
C) decreases as the firm increases output.
D) captures the wear and tear of using capital in production.

Question 16

Suppose a firm's total cost curve is TC = Q³ - Q² + Q + 10.
At the quantity that minimizes average variable cost, the marginal cost is equal to $____.

A) 1
B) 0.75
C) 0.5
D) 0.25

Question 17

A coffee shop's production function is given by Q = KL, where MP_L = K and MP_K = L. The barista wage rate is $10 and the rental per square foot is $15. In the short run, store size is fixed at 500 square feet. The long-run average total cost of producing 1,500 cups of coffee is $_____.

A) 6.03
B) 5.02
C) 2.34
D) 0.63

Question 18

Menard quit his high school teaching job, which paid $60,000 per year, to start a business that prepares students for the SAT exam. His first year in business generated the following revenues and costs: Menard's accounting profit is $____.

A) 105,000
B) 100,000
C) 20,000
D) 15,000

Question 19

Use the following table to answer the question. At an output of 5, the average variable cost is $____.

A) 350
B) 533.33
C) 475
D) 250

Question 20

Which of the following statements is (are) TRUE?
I) MC = ΔTC/ΔQ
II) MC = ΔVC/ΔQ
III) Marginal cost falls as returns to labor begin to diminish.

A) I, II, and III
B) I and II
C) II and III
D) I and III

Question 21

(Figure: Total Cost and Quantity of Output II) What could cause the movement from TC₁ to TC₂?

A) a decrease in the firm's fixed costs of production
B) economies of scale
C) a technological change that increases the productivity of inputs
D) an increase in input prices

Question 22

(Figure: Cost and Quantity of Output II)
The total cost of producing an output of 0 is $____.

A) 70
B) 30
C) 20
D) 0

Question 23

A firm has a production function of , the rental rate of capital is $15, and the wage rate is $10. In the short run,
Is fixed at 100 units. The firm's short-run total cost is TC = ____.

A) 1,500 + Q²/10
B) 1,500 + Q²
C) 1,500Q
D) 1,500 + Q^0.5

Question 24

A firm has a production function of , the rental rate of capital is $15, and the wage rate is $10. In the short run,
Is fixed at 100 units. The short-run demand for labor is L = ____.

A) Q²/100
B) 100Q²
C) 5Q^0.5
D) Q^0.5/100

Question 25

To find the firm's generalized marginal cost curve in the short run, take the derivative of the _____ cost curve with respect to quantity Q while _____.

A) total; allowing both capital and labor costs to change
B) total; holding the cost of labor fixed
C) total; holding the cost of capital fixed
D) variable; allowing both capital and labor costs to change

Question 26

(Figure: Cost and Quantity of Output Per Week I) At 6 units of output, FC is _____ and VC is _____.

A) $450; $250
B) $200; $250
C) $200; $150
D) $250; $200

Question 27

Suppose a firm's total cost curve is TC = 5Q² + 6Q + 125. The firm's average variable cost is AVC = ____.

A) 10Q + 6
B) 5Q + 6 + (125/Q)
C) 5Q + 6
D) 5Q² + 6Q

Question 28

A firm produces two goods, Q₁ and Q₂. For economies of scope to occur, it must be TRUE that:

A) TC(Q₁,0) + TC(0,Q₂) > TC(Q₁,Q₂).
B) TC(Q₁,0) + TC(0,Q₂) < TC(Q₁,Q₂).
C)
D) (TC(Q₁1,0) + TC(0,Q₁2))/(TC(Q₁1, Q₁2)) < 1.

Question 29

Suppose a firm's total cost and marginal cost are given by TC = 192 + 10Q + 3Q² and MC = 10 + 6Q. What is the output level that minimizes average total cost?

A) 8
B) 1.5
C) 21
D) 4

Question 30

A firm's long-run total cost curve is given by LTC = 2,000Q - 10Q² + 1/3Q³, and long-run marginal cost is given by LMC = 2,000 - 20Q + Q². What is the quantity of output that minimizes long-run average total cost?

A) 15
B) 165
C) 500
D) 210

Question 31

Suppose a firm's total cost function is given by TC = 6,000 + 2Q + 0.25Q², where MC = 2 + 0.5Q. The output level that minimizes average total cost is ____.

A) 154.9
B) 175
C) 150
D) 0

Question 32

A firm with a production function Q = KL (where K is units of capital and L is units of labor) has an expansion path that is given by K = 2L. The wage rate (W) is $20 and the rental on capital is $10. Assuming that the firm is using the optimal mix of inputs for any given output level, the quantity of output using four units of labor is ____.

