3.3.2 Costs Quiz: Pearson Edexcel Economics A, Unit 3

The 20 questions

1. Total fixed cost is best defined as:

   • Costs that do not vary with the level of output in the short run
   • Costs that are zero when the firm produces no output at all
   • Costs that vary directly with the level of output produced
   • The average of all costs per unit of output produced

2. Total variable cost is best defined as:

   • Costs that never change whatever the level of output
   • Overheads paid on a fixed long-term contract with a supplier
   • The cost of capital equipment only, in the short run
   • Costs that change directly with the level of output, such as raw materials

3. Average total cost is calculated as:

   • Total revenue divided by output
   • Total cost divided by output
   • Marginal cost multiplied by total variable cost
   • Total fixed cost multiplied by output

4. Marginal cost is best defined as:

   • The average variable cost when output is zero
   • Total fixed cost per unit of output produced
   • Total cost divided by the number of units produced
   • The change in total cost from producing one more unit of output

5. Total fixed cost is £200 and total variable cost is £300 at an output of 10 units. What is average total cost?

   • £500
   • £50
   • £20
   • £30

6. Total fixed cost is £200 at an output of 10 units. What is average fixed cost?

   • £20
   • £10
   • £30
   • £200

7. Total cost rises from £500 to £560 when output rises from 10 to 11 units. What is marginal cost?

   • £60
   • £6
   • £560
   • £55

8. Total variable cost is £300 at 10 units. What is average variable cost?

   • £300
   • £30
   • £20
   • £50

9. Which best explains why short-run marginal cost first falls and then rises?

   • Rising fixed costs, which increase with every extra unit produced
   • Falling demand for the product as the firm produces more units
   • Economies of scale only, which reduce cost in every output range
   • Diminishing marginal productivity: early specialisation raises output, then extra workers add less output

10. Why does MC cut ATC at its minimum point?

    • MC always equals ATC at every output level in any firm
    • When MC is below ATC, ATC is falling; when MC is above ATC, ATC is rising, so the curves cross at ATC's minimum
    • ATC is always above MC at all outputs in every case
    • MC is always zero at the minimum point of ATC in the short run

11. What is the relationship between the long-run average cost curve and short-run average cost curves?

    • The LRAC curve is an envelope of short-run average cost curves, each one for a fixed plant size
    • The LRAC curve is always above all of the short-run average cost curves
    • The LRAC curve is a vertical line showing constant output at all costs
    • The LRAC curve is drawn for one fixed plant size in every period

12. Which cost is fixed in the short run for a bakery?

    • The rent of the bakery premises
    • Electricity for ovens where the charge rises with each unit used
    • The packaging used for each loaf that is sold
    • The flour used in each loaf that it bakes

13. Diminishing marginal productivity causes short-run cost curves to:

    • Show total fixed cost rising in line with output
    • Show marginal cost falling continuously at every level of output
    • Show average fixed cost rising as output increases
    • Show marginal cost rising after a point, because each extra worker adds less output

14. What is the shape of the average fixed cost curve?

    • It is horizontal at the level of total fixed cost
    • It is U-shaped, rising and then falling with output
    • It falls continuously as output rises, approaching but never reaching zero
    • It rises continuously as output rises for the firm

15. A firm's average variable cost is £12 at all levels of output. What is its marginal cost?

    • £12 at all levels of output, since AVC is constant
    • Falling towards zero as output increases
    • Equal to average total cost at every output level
    • Rising steadily from zero as output increases

16. Total cost is TC = 200 + 20Q + Q^2. What is marginal cost at Q = 10?

    • £400
    • £20
    • £40
    • £220

17. Using the same total cost TC = 200 + 20Q + Q^2, what is average total cost at Q = 10?

    • £40
    • £220
    • £20
    • £50

18. Evaluate the claim that a firm should always produce where average total cost is minimised.

    • False: profit maximisation depends on MC = MR, and the cost-minimising output is not necessarily profit-maximising
    • True in the long run only if marginal revenue is zero at that output
    • True, because minimum ATC guarantees the highest profit for any firm
    • True, because total revenue can be ignored in every decision

19. Why does the long-run average cost curve typically fall and then rise?

    • Diminishing marginal utility of the output for consumers in the market
    • Diminishing returns in the short run only, which do not apply in the long run
    • Fixed costs rising steadily with each extra unit of output produced
    • Economies of scale at first, followed by diseconomies of scale as the firm grows too large

20. Why can short-run average total cost rise even when average fixed cost falls?

    • ATC never rises once output is above the minimum point of the curve
    • AFC rises with output, so ATC rises with it
    • Average variable cost may rise through diminishing marginal productivity, outweighing the fall in AFC
    • Fixed costs depend directly on the level of output produced

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