Mr. Maurer
AP Economics
Name: ________________________
Review for Chapter 9 Quiz
Vocabulary – If you truly understand all these concepts, you will do well on the quiz: explicit
cost, implicit cost, normal profit, economic profit, short-run, long-run, product, marginal
product, law of diminishing marginal returns, fixed cost, variable cost, marginal cost,
economies of scale
1. Differentiate between fixed costs and variable costs and provide two examples of each. What is
the only variable cost that we have been considering in Chapter 9?
2. What is marginal cost?
3. How do fixed costs affect marginal cost? For example, if fixed costs increase, what will happen
to marginal cost?
4. Look at these figures for the Jirsa Bottling Co.
Production Costs
Output (units)
Total Cost ($)
0
1000
500
1300
1000
1500
1500
1600
a. Is this company experiencing increasing marginal returns or decreasing marginal returns over this
range of output? Explain.
b. What is the total fixed cost for the Jirsa Bottling Co.
c. What is the average variable cost when the firm produces 1000 units?
d. What is the marginal cost of the last unit produced?
5. On your own paper, draw a graph that includes a total fixed cost curve (TFC), a total variable
cost curve (TVC), and a total cost curve (TC). Be sure to label the axes and to maintain the
necessary shapes of the curves and the relationship between the curves.
6. On your own paper, draw a graph that includes an average fixed cost curve (AFC), and average
variable cost curve (AVC), an average total cost curve (ATC), and a marginal cost curve (MC). .
Be sure to label the axes and to maintain the necessary shapes of the curves and the relationship
between the curves.
7. Which cost curves are represented at left?
A.
B.
C.
D.
8. Which cost curves are represented at left?
A.
B.
C.
9. What is the gap between curves A and B in the graph above?
10. Explain why the marginal cost curve always intercepts the AVC curve and the ATC curve at
their minimum point.
11. Explain why the Average Fixed Cost curve decreases as quantity increases.
12. A firm has weekly production figures and fixed costs in the table below. Assume that labor is
its only variable input, and that each worker costs the firm $500/week. Complete the table (you can
round to the nearest dollar).
Labor
Total
units
Product
(workers) (units)
0
0
1
2
2
5
3
9
4
12
5
14
6
15
Total
Fixed
Cost
$300
Total
Variable
Cost
0
Total Average
Cost Fixed
Cost
x
Average
Variable
Cost
x
Average
Total
Cost
x
Marginal
Cost
(∆Cost/∆Q)
x
13. In your own words (close the book), define the following (explain what each is and how to
calculate it):
fixed costs
variable costs
total cost
average fixed cost
average variable cost
average total cost
marginal cost
14. What factors would cause the cost curves you have learned about to shift up or down? Explain
how each change would affect the curves (which way would they shift)?
15. Refer to the graph at left:
a. What curve is represented by the question mark?
b. Which of these could cause the shift from AVC1
to AVC2?
(A) an increase in fixed costs
(B) a decrease in fixed costs
(C) an increase in labor costs
(D) a decrease in labor costs
16. Refer to the graph at left:
Which of the following would cause an increase in costs
from ATC1 to ATC2 and from MC1 to MC2?
(A) an increase in the rent paid for the firm’s plant
(B) a per-unit tax on the product paid by the producer
(C) a decrease in labor costs
(D) an increase in property taxes paid by the firm
(E) an increase in fixed costs
17. Refer to the graph at left:
a. What is the average variable cost at an output of 4 units?
b. What is the fixed cost at an output of 6 units?
18. If a firm’s marginal cost is greater than its average total cost, how is average total cost
changing?
19. Which inputs are variable in the long-run?
20. What factors can lead to economies of scale?
21. What factors can lead to diseconomies of scale?
22. If a firm’s long-run average total cost is decreasing, then the firm is experiencing
__________________________________________.
23. If a firm’s long-run average total cost is holding steady, the firm is experiencing
__________________________________________.
24. If a firm’s long-run average total cost is increasing, then the firm is experiencing
__________________________________________.
25. Look at figure 9.7 on page 209. Why would a firm only consider the parts of the 5 different
ATC curves in purple? (Why wouldn’t the parts in red be part of their long-run Average Total Cost
curve?)