 ## Costs and cost curves - self-test questions 1

##### Cost calculation

A firm produces 200 units and the total cost of production is \$4000. When they increase output to 220, the cost rises to \$4200. What is the marginal cost?

 a) \$200 b) \$20 c) \$10 d) \$1 Please select an answerNo, that's not right. When output rises to 220, cost goes up by \$200, but the marginal cost is the cost of one more unit.No, that's not right. The marginal cost is the cost of one more unit. This is the cost of two more units.Yes, that's correct. The marginal cost is the cost of one more unit (increase in cost of \$200, from an increase in output of 20 equals \$10 per unit).No, that's not right. Have you divided the increase in cost by the increase in output correctly? 2

##### Cost calculation

A firm produces 200 units and the total cost of production is \$4000. When they increase output to 220, the cost rises to \$4200. What is the average cost of producing 220 units?

 a) \$4200 b) \$20 c) \$21 d) \$19.10 Please select an answerNo, that's not right. This is the total cost, you need to divide by the level of output to get average cost.No, that's not right. This is the average cost of 200 units. No, that's not right. Have you divided by 200 units rather than 220 units?Yes, that's correct. Total cost of 220 units is \$4200. Divide the total cost by the level of output and we get \$19.10. 3

##### Cost calculation

A firm producing in the short run produces 200 units and the total cost of production is \$4000. When they increase output to 220, the cost rises to \$4200. When output rises to 240, the cost rises to \$4100. The firm is experiencing:

 a) Increasing returns to the variable factor b) Increasing returns to scale c) Diminishing returns to scale d) Diminishing returns to the variable factor Please select an answerNo, that's not right. The firm is facing diminishing returns as the marginal cost is falling.No, that's not right. The firm is producing in the short run and so is not facing returns to scale.No, that's not right. The firm is producing in the short run and so is not facing returns to scale.Yes, that's correct. The marginal cost is falling and so the firm is facing diminishing returns to the variable factor. 4

##### Cost calculation

A firm produces 200 units and the total cost of production is \$4000. When they increase output to 220, the cost rises to \$4200. When the firm produces zero output, the cost is \$1000. What is the fixed cost per unit when they produce 200 units?

 a) \$1000 b) \$500 c) \$15 d) \$5 Please select an answerNo, that's not right. This is the total fixed cost.No, that's not right. You seem to have done the calculation slightly wrong and are out by a multiple of 10.No, that's not right. This is the variable cost per unit.Yes, that's correct. Total fixed costs are \$1000 and output is 200 and so fixed cost per unit is \$5. 5

##### Cost calculation

A firm produces 200 units and the total cost of production is \$4000. When they increase output to 220, the cost rises to \$4200. When the firm produces zero output, the cost is \$1000. What is the variable cost per unit when they produce 200 units?

 a) \$3200 b) \$14.54 c) \$16 d) \$5 Please select an answerNo, that's not right. This is the total variable cost.No, that's not right. You seem to have done the calculation slightly wrong and have perhaps divided by 220 rather than an output of 200.Yes, that's correct. This is the variable cost per unit. Total variable costs are \$3200 and output is 200 and so variable cost per unit is \$16.No, that's not right. This is the fixed cost per unit. 6

##### Types of costs

Match the following cost definitions to their type.

 a) The increase in total cost from producing one more unit Choose... AVC FC AFC AC MC b) Total cost less total variable cost Choose... AVC FC AFC AC MC c) Total fixed cost divided by the level of output Choose... AVC FC AFC AC MC d) Total cost less total fixed cost divided by the level of output Choose... AVC FC AFC AC MC e) Total cost divided by the level of output Choose... AVC FC AFC AC MC Yes, that's correct. Well done.No, that's not quite right. Have another go.Your answer has been saved. 