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S4 Economics: Costs of Production – Error Revisit Practice (10 Questions)
S4 Economics: Costs of Production – Error Revisit Practice (10 Questions)
Ten items revisit the usual slips: sorting fixed from variable cost, working back from total cost to average and average fixed cost, the difference method for marginal cost, diminishing returns, the shutdown test and break-even by contribution.
Quick answer 1. 4,200; 2. TC 6,000, AC 50, AFC 35; 3. 45; 4. from 42 to 21; 5. from 10 to 12; 6. 18; 7. shut down; 8. 300 units and 1,200 profit; 9. average down 15 per cent, total up 70 per cent; 10. no.
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 questions |
| Suggested time | about 20 minutes |
| Difficulty mix | Foundation 2 · Intermediate 4 · Challenge 3 · Error redo 1 |
| Chapter | Chapter: S4 Economics | Costs of Production: fixed cost, marginal cost and scale |
| Level | S4 |
02 Questions (10 items)
- FoundationA workshop pays $3,000 rent and $1,200 insurance a month, both fixed costs. What is total cost at zero output?
- FoundationVariable cost is $15 a unit and output is 120 units. Find total, average and average fixed cost.
- IntermediateOutput rises from 120 to 130 units while total cost rises from $6,000 to $6,450. What is marginal cost?
- IntermediateFixed cost is $4,200 and output rises from 100 to 200 units. Between what values does average fixed cost move?
- IntermediateThe daily wage is $240 and marginal product falls from 24 to 20 units. How does marginal cost move?
- IntermediateAverage cost is $60 at 200 units and $58 at 210 units. What is marginal cost over that range?
- ChallengePrice is $28 while average variable cost is $32. Should the firm shut down in the short run?
- ChallengeFixed cost is $7,200 and contribution per unit is $24. Find break-even output and profit at 350 units.
- ChallengeAverage cost falls from $40 at 1,500 units to $34 at 3,000 units. Give both percentage changes.
- Error redoA student claims that shutting down removes the factory rent as well. Is that correct?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | $4,200. | With no output there is no variable cost, so total cost is just the fixed cost of $4,200. |
| 2 | Total cost $6,000, average cost $50 and average fixed cost $35. | TVC is $1,800 and TC is $6,000; dividing the fixed cost of $4,200 by 120 units gives $35. |
| 3 | $45. | The extra cost of $450 spread over 10 extra units gives $45 each. |
| 4 | From $42 down to $21. | The fixed total does not change, so doubling output halves the share carried by each unit. |
| 5 | From $10 up to $12. | Marginal cost is the wage divided by marginal product, so falling marginal product pushes marginal cost up. |
| 6 | $18. | Total cost rises by $180 for 10 more units; marginal cost below average cost pulls the average down. |
| 7 | Yes, it should shut down. | Price sits below average variable cost, so each sale adds a loss of $4 and shutdown loses only the fixed cost. |
| 8 | 300 units and a profit of $1,200. | Dividing fixed cost by contribution gives 300 units; the extra 50 units earn $1,200. |
| 9 | Average cost falls 15 per cent while total cost rises 70 per cent. | Total cost climbs from $60,000 to $102,000, so scale economies lower the average while total spending still rises. |
| 10 | No. | Rent is a fixed cost in the short run, so shutdown saves only variable cost and the loss stays at $4,200. |
04 What to do after marking
- After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
- Repeat the same item two days later; move to the next paper only when both attempts are correct.
- Parents only need the answer and note columns; there is no need to explain every item.
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