Question

Which of the following statements about the difference between fixed costs and variable costs is false?
a. A firm faces both fixed and variable costs in the short-run but all costs are variable in the long run
b. Fixed costs influence a firm's decision to shut-down in the short-run while variable costs do not.
C. Variable costs increase as the amount of output produced increases, while fixed costs remain the same regardless of how much is produced by the firm.
d. Increases in variable costs will lead to an increase in marginal cost while an increase in fixed costs has no impact on marginal costs.

Betsy owns a Fudge Shoppe with daily fixed costs of $75 and variable costs of $130. If Betsy's daily revenue is $125 in the short-run she should:
a. Lower her prices to increase profits
b. Remain open because she is earning an economic profit.
c. Remain open because shutting down would generate even more losses.
d. Shut down because staying open would generate even more losses

Phil sells duck calls in a perfectly competitive market. If duck calls sell for 510 each and the average total cost per unit is $11 at the profit-maximizing output level, then, in the long run,
a. some firms will exit the market.
b. more firms will enter the market
c. the equilibrium price per duck call will fall.
d. The average total costs will fall.

Answer 1

Question 1.

The fourth statement about the difference between variable cost and fixed cost is false. It states that marginal cost is altered by variable cost and is not affected by the fixed cost which is wrong, because marginal cost is affected by both of them.

Question 2

betsy should shut down because that way, she has to only pay the fixed cost of 75 dollars, but if she kept it open she has to pay an extra 5 dollars for the variable cost, which is not covered by the revenue received. Hence, option d

Question 3

Since there is super normal profit, more firms will enter in the long run to take advantage of this super-normal profit. Hence option b