The Costs of Production Tutorial Sheet — Section A: MCQ

A firm's short-run marginal cost

• Increases as the level of output produced increases

• Is the cost of hiring inputs, such as labour and raw materials

• Includes the cost of the firm's plant and equipment

• Shows the change in total variable cost that results when an additional unit of output is produced

Which of the following explains why the Average Total Cost Curve is U shaped:

• At very low levels of output average total cost is high because fixed cost is spread over only a few units.

• Average total cost declines as output increases.

• Average total cost starts rising because average variable cost rises substantially

• All of the above

If the average cost is falling, then:

• Marginal cost is rising

• Marginal cost is falling

• Marginal cost is equal to average cost

• It is impossible to tell if marginal cost is rising or falling

Which of the following is most likely to be a variable cost for a firm?

• The interest payments made on loans.

• The franchiser's fee that a restaurant must pay to the national restaurant chain.

• The monthly rent on office space that it leased for a year.

• The payroll taxes that are paid on employee wages.

The marginal cost for a firm of producing the 9th unit of output is £20. Average cost at the same level of output is £15. Which of the following must be true?

• Marginal cost and average cost are both falling

• Marginal cost and average cost are both rising

• Marginal cost is rising and average cost is falling

• It is impossible to tell if either of the curves are rising or falling

A firm's fixed cost is £20 at 6 units of output. What will it be at 4 units of output?

• £20

• £30

• £40

• £120

The average variable cost (AVC) for the 3rd unit is

• 0.90

• 0.80

• 1.00

• 0.70

Assume fixed cost is constant across outputs. The average total cost (ATC) for the 4th unit is

• 1.20

• 1.00

• 3.00

• 4.80

Assume fixed cost is constant across outputs. If production is increased from 2 units to 3 units, the marginal cost (mc) is

• 0.20

• 0.40

• 0.60

• 0.80

If the cross-price elasticity of demand between two goods is positive, the goods are likely to be complements. Select one:

• True

• False