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ECO 550 FINAL EXAM UPDATED 2014

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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

20,000 customers

30,000 customers

40,000 customers

50,000 customers
Question 5
The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____.
Answer

percentage; sales; percentage; EBIT

unit; sales; unit; EBIT

percentage; EBIT; percentage; sales

unit; EBIT; unit; sales…   Continue………..

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