Average And Marginal Cost Functions Quiz

18 Questions | Total Attempts: 362

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Product Quizzes & Trivia

Average cost and marginal cost are two types of costs that we have covered in economics class. It is important for a manufacturer to know how to use these two costs to ensure maximization of profit with ultimate supply. Take up the quiz below and see how much you understand these costs as taught in class. All the best and keep revising!


Questions and Answers
  • 1. 
    The basic law of demand says that all other things being the same,
    • A. 

      The lower the price of a product, the less of it consumers will purchase

    • B. 

      The higher the price of a product, the less of it consumers will purchase

    • C. 

      The lower the price of a product, the more of it consumers will purchase

    • D. 

      The higher the price of a product, the more of it consumers will purchase

    • E. 

      The greater the number of units of a product sold in the past, the more of it consumers will purchase that product in the future

  • 2. 
    If a farm is producing as efficiently as it knows how, the how will the total cost function slope?
    • A. 

      Upward

    • B. 

      Downward

    • C. 

      No Slope

    • D. 

      Downward until an output threshold value, then upward

    • E. 

      Upward until an output threshold value, then downward

  • 3. 
    • A. 

      Commissions to Salespeople

    • B. 

      Rent

    • C. 

      Raw Materials

    • D. 

      Packaging

    • E. 

      Shipping/Delivery Charges

  • 4. 
    If TC(Q) = 1000Q2 + 100Q + 10, what is the formula for AC(Q)?
    • A. 

      2000Q + 100

    • B. 

      2000Q2 + 100Q

    • C. 

      1000Q2 + 100Q + 10

    • D. 

      1000Q + 100 +10/Q

    • E. 

      100Q + 10 + 1/Q

  • 5. 
    • A. 

      The per-unit-of-output cost for a product

    • B. 

      The incremental cost of producing one more unit of output

    • C. 

      A cost invariant to the farm's output

    • D. 

      The sum of all costs associate with the production of a product

    • E. 

      The cost of fixed items such as general and administrative expenses

  • 6. 
    • A. 

      When average cost is a decreasing function of output, marginal cost is greater than average cost

    • B. 

      When average cost neither increases or decreases (because it is constant or at a minimum point), marginal cost is equal to average cost

    • C. 

      The average cost function is always smaller than the marginal cost function

    • D. 

      The average cost function is always greater than the marginal cost function

    • E. 

      When average cost is an increasing function of output, marginal cost is less than average cost

  • 7. 
    • A. 

      A cost that can be avoided if certain choices are made

    • B. 

      A cost that always varies with the output of a factory

    • C. 

      The average cost of operating a plant

    • D. 

      The "lower envelop" of short-run average cost functions

    • E. 

      A cost incurred no matter what the decision is and cannot be avoided

  • 8. 
    Suppose an entrepreneur starts a business earning $2M in revenue in 2009 while at the same time incurring $1.8M in costs. If the entrepreneur's best outside alternative employment opportunity is to earn $300K, what are the firms accounting and economic profits?
    • A. 

      $200K, -$100K

    • B. 

      $200K, $100K

    • C. 

      $300K, $100K

    • D. 

      $300K, -$100K

    • E. 

      $200K, $200K

  • 9. 
    • A. 

      Price of the product

    • B. 

      Price of related products

    • C. 

      Plant production costs

    • D. 

      Incomes and testes of consumers

    • E. 

      Advertising

  • 10. 
    In which of the following markets is a consumer less sensitive to price?
    • A. 

      Airlines

    • B. 

      Refrigerators

    • C. 

      Health Care

    • D. 

      Computer components

    • E. 

      Washing Machines

  • 11. 
    • A. 

      How sales revenue varies as a function of how much product is sold

    • B. 

      The incremental sales from producing one more unit of output

    • C. 

      Rate of change in total revenue that results from the sale of ∆Q additional units of output

    • D. 

      The total sales for a given product based on plant output

    • E. 

      Percentage change in quantity divided by percentage change in price

  • 12. 
    At what point can a firm achieve a profit maximizing quantity?
    • A. 

      MR > MC

    • B. 

      MC = D

    • C. 

      MR < MC

    • D. 

      MR = D

    • E. 

      MR = MC

  • 13. 
    • A. 

      Firms produce identical or nearly identical products

    • B. 

      Market price is beyond the control of any individual firm

    • C. 

      A firm's demand curve is perfectly horizontal at the market price

    • D. 

      Industry-level price elasticity is finite

    • E. 

      Firm-level price elasticity of demand facing another perfect competitor is infinite

  • 14. 
    • A. 

      A state where each player is doing the best it can, given the strategies of all other players

    • B. 

      A state where the sum of all payoffs is maximized

    • C. 

      A state where the players always have achieved their best possible result

    • D. 

      A state at which MR = MC for a firm

    • E. 

      A state where each player always must play a dominant strategy

  • 15. 
    Suppose a factory is producing 100 units and the price of each unit is $10. If raising the price to $12 per unit results in a drop in sales of 12 units, what is the price elasticity of demand, ƞ?
    • A. 

      6

    • B. 

      0.6

    • C. 

      1.67

    • D. 

      0.8

    • E. 

      0.17

  • 16. 
    In what special situation might the law of demand not hold?
    • A. 

      In a perfectly competitive market

    • B. 

      When there is a high price elasticity of demand

    • C. 

      When MR = MC

    • D. 

      At the Nash Equilibrium

    • E. 

      If high prices confer prestige

  • 17. 
    If ƞ = 0.8 and P = $25, what is MR?
    • A. 

      $20

    • B. 

      $6.25

    • C. 

      -$5

    • D. 

      -$6.25

    • E. 

      $5

  • 18. 
    • A. 

      The loss in revenue a firm incurs on units it would have sold at a higher price when reducing price to sell extra units

    • B. 

      The loss in revenue a firm incurs as a result of selling fewer units of output when raising price to increase profit

    • C. 

      The loss in revenue a firm incurs due to brand level elasticities

    • D. 

      The loss in revenue a firm incurs due to being in a perfectly competitive market

    • E. 

      The loss in revenue a firm incurs due to predatory pricing