A) 32
B) 18
C) 8
D) 2

Question 33

(Figure: Capital and Labor I) The firm's total cost is given by curve _____ on the following graph.

A) A
B) B
C) C
D) D

Question 34

A firm has a production function of , the rental rate of capital is $50, and the wage rate is $15. In the short run,
Is fixed at 80 units. The short-run total cost function is TC = ____.

A) 400 + (3Q/16)
B) 400 + (Q/16)
C) 3Q/16
D) 400

Question 35

(Figure: Total Cost and Quantity of Output VI) Answer the following question.
At an output level of 3, the average total cost is $____.

A) 6
B) 2.5
C) 2
D) 1

Question 36

Suppose a firm's total cost curve is TC = Q³ - Q² + Q + 10.
Using calculus, the quantity that minimizes average variable cost for the firm is Q = ____.

A) 1
B) 0.75
C) 0.5
D) 0.25

Question 37

A firm is producing 4 units of output at an average total cost of $40. When the firm produces 5 units of output, average total cost rises to $50. What is the marginal cost of the fifth unit of output?

A) $10
B) $30
C) $90
D) $120

Question 38

A firm with decreasing returns to scale would see:

A) decreasing long-run marginal costs.
B) increasing long-run marginal costs.
C) constant long-run marginal costs.
D) More information is necessary to determine the answer.

Question 39

(Figure: Cost and Quantity of Output II)
The variable cost of producing an output of 12 is $____.

A) 70
B) 30
C) 20
D) 0

Question 40

(Figure: Cost and Quantity of Output Per Week II) Consider a firm with the following cost structure:
Which panel represents the cost curves of the firm?

A) panel a
B) panel b
C) panel c
D) panel d

Question 41

A firm has a production function of Q = KL + L, where MP_L = K + 1 and MP_K = L. The
Wage rate (W) is $100 per worker and the rental (R) is $100 per unit of capital. In the short run, capital (K) is fixed at 4 and the firm produces 100 units of output. The firm's short-run total cost of producing 100 units of output is $____.

A) 3,000
B) 2,400
C) 1,900
D) 1,500

Question 42

Suppose a firm with a production function Q = KL (where MP_L = K and MP_K = L) is producing 125 units of output by using 5 workers and 25 units of capital. The wage rate (W) per worker is $10 and the rental per unit of capital (R) is $2. If it decreases output to 45 units, long-run average total cost _____ at 125 units of output to _____ at 45 units of output.

A) rises from $1.80; $2
B) rises from $0.80; $1.33
C) falls from $0.80; $0.60
D) falls from $1.80; $1.15

Question 43

(Figure: Total Cost and Quantity of Output VI) Answer the following question.
At an output level of 5, the average total cost is $____.

A) 3
B) 2.5
C) 2.80
D) 1

Question 44

Use the following table to answer the question. At an output level of 1, the marginal cost is $____.

A) 35
B) 85
C) 60
D) 50

Question 45

Sanjay's hair salon has a total cost function given by When Sanjay is minimizing the average total cost of production, the quantity produced is ____.

A) 3^1/2
B) 3
C) 6^1/2
D) 6

Question 46

A firm has a production function of Q = KL + L, where MP_L = K + 1 and MP_K = L. The
Wage rate (W) is $100 per worker and the rental (R) is $100 per unit of capital. In the short run, capital (K) is fixed at 4 and the firm produces 100 units of output. The firm's long run total cost of producing 100 units of output is $____.

A) 3,000
B) 2,400
C) 1,900
D) 1,500

Question 47

A firm with a production function Q = KL (where K is units of capital and L is units of labor) has an expansion path that is given by K = 2L. The wage rate (W) is $20 and the rental on capital is $10. Assuming that the firm is using the optimal mix of inputs for any given output level, the average total cost when producing 8 units of output is $____.

A) 10
B) 20
C) 80
D) 40

Question 48

If the sign of the first derivative of ATC with respect to Q is positive:

A) ATC is increasing as Q increases.
B) ATC is decreasing as Q increases.
C) ATC is constant as Q increases.
D) TC is increasing as Q increases.

Question 49

(Figure: Capital and Labor III) Suppose the firm is producing at point Z and wants to reduce its output to Q₁. Which of the following statements is TRUE?

