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Principles of Microeconomics, 12e (Case/Fair/Oster)
Chapter 8 Short–Run Costs and Output Decisions
8.1 Costs in the Short Run
1) In the short run
A) existing firms do not face limits imposed by a fixed input.
B) all firms have costs that they must bear regardless of their output.
C) new firms can enter an industry.
D) existing firms can exit an industry.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
2) Which type of cost does not depend on a firm’s output?
A) fixed cost
B) variable cost
C) total cost
D) marginal cost
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
3) Which type of cost does depend on a firm’s output?
A) variable cost
B) total cost
C) marginal cost
D) all of the above
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
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4) Economists usually assume that ________ is a fixed input in the ________ run.
A) labor; short
B) capital; short
C) labor; long
D) capital; long
Topic: Costs in the Short Run
Skill: Fact
Learning Outcome: Micro–12
5) Total variable cost ________ as output increases, and total fixed cost ________ as output increases.
A) increases; increases
B) increases; decreases
C) increases; does not change
D) does not change; does not change
Topic: Costs in the Short Run
Skill: Fact
Learning Outcome: Micro–12
6) The formula for total fixed cost is
A) TFC = TC + TVC.
B) TFC = TVC – TC.
C) TFC = TC/TVC.
D) TFC = TC – TVC.
Topic: Costs in the Short Run
Skill: Definition
Learning Outcome: Micro–12
7) Total cost is calculated as
A) the sum of total fixed cost and total variable cost.
B) the product of average total cost and price.
C) the sum of all the firm‘s explicit costs.
D) the sum of average fixed cost and average variable cost.
Topic: Costs in the Short Run
Skill: Definition
Learning Outcome: Micro–12
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8) The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000.
The Lawn Ranger’s total fixed costs are
A) $0.
B) $3,000.
C) $5,000.
D) indeterminate because the firm‘s output level is not known.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
9) The Lawn Ranger, a landscaping company, has total costs of $5,000 and total fixed costs of $3,000. The
Lawn Ranger’s total variable costs are
A) $2,000.
B) $3,000.
C) $5,000.
D) indeterminate because the firm’s output level is not known.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
10) The Farley Farm, a dairy company, has total costs of $15,000 and total variable costs of $2,000. The
Farley Farm’s total fixed costs are
A) $0.
B) $13,000.
C) $17,000.
D) indeterminate because the firm’s output level is not known.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
11) Wilbur’s Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total
variable cost is $300. What is the total cost of producing 100 widgets?
A) $300
B) $305
C) $500
D) $800
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
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12) Amy spends $5,000 on remodeling a storefront that she then opens as a take–out deli. Business has not
been very successful, and she needs an additional $1,000 to keep the deli open. Which of the following is
true?
A) The $5,000 Amy spent on remodeling represents a part of the total variable cost of her business.
B) The $5,000 Amy spent is a fixed cost of her business.
C) The $1,000 represents her marginal costs of production.
D) The $1,000 Amy needs to keep the deli open represents her total fixed costs.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
13) Dana spends $10,000 on remodeling a storefront that she then opens as a shoe store. The business has
not been very successful, and she needs an additional $3,000 to keep the shoe store open. Which of the
following is true?
A) The $10,000 Dana spent on remodeling represents a part of the total variable cost of her business.
B) The $3,000 represents her marginal costs of production.
C) The $10,000 Dana spent on remodeling is a fixed cost of her business.
D) The $3,000 Dana needs to keep the deli open represents her total fixed costs.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
14) Firms have ________ over their ________ costs in the short run.
A) control; fixed
B) no control; fixed
C) control; overhead
D) no control; variable
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
15) The formula for average fixed costs is
A) TFC – q.
B) TFC/q.
C) q/TFC.
D) Δq/ΔTFC.
Topic: Costs in the Short Run
Skill: Definition
Learning Outcome: Micro–12
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16) Average fixed costs
A) are the costs associated with producing an additional unit of output.
B) provide a per unit measure of costs.
C) fall as output rises.
