Econ exam 2

A business owner makes 50 items by hand in six hours. She could have earned $10 an hour working for someone else. If each item sells for $5 and the explicit costs total $14, economic profit equals: $0. $64. $176. $236.

$176

A business owner makes 50 items by hand in six hours. She could have earned $10 an hour working for someone else. If each item sells for $5 and the explicit costs total $14, accounting profit for 50 items is: $64. $176. $236. $300.

$236

The only variable input used in producing bicycles in a small factory is labor. Currently four workers are employed; each works 40 hours per week and is paid $10 per hour. If fixed cost is $2,000 per week and total output is 10 bicycles per week, average cost is: $160. $260. $200. $360.

$360

Units of output. Total cost 0 5 1 11 2 16 3 20 4 23 5 25 6 26 Refer to the table shown. The average variable cost of producing 5 units of output is: $2. $3. $4. $5.

$4

When output is 50, fixed costs are $1,000, and variable costs are $2,000, what is the average total cost? $20 $40 $60 $80

$60

If market demand increases in a perfectly competitive increasing-cost industry: new firms will enter the industry, factor prices will rise, and the price at which each firm earns zero economic profit will increase. new firms will enter the industry, factor prices will fall, and the price at which each firm earns zero economic profit will fall. some firms will exit the industry, factor prices will rise, and the price at which each firm earns zero economic profit will increase. some firms will exit the industry, factor prices will fall, and the price at which each firm earns zero economic profit will fall.

new firms will enter the industry, factor prices will rise, and the price at which each firm earns zero economic profit will increase.

Suppose that the firms in the perfectly competitive oat industry currently are receiving a price of $2 per bushel for their product. The minimum possible average total cost of producing oats in the long run is $1 per bushel. It follows that: the oat industry is in equilibrium. new firms will enter the oat industry. the price of oats will remain at $2 per bushel in the long run. firms in the oat industry will earn economic profits in both the long run and the short run.

new firms will enter the oat industry

In a perfectly competitive market, the demand curve faced by an individual firm is: perfectly inelastic. relatively inelastic. perfectly elastic. relatively elastic.

perfectly elastic.

Refer to the graph shown. Why does the distance between curves II and III get smaller as quantity increases? Marginal cost is increasing. Average variable cost is increasing. Average fixed cost is declining. Average fixed cost is increasing.

Average fixed cost is declining.

An assumption of a competitive market is that both buyers and sellers are price takers. When we go to the mall to shop for clothing or to the grocery to buy food, what do we usually observe? Both buyers and sellers are usually price takers. Buyers are often price takers, but sellers are usually price makers. Buyers are often price makers, but sellers are usually price takers. Both buyers and sellers are usually price makers.

Buyers are often price takers, but sellers are usually price makers.

eBay.com is a vast auction site that is similar to a competitive market in some ways but differs from it in others. Which of the following describes how eBay resembles a competitive market? It is easy to enter and easy to leave eBay. Sellers sometimes do not describe the products accurately on eBay. There is a great variety of different products sold on eBay. On eBay the large sellers dominate the market.

It is easy to enter and easy to leave eBay.

Which of the following is one of the necessary conditions for perfect competition? Diminishing utility No barriers to entry Differentiated products Indivisible setup costs

No barriers to entry

Mr. Woodard's cabinet shop is experiencing rapid growth in sales. As sales have increased, Mr. Woodard has found it necessary to hire more workers. However, he has observed that doubling the number of workers has less than doubled his output. What is the likely explanation? The law of diminishing marginal utility The law of diminishing marginal productivity The law of supply The law of demand

The law of diminishing marginal productivity

A regional airline owns 10 aircraft and employs 20 pilots. The airline makes an average of three trips per day with each of its 10 aircraft. The aircraft and their ground crews are idle part of the day. Minimum rest requirements for its pilots mean that if the airline wants to increase its flights, it must hire more pilots. The decision to hire more pilots is: a short-run decision because the number of aircraft is held constant while the labor input is changed. a short-run decision because the number of pilots is being increased; if the number of ground crew were decreased instead, it would be a long-run decision. a long-run decision because hiring pilots will increase revenues over a long period of time for the airline. a long-run decision because customers will become accustomed to the new flight schedule.

a short-run decision because the number of aircraft is held constant while the labor input is changed.

