Question

33. Which of these statements about variable costs is incorrect?

a) Variable costs increase as output increases.

b) Variable costs are equal to total costs minus fixed costs.

c) Variable costs occur even when there is no output.

d) Variable costs are associated with variable inputs.

34. Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600.

What are the daily explicit costs for the firm described above?

a) $320

b) $390

c) $400

d) $470

30. Marginal cost

a) is the change in fixed cost divided by the change in quantity.

b) may initially decline and then increase as more output is produced.

c) may initially increase and then fall as more output is produced.

d) is fixed cost and variable cost added together and then divided by quantity.

31. As more output is produced, a firms production cost rises. This will affect the firm’s _______decisions.

a) shutdown

b) production

c) demand

• availability

Answer 1

Q33 Answer is C.

Variable costs changes with change in production. When output is zero variable costs are also zero.

Q34 Answer is D. $470

Explicit costs are cost paid to others. Rent of own building is implicit cost.

Total explicit cost = 240 + 150 + 80 = $270.

Q30Answer is B.

Marginal cost initially declines when output gives increasing returns and when diminishing returns starts marginal cost satrts increasing.

Q31 Answer is B.

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