Question

1.

In the long run, economies of scale is a stage where

		Long-run ATC goes down as quantity increases.
		Long-run ATC remains constant as quantity increases.
		Long-run ATC rises as quantity increases.

2.

If AFC=60 and ATC=120 when output is 100, then total variable cost must be:

		60
		40
		6,000
		8,000

3.

If AFC=60 and ATC=120 when output is 100, then total fixed cost must be: (fill in the blank with a number)

4.

Which of the following is true?

		Average product (AP) is increasing when the marginal product (MP) is greater than average product.
		Typically, marginal product goes down and eventually goes up.
		marginal product = (change is TC)/(change in Q)
		All of the above.

Answer 1

1) In the long run, economies of scale is a stage where long-run ATC goes down as quantity increase. Economies of scale are cost advantages enjoyed by firms when they produce on a large scale and production is efficient. The answer is option (1).

2) If AFC=60 and ATC=120, then Total cost = ATC*Q = 120*100= 12000 and total fixed cost = AFC*Q = 60*100= 6000.

Thus total variable cost= Total cost-Total fixed cost = 12000-6000 = 6000.

3) If AFC=60 and ATC=120 when output is 100, then total fixed cost must be: 6000