econ exam 2 - Solved Exam #3 Economics 101 19 November,...

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Solved Exam #3 – Economics 101 – 19 November, 2009 – P. Gray 1. Meron operates a dry-cleaning business in Bellevue that incurs $900 per month in fixed costs. Last month her total output equaled 3,000 pounds of clothes. This month her total output fell to 2,700 pounds. This means her average fixed cost ________ by a little more than ________. A) fell; 3.33 cents per pound. B) increased; 3.33 cents/lb. C) fell; 2.50 cents/lb. D) increased; 2.50 cents/lb 0 1 0 1 $900 $0.30 30 cents per lb. 3,000 . 3.3 cents per pound increase $900 $0.33 33.3 cents per lb. 2,700 . AFC lb lb AFC AFC AFC lb lb = = = ⇒ - = = = = Use the following to answer questions 2-3: Figure: Short-Run Costs II 2. (Figure: Short-Run Costs II) Curve 1 is the ________ cost curve. A) average total B) average variable C) marginal D) total For Questions 2 and 3, you basically have to remember the curves – and understand the
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relationships between the different measures of cost. 3. (Figure: Short-Run Costs II) Curve 3 is the ________ cost curve. A) average total B) total C) marginal D) average variable Use the following to answer question 4: Figure: Short-Run Costs 4. (Figure: Short-Run Costs) The vertical difference between curve B and curve C at any quantity of output is: A) marginal cost. B) fixed cost. C) average fixed cost. D) average variable cost. We know that Total Cost = Fixed Cost + Variable Cost. When we divide the entire equation by Q, the relationship still holds. Then, even if we don’t see an AVC curve, we could find it by taking ATC – AVC = AFC. 5. When AVC eventually increases as output increases, this is referred to as the ________ effect. A) diminishing returns B) spreading C) constant cost D) increasing returns Because the productivity of (returns to) inputs is inversely related to costs, we know that increasing marginal and average costs are related to decreasing returns.
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6. Average variable cost is: A) the firm's variable cost per unit multiplied by the quantity. B) total variable cost divided by quantity. C) the difference between average total cost and total cost. D) the difference between total cost and total fixed cost. Nobody who has paid any attention at all should miss this one. 7. For every restaurant in Spokane, the average total cost curve ________ at ________ levels of output, then ________ at ________ levels. A) falls; low; rises; higher B) rises; low; falls; higher C) rises; higher; rises; low D) falls; higher; falls; low ALL restaurants have ATC curves that fit this description, whether they are in Spokane, Shanghai, or Addis Ababa. 8. The idea of diminishing returns to an input in production suggests that if a local college adds more and more custodians, the marginal product of labor for the custodial staff will ________ over time. A)
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econ exam 2 - Solved Exam #3 Economics 101 19 November,...

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