Question

1. A firm is deciding between two different sewing machines. Technology A has fixed costs of $500 and marginal costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100. If the price is $60 per unit, what is the break-even amount of units for technology A?

a. 50

b. 100

c. 150

d. None - They would have to shut down

2. If the price is $20 per unit, what is the break-even amount of units for technology A?

a. 50

b. 60

c. 70 

d. None - They have to shut down

3. In the short-run, a firm's decision to shut-down should not take into consideration

a. Avoidable cost

b. Variable cost

c. Fixed cost

d. Marginal cost

4. A firm sells 1000 units per week. It charges $70 per unit, the average variable costs are $25, and the average costs are $65. In the short run, the firm should

a. Shut-down as the firm is making a loss of $15,000 per week

b. Shut-down as the price is lower than the average cost

c. Continue operating as the firm is covering all the variable costs and some of the fixed costs

d. Shut-down because it is cost-effective to pay off the remaining fixed costs