Q: A bakery incurs $$2,000 in monthly rent and pays 1 $$for each loaf of bread produced. If the bakery produces 500 loaves in a month, what is its total cost?

$$2,500 = 2,000 + (1 \times 500)$$

Q: A restaurant owner uses $100,000 of her own money to buy equipment instead of investing it in a bond that pays 5% annual interest. What is the implicit cost of this decision for one year?

$$5,000 = 0.05 \times 100,000$$

Question 1

A bakery incurs $$2,000 in monthly rent and pays 1 $$for each loaf of bread produced. If the bakery produces 500 loaves in a month, what is its total cost?

Accepted Answer

$$2,500 = 2,000 + (1 	imes 500)$$

Question 2

Which of the following is an example of an implicit cost for a firm?

Accepted Answer

Forgone interest from using own capital instead of investing it elsewhere

Question 3

A restaurant owner uses $100,000 of her own money to buy equipment instead of investing it in a bond that pays 5% annual interest. What is the implicit cost of this decision for one year?

Accepted Answer

$$5,000 = 0.05 	imes 100,000$$

Question 4

If a firm’s total revenue is $$50,000, explicit costs are 30$$,000, and implicit costs are $10,000, what is its economic profit?

Accepted Answer

$$10,000 = 50,000 - 30,000 - 10,000$$

Question 5

Which statement best describes the difference between fixed and variable costs?

Accepted Answer

Fixed costs do not depend on output, variable costs do.

Question 6

A firm produces 100 units of output. Its fixed costs are $$500 and its variable costs are 1$$,000. What is its average total cost (ATC)?

Accepted Answer

$$15 = \frac{500 + 1,000}{100}$$

Question 7

Which of the following best illustrates the principle of diminishing marginal product?

Accepted Answer

Each additional worker eventually adds less to total output than the previous one.

Question 8

If the marginal cost (MC) of producing another unit is less than the average total cost (ATC), what happens to ATC when the extra unit is produced?

Accepted Answer

ATC decreases

Question 9

A pizza shop’s lease is $$300 per month and each worker is paid 20 $$per pizza produced. What is the average fixed cost (AFC) if 10 pizzas are produced?

Accepted Answer

$$30 = \frac{300}{10}$$

Question 10

Which of the following is most likely to be a variable cost for a manufacturing firm?

Accepted Answer

Cost of raw materials used in production

Question 11

If a firm’s total cost is $$2,000 when producing 50 units, and 2$$,400 when producing 70 units, what is the marginal cost (MC) of increasing output from 50 to 70 units?

Accepted Answer

$$20 = \frac{2,400 - 2,000}{70 - 50}$$

Question 12

Which of the following best describes economies of scale?

Accepted Answer

Average total cost decreases as output increases.

Question 13

A firm’s production function is $$Q = f(	ext{inputs}). $$What does this function represent?

Accepted Answer

The relationship between inputs and resulting outputs

Question 14

Which cost curve is typically U-shaped due to the law of diminishing marginal product?

Accepted Answer

Average variable cost (AVC)

Question 15

In the long run, which of the following statements is true regarding fixed costs?

Accepted Answer

Fixed costs become variable.

Question 16

If a firm’s average total cost (ATC) is minimized at a certain output level, what does this imply about returns to scale at that point?

Accepted Answer

The firm is at its efficient scale, with constant returns to scale.

Question 17

Which of the following is NOT an explicit cost?

Accepted Answer

Forgone salary from working elsewhere

Question 18

A firm’s total cost is $$1,000 when producing nothing and 1$$,400 when producing 20 units. What is the variable cost per unit?

Accepted Answer

$$20 = \frac{1,400 - 1,000}{20}$$

Question 19

If the marginal product of labor is greater than the average product, what happens to the average product?

Accepted Answer

Average product increases

Question 20

Which of the following scenarios best illustrates diseconomies of scale?

Accepted Answer

A firm’s average total cost increases as it expands production due to management inefficiencies.

Microeconomics: The Cost of Production (Chapter 12 Study Notes)

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