Module 55 (Firm Costs)

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Variable Cost

Is a cost that depends on the quantity of output produced. It is the cost of the variable input.

Fixed Costs

Is a cost that does not depend on the quantity of output produced. It is the cost of the fixed input.

Average Fixed Cost

Is the fixed cost per unit of output.

Minimum-Cost Output

Is the quantity of output at which average total cost is lowest - it corresponds to the bottom of the U-shaped average total cost curve.

Average Variable Cost

Is the variable cost per unit of output.

Total Cost Curve

Shows how total cost depends on the quantity of output.

Austin's total fixed cost is $3,600. Austin employs 20 workers and pays each worker $60. The average product of labor is 30, and the marginal product of the twentieth worker is 12. What is the marginal cost of the last unit produced by the last worker Austin hired? a. $5 b. $60 c. $0.20 d. $720 e. $240

a.

Suppose Cyd knows the average cost of producing 9 scones is $5, while the average cost of producing 10 scones is $5.20. What is the marginal cost of the 10th unit? a. $7 b. $10.20 c. $5.20 d. $0.20 e. $5

a.

U-Shaped average total cost curve

Falls at low levels of output and then rises at higher levels.

Total Cost

Of producing a given quantity of output is the sum of the fixed cost and the variable cost of producing that quantity of output.

(Table 55-1: Cost Data) The table shows some cost data for a firm currently operating in the short run. What is the value of the total variable cost for this firm when the firm is producing five units of output? a. It is impossible to determine without more information. b. $190 c. $240 d. $60 e. $50

b.

(Table 55-1: Cost Data) The table shows some cost data for a firm currently operating in the short run. What is the value of the total fixed cost for this firm? a. $100 b. $70 c. $50 d. It is impossible to determine without more information. e. $40

c.

Suppose that the units of variable input in a coal-production process are 1, 2, 3, 4, and 5, and the corresponding total outputs per period are 10, 15, 19, 22, and 24 tons, respectively. The marginal product of the third unit of input is ________ tons per period. a. 3 b. 19 c. 4 d. 15 e. 5

c.

Which of the following cost concepts is correctly defined? a. TC = AVC + AFC b. ATC = VC + FC c. ATC = AVC + AFC d. TC = AVC + MC e. MC = Delta TC/Delta L

c.

A cost that does not change with the level of output produced is called a: a. variable cost. b. average total cost. c. marginal cost. d. average fixed cost. e. fixed cost.

e.

After graduation you achieve your dream of opening your own art shop that specializes in selling mud statues. You pay $10 per day on a loan from your uncle, and you pay $10 per day to each of your workers (who make the mud statues). After careful study, you determine the information in the table. How many workers should you hire to minimize your marginal costs? a. five b. three c. four d. one e. two

e.

Oscar has negotiated a lease for his sporting goods store in which he is required to pay $2,500 per month in rent. Oscar pays his staff $9 per hour to sell sporting goods and his monthly electricity bill averages $700, depending on his total hours of operation. Oscar's fixed costs of production equal: a. $9 per hour multiplied by total hours of work plus $700. b. $9 per hour multiplied by total hours of work plus $3,200. c. $700 per month. d. $3,200 per month. e. $2,500 per month.

e.

The costs associated with variable inputs are ________ costs and the costs associated with ________ inputs are ________costs. a. variable; fixed; variable b. fixed; fixed; fixed c. fixed; fixed; d. constant; fixed; fixed e. variable; fixed; fixed

e.

Average Total Cost

often referred to simply as average cost, is total cost divided by quantity of output produced.


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