Question

1. Which of the following statement is true?
A. AVC = TC/Q
B. MC equals the change in ATC divided by the change in Q.
C. TFC = TC- TVC
D. TC = TFC- TVC

2. If the marginal cost o the 5,000 unit is $0.06 an the average total cost of the 5,000 unit is $0.10;
A. Average variable cost is falling
B. Average total cost is falling
C. Total cost I falling
D. Average fixed cost is rising

3. If the marginal cost of the 10th unit o output is $15 and the average total cost o the 10th unit of output is $15,
A. Average total cost is increasing at 10 units of output
B. Average total cost is decreasing at 10 units of output
C. Average total cost is minimized at 10 unit of output
D. Average total cost is maximized at 10 units o output

4. Implicit cost are:
A. The opportunity cost of using resources owned by the entrepreneur in his/her own business.
B. Those payments the business owner makes in cash
C. Payments the business owner must make on borrowed founds
D. Cost which vary as the level of output varies

Answer 1

1.) answer- option -C) . TFC = TC- TVC True

Total cost is the sum of total fixed cost and total variable cost. (TC=TFC+TVC). Hence total fixed cost can be computed by Subtracting total variable cost from total cost i.e., TFC= TC- TVC.

Option A.) AVC = TC/Q is FALSE because Average variable cost is per unit cost of variable factor. It is computed by diving the total variable cost by quantity. AVC=TVC/Q.

Option B. is FALSE because because Marginal cost is equal to change in total cost divided by change in quantity. MC= Change in TC/ Change in Q.
Option D. TC = TFC- TVC is FALSE because total cost is the sum of total fixed cost incurred on fixed factors and total variable cost incurred on use of variable factors. TC=TFC + TVC.

2).Answer- Option A. and option B.) Average variable cost is falling and   Average total cost is falling. TRUE

When marginal cost is less than average variable cost and average total cost, then average total cost and average variable cost falls. The marginal cost curve lies below the Average cost curves and ATC and AVC curves will slope downward.
Option C. Total cost is falling is FALSE because total cost rises as a result of addition of more variable input to produce more. As more output is produced, average costs decline.

Option D. Average fixed cost is rising is FALSE because AFC falls continuously as more output is produced. As more output is produced, total fixed cost spreads over large quantities of output and hence average fixed cost falls.

3). answer-Option C. Average total cost is minimized at 10 unit of output is TRUE.

When MC = ATC, then average total cost is minimised. MC curve cuts ATC curve at its minimum point i.e., when MC=ATC, then ATC is at its minimum point.

Option A. Average total cost is increasing at 10 units of output is FALSE because when MC=ATC, average total cost is not increasing, it is constant.
Option B. Average total cost is decreasing at 10 units of output is FALSE because when MC=ATC, average total cost is constant and is minimum. It does not increase at this point but is constant.

Option D. Average total cost is maximized at 10 units of output is FALSE because MC curve cuts ATC curve at its minimum. When MC=ATC, average total cost is minimum.

4). answer- Option A. The opportunity cost of using resources owned by the entrepreneur in his/her own business is TRUE.

Implicit costs are the opportunity costs of resources owned by the entreprenuer in his business as these resources if used somewhere else would have received a payment. Hence implicit costs are the costs of opportunity costs of resources owned by entreprenuer in his business.

Option B. Those payments the business owner makes in cash is FALSE because these costs are known as explicit costs. Explicit costs are the money payments a firm makes in hiring or using services.
Option C. Payments the business owner must make on borrowed founds is FALSE because it is an explicit costs. These payments are made in cash and are recorded in accounting books of a firm.
Option D. Cost which vary as the level of output varies is FALSE because these costs are known as variable costs. As output increases, more variable factor is employed and hence varaibale costs increase.