Question

A firm has a fixed cost of $20,000 in its first year of operation. When the firm produces 1,000 units of output, its total costs are $80,000. When it produces 1,100 units of output, its variable costs are $70,000. If the marginal cost of each of the 100 additional units of output is the same then the marginal cost of producing the 1,050th unit of output is less than $90.

True

false

The average variable cost curve and average total cost curve will eventually intersect as output increases because average fixed cost eventually becomes negative.

True

False

If marginal cost is rising, then it is likely that marginal product is decreasing because the additional input costs are spread over fewer units of output.

True

False

Answer 1

1. False

Explanation: When the firm produces 1100 units, total cost = fixed costs + variable costs = 20,000 + 70,000 = 90,000.

So, the marginal cost of the 100 units = 90,000 - 80,000 = 10,000. Since the marginal cost for each unit is the same, the marginal cost for the 1050th unit = 10,000/100 = $100.

2. False

Explanation: Average fixed cost keeps falling but it can never be negative.

3. True

Explanation: Marginal cost rises mainly because of diminishing marginal product.