D) reach their minimum at the output level where the average fixed cost curve is intersected by the
marginal cost curve.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
Refer to the information provided in Figure 8.1 below to answer the question(s) that follow.
Figure 8.1
17) Refer to Figure 8.1 above. The total fixed costs for Cyndy’s Floral Arrangements are $1,000. If Cyndy’s
Floral Arrangements produces 200 silk flower arrangements, the average fixed costs are
A) $0.20.
B) $5.
C) $20.
D) $200.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
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18) Refer to Figure 8.1 above. If Cyndy’s Floral Arrangements produces 100 silk flower arrangements, the
average fixed costs are
A) $0.10.
B) $10.
C) $1,000.
D) There is not enough information in the graph to answer this question.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
Refer to the information provided in Figure 8.2 below to answer the question(s) that follow.
Figure 8.2
19) Refer to Figure 8.2 above. The total fixed costs for The Barber Shop are $3,000. If The Barber Shop
produces 300 haircuts, the average fixed costs are
A) $0.20.
B) $5.
C) $10.
D) $100.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
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20) Refer to Figure 8.2 above. If The Barber Shop produces more than 300 haircuts, the average fixed costs
are
A) < $10.
B) $10.
C) > $10.
D) There is not enough information in the graph to answer this question.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
21) As output increases, average fixed costs
A) decrease.
B) initially decrease and then increase.
C) remain constant.
D) increase.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
22) Both Kate and John own saltwater taffy factories. Kate‘s factory has low fixed costs and high variable
costs. John’s factory has high fixed costs and low variable costs. Currently, each factory is producing 1,000
boxes of taffy at the same total cost. Complete the following statement with the correct answer. If each
produces
A) less, their costs will be equal.
B) more, their costs will be equal.
C) more, the costs of Kate’s factory will exceed those of John‘s factory.
D) less, the costs of Kate’s factory will exceed those of John’s factory.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
23) Short–run costs that depend on the level of output are
A) total fixed cost only.
B) total variable costs only.
C) total costs only.
D) both total variable costs and total costs.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
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24) Which statement is not true regarding the total variable cost curve?
A) It increases as output increases.
B) It shows the variable cost of production given current factor prices.
C) It starts at the origin.
D) It is a horizontal line.
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
25) A point on a total variable cost curve shows the ________ variable cost a firm will bear to produce a
certain output.
A) highest
B) lowest
C) change in
D) average
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
26) 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
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–12
27) ________ are likely a fixed cost of a firm.
A) Wages paid to employees
B) The payments for supplies
C) Lease payments for office space
D) Travel expenses to meet with clients
Topic: Costs in the Short Run
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
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Refer to the information provided in Table 8.1 below to answer the question(s) that follow.
Table 8.1
28) Refer to Table 8.1. Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per
unit, what production technique should this firm use to produce 2 units of output?
A) production technique A
B) production technique B
C) The firm is indifferent between production technique A and production technique B.
D) It is impossible to determine if the firm should select production technique A or B because total fixed
costs are not given.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
29) Refer to Table 8.1. Assume the price of labor (L) is $5 per unit, the price of capital (K) is $10 per unit,
and that firms attempt to minimize costs. The total variable cost of producing one unit of output is
A) $16.
B) $100.
C) $120.
D) $220.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
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30) Refer to Table 8.1. In the short run, if the price of labor (L) is $5 per unit, the price of capital (K) is $10
per unit, and firms attempt to minimize costs, then this firm’s total cost of producing one unit of output is
A) $100.
B) $120.
C) $220.
D) indeterminate from this information.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
31) Refer to Table 8.1. Assume that the relevant time period is the short run. Assuming the price of labor
(L) is $5 per unit and the price of capital (K) is $10 per unit, the average variable cost of producing two
units of output is
A) $20.
B) $40.
C) $90.
D) $100.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–12
32) Refer to Table 8.1. Assume the price of labor (L) is $5 per unit, the price of capital (K) is $10 per unit,
and that firms attempt to minimize costs. The marginal cost of producing the third unit of output is
A) $30.
B) $40.
C) $50.
D) indeterminate from this information.
Topic: Costs in the Short Run
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro–20