Chapter 13/The Costs of Production ❖ 41
5. For a construction company that builds houses, which of the following costs would be a fixed cost?
a.
the $50,000 per year salary paid to a construction foreman
b.
the $30,000 per year salary paid to the company’s bookkeeper
c.
the $10,000 per year premium paid to an insurance company
d.
All of the above are correct.
6. For a construction company that builds houses, which of the following costs would be a fixed cost?
a.
the $20 per hour wage paid to a construction foreman
b.
the $30,000 per year salary paid to the company’s bookkeeper
c.
the $2 per worker-hour paid to the state government for workers’ compensation insurance
d.
All of the above are correct.
7. Which of the following costs of publishing a book is a fixed cost?
a.
author royalties of 5% per book
b.
the costs of paper and binding
c.
shipping and postage expenses
d.
composition, typesetting, and jacket design for the book
8. Suppose that for a particular firm the only variable input into the production process is labor and that output
equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost
of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume
that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired.
What is the firm’s fixed cost?
a.
$40
b.
$60
c.
$80
d.
$100
9. Harry’s Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better un-
derstanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely
to be considered fixed costs?
a.
the cost of mustard
b.
the cost of hotdog buns
c.
wages paid to workers who sell hot dogs
d.
the cost of bookkeeping services
42 ❖ Chapter 13/The Costs of Production
10. Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan‘s lemonade stand
now include the cost of
a.
building the lemonade stand.
b.
hiring an artist to design a logo for her sign.
c.
lemons and sugar.
d.
All of the above are correct.
11. Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan’s lemonade stand
now include the cost of
a.
lemons and sugar.
b.
paper cups.
c.
the wages paid to her hourly workers.
d.
All of the above are correct.
12. If a firm produces nothing, which of the following costs will be zero?
a.
total cost
b.
fixed cost
c.
opportunity cost
d.
variable cost
13. For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?
a.
the $20 million payment that the firm pays each year for accounting services
b.
the cost of the steel that is used in producing automobiles
c.
the rent that the firm pays for office space in a suburb of St. Louis
d.
All of the above are correct.
14. For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?
a.
the unemployment insurance premium that the firm pays to the state of Missouri that is calculated
based on the number of worker-hours that the firm uses
b.
the cost of the steel that is used in producing automobiles
c.
the cost of the electricity of running the machines on the factory floor
d.
All of the above are correct.
15. When a firm is able to put idle equipment to use by hiring another worker,
a.
variable costs will rise.
b.
variable costs will fall.
c.
fixed costs will fall.
d.
both fixed costs and variable costs will rise.
Chapter 13/The Costs of Production ❖ 43
16. Which of the following is the best example of a variable cost?
a.
monthly wage payments for hired labor
b.
annual property tax payments for a building
c.
monthly rent payments for a warehouse
d.
annual insurance payments for a warehouse
17. Total cost can be divided into two types of costs:
a.
fixed costs and variable costs.
b.
fixed costs and marginal costs.
c.
variable costs and marginal costs.
d.
average costs and marginal costs.
18. Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the
firm hires 6 workers it produces 90 units of output. Fixed cost of production are $6 and the variable cost per
unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the
total cost of production when the firm hires 7 workers?
a.
$66
b.
$76
c.
$906
d.
$946
19. Suppose that for a particular firm the only variable input into the production process is labor and that output
equals zero when no workers are hired. In addition, suppose that marginal cost of the third worker hired is
$40, and the average total cost when three workers are hired is $50. What is the total cost of production when
three workers are hired?
a.
$50
b.
$90
c.
$120
d.
$150
20. Cindy’s Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units
of output (car washes). The firm’s total cost is
a.
$100.
b.
$200.
c.
$300.
d.
$500.
44 ❖ Chapter 13/The Costs of Production
21. The cost of producing the typical unit of output is the firm’s
a.
average total cost.
b.
opportunity cost.
c.
variable cost.
d.
marginal cost.
22. Average total cost is equal to
a.
output/total cost.
b.
total cost – total quantity of output.
c.
average variable cost + total fixed cost.
d.
total cost/output.
