Cost of Production

Refer to Figure. Which of the following statements is correct?

• Marginal cost is rising for quantities higher than D because marginal cost is higher than average total cost.

• Marginal cost is minimized at B because at that quantity, marginal cost equals average variable cost.

• Average variable cost is declining for quantities less than B because marginal cost is lower than average variable cost.

• All are correct

Refer to Figure. The firm experiences economies of scale at which output levels?

• output levels less than M

• output levels between M and N

• output levels greater than N

• All of the above are correct as long as the firm is operating in the long run.

Refer to Table. Which firm has constant returns to scale over the entire range of output?

• Firm 1

• Firm 2

• Firm 3

• Firm 4

Refer to Figure. The firm experiences diseconomies of scale if it changes its level of output from

• Q1 to Q2.

• Q2 to Q3

• Q3 to Q4.

• Q4 to Q5.

Refer to the attached Table. Assume that fixed costs are $500, and variable costs are $100 per worker. For this firm, what are the shapes of the production function and the total-cost curve?

• Both the production function and total-cost curve are increasing at a decreasing rate.

• The production function is increasing at a decreasing rate, whereas the total-cost function is increasing at an increasing rate.

• The production function is increasing at an increasing rate, whereas the total-cost function is increasing at a decreasing rate.

• Both the production function and total-cost curve are increasing at an increasing rate.

Refer to Figure. Quantity C represents the output level where the firm

• maximizes profits.

• minimizes total costs.

• minimizes marginal costs.

• produces at the efficient scale.

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

• Electricity used in production

• Monthly rent for factory space

• Wages for hourly workers

• Cost of raw materials

Answer explanation

The monthly rent for factory space is a fixed cost because it does not change with production levels. In contrast, electricity, wages for hourly workers, and raw materials vary with production volume.

Which of the following is considered a variable cost in the production process?

• A) Salaries of permanent staff

• B) Cost of raw materials

• C) Insurance premiums

• D) Property taxes

What is the term for the cost that does not change with the level of output?

• A) Variable cost

• B) Fixed cost

• C) Marginal cost

• D) Total cost

In the context of production, what does the term 'economies of scale' refer to?

• A) Increased costs with increased production

• B) Decreased costs with increased production

• C) Constant costs regardless of production level

• D) Fluctuating costs with production level