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ECO 550 FINAL EXAM UPDATED 2014

ECO 550 final exam part 1

Question 1

A ____ total cost function implies that marginal costs ____ as output is increased.

Answer

linear; increase linearly

quadratic; are constant

cubic; increase linearly

linear; are constant

Question 2

Which of the following is not an assumption of the linear breakeven model:

Answer

constant selling price per unit

decreasing variable cost per unit

fixed costs are independent of the output level

a single product (or a constant mix of products) is being produced and sold

Question 3

Break-even analysis usually assumes all of the following except:

Answer

in the short run, there is no distinction between variable and fixed costs.

revenue and cost curves are straight-lines throughout the analysis.

there appears to be perfect competition since the price is considered to remain the same regardless of quantity.

the straight-line cost curve implies that marginal cost is constant.

Question 4

George Webb Restaurant collects on the average $5 per customer at its breakfast & lunch diner. Its variable cost per customer averages $3, and its annual fixed cost is $40,000. If George Webb wants to make a profit of $20,000 per year at the diner, it will have to serve__________ customers per year.

Answer

10,000 customers

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