23. Average total cost equals
a.
change in total costs divided by quantity produced.
b.
change in total costs divided by change in quantity produced.
c.
(fixed costs + variable costs) divided by quantity produced.
d.
(fixed costs + variable costs) divided by change in quantity produced.
24. Average total cost tells us the
a.
total cost of the first unit of output, if total cost is divided evenly over all the units produced.
b.
cost of a typical unit of output, if total cost is divided evenly over all the units produced.
c.
cost of the last unit of output, if total cost does not include a fixed cost component.
d.
variable cost of a firm that is producing at least one unit of output.
25. Which of the following expressions is correct?
a.
marginal cost = (change in quantity of output)/(change in total cost)
b.
average total cost = (total cost)/(quantity of output)
c.
total cost = variable cost + marginal cost
d.
average variable cost = (quantity of output)/(total variable cost)
26. Average total cost (ATC) is calculated as follows:
a.
ATC = (change in total cost)/(change in quantity of output).
b.
ATC = (change in total cost)/(change in quantity of input).
c.
ATC = (total cost)/(quantity of output).
d.
ATC = (total cost)/(quantity of input).
Chapter 13/The Costs of Production ❖ 45
27. Which of the following measures of cost is best described as “the cost of a typical unit of output if total cost is
divided evenly over all the units produced?”
a.
average fixed cost
b.
average variable cost
c.
average total cost
d.
marginal cost
28. Larry’s Lunchcart is a small street vendor business. If Larry makes 15 pretzels in his first hour of business and
incurs a total cost of $16.50, his average total cost per pretzel is
a.
$1.10.
b.
$6.50.
c.
$15.00.
d.
$16.50.
29. At Bert’s Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the
twenty-first pair of boots is $83. We can conclude that the
a.
average variable cost of 21 pairs of boots is $23.
b.
average total cost of 21 pairs of boots is $23.
c.
average total cost of 21 pairs of boots is $15.09.
d.
marginal cost of the 20th pair of boots is $20.
30. Suppose that for a particular firm the only variable input into the production process is labor and that output
equals zero when no workers are hired. In addition, suppose that when the firm hires 4 workers, the firm pro-
duces 50 units of output. If the fixed cost of production is $4, the variable cost per unit of labor is $20, and the
marginal product of labor for the fifth unit of labor is 2, what is the average total cost of production when the
firm hires 5 workers?
a.
$2.00
b.
$20.00
c.
$20.80
d.
$22.80
31. Tom’s Tent Company has total fixed costs of $300,000 per year. The firm’s average variable cost is $80 for
10,000 tents. At that level of output, the firm‘s average total costs equal
a.
$80
b.
$90
c.
$100
d.
$110
46 ❖ Chapter 13/The Costs of Production
32. The Wacky Widget company has total fixed costs of $100,000 per year. The firm’s average variable cost is $5
for 10,000 widgets. At that level of output, the firm’s average total costs equal
a.
$10
b.
$15
c.
$100
d.
$150
33. Suppose that for a particular firm the only variable input into the production process is labor and that output
equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output
are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost
when six units are produced?
a.
$10
b.
$25
c.
$30
d.
$35
34. Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the
firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable
cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information,
what is the average total cost of production when the firm hires 7 workers?
a.
$10.06
b.
$9.64
c.
81 cents
d.
70 cents
35. The Wacky Widget company has total fixed costs of $100,000 per year. The firm’s average variable cost is
$10 for 10,000 widgets. At that level of output, the firm’s average total costs equal
a.
$10
b.
$15
c.
$20
d.
$25
36. Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of
output. The firm’s total fixed costs equal
a.
$2.
b.
$4.
c.
$1,000.
d.
$2,000.
Chapter 13/The Costs of Production ❖ 47
37. Which of the following statements is not correct?
a.
Fixed costs are constant.
b.
Variable costs change as output changes.
c.
Average fixed costs are constant.
d.
Average total costs are typically U-shaped.
38. Suppose that for a particular firm the only variable input into the production process is labor and that output
equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the
total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units
were produced?
a.
$4
b.
