Theory of Costs and Revenue
Economics · 50 practice questions
Cost concepts — fixed, variable, total, average, marginal; revenue concepts — total, average, marginal; accountants' vs. economists' notions of cost; short-run and long-run costs; the marginal cost and the firm's supply curve.
- Explain the various cost and revenue concepts.
- Differentiate between accountants' and economists' notions of cost.
- Interpret short-run and long-run cost curves.
- Establish the relationship between marginal cost and the supply curve.
Try a few questions
- Practice question 1
If price exceeds average cost at a firm's profit-maximizing output, the firm earns
- A.a supernormal (economic) profit
- B.only a normal profit
- C.a loss
- D.zero total revenue
Show the answer
A. a supernormal (economic) profit
Price above AC at the chosen output means economic profit is positive.
- Practice question 2
Using the same data, average fixed cost (AFC) at 10 units of output is
- A.₦20
- B.₦10
- C.₦30
- D.₦200
Show the answer
A. ₦20
AFC = FC/Q = 200/10 = 20.
- Practice question 3
Using the same data, when output rises from 20 to 21 units, marginal cost (MC) is
- A.₦25
- B.₦800
- C.₦15
- D.₦815
Show the answer
C. ₦15
TC rises from 800 to 815; MC = 815 − 800 = 15.
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