A student has just written on an exam that, in the long run, fixed cost will make the average total cost curve slope downward. Why will the professor mark it incorrect?
A. In the long run, firms have no fixed cost—all costs are variable. The shape of the long-run average total cost curve is determined by economies of scale.
B. In the long run, fixed cost increases as firms build new plants and purchase new capital. This means that the average total cost curve will eventually slope upward.
C. In the long run, fixed cost decreases as costs are spread out over a greater quantity of output. Declining fixed cost accounts for the downward-sloping average total cost curve.
D. In the long run, there are no fixed costs, meaning the average total cost curve shifts down.
Ans: A. In the long run, firms have no fixed cost—all costs are variable. The shape of the long-run average total cost curve is determined by economies of scale.
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a. the change is free of risk b. there are no costs involved c. their expectations are correct d. there is no uncertainty about the results of the change e. the expected marginal benefit exceeds expected marginal cost
Suppose a firm has a weekly cost function of C(Q) = 8Q + (Q2/100) and a marginal cost function of MC = 8 + (Q/50). Suppose the firm also has an avoidable fixed cost of $225. What is the efficient scale of production, and what is the minimum average cost?
A. Qe = 0; AC = $8 B. Qe = 106; AC = $10.95 C. Qe = 150; AC = $10.83 D. Qe = 22,500; AC = $9.25
A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is
a. infinity. b. zero. c. one. d. negative one.
Suppose that the U.S. Open ticket costs $100 and the British Open ticket costs £50 and the exchange rate is $1.43. How much does the British Open ticket cost for an American attending the British Open?
What will be an ideal response?