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Question Bank - Economics

Firms: Short run costs

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

Table 2


(Type your answer)

*



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Q2. When marginal costs are below average total costs,

(Select one answer)

(a) * average fixed costs are rising
(b) * average total costs are falling
(c) * average total costs are rising
(d) * average total costs are minimized

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

(Select one answer)

(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

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Q4. If the average cost is falling, then:

(Select one answer)

(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

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

Table 2


(Type your answer)

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Q6. Using the table below, calculate the marginal cost of the 8th unit of output.

Table 2


(Type your answer)

*



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Q7. In the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience

(Select one answer)

(a) * an increase in average total costs
(b) * diseconomies of scale
(c) * economies of scale
(d) * constant returns to scale

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Q8. The average total cost of producing three units is
Quantity of OutputFixed CostsVariable CostsTotal Costs
0€10€0 
1105 
21011 
31018  
41026 
51036 

(Select one answer)

(a) * >€28
(b) * €6
(c) * €3.33
(d) * €18
(e) * €9.33

>

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

(Select one answer)

(a) * is constant
(b) * is total fixed cost
(c) * gets narrower as output decreases
(d) * is the average fixed cost

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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:

(Select one answer)

(a) * £2
(b) * £12
(c) * £32
(d) * £42

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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?

(Select one answer)

(a) * £20
(b) * £5
(c) * £30
(d) * £10

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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?

(Select one answer)

(a) * £28
(b) * £60
(c) * £12
(d) * £140

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Q13. Fill in the gaps below to give an explanation of the relationship between average and marginal cost. (The words required are also given below and there is a bonus mark if you get them all right!)


(Type your answer)




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Q14. 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?

(Select one answer)

(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

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Q15. Which of the following would generally be regarded as fixed costs in the short-run?

(Select one or more answers)

(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



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Q16. Fill in the gaps in the paragraph below to give a good explanation of average and marginal costs in the short-run. The words you need are also given below. (There is a bonus mark if you get all the blanks correct)


(Type your answer)




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Q17. Fill in the blanks in the definitions below to give a good explanation of each of the different types of cost. Some suitable words or expressions for the blanks are also given below. (There is a bonus mark if you get them all correct)


(Type your answer)




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Q18. 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.

(Click on the image to select your answer)



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(a) (b) (c) (d)



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Q19. Using the table below, work out the level of total fixed costs.

Table 2


(Type your answer)

*



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Q20. Which of the costs below would you expect to be long-run (as opposed to short-run) costs?

(Select one or more answers)

(a) * Wage payments
(b) * Depreciation on buildings
(c) * Interest payments on debentures
(d) * Rent on the business site



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Q21. A firm's average fixed cost is £20 at 6 units of output. What will it be at 4 units of output?

(Select one answer)

(a) * £60
(b) * £30
(c) * £40
(d) * £20

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