Which of the following statements is true of the relationship among the average cost functions?

Q1. The average fixed cost of 2 units of output is:
(a) Rs. 80
(b) Rs. 85
(c) Rs. 120
(d) Rs. 115


Q2. The marginal cost of the fifth unit of output is:
(a) Rs. 133
(b) Rs. 75
(c) Rs. 80
(d) Rs. 450


Q3. Diminishing marginal returns start to occur between units:
(a) 2 and 3
(b) 3 and 4
(c) 4 and 5
(d) 5 and 6


Q4. Marginal cost is defined as:
(a) the change is total cost due to a one unit change in output.
(b) total cost divided by output.
(c) the change in output due to a one unit change in an input.
(d) total product divided by the quantity of input.


Q5. Which of the following is true of the relationship between the marginal cost function and the average cost function?
(a) If MC is greater than ATC, then ATC is falling.
(b) The ATC curve intersects the MC curve at minimum MC.
(c) The MC curve intersects the ATC curve at Minimum ATC.
(d) If MC is less than ATC, then ATC is increasing.


Q6. Which of the following statements is true of the relationship among the average cost functions?
(a) ATC = AFC – AVC.
(b) AVC = AFC + ATC.
(c) AFC = ATC + AVC.
(d) AFC = ATC – AVC.


Q7. Which of the following is not a determinant of the firm’s cost function?
(a) The production function
(b) The price of labour
(c) Taxes
(d) The price of the firm’s output.


Q8. Which of the following statements is correct concerning the relationships among the firm’s cost functions?
(a) TC = TFC – TVC.
(b) TVC = TFC – TC.
(c) TFC = TC – TVC.
(d) TC = TVC – TFC.


Q9. Suppose output increases in the short run. Total cost will:
(a) increase due to an increase in fixed costs only.
(b) increase due to an increase in variable costs only.
(c) increase due to an increase in both fixed and variable costs.
(d) decrease if the firm is in the region of diminishing returns.


Q10. Which of the following statements concerning the long-run average cost curve is false?
(a) It represents the least-cost input combination for producing each level of output.
(b) It is derived from a series of short-run average cost curves.
(c) The short-run cost curve at the minimum point of the long-run average cost curve represents the least-cost plant size for tall levels of output.
(d) As output increases, the amount of capital employed by the firm increases along the curve.


Q11. The negatively-sloped (i.e. falling) part of the long-run average total cost curve is due to which of the following?
(a) Diseconomies of scale.
(b) Diminishing returns.
(c) The difficulties encountered in coordinating the many activities of a large firm.
(d) The increase in productivity that results from specialization.


Q12. The positively sloped (i.e. rising) part of the long run average total cost curve is due to which of the following?
(a) Diseconomies of scale.
(b) Increasing returns.
(c) The firm being able to take advantage of large-scale production techniques as it expands its output.
(d) The increase in productivity that results from specialization.


Q13. A firm’s average total cost is Rs. 300 at 5 units of output and Rs. 320 at 6 units of output. The marginal cost of producing the 6th unit is:
(a) Rs. 20
(b) Rs. 120
(c) Rs. 320
(d) Rs. 420


Q14. A firm producing 7 units of output has an average total cost of Rs. 150 and has to pay Rs. 350 to its fixed factors of production whether it produces or not. How much of the average total cost is made up of variable costs?
(a) Rs. 200
(b) Rs. 50
(c) Rs. 300
(d) Rs. 100


Q15. A firm has a variable cost of Rs. 1000 at 5 units of output. If fixed costs are Rs. 400, what will be the average total cost at 5 units of output?
(a) Rs. 280
(b) Rs. 60
(c) Rs. 120
(d) Rs. 1400


                                                        SOLUTIONS 


S1. Ans.(d)
Sol.


S2. Ans.(c)
Sol.


S3. Ans.(c)
Sol.


S4. Ans.(a)
Sol.


S5. Ans.(c)
Sol.


S6. Ans.(d)
Sol.


S7. Ans.(d)
Sol.


S8. Ans.(c)
Sol.


S9. Ans.(b)
Sol.


S10. Ans.(c)
Sol.


S11. Ans.(d)
Sol.


S12. Ans.(c)
Sol.


S13. Ans.(d)
Sol.


S14. Ans.(d)
Sol.


S15. Ans.(a)
Sol.