Average And Marginal Cost Functions Quiz

Rent is considered a fixed cost because it remains constant regardless of the level of production or sales. It is a recurring expense that the company must pay regularly, such as monthly or annually, regardless of the business activity. Unlike variable costs, which fluctuate with production or sales volume, rent remains the same and is not directly influenced by changes in the level of output. Therefore, it is classified as a fixed cost.

Marginal cost refers to the additional cost incurred in producing one more unit of output. It is the cost that increases when production is increased by one unit. This concept is important for businesses to determine the optimal level of production and pricing strategies. By understanding the marginal cost, businesses can make informed decisions about how much to produce and at what price to sell their products.

In the health care market, consumers are generally less sensitive to price because their primary concern is their health and well-being, rather than the cost of the services or products. Health care is often considered a necessity, and consumers are willing to pay higher prices for quality care and treatments. Additionally, health care decisions are often made based on the advice of medical professionals, rather than solely on price considerations. Therefore, consumers in the health care market tend to be less price-sensitive compared to other markets.

A sunk cost is a cost that has already been incurred and cannot be recovered, regardless of the decision made. It is a cost that is independent of any future choices or actions. Sunk costs are irrelevant to decision-making because they cannot be changed or avoided. Therefore, regardless of the decision made, the sunk cost will remain the same and cannot be recovered.

When the average cost is constant or at a minimum point, it means that the additional cost of producing one more unit of output is equal to the average cost. This is because the average cost is not changing with each additional unit produced. Therefore, the marginal cost is equal to the average cost in this situation.

The firm's accounting profit is $200K because it is calculated by subtracting the total costs ($1.8M) from the total revenue ($2M). However, the firm's economic profit is -$100K because it takes into account the opportunity cost of the entrepreneur's best alternative employment opportunity ($300K). Therefore, the economic profit is calculated by subtracting the total costs and the opportunity cost from the total revenue.

A Nash equilibrium is a state in which each player is doing the best they can, given the strategies of all other players. In this state, no player has an incentive to unilaterally deviate from their chosen strategy, as it would not lead to a better outcome for them. It is a stable point where all players are optimizing their choices based on the actions of others, resulting in a balanced outcome.

If a farm is producing as efficiently as it knows how, the total cost function will have an upward slope. This means that as the farm increases its level of production, the total cost will also increase. This is because producing more requires additional resources and inputs, which come at a cost. Therefore, the total cost function will show a positive relationship between the level of production and the total cost incurred by the farm.

The price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. In this case, the price is raised from $10 to $12, resulting in a drop in sales of 12 units. To calculate the price elasticity of demand, we use the formula: ƞ = (% change in quantity demanded) / (% change in price). The % change in quantity demanded is (-12 / 100) * 100 = -12%. The % change in price is (2 / 10) * 100 = 20%. Therefore, the price elasticity of demand is (-12 / 20) = -0.6, which is the absolute value of 0.6. So, the correct answer is 0.6.

Plant production costs do not directly influence the quantity of product that a firm is able to sell. While these costs can impact the firm's profitability and pricing decisions, they do not have a direct effect on the demand for the product or the firm's ability to sell it. Factors such as price of the product, price of related products, incomes and tastes of consumers, and advertising can all have a direct impact on the quantity of product that a firm is able to sell.

The answer is correct because it aligns with the basic law of demand, which states that as the price of a product decreases, consumers will demand more of it. This is because lower prices make the product more affordable and attractive to consumers, leading to an increase in demand. Conversely, as the price of a product increases, consumers will demand less of it due to the higher cost. Therefore, the statement "The lower the price of a product, the more of it consumers will purchase" accurately reflects the relationship between price and consumer demand.

The formula for AC(Q) can be found by taking the derivative of TC(Q) with respect to Q and dividing it by Q. This will give us the average cost per unit, which is the formula for AC(Q). The given answer, 1000Q + 100 + 10/Q, matches this criteria and is therefore the correct formula for AC(Q).

The revenue destruction effect refers to the loss in revenue that a firm experiences when it reduces the price of its products in order to sell additional units. This loss occurs because the firm is selling these extra units at a lower price than it could have sold them for, resulting in a decrease in overall revenue.

Marginal revenue refers to the rate of change in total revenue that occurs when selling additional units of output. It represents the incremental sales generated from producing one more unit of a product. This concept helps businesses understand how their sales revenue varies as a function of the quantity of products sold. By analyzing marginal revenue, companies can make informed decisions about production levels and pricing strategies to maximize their profits.

In certain situations, the law of demand may not hold true, such as when high prices confer prestige. In this scenario, the demand for a product might actually increase as the price increases because consumers associate high prices with exclusivity and status. This phenomenon is often observed in luxury goods or high-end brands, where consumers are willing to pay more to demonstrate their wealth and social status. Therefore, in this special situation, the law of demand, which states that as the price of a product increases, the quantity demanded decreases, does not hold.

A perfectly competitive market is characterized by firms producing identical or nearly identical products, where the market price is beyond the control of any individual firm. Additionally, a firm's demand curve is perfectly horizontal at the market price, meaning that the firm can sell any quantity of its product at that price. However, in a perfectly competitive market, the industry-level price elasticity is infinite, not finite. This means that a small change in price would result in an infinitely large change in quantity demanded.

The given question is asking for the marginal revenue (MR) when ƞ (elasticity of demand) is 0.8 and P (price) is $25. The negative sign in front of the answer indicates that the MR is negative, meaning that a decrease in price will lead to an increase in total revenue. The value of -$6.25 suggests that for every $1 decrease in price, the total revenue will increase by $6.25.