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All questions of Theory of Costs and Revenue for JAMB Exam
The long-run average cost (LRAC) curve is typically:- a)U-shaped.
- b)V-shaped.
- c)Constant.
- d)Horizontal.
Correct answer is option 'A'. Can you explain this answer?
The long-run average cost (LRAC) curve is typically:
a)
U-shaped.
b)
V-shaped.
c)
Constant.
d)
Horizontal.
|
Deepak Iyer answered |
The long-run average cost (LRAC) curve is typically U-shaped. In the long run, a firm has the flexibility to adjust all of its inputs and can choose the optimal combination of inputs that minimizes its average cost. Initially, as the firm increases its output, it benefits from economies of scale, leading to a downward-sloping portion of the LRAC curve. However, after a certain level of output, diseconomies of scale may set in, causing the LRAC curve to slope upward. This results in the U-shape of the LRAC curve.
Which of the following cost curves is U-shaped in the short run?- a)Average fixed cost (AFC)
- b)Average variable cost (AVC)
- c)Average total cost (ATC)
- d)Marginal cost (MC)
Correct answer is option 'B'. Can you explain this answer?
Which of the following cost curves is U-shaped in the short run?
a)
Average fixed cost (AFC)
b)
Average variable cost (AVC)
c)
Average total cost (ATC)
d)
Marginal cost (MC)
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|
Deepak Iyer answered |
The average variable cost (AVC) curve is U-shaped in the short run. Initially, as the quantity of output increases, the average variable cost decreases due to the spreading of fixed costs over more units. However, as output continues to increase, the law of diminishing returns sets in, and the average variable cost starts to rise. This gives the AVC curve its characteristic U-shape.
Marginal cost is defined as:- a)The change in total cost resulting from producing one more unit of output.
- b)The cost of the last unit produced.
- c)The average cost of production.
- d)The fixed cost of production.
Correct answer is option 'A'. Can you explain this answer?
Marginal cost is defined as:
a)
The change in total cost resulting from producing one more unit of output.
b)
The cost of the last unit produced.
c)
The average cost of production.
d)
The fixed cost of production.
|
|
Deepak Iyer answered |
Marginal cost (MC) represents the additional cost incurred when producing one more unit of output. It is calculated by taking the change in total cost divided by the change in quantity of output. Marginal cost helps firms make decisions about production levels and pricing, as it indicates the cost implications of increasing or decreasing output.
If a company's marginal revenue is positive, it means:- a)Total revenue is decreasing
- b)Total revenue is increasing at a decreasing rate
- c)Total revenue is increasing at a constant rate
- d)Total revenue is increasing at an increasing rate
Correct answer is option 'D'. Can you explain this answer?
If a company's marginal revenue is positive, it means:
a)
Total revenue is decreasing
b)
Total revenue is increasing at a decreasing rate
c)
Total revenue is increasing at a constant rate
d)
Total revenue is increasing at an increasing rate
|
|
Deepak Iyer answered |
If a company's marginal revenue is positive, it means that the total revenue is increasing at an increasing rate. This indicates that selling one additional unit of output is generating more revenue than the previous unit sold. Positive marginal revenue is a favorable situation for the firm.
The additional revenue earned from selling one additional unit of output is known as:- a)Average revenue
- b)Marginal revenue
- c)Average total cost
- d)Marginal cost
Correct answer is option 'B'. Can you explain this answer?
The additional revenue earned from selling one additional unit of output is known as:
a)
Average revenue
b)
Marginal revenue
c)
Average total cost
d)
Marginal cost
|
|
Deepak Iyer answered |
Marginal revenue is the additional revenue earned from selling one additional unit of output. It is calculated by dividing the change in total revenue by the change in quantity of output. Marginal revenue helps in analyzing the impact of producing and selling additional units on the overall revenue.
If a company's total revenue is $5,000 and it sells 100 units of output, what is the average revenue per unit?- a)$5
- b)$500
- c)$50
- d)$5,000
Correct answer is option 'C'. Can you explain this answer?
If a company's total revenue is $5,000 and it sells 100 units of output, what is the average revenue per unit?
a)
$5
b)
$500
c)
$50
d)
$5,000
|
Sun Ray Institute answered |
The average revenue per unit is calculated by dividing the total revenue by the quantity of output. In this case, $5,000 divided by 100 units gives an average revenue per unit of $50.
Total revenue is calculated by multiplying which of the following by the quantity of output sold?- a)Average revenue
- b)Marginal revenue
- c)Average total cost
- d)Marginal cost
Correct answer is option 'A'. Can you explain this answer?
