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California State University, Fullerton Professor Farka, Ph.D.

Department of Economics Economics 201

Problem Set 13 Questions

True/False Questions:

1. The typical total-cost curve is U-shaped.

2. If a firm produces nothing, it still incurs its fixed costs.

3. The shape of the total cost curve is related to the shape of the production function.

4. If the marginal cost of producing the tenth unit of output is $3, and if the average total cost of producing the tenth unit of

output is $2, then at ten units of output, average total cost is rising.

5. The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost curve.

Multiple Choice Questions:

For questions 6-7, refer to the following Figure

2 4 6 8 10 12 14 16 Quantity

10

20

30

40

50

60

70

80

90

100

Cost

6. The graph shows a typical total cost curve. Based on its shape, what does the corresponding production function look like?

a. an upward-sloping curve that increases at an increasing rate

b. an upward-sloping curve that increases at a decreasing rate

c. a downward-sloping curve

d. a horizontal straight line

7. Which of the following is true of the production function (not pictured) that underlies this total cost function?

(i) Total output increases as the quantity of inputs increases but at a decreasing rate.

(ii) Marginal product is diminishing for all levels of input usage.

(iii) The slope of the production function decreases as the quantity of inputs increases.

a. (i) only

b. (ii) and (iii) only

c. (i) and (iii) only

d. (i), (ii), and (iii)

8. Which of the following statements is correct?

a. If marginal cost is rising, then average total cost is rising.

b. If marginal cost is rising, then average variable cost is rising.

c. If average variable cost is rising, then marginal cost is minimized.

d. If average total cost is rising, then marginal cost is greater than average total cost.

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9. Which of the following costs do not vary with the amount of output a firm produces?

a. average fixed costs

b. fixed costs and average fixed costs

c. marginal costs and average fixed costs

d. fixed costs

10. Suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost

of production is $120. What is the firm’s fixed cost?

a. $40

b. $60

c. $80

d. $100

11. Harry’s Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to categorize his costs fixed or

variable. Which of the following costs are most likely to be considered fixed costs?

a. the cost of mustard

b. the cost of hotdog buns

c. wages paid to workers who sell hot dogs

d. the cost of bookkeeping services

12. Average total cost (ATC) is calculated as follows:

a. ATC = (change in total cost)/(change in quantity of output).

b. ATC = (change in total cost)/(change in quantity of input).

c. ATC = (total cost)/(quantity of output).

d. ATC = (total cost)/(quantity of input).

13. Suppose that marginal cost of the third worker hired is $40, and the average total cost when three workers are hired is $50.

What is the total cost of production when three workers are hired?

a. $50

b. $90

c. $120

d. $150

14. The Wacky Widget Company has total fixed costs of $100,000 per year. The firm’s average variable cost is $5 for 10,000

widgets. At that level of output, the firm’s average total costs equal

a. $10

b. $15

c. $100

d. $150

15. A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100,

a. average fixed cost is $10.

b. average variable cost is $3.

c. average total cost is $4.

d. average total cost is $5.

16. A firm has a fixed cost of $500. When the firm produces 100 units of output, its total costs are $3,500. When it produces 101

units of output, its total costs are $3,750. What is the marginal cost of producing the 101st unit of output?

a. $250

b. $275

c. $340.91

d. $350

17. Average total cost is very high when a small amount of output is produced because

a. average variable cost is high.

b. average fixed cost is high.

c. marginal cost is high.

d. marginal product is high.

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For questions 18-24, refer to the following Table

Jimmy’s Gigaplots Factory

Quantity

of

gigaplots

Fixed

Cost

Variable

Cost

Total

Cost

Average

Fixed

Cost

Average

Variable

Cost

Average

Total

Cost

Marginal

Cost

1 $13 $38

2 $28

3 $70

4 $64

5 $110

6 $108

7 $133

8 $185

18. What is the fixed cost of production at Jimmy’s Gigaplot factory?

a. $12

b. $20

c. $25

d. $51

19. What is the variable cost of producing 5 gigaplots at Jimmy’s Gigaplot factory?

a. $64

b. $85

c. $90

d. $100

20. What is the total cost of producing 7 gigaplots at Jimmy’s Gigaplot factory?

a. $140

b. $150

c. $153

d. $158

21. What is the average variable cost of producing 6 gigaplots at Jimmy’s Gigaplot factory?

a. $16

b. $17

c. $18

d. $19

22 . What is the average fixed cost of producing 8 gigaplots at Jimmy’s Gigaplot factory?

a. $2.12

b. $3.13

c. $20.00

d. $24.37

23 What is the average total cost of producing 6 gigaplots at Jimmy’s Gigaplot factory?

a. $16.34

b. $22.00

c. $22.17

d. $22.57

24. What is the marginal cost of the 4th gigaplot at Jimmy’s Gigaplot factory?

a. $13

b. $15

c. $19

d. $64

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For questions 25-30, refer to the following Table

A

B

C

D

1 2 3 4 5 6 7 8 9 10 11 12 Quantity

1

2

3

4

5

6

7

8

9

10

11

Cost

25．Curve A represents which type of cost curve?

a. marginal cost

b. average total cost

c. average variable cost

d. average fixed cost

25. Curve C represents which type of cost curve?

a. marginal cost

b. average total cost

c. average variable cost

d. average fixed cost

27. Curve D represents which type of cost curve?

a. marginal cost

b. average total cost

c. average variable cost

d. average fixed cost

28. Curve D is increasing because of

a. diminishing marginal product.

b. increasing marginal product.

c. the fact that increasing marginal product follows decreasing marginal product.

d. the fact that decreasing marginal product follows increasing marginal product.

29. Curve A is always declining because of

a. diminishing marginal product.

b. dividing fixed costs by higher and higher levels of output.

c. the fact that increasing marginal product follows decreasing marginal product.

d. the fact that decreasing marginal product follows increasing marginal product.

30. Curve D intersects curve C

a. where the firm maximizes profit.

b. at the minimum of average fixed cost.

c. at the efficient scale.

d. where fixed costs equal variable costs.