CHAPTER 30
Costs of Production
MULTIPLE CHOICE
304. Fixed costs are
a. costs that never change.
b. costs that vary with the level of output.
c. costs that do not vary with the level of output.
d. costs that are the same for all firms.
305. Variable costs are
a. costs that never change.
b. costs that vary with the level of output.
c. costs that do not vary with the level of output.
d. costs that are the same for all firms.
306. Which of the following would be considered a fixed cost?
a. labor costs.
b. gas and electricity costs
c. costs of raw materials.
d. cost of fire insurance.
307. Which of the following would be considered a variable cost?
a. rental of office equipment.
b. gas and electricity costs
c. security guard contract.
d. cost of fire insurance.
308. Sam withdrew $100,000 from an interest bearing bank account with an annual yield of
10%. He used the $100,000 to buy real estate, which he sold after one year for $110,000.
According to an economist, how much was Robert’s economic profit on this deal?
a. $10,000
b. $100,000
c. 0
d. $110,000
309. A firm is producing 100 units of output at a total cost of $400. The firm’s average variable
cost is $3.50 per unit. What is the firm’s total fixed cost?
a. $350
b. $50
c. $40
d. $35
310. When output is 50, fixed costs are $1,000 and variable costs are $2,000. What are average
total costs?
a. 20
b. 40
c. 60
d. $3000
311. When output is 500, fixed costs equal $5,000 and variable costs equal $10,000. What will
total costs be?
a. $5,000
b. $10,000
c. $15,000
d. $500
312. A large firm produces and sells automobiles. Which of the following 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. the salary of the Chief Executive Officer.
Table 30a
Output
F
ixed Costs
Variable Costs
0
$200
$0
1
$200
$100
2
$200
$225
3
$200
$375
4
$200
$550
5
$200
$750
6
$200
$975
7
$200
$1,225
8
$200
$1,500
313. Using the data in Table 30a, find the total cost of producing 8 units of output.
a. $200
b. $1,500
c. $1,700
d. $212.50
314. Using the data in Table 30a, find the marginal cost of producing the 8th unit of output.
a. $200
b. $1,500
c. $212.50
d. $275
315. Using the data in Table 30a, find the average total cost of producing 8 units of output.
a. $200
b. $1,500
c. $212.50
d. $275
316. According to the data in Table 30a, unit costs are lowest when output is
a. 1 unit
b. 4 units
c. 6 units
d. 8 units
317. Using the data in Table 30a, find the average total cost of producing 1 unit of output.
a. $200
b. $100
c. $300
d. $275
APPENDIX 30.1
Costs in the Long Run
MULTIPLE CHOICE
318. Which of the following would be fixed costs in the long run?
a. fire insurance premiums.
b. security guard contracts.
c. loan payments.
d. there are no fixed costs in the long run.
319. The optimal plant size in the long run is
a. the one with the largest capacity.
b. the one with the lowest fixed costs.
c. the one with the lowest average total costs.
d. the one with the lowest marginal costs.
320. Factors that might lead to diseconomies of scale include
a. more specialization of labor and management.
b. greater access to financing.
c. quantity discounts on raw materials.
d. greater need for management control and monitoring of production.
321. What two kinds of inventories do manufacturing firms keep?
a. an inventory of final products and an inventory of materials used in production.
b. a just-in-time inventory and a back-up inventory.
c. a daily inventory and an annual inventory.
Diagram TB 30.1a
322. Which of the shapes in Diagram TB 30.1a look like the long run average cost (LRAC)
curve?
a. Figure a
b. Figure b
c. Figure c
d. Figure d
Figure a Figure b Figure c Figure d