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Exam 8: Cost Theory and Estimation

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Question 31

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Which of the following is not an assumption of linear breakeven analysis?

A) Output price is constant.
B) Average variable cost is constant.
C) Average fixed cost is constant.
D) All of the above are assumptions of linear breakeven analysis.

E) A) and B)
F) None of the above

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Question 32

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Economies of scope refers to the decrease in average total cost that can occur when a firm

A) produces more than one product.
B) has monopoly power in world markets.
C) controls the raw materials used as inputs.
D) narrows the scope of its regional markets.

E) B) and C)
F) C) and D)

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Question 33

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Logistics is also referred to as

Industries where the long-run average cost curve has a positive slope over a wide range of output are referred to as natural monopolies.

The new firm has entered a business and estimates its learning curve to be $A C = 200 Q ^ { - 3 }$ where Q is the cumulative total product. What is the difference between average cost of the 100^th and the 10^st product?

If the firm produces 200,000 toothbrushes, its total cost is 400,00 and total fixed cost is 100,000, what is the average variable cost?

The contribution margin per unit is equal to the

Which of the following is a business function that is a part of logistics?

The contribution margin per unit is equal to price minus short-run average variable cost.

The law of diminishing returns begins at the level of output where

The degree of operating leverage is equal to the ratio of the firm's total fixed cost to total variable cost.

The responsiveness or sensitivity of a firm's profits to changes in output is measured by a firm's

The firm increased production by 5 units and the total variable cost increased from $3,000 to $4,500. What is the marginal cost associated with this increase in production?

Consider a scenario where the firm hires only two inputs, labor and capital. Assume that the price of labor (the wage rate) is $30 and the price of capital (the rental cost of capital) is $10. Also, assume that the current level of output is 200 and the level of employment is 10. In addition, assume that when the firm hires 9 works, its output level is only 190. What is the marginal cost when 10 workers are hired (assume the short-run)?

Your firm has estimated the total variable cost and total fixed cost functions to be TVC=-60Q+10Q^²,TFC=500. If your firm is selling the product for $300, what is the break-even output? At what output does the firm maximize its profits?

Short-run marginal cost is equal to

One reason that a firm may experience decreasing returns to scale is that greater levels of output can result in

If TC=20+10Q-2Q^²+Q^³, find total variable cost, average variable cost and marginal cost functions. At what level of output is the average variable cost the lowest? At what level of output is the marginal cost the lowest?

Bob and Bill are college students. They are trying to decide what to do over the next summer. Bob's father has suggested that they both come and work at his plastics manufacturing company where each will earn $3,600 over the summer. Bill's father, who runs the local farmer's market, suggests that they go to a local resort area and sell fresh fruit and vegetables to tourists. Their markup on the produce would be 25 percent, so each $1.00 of revenue would involve a variable cost of $0.80. In addition to purchasing the produce, they would have to rent a location. The cost to rent a small roadside stand for the summer is $2,400. (i)How many dollars worth of produce will they have to sell in order to break even in an accounting sense? (ii)How many dollars worth of produce will they have to sell in order to break even in an economic sense?

A firm that has total fixed costs of $2,000 sells its output for $25 per unit and has an average variable cost of $20. If the firm's cost and revenue curves are linear and output is equal to 600 units, what is the firm's degree of operating leverage?