Question

1. In the short run A. a fixed factor of production does NOT impose limits on existing firms. B. all firms must bear some costs regardless of their output. C. new firms can enter an industry. D. existing firms can exit an industry. 2. The Lawn Ranger, a landscaping company, has total costs of $5,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are A. $0. B. $4,000. C. $6,000. D. indeterminate because the firm's output level is unknown. 3. is(are) most likely a variable cost for a firm. A. The interest payments made on loans B. The franchiser's fee that a restaurant must pay to the national restaurant chain C. The monthly rent on office space that it leased for a year D. The payroll taxes that are paid on employee wages

Answer 1

1. The correct Option is (b). In the short run, firms must bear​​​​ some costs regardless of their output.

​​​​​​In the short run, all the firms have to bear some costs which are known as fixed costs regardless of the production of output.

Fixed costs are the costs which don't get changed with the change in output or these are independent of the output. The firm has to bear this cost even if it closes down operation in the short run. Examples: rent, interest payments etc. So firm has to incur fixed costs regardless of the output in the short run.

2. Total cost (TC) = $5000

Total variable cost ( TVC) = $1000

TFC = Total fixed cost.

TC = TFC + TVC

5000 = TFC + 1000

TFC = 5000-1000 = $4000.

So the correct option is ( b).

3. The correct option is (d) the payroll taxes that are paid on the employee wages.

Interest payments made on loans, the franchiser's fee that a restaurant must pay to the national restaurant chain and the monthly rent on office space that it leased for a year are all included in the fixed costs.

But the payroll taxes that are paid on the employee wages as the payroll taxes depends upon the number of workers which are hired by the firm.

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