$10
c.
$40
d.
$135
39. 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.
40. A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100,
a.
average fixed cost is $10.
b.
average variable cost is $3.
c.
average total cost is $4.
d.
average total cost is $5.
41. Variable cost divided by quantity produced is
a.
average total cost.
b.
marginal cost.
c.
profit.
d.
None of the above is correct.
42. Variable cost divided by the change in quantity produced is
a.
average variable cost.
b.
marginal cost.
c.
average total cost.
d.
None of the above is correct.
48 ❖ Chapter 13/The Costs of Production
43. Cindy’s Car Wash has average variable costs of $2 and average total costs of $3 when it produces 100 units of
output (car washes). The firm’s total variable cost is
a.
$100.
b.
$200.
c.
$300.
d.
$500.
44. Consider the following information about baseball production at Bobby’s Baseball Factory:
Worker
Marginal Product
1
3
2
5
3
8
4
10
5
7
6
4
7
2
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.
45. A firm produces 400 units of output at a total cost of $1,200. If fixed costs are $200,
a.
average fixed cost is $2.
b.
average variable cost is $2.50.
c.
average total cost is $4.
d.
average total cost is $5.
Table 13-7
The Flying Elvis Copter Rides
Quantity
Total
Cost
Fixed
Cost
Variable
Cost
Marginal
Cost
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
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
46. Refer to Table 13-7. What is the value of A?
a.
$25
b.
$50
c.
$100
d.
$200
Chapter 13/The Costs of Production ❖ 49
47. Refer to Table 13-7. What is the value of B?
a.
$25
b.
$50
c.
$100
d.
$200
48. Refer to Table 13-7. What is the value of C?
a.
$25
b.
$50
c.
$100
d.
$200
49. Refer to Table 13-7. What is the value of D?
a.
$25
b.
$50
c.
$100
d.
$200
50. Refer to Table 13-7. What is the value of E?
a.
$25
b.
$50
c.
$100
d.
$150
51. Refer to Table 13-7. What is the value of F?
a.
$50
b.
$100
c.
$150
d.
$200
52. Refer to Table 13-7. What is the value of G?
a.
$30
b.
$120
c.
$220
d.
$270
50 ❖ Chapter 13/The Costs of Production
53. Refer to Table 13-7. What is the value of H?
a.
$0
b.
$50
c.
$220
d.
$270
54. Refer to Table 13-7. What is the value of I?
a.
$110
b.
$120
c.
$220
d.
$270
55. Refer to Table 13-7. What is the value of J?
a.
$25
b.
$50
c.
$110
d.
$220
56. Refer to Table 13-7. What is the value of K?
a.
$25
b.
$50
c.
$110
d.
$220
57. Refer to Table 13-7. What is the value of L?
a.
$60
b.
$135
c.
$240
d.
$270
58. Refer to Table 13-7. What is the value of M?
a.
$50
b.
$140
c.
$360
d.
$410
Chapter 13/The Costs of Production ❖ 51
59. Refer to Table 13-7. What is the value of N?
a.
$50
b.
$140
c.
$360
d.
$410
60. Refer to Table 13-7. What is the value of O?
a.
$40
b.
$140
c.
$360
d.
$410
61. Refer to Table 13-7. What is the value of P?
a.
$50
b.
$140
c.
$360
d.
$410
62. Refer to Table 13-7. What is the value of Q?
a.
$16.67
b.
$50
c.
$136.67
d.
$360
63. Refer to Table 13-7. What is the value of R?
a.
$16.67
b.
$50
c.
$136.67
d.
$360
52 ❖ Chapter 13/The Costs of Production
Table 13-8
Fixed
Cost
Variable
Cost
$20
$0
$20
$10
$20
$40
$20
$80
$20
$130
$20
$200
$20
$300
64. Refer to Table 13–8. What is the average fixed cost of producing 5 units of output?
a.
$4
b.
$5
c.
$40
d.
$44
65. Refer to Table 13–8. What is the average variable cost of producing 5 units of output?
a.
$4
b.
$5
c.
$40
d.
