Principles of Microeconomics - Chapters 14-21 (Exam 3)

marginal cost (MC)

the increase in total cost that arises from an extra unit of production (delta)TC/(delta)Q

A firm that produces and sells furniture gets to choose a. how many workers to hire in both the short run and the long run. b. the size of its factories in the short run but not in the long run. c. which short-run average-total-cost curve to use in both the short run and the long run. d. the number of machines it uses in the short run but not in the long run.

a. how many workers to hire in both the short run and the long run. explanation: businesses get to choose how many workers they get to hire.

The Three Amigo's company produced and sold 500 dog beds. The average cost of production per dog bed was $50. Each dog bed can be sold for a price of $65. The Three Amigo's total costs are a.$7,500. b. $25,000. c. $32,500. d. $67,500.

b. $25,000 explanation: revenue (total costs in this case) = quantity x price / 500 x 50 = $25,000

Table 13-7 The following table shows the production costs for The Flying Elvis Copter Rides. Refer to Table 13-7. What is the value of D? a. $25 b. $50 c. $100 d. $200

b. $50 explanation: AFC = FC/Q 50/0= $50

Table 13-7The following table shows the production costs for The Flying Elvis Copter Rides. Refer to Table 13-7. What is the value of A? a. $25 b. $50 c. $100 d. $200

b. $50 explanation: costs that do not vary with the quantity of output produced (cost is constant)

Refer to Figure 14-4. If there are 100 identical firms in this market, what is the value of Q2? a. 10,000 b. 20,000 c. 40,000 d. 80,000

b. 20,000

Table 13-9 Refer to Table 13-9. The average total cost of producing 240 units is a.$0.13. b. $0.19. c. $0.32. d. $0.80.

c. $0.32 explanation: in order to get the ATC we have to first calculate the TC FC+VC=TC/ 30+45= 75 to find the ATC we take the TC and divide it by the quantity or units ATC= TC/Q/ 75/240= 0.3125 choose the closest rounded answer

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market? a. Less than $2.50 b. More than $2.50 c. Exactly $2.50 d. The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.

c. Exactly $2.50

Table 13-9 Refer to Tables 13-9. The marginal products of hiring additional workers are a. increasing at an increasing rate. b. increasing at a decreasing rate. c. decreasing. d. constant.

c. decreasing explanation: marginal product of an input declines as the quantity of the input increases.

Refer to Table 14-6. The firm will produce a quantity greater than three because at 3 units of output, marginal cost a. is greater than marginal revenue. b. equals marginal revenue. c. is less than marginal revenue. d. is minimized.

c. is less than marginal revenue

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers a. both labor and capital to be fixed. b. both labor and capital to be variable. c. labor to be variable and capital to be fixed. d. capital to be variable and labor to be fixed.

c. labor to be variable and capital to fixed explanation: fixed - costs that do not vary with the quantity of output produced variable - costs that vary with the quantity of output produced (labour costs)

implicit costs

costs that do not require an outlay of money by the firm

fixed costs

costs that do not vary with the quantity of output produced

variable costs

costs that do vary with the quantity of output produced

explicit costs

costs that require an outlay of money by the firm

Tom's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equal a. $80 b. $90 c. $100 d. $110

d. $110 explanation: first we multiply 80 by 10,000 because the AVC = VC/Q VC= 800,000 to get the total cost we add VC + FC = 110,000 then, we divide by the quantity or 10,000 ATC= TC/Q the answer is $110

average fixed cost (AFC)

fixed cost divided by the quantity of output (FC/Q)

total cost

the market value of the inputs a firm uses in production

average total cost (ATC)

total costs divided by quantity of output (TC/Q)

average variable cost (AVC)

variable cost divided by the quantity of output (VC/Q)