Total revenue is calculated by multiplying which of the following by the quantity of output sold?
a)
Average revenue
b)
Marginal revenue
c)
Average total cost
d)
Marginal cost
|
|
Deepak Iyer answered |
Total revenue is calculated by multiplying the average revenue by the quantity of output sold. Average revenue is obtained by dividing the total revenue by the quantity of output sold. It represents the revenue per unit of output.
The additional cost incurred from producing one additional unit of output is known as:- a)Fixed cost
- b)Variable cost
- c)Total cost
- d)Marginal cost
Correct answer is option 'D'. Can you explain this answer?
The additional cost incurred from producing one additional unit of output is known as:
a)
Fixed cost
b)
Variable cost
c)
Total cost
d)
Marginal cost
|
|
Deepak Iyer answered |
Marginal cost is the additional cost incurred from producing one additional unit of output. It is calculated by dividing the change in total cost by the change in quantity of output. Marginal cost helps in analyzing the impact of producing additional units on the overall cost structure.
A company's total cost is the sum of which of the following?- a)Fixed cost and variable cost
- b)Average cost and marginal cost
- c)Average fixed cost and average variable cost
- d)Average total cost and marginal cost
Correct answer is option 'A'. Can you explain this answer?
A company's total cost is the sum of which of the following?
a)
Fixed cost and variable cost
b)
Average cost and marginal cost
c)
Average fixed cost and average variable cost
d)
Average total cost and marginal cost
|
|
Deepak Iyer answered |
Total cost is the sum of fixed cost and variable cost. Fixed costs remain constant regardless of the level of production, while variable costs change with the quantity of output produced. Total cost gives the overall cost incurred by the company to produce a given quantity of output.
A decrease in the variable cost of production will cause the firm's supply curve to:- a)Shift to the left.
- b)Shift to the right.
- c)Become steeper.
- d)Become flatter.
Correct answer is option 'B'. Can you explain this answer?
A decrease in the variable cost of production will cause the firm's supply curve to:
a)
Shift to the left.
b)
Shift to the right.
c)
Become steeper.
d)
Become flatter.
|
|
Deepak Iyer answered |
A decrease in the variable cost of production reduces the firm's cost of producing each unit of output. As a result, the firm becomes more willing and able to supply a greater quantity at each price level. This causes the firm's supply curve to shift to the right, indicating an increase in the quantity supplied at each price.
The point at which the firm's marginal cost curve intersects the supply curve determines:- a)The level of profit.
- b)The level of output produced.
- c)The level of fixed costs.
- d)The level of demand.
Correct answer is option 'B'. Can you explain this answer?
The point at which the firm's marginal cost curve intersects the supply curve determines:
a)
The level of profit.
b)
The level of output produced.
c)
The level of fixed costs.
d)
The level of demand.
|
|
Deepak Iyer answered |
The point of intersection between the firm's marginal cost (MC) curve and the supply curve determines the level of output produced by the firm. At this point, the marginal cost of producing an additional unit of output is equal to the price at which the firm is willing to supply that unit. Therefore, the firm will produce and offer for sale the quantity of output corresponding to the intersection point.
If a company's total cost is $1,000 and it produces 100 units of output, what is the average cost per unit?- a)$10
- b)$100
- c)$1,000
- d)$10,000
Correct answer is option 'A'. Can you explain this answer?
If a company's total cost is $1,000 and it produces 100 units of output, what is the average cost per unit?
a)
$10
b)
$100
c)
$1,000
d)
$10,000
|
|
Deepak Iyer answered |
The average cost per unit is calculated by dividing the total cost by the quantity of output. In this case, $1,000 divided by 100 units gives an average cost per unit of $10.
The average revenue is calculated by dividing which of the following by the quantity of output sold?- a)Total revenue
- b)Marginal revenue
- c)Total cost
- d)Marginal cost
Correct answer is option 'A'. Can you explain this answer?
The average revenue is calculated by dividing which of the following by the quantity of output sold?
a)
Total revenue
b)
Marginal revenue
c)
Total cost
d)
Marginal cost
|
|
Deepak Iyer answered |
Average revenue is calculated by dividing the total revenue by the quantity of output sold. It provides the average revenue per unit of output and helps in understanding the pricing and revenue generation of the firm.
Which of the following costs remains constant regardless of changes in the level of production?- a)Fixed cost
- b)Variable cost
- c)Total cost
- d)Marginal cost
Correct answer is option 'A'. Can you explain this answer?