A) In the short run, the firm will move to point A, where total costs of production are higher than at point C.
B) The firm will move along its long-run expansion path from point Z to point A.
C) In the short run, the firm will move to point A, where total costs of production are lower than at point C.
D) In the long run, the firm will move to point A, where total costs of production are lower than at point C.

Question 50

Suppose a firm's total cost curve is TC = Q² + Q + 100. The firm's average total cost is ATC = ____.

A) Q² + Q + 100
B) 2Q + 1
C) Q + 1 + (100/Q)
D) Q + 1

Question 51

(Figure: Average Total Cost and Quantity of Output III) Which of the following statements is (are) TRUE? I. At Q = 3, the marginal cost is $2.33.
II) At Q = 8, the marginal cost is $1.80.
III) The slope of the total cost (TC) curve at Q = 3 is $2.33.

A) II
B) I and III
C) II and III
D) I

Question 52

(Figure: Cost and Quantity of Output Per Week I) The total cost of producing 7 units of output is:

A) $200.
B) $100.
C) $300.
D) $500.

Question 53

A firm with a production function Q = KL (where K is units of capital and L is units of labor) has an expansion path that is given by K = 2L. The wage rate (W) is $20 and the rental on capital is $10. Assuming that the firm is using the optimal mix of inputs for any given output level, the total cost when using two units of labor is $____.

A) 160
B) 120
C) 80
D) 40

Question 54

Use the following table to answer the question. At an output of 3, the average total cost is $____.

A) 600
B) 533.33
C) 380
D) 250

Question 55

Use the following table to answer the question. At an output level of 1, the average total cost is $____.

A) 35
B) 85
C) 60
D) 50

Question 56

(Figure: Total Cost and Quantity of Output IV) The short-run total cost curve is represented by the letters _____, and the long-run total cost curve is represented by the letters _____.

A) WXA; ZXY
B) ZXA; WXY
C) WXY; ZXA
D) ZXY; WXA

Question 57

The presence of capital rental markets gives firms:

A) the ability to hire more labor in periods of high demand by keeping capital costs fixed.
B) reduced flexibility in substituting among various labor and capital inputs.
C) the ability to hire more capital in periods of high demand by keeping capital costs fixed.
D) the flexibility to adjust capital usage to output levels, making capital costs variable.

Question 58

Suppose that you close down your coffee shop and sell your coffee maker for $500. If you originally bought the coffee maker for $4,000 and it lost $1,000 because of depreciation (i.e., age and use), the sunk cost of the coffee maker is:

A) $3,500.
B) $3,000.
C) $2,500.
D) $1,500.

Question 59

Fran is considering permanently closing down her beauty salon. A consultant advises her that if she stays open for business, she will have operating revenues of $300,000 and operating costs of $280,000. In addition, Fran has paid $40,000 for fixtures that can be resold for $15,000 after she closes the beauty salon. Fran ____ close the beauty salon because ____.

A) should; the value when staying open is negative
B) should; closing results in greater value
C) should not; the value of closing is negative
D) should not; the value of staying open exceeds the value of closing

Question 60

The firm's long-run total cost is given by LTC = 5,000Q - 100Q² + Q³, and its long-run marginal cost is given by LMC = 5,000 - 200Q + 3Q². At what output level is the firm subject to diseconomies of scale?

A) Q > 30
B) Q > 50
C) Q > 245
D) Q < 245

Question 61

Gillian quit her sales job, which paid $60,000 per year, and became a middle school science teacher earning $48,000 per year. Gillian's opportunity cost of switching careers is $____.

A) 60,000
B) 48,000
C) 12,000
D) 0

Question 62

(Figure: Total Cost and Quantity of Output VI) Answer the following question.
At an output level of 4, the total cost is $____.

A) 9
B) 3
C) 2.25
D) 1

Question 63

Sanjay's hair salon has a total cost function given by . .
Sanjay's average total cost is ATC = ____.

A) 3Q + 6 + (9/Q)
B) 3Q + 6
C) 6Q + 6
D) 3Q² + 6Q

Question 64

Use the following table to answer the question. At an output level of 5, the total cost is $____.

A) 350
B) 250
C) 300
D) 280

Question 65

Fran is considering permanently closing down her beauty salon. A consultant advises her that if she stays open for business, she will have operating revenues of $300,000 and operating costs of $280,000. In addition, Fran has paid $40,000 for fixtures that can be resold for $15,000 after she closes the beauty salon. The value of Fran's beauty salon, if she closes it, is $____.

