Average Cost and Marginal Cost Quiz
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Questions and Answers

What does the Average Cost (AC) measure?

  • The total cost of producing one more unit of a good
  • The average expense per unit of output (correct)
  • The lowest average cost achievable for producing different quantities of output
  • The change in total cost divided by the change in quantity

    • How is Marginal Cost (MC) calculated?

  • By the change in total cost divided by the change in quantity (correct)
  • By adding the average cost and total cost
  • By dividing total cost by the number of units produced
  • By multiplying the average cost by the number of units produced

    • What happens when the marginal cost is less than the average cost?

  • It tends to push the average cost up
  • It causes the average cost to remain constant
  • It has no impact on the average cost
  • It typically pulls the average cost down (correct)

    • How does the relationship between AC and MC influence cost structures?

    <p>It helps businesses determine optimal production levels based on minimizing costs or maximizing efficiency</p> Signup and view all the answers

    What does the Long Run Average Cost (LRAC) curve represent?

    <p>The lowest average cost achievable for producing different quantities of output when all inputs are variable</p> Signup and view all the answers

    What is the formula to calculate Marginal Cost (MC)?

    <p>Change in total cost divided by change in quantity</p> Signup and view all the answers

    When does the average cost (AC) remain constant?

    <p>When marginal cost is equal to average cost</p> Signup and view all the answers

    What happens to the average cost when the marginal cost is less than the average cost?

    <p>It pulls the average cost down</p> Signup and view all the answers

    What does the Long Run Average Cost (LRAC) curve represent?

    <p>The lowest average cost achievable for producing different quantities of output</p> Signup and view all the answers

    How does the relationship between AC and MC influence cost structures?

    <p>It helps businesses determine optimal production levels based on minimizing costs or maximizing efficiency</p> Signup and view all the answers

    What is a key characteristic of perfect competition?

    <p>Presence of a large number of buyers and sellers</p> Signup and view all the answers

    What differentiates a monopoly from perfect competition?

    <p>Barriers to entry</p> Signup and view all the answers

    What is a distinguishing feature of monopolistic competition?

    <p>No government intervention</p> Signup and view all the answers

    What sets oligopoly apart from other market structures?

    <p>Price maker behavior</p> Signup and view all the answers

    Study Notes

    Cost Concepts

    • Average Cost (AC) measures the total cost per unit of production.
    • Marginal Cost (MC) is calculated by dividing the change in total cost by the change in quantity produced.
    • Formula to calculate Marginal Cost (MC): MC = ΔTC / ΔQ, where ΔTC is the change in total cost and ΔQ is the change in quantity produced.

    Relationship between AC and MC

    • When marginal cost is less than the average cost, the average cost decreases.
    • Conversely, when the marginal cost is greater than the average cost, the average cost increases.
    • The relationship between AC and MC influences cost structures, as it helps firms determine the optimal level of production.

    Long Run Average Cost (LRAC)

    • The LRAC curve represents the minimum cost per unit of production in the long run, when all inputs are variable.
    • The LRAC curve is typically U-shaped, indicating that there are economies of scale at low levels of production and diseconomies of scale at high levels.

    Market Structures

    • In perfect competition, there are many firms producing a homogeneous product, and no single firm has market power.
    • A key characteristic of perfect competition is the absence of barriers to entry and exit.
    • A monopoly is differentiated from perfect competition by the presence of a single firm producing a product, giving it market power.
    • In monopolistic competition, there are many firms producing differentiated products, and firms have some degree of market power.
    • Oligopoly is characterized by a small number of firms producing either homogeneous or differentiated products, with each firm having significant market power.

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    Description

    Test your knowledge of cost analysis with this quiz on Average Cost and Marginal Cost. Explore the concepts of calculating average expense per unit and the additional cost of producing one more unit of a good or service.

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