The Diagram Below Shows Some Short-Run Cost Curves for a Firm

question 40

Multiple Choice

The diagram below shows some short-run cost curves for a firm. FIGURE 7-2
-Refer to Figure 7-2.Which of the following choices correctly identifies the cost curves in part (i) of the figure?

• A)Curve 1 is the total cost curve. Curve 2 is the total variable cost curve. Curve 3 is the total fixed cost curve.
• B)Curve 1 is the total fixed cost curve. Curve 2 is the total variable cost curve. Curve 3 is the total cost curve.
• C)Curve 1 is the total variable cost curve. Curve 2 is the total cost curve. Curve 3 is the total fixed cost curve.
• D)Curve 1 is the total marginal cost curve. Curve 2 is the total average cost curve. Curve 3 is the total average fixed cost curve.
• E)Curve 1 is the total cost curve. Curve 2 is the total variable cost curve. Curve 3 is the average fixed cost curve.

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Definitions:

Gross Margin

The difference between sales revenue and the cost of goods sold, indicating the profitability of a company's core activities excluding overhead.

Contribution Margin

The amount of revenue remaining after variable costs have been deducted, which contributes to covering fixed costs and generating profit.

Opportunity Cost

The expense associated with missing out on the second-best option when a choice is made.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue is available to cover fixed costs and generate profit.