Tutorial review 3

COST OF PRODUCTION
1. Lim Industries has average variable costs of $1 and average total costs of $4 when it produces
900 units of output. The firm's total fixed costs equal
a. $3.
b. $5.
c. $2,700.
d. $3,700.
2. A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000,
a. average fixed cost is 50 cents.
b. average variable cost is $2.
c. average total cost is $2.50.
d. average total cost is 50 cents.
Table 13-6
Consider the following information about baseball production at Bobby's Baseball Factory.

Labor Marginal Product

(Number of workers) (Baseballs)
1 3

2 5

3 8

4 10

5 7

6 4

7 2

3. Refer to Table 13-6. Bobby pays all his workers the same wage, and labor is his only variable
cost. From this information we can conclude that Bobby's average variable cost decreases
a. as output rises from 0 to 10, but rises after that.
b. as output rises from 0 to 26, but rises after that.
c. as output rises from 0 to 33, but increases after that.
d. continually as output rises.

4. Table 13-7
The following table shows the production costs for The Flying Elvis Copter Rides.

Output Total Fixed Variable Marginal

Average Average Average
(Helicopter Cost Cost Cost Cost
Fixed Cost Variable Cost Total Cost
rides) (Dollars) (Dollars) (Dollars) (Dollars)
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(Dollars per (Dollars per (Dollars per

ride) ride) ride)
0 50 50 0 -- -- -- --

1 150 A B C D E F

2 G H I 120 J K L

3 M N O P Q 120 R

Table 13-9

Labor Output Fixed Cost Variable Cost

(Number of workers) (Units) (Dollars) (Dollars)
0 0 30 0

1 100 30 15

2 180 30 30

3 240 30 45

4 280 30 60

5 300 30 75

5. Refer to Table 13-9. What is the marginal product of the third worker?
a. 80 units
b. 60 units
c. 40 units
d. 20 units

6. Refer to Table 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.

7. Refer to Table 13-9. For the firm whose production function and costs are specified in the table,
its total-cost curve is
a. constant.
b. increasing at a decreasing rate.
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c. increasing at an increasing rate.

d. unknown because there is no relationship between a firm's production function and its total-cost
curve.

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

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.

10. Refer to Table 13-9. For the firm whose production function and costs are specified in the table,
its average-variable-cost curve is
a. constant.
b. decreasing.
c. increasing.
d. U-shaped.

11. Refer to Table 13-9. For the firm whose production function and costs are specified in the table,
its average-total-cost curve is
a. constant.
b. decreasing.
c. increasing.
d. U-shaped.

Table 13-10
Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled
children in public school districts. The owner rents several small rooms in an office building in the
suburbs for $600 a month and has leased computer equipment that costs $480 a month.
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Average
Output Average Average
Fixed Variable Total Marginal Variable
(Instructional Fixed Cost Total Cost
Cost Cost Cost Cost Cost
modules per (Dollars (Dollars
(Dollars) (Dollars) (Dollars) (Dollars) (Dollars per
month) per unit) per unit)
unit)
0 1,080

1 1,080 400 1480 400

2 450 965

3 1,350 2,430

4 1,900 475

5 2,500 216

6 4,280 700

7 4,100

8 5,400 135

9 7,300

10 10,880 980

12. Refer to Table 13-10. What is the marginal cost of creating the tenth instructional module in a
given month?
a. $900
b. $1,250
c. $2,500
d. $3,060

13. Refer to Table 13-10. What is the average variable cost for the month if 6 instructional modules
are produced?
a. $180.00
b. $533.33
c. $700.00
d. $713.33
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14. Refer to Table 13-10. What is the average fixed cost for the month if 9 instructional modules are
produced?
a. $108.00
b. $120.00
c. $150.00
d. $811.11

15. Refer to Table 13-10. How many instructional modules are produced when marginal cost is
$1,300?
a. 4
b. 5
c. 7
d. 8

16. Refer to Table 13-10. One month, Teacher's Helper produced 18 instructional modules. What
was the average fixed cost for that month?
a. $60
b. $108
c. $811
d. It can't be determined from the information given.

