(Review Questions)

Chapter (7)

1
Question (1): Determine whether the following statements
are true or false:
1. Total cost takes into account all of the costs a business
faces in the course of its operations.
2. Total Fixed Costs are the costs that an organization incurs
even if there is little or no activity.
3. Total Variable Costs are the costs that remain the same
regardless of level of production or services offered.
4. Total fixed cost doesn’t change as output changes.
5. Total fixed costs are production costs that change when
production levels change.
6. The vertical distance between the total cost curve and the
total variable cost curve is total fixed cost.
7. Marginal cost shows the change in total variable costs
when output increases.
8. Average variable cost is the total variable cost per unit of
output.
9. Average fixed cost (AFC) slopes upward.
10. Average variable cost (AVC) and average total cost (ATC)
are U-shaped, it decrease and reach the minimum point
then increase.
11. The marginal cost curve intersects (AVC) and (ATC) curves
at their maximum points.
12. When marginal cost is less than average cost, average
cost is decreasing.
13. When marginal cost exceeds average cost, average cost is
increasing.
14. In a perfect competition market, individual firms are price
makers.
15. A firm produce the output where the distance between
total revenue and total cost (profit) as big as possible.
2
Question (2): Choose the correct answer:
1. Total Cost = …………………….. .
a- Total Fixed Cost - Total b- Total Fixed Cost ÷ Total
Variable Cost Variable Cost
c- Total Fixed Cost + Total d- Total Fixed Cost × Total
Variable Cost Variable Cost
2. ………………. the costs that remain the same regardless of
level of production or services offered.
a- Total Fixed Cost b- Total Variable Cost
c- Marginal cost d- Average cost
3. All of the following are examples for total fixed cost,
except;
a- rent b- raw materials costs
c- interest on bonds d- salaries paid for executives
4. ……………….. the extra cost incurred when producing one
more unit of output.
a- Fixed cost b- Average cost
c- Marginal cost d- Total cost
5. Marginal Cost = …………………….. .
a- Change in total Cost – b- Change in total Cost +
change in output change in output
c- Change in total Cost × d- Change in total Cost ÷
change in output change in output
6. …………….. is the total fixed cost per unit of output.
a- Average fixed cost b- Average variable cost
c- Marginal cost d- Total cost
7. …………….. is the total cost per unit of output.
a- Average fixed cost b- Average variable cost
c- Marginal cost d- Average total cost

3
8. …………….. the extra revenue a business receives from the
production and sale of one additional unit of output.
a- Total revenue b- Marginal revenue
c- Marginal cost d- Average revenue

4
1.  6.  11. ×
2.  7.  12. 
3. × 8.  13. 
4.  9. × 14. ×
5. × 10.  15. 

1 C
2 A
3 B
4 C
5 D
6 A
7 D
8 B