Firms, Costs, Revenue, and Objectives

The diagram shows the fixed costs, variable costs and total costs of a firm at output S.

Which distance represents the firm’s variable costs?

• PQ

• PS

• QR

• QS

The diagram shows a firm’s total cost (TC) curve.

What is the average variable cost if the firm produces an output of OQ?

• OX

  ___

  OQ

• OW

  ___

  OQ

• WX

  ___

  OQ

• WY

  ___

  OQ

What is total revenue?

• the money received by the firm for each additional unit of output sold

• the price of the good multiplied by the total quantity sold

• the revenue per unit sold divided by the quantity sold

• the revenue per unit sold minus the cost per unit sold

A company mining cobalt, invests in machinery to replace some workers. Eventually diseconomies of scale occur. What could cause this situation?

• As more cobalt is mined average costs increase.

• Fewer workers are needed to produce the required output.

• Output per hour increases as more machinery is used.

• Overhead costs are spread as output increases.

Dimitry owns a firm that produces and sells bottles of lemonade. He only sells one size of bottle. How would Dimitry calculate the total revenue of the firm?

• multiply the quantity sold by the cost per bottle

• multiply the quantity sold by the price per bottle

• multiply the quantity sold by the profit per bottle

• multiply the quantity sold by the tax per bottle

What is calculated when price is multiplied by the quantity demanded of a product?

• average revenue

• profit

• total cost

• total revenue

The diagram shows the total revenue (TR) and total cost (TC) of a firm in a market. At which level of output will the firm maximise profits?

• A

• B

• C

• D

Answer explanation

Profit is maximised when the positive gap between revenue

and cost is greatest.

Here is a table showing a sample problem.

Table 22.6 shows that profit would be maximised at 40 units of output.

@ output 40

Total Revenue-Total Cost=Total profit

600-540=60

60 is the greatest gap

What describes the total revenue of a firm?

• fixed costs plus variable costs

• income from sales minus total costs

• quantity of goods sold multiplied by unit price

• variable costs divided by output

The table shows the costs of a firm. What is the average total cost if the firm produces 20 goods?

• $1

• $2

• $4

• $80

Answer explanation

Average total cost (ATC) is also referred to as average cost (AC), or unit cost, and is given as total cost divided by output.

AVC=

variable cost + fixed cost

------------------------------

output

20*2 + 40

----------- = 80/20 = 4

20

When is profit maximisation achieved?

• when average fixed cost is at a minimum

• when average revenue is at a maximum

• when the firm produces the largest output it can with the resources it has available

• when there is the greatest possible difference between total revenue and total cost