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Exam 5: Production Technology and Cost

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Question 101

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If average cost is falling, marginal cost must also be falling.

A) True
B) False

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Question 102

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Recall the Application about the manufacture of fake killer whales used to scare sea lions off the Washington coast to answer the following question(s) . -Recall the Application. If a fake killer whale to be used to scare sea lions away from steelhead and other threatened and commercially valuable species cost $11,000 for the mold and $5,000 for materials for each fake killer whale made, then the average or unit cost of producing five fake killer whales would be:

A) $5,000.
B) $7,200.
C) $11,000.
D) $16,000.

E) None of the above
F) C) and D)

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Question 103

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Lower input prices in large firms might lead to:

A firm scaled down its operation by reducing all inputs by 50% and experienced a more- than-50% decrease in output. If all input prices remain unchanged, the firmʹs long -run average cost exhibits:

Average variable cost equals:

Explain the relationship between average fixed cost and marginal cost.

$\begin{array}{|c|c|c|c|c|c|c|}\hline \text { Number of Figs } & V C & M C & A V C & F C & T C & A T C \\\hline 0 & & & & 100 & & \\\hline 1 & 90 & 90 & & & & \\\hline 2 & & & & & & 135 \\\hline 3 & & & 80 & & & \\\hline 4 & & & & & 400 & \\\hline\end{array}$ Table 5.4 -Table 5.4 presents the cost schedule for Davidʹs Figs. If David produces three figs, Davidʹs total variable costs are:

$\begin{array} { | c | c | } \hline \text { Dutput } & \text { Total Cost } \\\hline 0 & 15 \\\hline 1 & 25 \\\hline 2 & 33 \\\hline 3 & 40 \\\hline 4 & 48 \\\hline 5 & 58 \\\hline 6 & 70 \\\hline\end{array}$ Table 5.5 -Refer to Table 5.5. The total fixed cost of producing two units is:

Which of the following is true?

Draw a graph showing a short-run average variable cost curve, a short-run average total cost curve, and a short-run marginal cost curve. Briefly explain the shape of each curve and how they relate to each other.

If marginal cost is above average cost, average cost must be rising.

$\begin{array} { | c | c | } \hline \text { Dutput } & \text { Total Cost } \\\hline 0 & 15 \\\hline 1 & 25 \\\hline 2 & 33 \\\hline 3 & 40 \\\hline 4 & 48 \\\hline 5 & 58 \\\hline 6 & 70 \\\hline\end{array}$ Table 5.5 -Refer to Table 5.5. The total variable cost of producing five units of output is:

When a firm is experiencing diminishing marginal returns:

Since all costs positive, then economic profits would always be smaller than accounting profits.

The marginal cost curve intersects the short-run average total cost curve where:

If the average total cost is increasing over a given output range, the average total cost must be smaller than the marginal cost.

Recall the Application about the average cost of producing a music video to answer the following question(s) . -Recall the Application. If the first copy cost is $223,000 and the marginal cost is $0, how much total cost would the firm incur if it produces 1 million copies?

An example of an implicit cost is:

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

In the short run, the marginal cost of the first unit of output is $20, the marginal cost of producing the second unit of output is $16, and the marginal cost of producing the third unit of output is $12. The firmʹs total variable cost of producing three units of output is: