1. For a certain firm, total cost is $1,800 when output equals 100, and total co
ID: 2429381 • Letter: 1
Question
1. For a certain firm, total cost is $1,800 when output equals 100, and total cost is $1,000 when output is zero. What are average variable costs when output equals 100?
a. $800 b. $100 c. $80 d. $18 e. $8
2. Sunk costs are:
a. costs that form the major component of the firm's variable cost.
b. costs that add to the firm's marginal costs.
c. costs associated with current operational decisions.
d. costs that have already been incurred as the result of past decisions.
3. Total variable cost is:
a. the same as sunk cost
b. irrelevant to decision making, because they are sunk
c. the costs of inputs that vary with the level of production
d. the costs of inputs that do not vary with the level of production
4. Pete is a non-union employee at The Electric Co. The majority of the employees at The Electric Co. are unionized. The union at The Electric Co. has negotiated very good benefits. Even though he is not a union member and he does not have to pay union dues, Pete receives all the benefits that the union has negotiated. Pete's behavior is an example of
a.rivalry.
b. a barrier to entry.
c, free dding.
d. Taft-Hartley opposition.
Explanation / Answer
1. Total fixed cost = $1,000
When Q=100 ,Total cost= $1800
When Q=100, Total variable cost = $(1800 -1000) = $800
Average variable cost = $(800/100)= $ 8
Hence, option(E) is correct.
2. Sunk Costs are costs that have already been incurred as the result of past decisions. Hence, option(D) is correct.
3. Total variable cost is the cost of inputs that vary with the level of production. Hence, option(C) is correct.
4. Pete's behavior is an example of free riding. Hence, option(C) is correct.
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