Ch-theory Of Cost

Question 1

What is the definition of cost in economics?

Answer 1

Cost refers to the value of resources used to produce goods and services.

Question 2

True or False: Fixed costs vary with the level of output.

Answer 2

False

Question 3

Fill in the blank: __________ cost remains constant regardless of output levels.

Answer 3

Fixed

Question 4

What type of cost changes with the level of production?

Answer 4

Variable cost

Question 5

What are total costs composed of?

Answer 5

Total costs are composed of fixed costs and variable costs.

Question 6

Define opportunity cost.

Answer 6

Opportunity cost is the value of the next best alternative foregone when a choice is made.

Question 7

What is the formula for calculating average cost?

Answer 7

Average cost = Total cost / Quantity of output.

Question 8

True or False: Marginal cost is the cost of producing one additional unit of a good.

Answer 8

True

Question 9

What happens to marginal cost as production increases?

Answer 9

Marginal cost may initially decrease but can increase after a certain point due to diminishing returns.

Question 10

Fill in the blank: __________ cost is the cost that does not change with the level of output.

Answer 10

Fixed

Question 11

What is the difference between accounting cost and economic cost?

Answer 11

Accounting cost includes explicit costs, while economic cost includes both explicit and implicit costs.

Question 12

What is a sunk cost?

Answer 12

A sunk cost is a cost that has already been incurred and cannot be recovered.

Question 13

True or False: A business should consider sunk costs when making future decisions.

Answer 13

False

Question 14

Define variable cost.

Answer 14

Variable cost is the cost that varies with the level of output produced.

Question 15

What is the significance of the break-even point?

Answer 15

The break-even point is the level of production at which total revenue equals total costs.

Question 16

What does the term ‘economies of scale’ refer to?

Answer 16

Economies of scale refer to the cost advantages that a business obtains due to the scale of operation.

Question 17

Fill in the blank: The __________ curve shows the relationship between quantity produced and marginal cost.

Answer 17

Marginal cost

Question 18

What is the shape of the average cost curve in the short run?

Answer 18

The average cost curve is typically U-shaped in the short run.

Question 19

True or False: In the long run, all costs are considered variable.

Answer 19

True

Question 20

What is the relationship between average cost and marginal cost when average cost is at its minimum?

Answer 20

When average cost is at its minimum, marginal cost equals average cost.

Question 21

What is total variable cost?

Answer 21

Total variable cost is the sum of all variable costs incurred in production.

Question 22

Define marginal cost.

Answer 22

Marginal cost is the additional cost incurred for producing one more unit of a good.

Question 23

What does the term ‘diminishing returns’ imply?

Answer 23

Diminishing returns imply that adding more of one factor of production while holding others constant will eventually yield lower per-unit returns.

Question 24

What are implicit costs?

Answer 24

Implicit costs are the opportunity costs of using resources owned by the firm.

Question 25

Fill in the blank: The __________ cost is the sum of fixed and variable costs.

Answer 25

Total