17. If marginal cost is rising,

a. average variable cost must be falling.
b. average fixed cost must be rising.
c. marginal product must be falling.
d. marginal product must be rising.

Figure 13-2
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18. Refer to Figure 13-2. Curve D represents which type of cost curve?
a. Marginal cost
b. Average total cost
c. Average variable cost
d. Average fixed cost

19. Refer to Figure 13-2. Which of the curves is most likely to represent marginal cost?
a. Curve A
b. Curve C
c. Curve D
d. Curve B

20. Refer to Figure 13-2. Curve B is increasing because

a. of diminishing marginal product.
b. of increasing marginal product.
c. marginal product first increases, then decreases.
d. marginal product first decreases, then increases.
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21. Refer to Figure 13-2. Curve D is always declining because

a. of diminishing marginal product.
b. we are dividing fixed costs by higher and higher levels of output.
c. marginal product first increases, then decreases.
d. marginal product first decreases, then increases.

22. Refer to Figure 13-2. Curve A intersects curve B

a. where the firm maximizes production.
b. at the minimum of average fixed cost.
c. at the efficient scale.
d. where fixed costs equal variable costs.

Figure 13-3

23. Refer to Figure 13-3. Which of the following can be inferred from the figure above?
a. Marginal cost is increasing at all levels of output, and marginal product is increasing at low
levels of output.
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b. Marginal product is increasing at low level of output and decreasing at high level of output.
c. Marginal cost is increasing at all levels of output, and marginal product is decreasing at high
level of output.
d. Marginal product is increasing at all levels of output.

24. Refer to Figure 13-3. Why doesn't the total cost curve begin at the origin (the point 0,0)?
a. Because variable costs are positive when output is zero
b. Because fixed costs are positive when output is zero
c. Because the firm is producing at the efficient scale
d. Because the firm is maximizing profits

Figure 13-4

Figure 1 Figure 2 Figure 3 Figure 4

25. Refer to Figure 13-4. Which of the figures represents the total cost curve for a typical firm?
a. Figure 1
b. Figure 2
c. Figure 3
d. Figure 4

Figure 13-5
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26. Refer to Figure 13-5. The efficient scale of production occurs at which quantity?
a. A
b. B
c. C
d. D

27. Refer to Figure 13-5. Which of the following statements is correct?

a. Marginal cost is rising for quantities higher than D because marginal cost is higher than
average total cost.
b. Average variable cost is declining for quantities less than B because marginal cost is lower
than average variable cost.
c. Marginal cost is minimized at B because at that quantity, marginal cost equals average
variable cost.
d. Average total cost is declining for quantities less than C because average variable cost is less
than average total cost.

28. The average fixed cost curve

a. always declines with increased levels of output.
b. always rises with increased levels of output.
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c. declines as long as it is above marginal cost.

d. declines as long as it is below marginal cost.

29. 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.

30. When marginal cost is less than average total cost,

a. marginal cost must be falling.
b. average variable cost must be falling.
c. average total cost is falling.
d. average total cost is rising.

31. Average total cost is increasing whenever

a. total cost is increasing.
b. marginal cost is increasing.
c. marginal cost is less than average total cost.
d. marginal cost is greater than average total cost.

32. Marginal cost is equal to average total cost when

a. average variable cost is falling.
b. average fixed cost is rising.
c. marginal cost is at its minimum.
d. average total cost is at its minimum.

33. The minimum points of the average variable cost and average total cost curves occur where the
a. marginal cost curve lies below the average variable cost and average total cost curves.
b. marginal cost curve intersects those curves.
c. average variable cost and average total cost curves intersect.
d. slope of total cost is the smallest.
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34. When a factory is operating in the short run,

a. it cannot alter variable costs.
b. total cost and variable cost are usually the same.
c. average fixed cost rises as output increases.
d. it cannot adjust the quantity of fixed inputs.

35. In the short run, a firm that produces and sells house paint can adjust
a. where to produce along its long-run average-total-cost curve.
b. the size of its factories.
c. how many workers to hire.
d. the location of its factory.