Cost Curve

Short run marginal costs eventually increase because of the effects of:

• increasing marginal product
• diminishing marginal product
• increasing fixed costs
• diseconomies of scale

At 100 units of output, a firm's total cost is $10,000. If the firm's total fixed cost is $4,000, its average variable cost is equal to:

• $140
• $100
• $60
• $40

The most profitable level of output for any firm operating in the short run is the level of output at which:

• marginal revenue exceeds marginal cost by the highest amount 
• marginal revenue equals marginal cost 
• price exceeds average cost by the highest amount
  
• price equals marginal cost 

If a new tax on capital increases a firm’s fixed cost of production, which of the following will occur in the short run? 

• Average total cost will increase
  
• Marginal cost will increase
  
• Average variable cost will increase
  
• The profit-maximizing level of output will increase
  

An entrepreneur has earned enough total revenue to cover her accounting costs, but economic losses are being incurred. What must be true? 

• Her accounting costs are larger than her economic costs 
• Her implicit costs are less than her accounting costs
• Her accounting profits are greater than her economic costs
• Her accounting profits are less than her implicit costs 

When total physical product is at its maximum, marginal physical product must be:

• greater than one
• equal to one
• equal to zero
• less than one

As output of a firm increases, the difference between the firm’s average total cost and its average variable cost gets smaller because the firm’s

• total cost is increasing
  
• marginal cost is increasing
  
• average fixed cost is decreasing
  
• marginal product of labor is decreasing 

The graph above shows the marginal product (MP) and the average product (AP) of labor for a firm that uses labor as the only variable input. At which quantity of labor does marginal cost change from decreasing to increasing?

• L1

• L2

• L3

• L5

Shelby is an entrepreneur who has decided to open a small advertising firm. She rents office space at a cost of $25,000 per year, she has employed an assistant at a salary of $30,000 per year, and she incurs annual utility and office supply expenses of $20,000. Her best alternative is to work elsewhere and to earn a salary of $50,000 per year. How much annual revenue must her firm receive so that Shelby earns zero economic profit? 

• $50,000
• $75,000
• $100,000
• $125,000

A firm produces 400 books and sells each book for $15. If the explicit cost of producing the books is $4,500 and the implicit cost is $1,000, the firm’s economic profit is:

• $0
• $500
• $1,000
• $1,500