Which of the following costs remains constant regardless of changes in the level of production?
a)
Fixed cost
b)
Variable cost
c)
Total cost
d)
Marginal cost
|
|
Deepak Iyer answered |
Fixed cost remains constant regardless of changes in the level of production. It represents costs that do not vary with the quantity of output produced. Examples of fixed costs include rent, salaries, and insurance premiums. These costs must be paid even if the company does not produce anything.
The average cost is calculated by dividing which of the following by the quantity of output?- a)Fixed cost
- b)Variable cost
- c)Total cost
- d)Marginal cost
Correct answer is option 'C'. Can you explain this answer?
The average cost is calculated by dividing which of the following by the quantity of output?
a)
Fixed cost
b)
Variable cost
c)
Total cost
d)
Marginal cost
|
|
Deepak Iyer answered |
Average cost is calculated by dividing the total cost by the quantity of output. It represents the cost per unit of output and helps in assessing the efficiency of production. Average cost provides insights into how efficiently resources are being utilized in the production process.
Diseconomies of scale occur when:- a)Long-run average costs decrease as output increases.
- b)Long-run average costs increase as output increases.
- c)Average variable costs decrease as output increases.
- d)Average fixed costs increase as output increases.
Correct answer is option 'B'. Can you explain this answer?
Diseconomies of scale occur when:
a)
Long-run average costs decrease as output increases.
b)
Long-run average costs increase as output increases.
c)
Average variable costs decrease as output increases.
d)
Average fixed costs increase as output increases.
|
|
Deepak Iyer answered |
Diseconomies of scale occur when a firm's long-run average costs increase as output increases. As a firm expands its production beyond a certain level, it may encounter various inefficiencies and coordination challenges. These can lead to an increase in costs per unit of output, resulting in diseconomies of scale. It is important for firms to manage their operations effectively to avoid or mitigate the negative effects of diseconomies of scale.
Which of the following statements best describes the short-run in economics?- a)A period of time during which all inputs can be varied.
- b)A period of time during which at least one input is fixed.
- c)A period of time during which all inputs are fixed.
- d)A period of time during which there are no costs incurred.
Correct answer is option 'B'. Can you explain this answer?
Which of the following statements best describes the short-run in economics?
a)
A period of time during which all inputs can be varied.
b)
A period of time during which at least one input is fixed.
c)
A period of time during which all inputs are fixed.
d)
A period of time during which there are no costs incurred.
|
|
Deepak Iyer answered |
The short-run in economics refers to a period of time during which some inputs are fixed and cannot be varied. While certain inputs can be adjusted in the short-run, there is at least one input that remains constant. This fixed input is usually considered a fixed cost, such as capital or machinery.
If a firm's marginal cost is greater than its average variable cost, then:- a)The firm is experiencing economies of scale.
- b)The firm is experiencing diseconomies of scale.
- c)The firm is experiencing increasing marginal returns.
- d)The firm is experiencing decreasing marginal returns.
Correct answer is option 'B'. Can you explain this answer?
If a firm's marginal cost is greater than its average variable cost, then:
a)
The firm is experiencing economies of scale.
b)
The firm is experiencing diseconomies of scale.
c)
The firm is experiencing increasing marginal returns.
d)
The firm is experiencing decreasing marginal returns.
|
|
Deepak Iyer answered |
When a firm's marginal cost is greater than its average variable cost, it suggests that the average variable cost is increasing as output increases. This indicates that the firm is experiencing diseconomies of scale. Diseconomies of scale occur when the firm's production costs increase at a faster rate than the increase in output. It could be a result of inefficiencies or difficulties in managing larger-scale production.
In the short run, the total cost of producing 100 units of output is $1,000. If the total cost of producing 200 units of output is $2,500, what is the average variable cost per unit?- a)$2.50
- b)$5.00
- c)$7.50
- d)$10.00
Correct answer is option 'C'. Can you explain this answer?
In the short run, the total cost of producing 100 units of output is $1,000. If the total cost of producing 200 units of output is $2,500, what is the average variable cost per unit?
a)
$2.50
b)
$5.00
c)
$7.50
d)
$10.00
|
|
Deepak Iyer answered |
Average variable cost (AVC) is calculated by dividing the total variable cost by the quantity of output. In this case, the total variable cost for 100 units is $1,000, so the average variable cost per unit is $1,000/100 = $10.00. Similarly, for 200 units, the total variable cost is $2,500, so the average variable cost per unit is $2,500/200 = $12.50. Thus, the average variable cost per unit is $7.50.
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