Frequent Exam Questions with Answers
Cost Theory
Chapter 10 ― Question 7
The price a firm receives for its product is $50 per unit. Its total cost function is 8000 + 10Q. At what quantity do total costs equal total revenues?
* At 200 units.
The following equation can be derived from the information above:
50 x Q = 8000+ 10Q
The solution of this equation is the answer to the question.
50Q = 10Q + 8000
40Q = 8000
Q = 8000
40
Q = 200
Chapter 10 ― Question 8
Which of the following must be true if average variable costs are rising
- marginal cost is below average variable cost
- marginal cost is above average variable cost
- average variable cost is above average total cost
- none of the above
*B. Remember that marginal costs lead other costs. This is why Answer A is wrong. Answer C is nonsense: AVC is one component of ATC and hence always below ATC.
Chapter 10 ― Question 14
Please draw the four cost curves and label them.
* In case you haven't got it correct: It is ultimately easy. AFC are the only ones that fall constantly. ATC are above AVC because they include fixed and variable costs. The marginal cost curve is the steepest line.
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