$44
66. Refer to Table 13–8. What is the marginal cost of producing the fifth unit of output?
a.
$4
b.
$40
c.
$50
d.
$70
67. Refer to Table 13–8. What is the shape of the marginal cost curve for this firm?
a.
constant
b.
upward-sloping
c.
downward-sloping
d.
U-shaped
Chapter 13/The Costs of Production ❖ 53
Table 13-9
Measures of Cost for Very Brady Poster Factory
Quantity
of Posters
Variable
Costs
Total
Costs
Fixed
Costs
0
$10
1
$ 1
2
$ 3
$13
3
$ 6
$16
4
$10
5
$25
6
$21
$10
68. Refer to Table 13-9. The average fixed cost of producing 5 posters is
a.
$1.00.
b.
$2.00.
c.
$3.00.
d.
$5.00.
69. Refer to Table 13-9. The average variable cost of producing 4 posters is
a.
$2.00.
b.
$2.50.
c.
$3.33.
d.
$5.00.
70. Refer to Table 13-9. The total cost of producing 1 poster is
a.
$1.00.
b.
$10.00.
c.
$11.00.
d.
$22.00.
71. Refer to Table 13-9. The marginal cost of producing the 6th poster is
a.
$1.00.
b.
$3.50.
c.
$5.00.
d.
$6.00.
72. Refer to Table 13-9. What is the variable cost of producing 0 posters?
a.
$0.00
b.
$1.00
c.
$10.00
d.
$10.00
54 ❖ Chapter 13/The Costs of Production
73. Refer to Table 13-9. What is the marginal cost of producing the 1st poster?
a.
$1.00
b.
$10.00
c.
$11.00
d.
It can’t be determined from the information given.
74. Refer to Table 13-9. What is the variable cost of producing 5 posters?
a.
$13.00
b.
$14.00
c.
$15.00
d.
It can’t be determined from the information given.
Table 13–10
Eileen’s Elegant Earrings produces pairs of earrings for its mail order catalogue business. Each pair is shipped
in a separate box. She rents a small room for $150 a week in the downtown business district that serves as her
factory. She can hire workers for $275 a week. There are no implicit costs.
Boxes of
Earrings
Produced per
Week
Marginal
Product
of Labor
Cost of
Factory
Cost
of
Workers
0
330
$150
$275
630
150
$825
890
950
60
$1,375
10
75. Refer to Table 13–10. What is the marginal product of the second worker?
a.
110
b.
200
c.
260
d.
300
76. Refer to Table 13–10. What is the total cost associated with making 890 boxes of earrings per week?
a.
$1,250
b.
$1,325
c.
$1,400
d.
$1,575
Chapter 13/The Costs of Production ❖ 55
77. Refer to Table 13–10. During the week of July 4th, Eileen doesn’t produce any earrings. What are her costs
during the week?
a.
$0
b.
$150
c.
$275
d.
$425
78. Refer to Table 13–10. One week, Eileen earns a profit of $125. If her revenue for the week is $1100, how
many boxes of earrings did she produce?
a.
140
b.
330
c.
780
d.
950
79. Refer to Table 13–10. Eileen has received an order for 3,000 boxes of earrings for next week. If she expects
that the trend in the marginal product of labor will continue in the same direction, it is most likely that her best
decision will be to
a.
not commit to meeting the order until she can move to a larger room and hire more workers to
produce the earrings.
b.
close her business until she is able to hire more productive workers.
c.
hire about 12 new workers and hope she can satisfy the order.
d.
commit to meeting the order and then take three weeks to complete the job.
56 ❖ Chapter 13/The Costs of Production
Table 13–11
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.
Fixed
Costs
Variable
Costs
Total
Cost
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
Marginal
Cost
$1,080
$1,080
$ 400
$1,480
$400
$965
$450
$1,350
$2,430
$1,900
$475
$2,500
$216
$4,280
$700
$4,100
$5,400
$135
$7,300
$10,880
$980
80. Refer to Table 13–11. 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
81. Refer to Table 13–11. What is the average variable cost for the month if 6 instructional modules are pro-
duced?
a.
