The Costs of Production - The Various Measures of Cost

Total cost can be divided into two types of costs:

• fixed costs and variable costs.

• fixed costs and marginal costs.

• variable costs and marginal costs.

• average costs and marginal costs.

Some costs do not vary with the quantity of output produced. Those costs are called

• marginal costs.

• average costs.

• fixed costs.

• incurred costs.

Fixed costs can be defined as costs that

• vary inversely with production.

• vary in proportion with production.

• are incurred only when production is large enough.

• are incurred even if nothing is produced.

In the short run, a firm incurs fixed costs

• only if it incurs variable costs.

• only if it produces no output.

• only if it produces a positive quantity of output.

• whether it produces output or not.

For a construction company that builds houses, which of the following costs would be a fixed cost?

• the $20 per hour wage paid to a construction foreman

• the $30,000 per year salary paid to the company's bookkeeper

• the $2 per worker-hour paid to the state government for workers’ compensation insurance

• All of the above are correct.

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost?

• $40

• $60

• $80

• $100

Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of

• lemons and sugar.

• paper cups.

• the wages paid to her hourly workers.

• All of the above are correct.

If a firm produces nothing, which of the following costs will be zero?

• total cost

• fixed cost

• opportunity cost

• variable cost

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

• the $20 million payment that the firm pays each year for accounting services

• the cost of the steel that is used in producing automobiles

• the rent that the firm pays for office space in a suburb of St. Louis

• All of the above are correct.

When a firm is able to put idle equipment to use by hiring another worker,

• variable costs will rise.

• variable costs will fall.

• fixed costs will fall.

• fixed costs and variable costs will rise.