Activity 4

COMPREHENSION QUIZ

Part I:  Read each statement below.  Write T before each true statement.  Write F before each false statement and rewrite each false statement to make it true.

____ 1.  Rent, raw materials, employee wages, and property taxes are all examples of fixed costs.
         __________________________________________________________________________
 

____ 2.  Firms often offer a wide variety of goods for sale to reduce their variable costs per product.
         __________________________________________________________________________
 

____ 3.  Examples of variable costs include the cost of raw materials, production workers, and electricity to run machines.
        __________________________________________________________________________

____ 4.  Entrepreneurs benefit from having large fixed costs per item offered for sale.
         __________________________________________________________________________

____ 5.  Firms should not offer a product for sale that does not earn enough income to pay for its variable costs.
         __________________________________________________________________________
 

Part II.  Answer each of the following in the space provided.

6.  How can an entrepreneur reduce the fixed costs per unit sold?
__________________________________________________________________________________________

7.  If my fixed costs are $4 per product when I make 250 products, what will they be per product when I make 500 products?
__________________________________________________________________________________________

8.  Why do firms that offer more products for sale have lower costs per item than similar firms that offer fewer products for sale?
__________________________________________________________________________________________

9.  How can some wages be examples of fixed costs whereas other wages are examples of variable costs?
__________________________________________________________________________________________

© Council for Economic Education, New York, NY
Entrepreneurship in the U.S. Economy, Lesson 20

Entreprenuers Control Costs: Economics Lesson