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Department of Economics
Econ 101 - Principles of Microeconomics
PROBLEM SET 7
1) Which of the following cost measures does not depend on the level of output chosen?
a. Total cost
b. Variable cost
c. Fixed cost
d. None of the above
2) A factory produces 1,000 radios a year. Average variable cost (AVC) is $10 and total
fixed cost is $5,000. Thus, the factory’s total cost (TC)
a. Equals $5,010.
b. Equals $6000
c. Equals $15000
d. Equals $5,000,000
3) Refer to the graph below. Which distance from point D is equal to total fixed cost?
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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
4) The explanation for why marginal cost is positive and rising in the short run is
_______ marginal product of labor in the production process.
a. a zero
b. a constant
c. an increasing
d. a diminishing
5) If the marginal cost curve is below the average variable cost curve, then
a. average variable costs are increasing.
b. average variable costs are decreasing.
c. marginal cost must be decreasing.
d. average variable costs could either be increasing or decreasing.
9) Refer to the graph in the previous question. If this farmer is producing the profit-
maximizing level of output, her profit is
a. $0.
b. $2800.
c. $3000.
d. $12000.
10) Refer to the Table below. Assume that fruit baskets are sold in a perfectly competitive
market. The market price of a fruit basket is $22. To maximize profits, Exotic Fruit
should sell __________ fruit basket(s).
a. Three
b. Four
c. Five
d. Six
11) If a firm's demand curve is perfectly elastic, then at the profit maximizing level of
output
a. P = MR = MC.
b. P > MR > MC.
c. P < MR < MC.
d. P > 0 and MR = 0.
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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
Essay Questions
1) Explain the relationship between marginal cost and average variable cost. Draw the
appropriate graph.
b) How many unit of output firm will sell to maximize its profit? How much profit will it
make?
d) Suppose the market price falls to $10 per unit of output. At this price, how many units of
output will the firm sell?