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Economics: Microeconomic Analysis - Reading 17: Output and C

Q5. Which of the following most accurately describes the shape of the average fixed cost (AFC) curve? The AFC curve:

A)   becomes flatter as output increases.

B)   is always below the average variable cost curve.

C)   intersects the marginal cost curve at the marginal cost curve’s minimum.

Q6. John Klement is a soybean farmer who harvests 125,000 bushels of soybeans annually. Klement’s fixed costs are $200,000 and his variable costs are $5 per bushel. Soybeans are currently priced at $5.35 per bushel. Based on his estimates, Klement sees soybean prices being relatively stable for the next two years, then increasing to $7.00 per bushel due to increased demand from Japan. What action should Klement take? Klement should:

A)   cut his production by 50% for the next two years and then resume full production.

B)   continue operating his business as usual.

C)   shut down for two years and then restart his business.

Q7. If marginal cost is above the average cost, when you produce your next unit:

A)   average cost will decline.

B)   average cost will be flat.

C)   average cost will increase.

答案和详解如下:

Q5. Which of the following most accurately describes the shape of the average fixed cost (AFC) curve? The AFC curve:

A)   becomes flatter as output increases.

B)   is always below the average variable cost curve.

C)   intersects the marginal cost curve at the marginal cost curve’s minimum.

Correct answer is A)

The AFC curve declines initially, but as output increases it flattens because a fixed cost is being averaged over more and more units of output.

Q6. John Klement is a soybean farmer who harvests 125,000 bushels of soybeans annually. Klement’s fixed costs are $200,000 and his variable costs are $5 per bushel. Soybeans are currently priced at $5.35 per bushel. Based on his estimates, Klement sees soybean prices being relatively stable for the next two years, then increasing to $7.00 per bushel due to increased demand from Japan. What action should Klement take? Klement should:

A)   cut his production by 50% for the next two years and then resume full production.

B)   continue operating his business as usual.

C)   shut down for two years and then restart his business.

Correct answer is B)         

Since Klement is selling soybeans, a common commodity, he is a price taker and therefore can not adjust the price. He should continue operating his business as normal as he is currently covering variable costs and part of fixed costs. In two years from now, he will be able to cover both fixed and variable costs and be able to make a substantial profit.

Q7. If marginal cost is above the average cost, when you produce your next unit:

A)   average cost will decline.

B)   average cost will be flat.

C)   average cost will increase.

Correct answer is C)

If marginal cost is above the average cost, when you produce your next unit, average cost will increase. Because marginal cost is the cost of producing the next unit, and because this cost is above the firm's average cost per unit, the average cost per unit must increase, if only slightly. Based on the information provided in the question, there is no way to know what will happen to the marginal cost of future units produced.

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