A) -45,000
B) -35,000
C) -25,000
D) -5,000

Question 66

Which of the following is an example of a sunk cost fallacy?

A) "I paid $85 for this wool sweater, but it is too scratchy on my skin, so I think I'll give it to my mother-in-law."
B) "I'm not going to allow the sacrifice of 2,527 troops who have died in Iraq to be in vain by pulling out before the job is done."
C) "I will not buy an Under Armour hoodie until it goes on sale for at least 25% off."
D) "I'm going to buy another bag of popcorn because this popcorn is burnt."

Question 67

(Figure: Cost and Quantity of Output I) The average fixed cost at 70 units of output is _____, and the firm's fixed cost of production is _____.

A) $43; $3,010
B) $11; $560
C) $0.10; $7
D) $7; $490

Question 68

A landscaping company is considering renting a backhoe (a type of excavating equipment) at $12,000 for the season. The variable cost of completing a landscaping project with the use of the backhoe is $500. Alternatively, without the use of the backhoe, the company would incur a variable cost of $1,000 per landscaping project and no fixed costs. If the landscaping company plans to complete more than _____ projects, the total cost of landscaping projects will be lower _____.

A) 24; with the backhoe
B) 18; with the backhoe
C) 44; without the backhoe
D) 12; without the backhoe

Question 69

A firm has a production function of , the rental rate of capital is $15, and the wage rate is $10. In the short run,
Is fixed at 100 units. The short-run production function is Q = ____.

A) 10L^0.5
B) L^0.5
C) 5L^0.5
D) 5L

Question 70

A firm with a production function Q = KL (where K is units of capital and L is units of labor) has an expansion path that is given by K = 2L. The wage rate (W) is $20 and the rental on capital is $10. Assuming that the firm is using the optimal mix of inputs for any given output level, the quantity of output using two units of labor is ____.

A) 32
B) 18
C) 8
D) 2

Question 71

Which of the following statements is (are) TRUE?
I) If marginal cost is rising, the average total cost must be rising.
II) The marginal cost curve intersects both the average total and average variable cost curves at their minimum points.
III) If marginal cost is less than average variable cost, the average variable cost curve is negatively sloped.

A) I, II, and III
B) I and III
C) II
D) II and III

Question 72

To derive the short-run total cost curve for the firm, plug the short-run fixed _____ amount and the firm's short-run demand for _____ into the total cost function.

A) labor; capital
B) capital; capital
C) labor; labor
D) capital; labor

Question 73

Sanjay's hair salon has a total cost function given by .
Sanjay's marginal cost is MC = ____.

A) 3Q + 6 + (9/Q)
B) 3Q + 6
C) 6Q + 6
D) 3Q² + 6Q

Question 74

A firm is producing 10,000 units of output at a total cost of $5,000. If the firm increases output by 5,000 units and its total costs rise by $2,000, the firm has:

A) economies of scale.
B) economies of scope.
C) constant returns to scale.
D) diseconomies of scale.

Question 75

Suppose that Bella's Bagels has a total cost function given by The quantity that minimizes average variable costs for Bella's Bagels is ____.

A) 1
B) 0.75
C) 0.5
D) 0.25

Question 76

Suppose a firm's total cost curve is TC = 5Q² + 6Q + 125. When the firm is minimizing its average total cost of production, the quantity produced is ____.

A) 20
B) 15
C) 10
D) 5

Question 77

A firm is producing 50 units of output at a total cost of $1,000, with a per-unit variable cost of $8. What is the firm's average fixed cost?

A) $12
B) $4
C) $20
D) $28

Question 78

Suppose a firm's total cost curve is TC = Q² + Q + 100. The quantity that minimizes average total cost is Q = ____.

A) 100
B) 20
C) 10
D) 0

Question 79

A firm with a production function Q = KL (where K is units of capital and L is units of labor) has an expansion path that is given by K = 2L. The wage rate (W) is $20 and the rental on capital is $10. Assuming that the firm is using the optimal mix of inputs for any given output level, the total cost when using one unit of labor is $____.

A) 160
B) 120
C) 80
D) 40

Question 80

Meera operates Ducks Unlimited, which raises mallard ducks to sell to dog food companies. Meera leases the land for $5,000 per month and hires workers at $1,000 per worker per month. With 4 workers, the average total cost is $____.

A) 5,500
B) 5,000
C) 4,500
D) 1,000