Chapter 5 quiz 2

The sum of fixed cost and variable cost at any rate of output is equal to: A. Total cost B. Marginal cost C. Total profit D. Average total cost

A. Total cost ( total costs is equal to variable costs plus fixed costs)

Fixed costs are the same as total costs at a production rate of zero units in the short run A. True B. False

A. True (Fixed costs exist and are the same at all levels of production and so at zero units of output would equal total costs)

In the short run, if marginal cost is less than price for the last unit produced, the firm should expand output A. True B. False

A. True (If the price is greater then the additional cost then the firm's profit will rise if it expands output)

Marginal costs is equal to the change in variable costs divided by the change in output A. True B. False

A. True (Marginal cost is equal to the change in total costs divided by the change in output and since in the short run fixed costs are constant marginal cost is equal to variable cost changes divided by change in output)

Rising marginal cost results from: A. Rising marginal physical product B. Falling marginal physical product

B. Falling marginal physical product (Since each additional unit of labor yields less output, each unit is less productive and so labor cost( marginal cost) rises.)

Which of the following is most likely a variable cost in the short run? A. Rent B. Labor

B. Labor ( since labor would be directly related to levels of production it would be a variable cost)

total revenue minus total cost equals: A. Economic costs B. Profit C. Variable cost D. Marginal revenue

B. Profit (while profit can be negative or positive, it is the difference between total revenue and total cost)

Which of the following is most likely a fixed cost? A. Labor cost B. Property tax C. Raw material D. Shipping cost

B. Property tax (property taxes would likely be fixed costs because they are not related to production volume and would not change in amount)

Number of yearbooks. School cost 100. 1200 200. 1600 300. 1800 400. 2200 500. 3000 600. 4800 Marginal cost per yearbook, between 100 and 200 yearbooks is equal to: A. 12 B. 400 C. 4 D. 16

C. 4 (the change in costs is $400 and the change in quantity is 100 so the marginal cost would be $4 ($400 divided by 100)

Costs of production that do not change with the rate of output are: A. Marginal cost B. Nonexistent C. Fixed cost D. Variable cost

C. Fixed cost (fixed costs in the short run our constant and do not vary with output)

The most desirable rate of output is the one that: A. Minimizes total costs B. Maximizes total revenue C. Maximizes total profit

C. Maximizes total profit (profit is maximized when the difference between total revenue and total cost is greatest)

Which of the following is true about the short run? A. It is less than one year B. All inputs are variable C. Some inputs are fixed D. It is one to two years

C. Some inputs are fixed ( the short run is defined as a period of time in which only variable factors of production can be changed)

Costs of production that change with the rate of output are: A. Fixed costs B. Opportunity costs C. Sunk costs D. Variable costs

D. Variable costs ( variable costs are related to production volume and will increase with increased output)