Question

In: Economics

(1) If the marginal cost of production is greater than the average cost, in what direction...

(1) If the marginal cost of production is greater than the average cost, in what direction must the average cost be changing, if any?

a) The average cost must be falling.
b) The average cost must be rising.
c) The average cost is unaffected.
d) The average cost would become non-existent.
e) The average cost would equal 0.
(2) If the average variable cost of producing 5 costumes in Kira’s Costume Shop is $50, and the fixed cost of the shop is $100, what is the total cost for 5 costumes?
a) $50
b) $150
c) $250
d) $350
(3) Which of the following expenses would be a fixed cost for a party cruise ship?
a) The food that is served on the cruise.
b) Cocktails that are served in the ship’s bars.
c) The port docking fee.
d) Dishwashing detergent to wash plates and glasses.

(4) If the fixed cost of Alex’s engraving business is $100, and the variable cost of each engraving job is $20, what is the marginal cost of the second engraving job?

a) $10
b) $20
c) $60
d) $120
Please explain each answer.

Solutions

Expert Solution

1) If the marginal cost of production is greater than the average cost, in what direction must the average cost be changing, if any?

Solution: Average cost would be rising

Explanation: When the average variable cost is increasing, then the last unit produced is adding more to total variable cost than the previous units thus marginal cost of production is greater than the average cost

2) If the average variable cost of producing 5 costumes in Kira’s Costume Shop is $50, and the fixed cost of the shop is $100, what is the total cost for 5 costumes?

Solution: 350

Explanation:

AVC = TVC / No of units

50 = TVC / 5

TVC = 250

Total cost = TVC + TFC = 250 + 100 = 350

3) Which of the following expenses would be a fixed cost for a party cruise ship?

Solution: The port docking fee

Explanation: The port docking fee will remain constant thus is a fixed expense

4) If the fixed cost of Alex's engraving business is $100, and the variable cost of each engraving job is $20, what is the marginal cost of the second engraving job?

Solution: $20

Explanation: Marginal cost equals change in total variable cost divided by the change in quantity, thus $20 /1 = 20


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