DEU - Faculty of Business
ECON 1001
Problem Set for Week 8 - Short-run Costs and Output Decisions
Refer to the information provided in table below to answer the question that follows.
1) Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per unit, what
production technique should this firm use to produce 2 units of output?
A) Production technique A
B) Production technique B
C) The firm is indifferent between production technique A and production technique B.
D) It is impossible to determine if the firm should select production technique A or B
because total fixed costs are not given.
2) If the marginal cost curve is below the average variable cost curve, then
A) average variable costs are increasing.
B) average variable costs are decreasing.
C) marginal cost must be decreasing.
D) average variable costs could either be increasing or decreasing.
3) The short-run average total cost curve eventually begins to increase at an increasing rate
because of
A) economies of scale.
B) the constraint that the firm cannot change production technologies.
C) diminishing returns phenomena.
D) increasing returns to scale.
Refer to the information provided in table below to answer the following question.
4) Assume that fruit baskets are sold in a perfectly competitive market. The market price of a
fruit basket is $22. To maximize profits, Exotic Fruit should sell __________ fruit basket(s).
A) three
B) four
C) five
D) six
5) A firm in a perfectly competitive industry is producing 50 units, its profit-maximizing quantity.
Industry price is $2, total fixed costs are $25, and total variable costs are $40. The firm's
economic profit is
A) $15.
B) $30. C) $35. D) $60.
Refer to the information provided in figure below to answer the questions that follow.
6) For this farmer to maximize profits he should produce __________ bushels of wheat.
A) 6
B) 9
C) 12
D) 16
7) If this farmer is maximizing profits, his total costs will be
A) $11
B) $66
C) $90
D) $132
8) If this farmer is maximizing his profits, his TVC is
A) $24
B) $42
C) $108
D) $255
9) This farmer's fixed costs are
A) $0
B) $24
C) $45
D) indeterminate unless we know the level of output the firm is producing.
10) If this farmer is maximizing profits, his total revenue will be
A) $90 B) $135
C) $180
D) $240