MHA 710 Module 3 Exam Questions with Verified Answers Latest Version 2025 Graded A+
What does it mean to say that economic costs differ from accounting costs? Are economic costs more
inclusive or less inclusive? - Answers Economic costs are more inclusive because they also consider
implicit or opportunity costs like time that accounting costs do not factor in.
When we refer to "per unit cost," does that mean average cost or marginal cost? - Answers Average cost
How do input prices and technology affect costs of production? - Answers Technology advances always
reduce the cost. High input prices always increases cost and can be partly offset by input substitutions.
Low input prices always decrease costs and may be enhanced by input substitutions.
Is technology more likely to be related to short-run cost changes or long-run cost changes? - Answers
Long run as you need to figure out how to adopt and implement it into the future.
What are examples of fixed inputs in production? - Answers Rent, Loans, Insurance Premiums, Car
payments
What are examples of variable inputs in production? - Answers Raw materials, labor, fees
How do the long run and short run differ in terms of the whether inputs can be varied? - Answers In the
long-run all costs are variable and in the short run there is at least one fixed cost.
How much are TVC if Q=0? - Answers 0
How much are TFC if Q=0? - Answers Whatever the fixed cost is
Does the total variable cost increase as total output increases? - Answers Total variable cost will increase
as total output increases
Does the total fixed cost increase as the total output increases? - Answers No it is the same. Average
fixed cost will decrease with more output because you can spread it over more volume.
Which short-run costs can be avoided in the short-run by producing Q=0, TVC or TFC? - Answers variable
costs
How is average total cost calculated? (i.e., What is the formula?) - Answers Average total cost = total
cost / quantity
How is the marginal cost (incremental cost) calculated? (i.e., What is the formula?) - Answers Marginal
cost = (total cost 1 - total cost 2) / (quantity 1 - quantity 2)
What are sunk costs? Why are they irrelevant in short-run decision making? - Answers Sunks costs are
already incurred costs that are not relevant because you have already paid them and there is nothing
you can do to change that. The decisions revolving sunk costs have already happened and you cannot go
back in time.
, What does economies of scale refer to? Can you give an example? - Answers Economies of scale refers
to size. An example would be a large firm that produces many products because it would be cheaper
than if they only produced one.
What does economies of scope refer to? Can you give an example? - Answers Economies of scope refers
to multi product firms. For example, hospitals because they have different department units on every
floor.
Do larger firms necessarily have lower per unit costs of production? - Answers No
Chapter 5 Key Concepts - Answers • Costs can be hard to measure and depend on perspective.
• Incremental cost equals the change in cost resulting from a change in output.
• Average cost equals the total cost of a process divided by the total output of a process.
• Large firms have a cost advantage if there are economies of scale.
• Multiproduct firms have a cost advantage if there are economies of scope.
• Costs depend on outputs, technology, input prices, and efficiency.
• Opportunity cost is the value of a resource in its best alternative use.
• Sunk costs, which are costs you cannot change, should be ignored.
why increasing efficiency is important - Answers Always reduce the cost of an activity
Economies of scale - Answers When larger organizations have lower average costs.
Economies of scope - Answers When multiproduct organizations have lower average costs.
Opportunity Cost - Answers The value of what one cannot do as a result of making a choice.
Sunk Costs - Answers A cost that has been incurred and cannot be recouped.
What does it mean to say that economic costs differ from accounting costs? Are economic costs more
inclusive or less inclusive? - Answers Economic costs are more inclusive because they also consider
implicit or opportunity costs like time that accounting costs do not factor in.
When we refer to "per unit cost," does that mean average cost or marginal cost? - Answers Average cost
How do input prices and technology affect costs of production? - Answers Technology advances always
reduce the cost. High input prices always increases cost and can be partly offset by input substitutions.
Low input prices always decrease costs and may be enhanced by input substitutions.
Is technology more likely to be related to short-run cost changes or long-run cost changes? - Answers
Long run as you need to figure out how to adopt and implement it into the future.
What are examples of fixed inputs in production? - Answers Rent, Loans, Insurance Premiums, Car
payments
What are examples of variable inputs in production? - Answers Raw materials, labor, fees
How do the long run and short run differ in terms of the whether inputs can be varied? - Answers In the
long-run all costs are variable and in the short run there is at least one fixed cost.
How much are TVC if Q=0? - Answers 0
How much are TFC if Q=0? - Answers Whatever the fixed cost is
Does the total variable cost increase as total output increases? - Answers Total variable cost will increase
as total output increases
Does the total fixed cost increase as the total output increases? - Answers No it is the same. Average
fixed cost will decrease with more output because you can spread it over more volume.
Which short-run costs can be avoided in the short-run by producing Q=0, TVC or TFC? - Answers variable
costs
How is average total cost calculated? (i.e., What is the formula?) - Answers Average total cost = total
cost / quantity
How is the marginal cost (incremental cost) calculated? (i.e., What is the formula?) - Answers Marginal
cost = (total cost 1 - total cost 2) / (quantity 1 - quantity 2)
What are sunk costs? Why are they irrelevant in short-run decision making? - Answers Sunks costs are
already incurred costs that are not relevant because you have already paid them and there is nothing
you can do to change that. The decisions revolving sunk costs have already happened and you cannot go
back in time.
, What does economies of scale refer to? Can you give an example? - Answers Economies of scale refers
to size. An example would be a large firm that produces many products because it would be cheaper
than if they only produced one.
What does economies of scope refer to? Can you give an example? - Answers Economies of scope refers
to multi product firms. For example, hospitals because they have different department units on every
floor.
Do larger firms necessarily have lower per unit costs of production? - Answers No
Chapter 5 Key Concepts - Answers • Costs can be hard to measure and depend on perspective.
• Incremental cost equals the change in cost resulting from a change in output.
• Average cost equals the total cost of a process divided by the total output of a process.
• Large firms have a cost advantage if there are economies of scale.
• Multiproduct firms have a cost advantage if there are economies of scope.
• Costs depend on outputs, technology, input prices, and efficiency.
• Opportunity cost is the value of a resource in its best alternative use.
• Sunk costs, which are costs you cannot change, should be ignored.
why increasing efficiency is important - Answers Always reduce the cost of an activity
Economies of scale - Answers When larger organizations have lower average costs.
Economies of scope - Answers When multiproduct organizations have lower average costs.
Opportunity Cost - Answers The value of what one cannot do as a result of making a choice.
Sunk Costs - Answers A cost that has been incurred and cannot be recouped.
