Cost test

Q1. Using the table below, calculate the value of the marginal cost of the
3rd unit of output.

Q2. A firm's short-run marginal cost

(a) Increases as the level of output produced increases

(b) Is the cost of hiring inputs, such as labor and raw materials?
(c) Includes the cost of the firm's plant and equipment
(d) Shows the change in total variable cost that results when an
additional unit of output is produced

Q3. Which of the following best describes the shape of the total variable
Cost curve?

(a) Initially increasing at an increasing rate, then increasing at a

Decreasing rate
(b) Initially increasing at a decreasing rate, then increasing at an
increasing rate
(c) Initially decreasing at an increasing rate, then decreasing at a
decreasing rate
(d) Increasing at a constant rate
 Q4. If the average cost is falling, then:

(a) Marginal cost is rising

(b) Marginal cost is falling
(c) Marginal cost is equal to average cost
(d) It is impossible to tell if marginal cost is rising or falling

Q5. Using the table below, calculate the value of the average cost at 2
units of output

Q6. Using the table below, calculate the marginal cost of the 8th unit of output
Q7. The short run, as economists use the phrase, is characterized by

(a) At least one fixed factor of production and firms neither leaving
nor
entering the industry.
(b) A period where the law of diminishing returns does not hold.
(c) No variable inputs - that is all of the factors of production are
fixed.
(d) All inputs being variable.

Q8. Which of the following is most likely to be a variable cost for a firm?

(a) The interest payments made on loans.

(b) The franchiser's fee that a restaurant must pay to the national
restaurant chain.
(c) The monthly rent on office space that it leased for a year.
(d) The payroll taxes that are paid on employee wages.

Q9. The difference between average total cost and average variable cost:

(a) Is constant
(b) Is total fixed cost
(c) Gets narrower as output decreases
(d) Is the average fixed cost

Q10. A firm’s average total cost is £30 at 5 units of output and £32 at 6
units of output. The marginal cost of producing the 6th unit is:

(a) £2
(b) £12
(c) £32
(d) £42
Q11. A firm producing 7 units of output has an average total cost of £15
and has to pay £35 to its fixed factors of production whether it
produces or not. How much of the average total cost is made up of
Variable costs?

(a) £20
(b) £5
(c) £30
(d) £10

Q12. A firm has a variable cost of £100 at 5 units of output. If fixed costs
are £40, what will be the average total cost at 5 units of output?

(a) £28
(b) £60
(c) £12
(d) £140

Q13. The marginal cost for a firm of producing the 9th unit of output is
£20. Average cost at the same level of output is £15. Which of the
following must be true?

(a) Marginal cost and average cost are both falling

(b) Marginal cost and average cost are both rising
(c) Marginal cost is rising and average cost is falling
(d) It is impossible to tell if either of the curves are rising or falling

Q14. Which of the following would generally be regarded as fixed costs in

the short-run?

(a) Interest charged on a bank loan for new equipment

(b) Security costs for the factory site
(c) Weekly wages for shop-floor workers
(d) The cost of raw materials
(e) Payments for rent

Q15 On the graph below, identify the average total cost curve. Click on
 the right hand end of the curve you think is the correct one.

Q16. Using the table below, work out the level of total fixed costs

Q17. A firm’s average fixed cost is £20 at 6 units of output. What will it be
at 4 units of output?

(a) £60
(b) £30
(c) £40
(d) £20

Q18. Which of the costs below would you expect to be long run (as
Opposed to short-run) costs?

(a) Wage payments

(b) Depreciation on buildings
(c) Interest payments on debentures
(d) Rent on the business site
Q19. Engineers for The All-Terrain Bike Company have determined that a
15% increase in all inputs will cause a 15% increase in output.
Assuming that input prices remain constant, you correctly deduce
that such a change will cause _________ as output increases

(a) Average costs to increase

(b) Average costs to decrease
(c) Average costs to remain constant
(d) Marginal costs to increase