Question

As the Corner Coffee Shop becomes more popular and sells more coffee, which of the following is more likely to increase?

Group of answer choices

fixed cost

average fixed cost

Internet subscription

variable cost

Consider ADs and More, an advertising agency. Which of the following would be more likely to be a fixed cost?

Group of answer choices

hourly workers.

office rent

video producing expenses.

Actors

Suppose that a firm produces 10 units of output. Its average variable cost (AVC) = $25, average fixed cost (AFC) = $5, and marginal cost (MC) = $30. The firm's total cost is ________.

Group of answer choices

$330

$300

$30

$250

In the long run as the addition of technology becomes possible, firms can

Group of answer choices

reduce labor

decrease their debt.

increase productivity.

reduce total cost.

Answer 1

1. As the Corner Coffee Shop becomes more popular and sells more coffee, then the quantity produced increases. As a result of it the Total Cost of the shop increases.

Fixed cost (FC) is always constant irrespective of how much quantity (Q) is sold. Hence, Fixed cost will not increase. Also, when quantity sold increases, Average Fixed Cost (FC/Q) decreases. Also, Internet subscriptions has nothing to do with increase in quantity sold. Hence, we eliminate options (a), (b) and (c).

Now, the variable cost (VC) is a positive function of quantity (Q) produced. As quantity produced increases, the variable cost also increases. Hence, Variable Cost increases as quantity sold increases.

The answer is option (d) i.e. Variable Cost.

2. Let us consider ADs and More, an advertising agency. The Advertising Cost includes, wage of workers, video production costs, Actor's expenses etc. These costs will not remain constant. As the number of vidoes, workers or actors increases, the advertising costs also increases. Hence, we will eliminate options (a), (c) and (d), as they will not remain fixed.

Only, the house rent will not change. As, the office capacity is not changing, hence, the office rent will be a Fixed Cost.

The answer is option (b) i.e. Office Rent.

3. The output of the firm is

Q = 10 units

Average Variable Cost = AVC = $25

Average Fixed Cost = AFC = $5

Margin Cost = MC = $30

Now, Total Cost = Variable Cost + Fixed Cost

or, TC = VC + FC

Now, VC = AVC.Q = $25×10

or, VC = $250

And, FC = AFC.Q = $5×10

or, FC = $50

Hence, TC = $250 + $50

or, TC = Total Cost = $300

Hence, we eliminate options (a), (c) and (d) as these do not match our result.

The answer is option (b) i.e. $300.

4. In the long run as the addition of technology becomes possible, then the following things arw possible,

✓ There will be more efficient capital equipments used for production. Hence, the production will require less and less labor. The new technology will reduce labor.

✓ More units of output can be produced with the same inputs. Hence, the new technology will increase productivity.

✓ The labor requirement will fall. Hence, the cost of labor will also go down. Hence, the new technology will reduce total cost also.

✓ If firms are producing more with lower cost, its income will eventually increase. Then it will be able to increase its monthly payment for the debt. Hence, the new technology will decrease their debt.

Hence, we can not eliminate any option here. All the options are correct.

The answer is all of the above i.e. Options (a), (b), (c) and (d).

Hope the explanations are clear to you my friend.