1)The change in revenue in response to a unit increase in production quantity is
ID: 1218671 • Letter: 1
Question
1)The change in revenue in response to a unit increase in production quantity is called marginal revenue.
True
False
2) The details of the production process of a certain commodity and its market price is given below:
Price/unit (P) = $2
Quantity produced (Q) = 12,000
Variable cost/unit (V) = $0.50
Fixed cost (F) = $14,000
What is approximately the average cost of production?
$1.90
$1.20
$1.70
$0.50
4) The table below shows a business firm’s list of expenditures. The machineries are bought in the current year. The owners also participate in the production process. The firm expects to earn revenue of $196,000 after one year.
Cost of machineries
$8,000
Labor wages (monthly)
$4,000
Electricity charges (monthly)
$2,000
Rent of land (monthly)
$1,500
Rent paid for capital (monthly)
$3,000
Opportunity cost of the owners' work (monthly)
$7,000
What is the annual economic profit (or loss)?
-$62,000
$84,000
-$22,000
$92,000
5) Derek loans an amount from the bank to start a business. The annual interest is 11 percent on the loan amount. He has to pay the interest amount in equal monthly installments. From his business’s perspective, the interest that he has to pay is a type of:
marginal cost.
opportunity cost.
accounting cost.
sunk cos
6) Which of the following falls under the purview of microeconomics?
Inflation
Profit
Interest rate
Exchange rate
7) Macroeconomics encompasses the study of:
national production.
average cost of production.
a household’s consumption decisions.
a firm’s production function.
8) When all fixed costs are regarded as sunk for the next production period, a firm should continue to operate only as long as the selling price per unit is at least as large as the average variable cost per unit.
True
False
9) The table below shows a business firm’s list of expenditures. The machineries are bought in the current year. The owners also participate in the production process. The revenue earning after one year is $196,000.
Cost of machineries
$8,000
Labor wages (monthly)
$4,000
Electricity charges (monthly)
$2,000
Rent of land (monthly)
$1,500
Rent paid for capital (monthly)
$3,000
Opportunity cost of the owners' work (monthly)
$7,000
What is the sunk cost?
$4,500
$3,500
$8,000
$12,500
Cost of machineries
$8,000
Labor wages (monthly)
$4,000
Electricity charges (monthly)
$2,000
Rent of land (monthly)
$1,500
Rent paid for capital (monthly)
$3,000
Opportunity cost of the owners' work (monthly)
$7,000
Explanation / Answer
1. This is true. MArginal revenue is the additional revenue when production is increased by one unit.
2. Average cost=Avg fixed cost+avg variable cost
avg fixed cost=14000/12000=$1.16 approx
Average cost=Avg fixed cost+avg variable cost
=1.16+0.5
=1.67
approx $1.70
4. Economic profit=total revenues-total costs
economic profit= 196,00-(8000+[12*(4000+2000+1500+3000+7000)]
= -22,000
5. It is the opportunity cost, because this money has an opportunity cost of being spent somewhere else.
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