$180.00
b.
$533.33
c.
$700.00
d.
$713.33
82. Refer to Table 13–11. 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
83. Refer to Table 13–11. How many instructional modules are produced when marginal cost is $1,300?
a.
4
b.
5
c.
7
d.
8
Chapter 13/The Costs of Production ❖ 57
84. Refer to Table 13–11. 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.
Table 13–12
Betty’s Bakery
Quantity
of
cakes
Fixed
Cost
Variable
Cost
Total
Cost
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
Marginal
Cost
1
$13
$38
2
$28
3
$70
4
$64
5
$110
6
$108
7
$133
8
$185
85. Refer to Table 13–12. What is the fixed cost of production at Betty’s Bakery?
a.
$12
b.
$20
c.
$25
d.
$51
86. Refer to Table 13–12. What is the variable cost of producing 5 cakes at Betty’s Bakery?
a.
$64
b.
$85
c.
$90
d.
$100
87. Refer to Table 13–12. What is the variable cost of producing 8 cakes at Betty’s Bakery?
a.
$120
b.
$140
c.
$155
d.
$160
58 ❖ Chapter 13/The Costs of Production
88. Refer to Table 13–12. What is the total cost of producing 2 cakes at Betty’s Bakery?
a.
$48
b.
$53
c.
$58
d.
$62
89. Refer to Table 13–12. What is the total cost of producing 7 cakes at Betty’s Bakery?
a.
$140
b.
$150
c.
$153
d.
$158
90. Refer to Table 13–12. What is the average variable cost of producing 3 cakes at Betty’s Bakery?
a.
$14
b.
$15
c.
$16
d.
$17
91. Refer to Table 13–12. What is the average variable cost of producing 6 cakes at Betty’s Bakery?
a.
$16
b.
$17
c.
$18
d.
$19
92. Refer to Table 13–12. What is the average fixed cost of producing 3 cakes at Betty’s Bakery?
a.
$1.67
b.
$2.67
c.
$5.33
d.
$8.33
93. Refer to Table 13–12. What is the average fixed cost of producing 8 cakes at Betty’s Bakery?
a.
$2.12
b.
$3.13
c.
$20.00
d.
$24.37
Chapter 13/The Costs of Production ❖ 59
94. Refer to Table 13–12. What is the average total cost of producing 2 cakes at Betty’s Bakery?
a.
$14.00
b.
$18.50
c.
$22.50
d.
$26.50
95. Refer to Table 13–12. What is the average total cost of producing 6 cakes at Betty’s Bakery?
a.
$16.34
b.
$22.00
c.
$22.17
d.
$22.57
96. Refer to Table 13–12. What is the marginal cost of the 2nd cake at Betty’s Bakery?
a.
$14
b.
$15
c.
$28
d.
$34
97. Refer to Table 13–12. What is the marginal cost of the 4th cake at Betty’s Bakery?
a.
$13
b.
$15
c.
$19
d.
$64
98. Refer to Table 13–12. What is the marginal cost of the 8th cake at Betty’s Bakery?
a.
$20
b.
$27
c.
$160
d.
$185
60 ❖ Chapter 13/The Costs of Production
Table 13–13
Output
Total Cost
0
$40
10
$60
20
$90
30
$130
40
$180
50
$240
99. Refer to Table 13–13. What is the total fixed cost for this firm?
a.
$20
b.
$30
c.
$40
d.
$50
100. Refer to Table 13–13. What is average fixed cost when output is 40 units?
a.
$1.00
b.
$3.32
c.
$5.00
d.
$8.00
101. Refer to Table 13–13. What is average variable cost when output is 50 units?
a.
$3.60
b.
$4.00
c.
$4.40
d.
$4.80
102. Refer to Table 13–13. What is variable cost when output equals 30 units?
a.
$4
b.
$40
c.
$90
d.
$130
Scenario 13–14
If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels
of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs
$120, and seeds are his only cost.
103. Refer to Scenario 13-14. Farmer Brown’s marginal-cost curve is
a.
increasing.
b.
decreasing.
c.
constant.
d.
U-shaped.