Chapter 3 AP Micro

If total revenue is increasing as output increases, marginal revenue is always

greater than zero

Economic profit can be calculated as accounting profit minus which of the following?

implicit costs

The short-run supply curve for a firm in a perfectly competitive industry is

its marginal cost curve above the minimum point of its average variable cost curve

If a firm is experiencing economies of scale, which of the following will decrease as output increases?

long run average total cost

Shelby is an entrepreneur who has decided to open a small advertising firm. She rents office space at a cost of $25,000 per year, she has employed an assistant at a salary of $30,000 per year, and she incurs annual utility and office supply expenses of $20,000. Her best alternative is to work elsewhere and to earn a salary of $50,000 per year. How much annual revenue must her firm receive so that Shelby earns zero economic profit?

$125,000

Based on the cost and output data in the table above, a perfectly competitive firm will shut down if price falls below

$15

For a perfectly competitive, increasing-cost industry, an increase in the industry's demand will lead to which of the following in the long run?

An upward shift in each firm's long-run average cost curve

At a firm's current rate of output, the marginal cost is $65, the average variable cost is $35, the average fixed cost is $30, and the product price is $65. Which of the following statements is true for the firm?

Economic profits are zero because price equals average total cost.

Assume that a firm is maximizing short-run profits and that price is greater than average variable cost. Which of the following must be true at the firm's level of output?

Marginal revenue is equal to marginal cost

All of the following can be concluded from the information in the table EXCEPT:

This is a production function for a perfectly competitive firm.

The most profitable level of output for any firm operating in the short run is the level of output at which

marginal revenue equals marginal cost

A firm produces 400 books and sells each book for $15. If the explicit cost of producing the books is $4,500 and the implicit cost is $1,000, the firm's economic profit is

$500

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output?

$7

In the short run, which of the following is true of a firm's average total cost of production?

(C) It is equal to average fixed cost plus average variable cost.

Instead of being employed at a printing company at a salary of $25,000 per year, Sally starts her own printing firm. Rather than renting a building that she owns to someone else for $10,000 per year, she uses it as the location for her company. Her costs for workers, materials, advertising, and energy during her first year are $125,000. If the total revenue from her printing company is $155,000, her total economic profit is

-$5000

The following questions refer to the graph below showing cost curves for a perfectly competitive firm. A graph in the first quadrant is shown with price on the vertical axis and number of widgets in thousands on the horizontal axis. The vertical axis is labeled from 0 to 16 dollars in increments of 1 dollar, and the horizontal axis is labeled from 0 to 24 in increments of 1. Each labeled value has reference ines, and these lines form a grid across the graph. Two curves are plotted, both concave up everywhere, decreasing on the left before reaching a minimum and increasing on the left. The first curve is labeled average total cost which passes through 10 dollars and 3000 widgets while decreasing to its minimum at 6 dollars and 12000 widgets, then increases to 12.5 dollars and 24000 widgets on the right. The second curve is labeled marginal cost, which is decreasing through the point 6 dollars and 2000 widgets to its minimum 3 dollars and 6000 widgets before increasing to 14 dollars and 19000 widgets. The marginal cost curve intersects the average total cost curve at the minimum of the average total cost curve. If the market price is $10, how many widgets should this profit-maximizing firm produce?

16000

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is

20

Locotek produces toy trains and pays each worker $350 per week. Five workers can produce 40 trains per week and six workers can produce 45 trains per week. The marginal product per week of the sixth worker is

5 trains

Refer to the following diagram and assume a perfectly competitive market structure. A graph in the first quadrant is shown with price on the vertical axis and output per year on the horizontal axis. Three curves are plotted that are all concave up everywhere, decreasing on the left before reaching a minimum and increasing on the right. The first curve is labeled average total cost, and its minimum is near the center of the graph. The second curve is labeled average variable cost, which sits just below the average total cost curve and does not intersect it. The third curve is labeled marginal cost and it has its minimum in the lower left of the graph, increasing to the right and crossing first the average variable cost and then the average total cost curves. Five values A, B, C, D, and E are labeled from top to bottom on the vertical axis and dashed horizontal reference lines are drawn. A value F is labeled on the horizontal axis and a dashed vertical reference line is drawn, in addition to two more lines from unlabeled points, one to the left of F and one to the right. The lines from A and F intersect at point G above the minimums of the average total and variable cost curves. Continuing to the right along the line at A is point H at the intersection with the marginal cost curve and point I at the intersection with the average total cost curve. The lines from B and F intersect at point J above the minimums of the average total and variable cost curves. Continuing to the right along the line at B is point K at the intersection with the average total cost curve and point L at the intersection with the average variable cost curve. A vertical dashed line connects points K and H, and another connects points I and L. The lines from C and F intersect at point M at the intersection of the marginal cost and average total cost curves. The line from D intersects the unlabeled vertical line to the left of F at the intersection of the marginal cost and average variable cost curves. The line from E meets the marginal cost curve at its minimum. At the price 0A, economic profits are

ABKH

Which of the following is a result of increasing returns to scale?

Downward-sloping long-run average total cost curve

An entrepreneur has earned enough total revenue to cover her accounting costs, but economic losses are being incurred. What must be true?

Her accounting profits are less than her implicit costs.

The chart below gives a firm's total cost of producing different levels of output. A table is shown with two columns, output on the left and total cost on the right in dollars. The values in the left column are 0, 1, 2, 3, 4, 5, and 6. The values in the right column are 13, 20, 25, 28, 32, 43, and 60. The profit-maximizing level of output for this firm is

Impossible to determine with given information

F&D Manufacturing Company increases all its inputs by 50 percent each. If F&D's output increases by 100 percent, then F&D is experiencing

Increasing returns to scale

In the short run in perfect competition, the industry's demand curve and a firm's demand curve have which of the following slopes?

Industry's Demand Curve - Downward sloping Firm's Demand Curve - horizontal

The table above shows the short-run production function for picking apples. Based on the production data, which of the following statements about the marginal product of the fifth worker is true?

It is less than the marginal product of the third worker due to diminishing returns.

Assume that a profit-maximizing, perfectly competitive firm has economic losses in the short run. If the firm continues to produce and sell its goods, then which of the following must be true?

The firm is covering all of its variable costs but not all of its fixed costs of production

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?

The firm's marginal costs will increase at each level of output.

As output of a firm increases, the difference between the firm's average total cost and its average variable cost gets smaller because the firm's

average fixed cost is decreasing

If a single firm can produce and supply an entire market at a lower unit cost than many small firms can, the long-run average total cost must be

decreasing as the firm's output increases

The relationship in the graph above best illustrates the economic concept of

diminishing marginal returns in production

A farmer grows wheat using two inputs: labor and land whose prices are constant. If she doubles her inputs, she finds that the quantity of wheat produced more than doubles. Therefore, it must be true that in this output range her long-run average total cost curve is

downward sloping

Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the firm hires additional workers, one would expect the marginal product to

rise initially, but eventually fall

Assume that olive oil is produced in a constant- cost, perfectly competitive industry, which is currently in long-run equilibrium. If the current price of olive oil is $5 per quart and the demand for olive oil increases, then the price of olive oil will change in which of the following ways in the short run and long run?

short run- be more than $5 long run- be equal to $5