Question : 8.5   Graphing Cost Curves 1) Which of the following equations correct? : 1267121

8.5   Graphing Cost Curves

1) Which of the following equations is correct?

A) AVC – ATC = AFC

B) AVC + ATC = AFC

C) AFC + AVC = ATC

D) ATC + AVC = AFC

2) When the average total cost is $16 and the total cost is $800, then the number of units the firm is producing is

A) impossible to determine with the information given.

B) 12,800.

C) 784.

D) 50.

3) Adam spent $10,000 on new equipment for his small business, “Adam’s Fitness Studio.” Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open.  Which of the following is true?

A) The fixed cost of running the studio is $22,000.

B) The variable cost of running the studio is $22,000.

C) The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he’ll need to continue operations is a variable cost.

D) The $10,000 Adam spent on equipment is the total cost of starting the business and the $12,000 he’ll need to continue operations is a marginal cost.

4) The formula for total fixed cost is

A) TFC = TC + TVC.

B) TFC = TVC – TC.

C) TFC = TC/TVC.

D) TFC = TC – TVC.

Figure 8-3

5) Refer to Figure 8-3. What happens to the average fixed cost of production when the firm increases output from 150 to 200?

A) It remains constant.

B) It rises.

C) It falls.

D) It could rise or fall depending on what happens to total cost.

6) If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm’s average fixed cost at that level of output?

A) $65

B) $50

C) $15

D) It is impossible to determine without additional information.

7) If a firm produces 20 units of output and incurs a total cost of $1,000 and a variable cost is $700, calculate the firm’s average fixed cost of production if it expands output to 25 units.

A) $300

B) $15

C) $12

D) It is impossible to determine without additional information.

8) Average variable cost can be calculated using any of the formulas below except

A) TVC/Q.

B) (TC – FC)/Q.

C) Δ(TC – FC)/ΔQ.

D) (TC/Q) – AFC.

9) If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm’s total variable cost at that level of output is

A) $1,000.

B) $700.

C) $300.

D) impossible to determine without additional information.

10) Suppose you have just opened a store to sell espresso machines. Both you and a competing store buy this machine from a manufacturer for $130 each. Your competitor who has a store of the same size as yours is currently selling about 10 machines a month at a price of $200 per machine. You expect to sell about 6 machines a month at a price of $220 per machine. If you lower your price, you expect to make a loss. Which of the following could explain why your competitor is able to profitably sell the machine at a lower price although the cost of purchasing the machine is the same for the both of you?

A) The competing store probably has a lower marginal cost of production.

B) The competing store probably has a lower average variable cost of production.

C) The competing store’s goal is to maximize revenue and not profit.

D) The competing store probably has a lower average cost because average fixed cost falls as output increases.