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Practice_Ch8_

# Practice_Ch8_ - Chapter 8 Practice Test The Costs of...

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Chapter 8 Practice Test The Costs of Production 1. The WXY Corporation has fixed costs of \$50. Its total variable costs (TVC) vary with output as shown in the following table. Output TVC 1 \$ 0 2 70 3 110 4 160 5 220 Refer to the table. The average total cost of 4 units of output is: a. \$27.50 b. \$40.00 c. \$52.50 d. \$210.00 Answer: c Feedback: The total cost of 4 units of output is \$210 = \$50 (fixed cost) + \$160 (total variable cost.) To find average total cost, divide this by the number of units of output: \$210 / 4 = \$52.50 per unit. 2. Answer the next question based on the cost data in the following table: Output Average fixed cost Average variable cost 1 \$120 \$40 2 60 30 3 40 25 4 30 30 5 24 40 6 20 55 Refer to the data. The total cost of producing 5 units of output is:

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3. It is often unnecessary to graph the firm’s average fixed cost because it can always be found as: 4. Use the following graph to answer the next question: The diagram shows the short-run average total cost curves for five different plant sizes for a firm. The firm experiences economies of scale over the range of plant sizes: 5. Explicit costs and implicit costs: a. are alike in that both represent opportunity costs b. are alike in that both reflect an outlay of cash c. are alike in that both are deducted from revenue to find accounting profit d. differ in that only explicit costs are deducted from revenue to find economic profit Answer: a Feedback: Economic profit is equal to revenue minus the opportunity cost of the firm’s resources, where these costs may be either explicit or implicit.

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