Economic: Total Cost

Topics: Costs, Marginal cost, Economics Pages: 4 (1064 words) Published: July 15, 2012
Review Question #3
Principles of Microeconomics
Spring 2010

1. Your cousin Vinnie owns a painting company with fixed costs of $200 and the schedule for variable costs as below. What is the efficient scale of the painting company? Quantity of Houses Painted per Month| 1| 2| 3| 4| 5| 6| 7| Variable Costs| $10| $20| $40| $80| $160| $320| $640|

2. Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. If your aunt thought she could sell $510,000 worth of merchandise in a year, should she open the store?

3. What you give up for taking some action is called the ______. Fill out the blank and explain the statement.

4. ______ is falling when marginal cost is below it and rising when marginal cost is above it. Fill out the blank and explain the statement.

5. A cost that does not depend on the quantity produced is a ______. Fill out the blank and explain the statement.

6. In the ice-cream industry in the long run, ______ includes the cost of cream and sugar but not the cost of factory. Fill out the blank and explain the statement.

7. Profit equal total revenue less ______. Fill out the blank and explain the statement.

8. The cost of producing an extra unit of output is the ______. Fill out the blank and explain the statement.

9. A firm has fixed cost of $100 and average variable cost of $5Q, where Q is the number of units produced. What is the efficient scale of this firm?

10. Bob’s lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. At what price would Bob temporarily shut down his business?

11. Consider total cost and total revenue given in the following table. At what level of quantity does...
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