When the average variable cost curve is at its minimum point, average product will be: at its maximum. increasing. decreasing. at its minimum.

at its maximum.

If the average cost of producing 9 sweaters is $6.50 and the marginal cost of producing the tenth sweater is $6.25, the average cost of producing 10 sweaters will: be $6.50. be more than $6.50. be less than $6.50. be exactly $6.25.

be less than $6.50

Spam (junk e-mail) is a major annoyance for many people who use the Internet. However, spammers sometimes have to send thousands of messages to get just one response that pays money. Given this information: spamming cannot be profitable because of the low numbers of buyers; its sole purpose is to annoy others. spamming cannot be profitable because of the low numbers of buyers; it is fraudulently profitable. spamming can be profitable even with a very low number of buyers because the marginal cost of sending spam is virtually zero. as with many other activities on the Internet, spammers are profitable only because they rely on the fees from advertising.

spamming can be profitable even with a very low number of buyers because the marginal cost of sending spam is virtually zero.

The increase in output obtained by hiring an additional worker is known as: the average product. the marginal product. the total product. value added.

the marginal product.

Short-run decisions are: constrained because all inputs are variable. constrained because all inputs are fixed. constrained because some inputs are fixed and others are variable. unconstrained.

constrained because some inputs are fixed and others are variable.

To maximize profits, a perfectly competitive firm should produce where marginal: cost equals total revenue. cost exceeds marginal revenue. cost equals marginal revenue. revenue exceeds marginal cost.

cost equals marginal revenue.

Suppose cookie sales fall as consumers become more carbohydrate-conscious. If the cookie industry is a constant-cost, perfectly competitive industry, this decline in market demand will cause market supply to: decrease in the long run, resulting in a lower equilibrium price. decrease in the long run until the equilibrium price is again equal to minimum average total cost. increase in the long run, resulting in a higher equilibrium price. increase in the long run until the equilibrium price is again equal to minimum average total cost.

decrease in the long run until the equilibrium price is again equal to minimum average total cost.

Suppose the dry cleaning industry is initially in long-run equilibrium but then experiences a sharp increase in the price of its inputs. Assuming that the industry is perfectly competitive, the increase in costs should: decrease the number of firms in the industry in the long run and raise the market price. increase the number of firms in the industry in the industry and raise the market price. decrease the number of firms in the industry in the long run and reduce the market price. increase the number of firms in the industry in the industry and reduce the market price.

decrease the number of firms in the industry in the long run and raise the market price.

Average fixed cost: is constant and doesn't vary with output. increases as output increases. decreases as output increases. equals total cost divided by output.

decreases as output increases.

Implicit and explicit revenues minus implicit and explicit costs equals: accounting profit. economic profit. zero profit. implicit profit.

economic profit.

A perfectly competitive firm's marginal revenue is: less than the selling price. greater than the selling price. equal to the selling price. sometimes below and sometimes above the selling price.

equal to the selling price.

Number of workers: Total output: 1 4 2 10 3 18 4. 28 5 35 6 41 7 45 8 48 9 50 10 49 Refer to the table shown. Diminishing marginal productivity begins when the: third worker is hired. fourth worker is hired. fifth worker is hired. sixth worker is hired.

fifth worker is hired.

What kind of costs remain the same regardless of the level of production? Fixed. Variable. Total. Marginal.

fixed

Firms continue to produce (illegally) counterfeit computer software and documentation. Many of the illegal copies are Microsoft products, though Microsoft still has a large share of the market for its products. The presence of enforced copyright protection laws indicates that the market for Microsoft software cannot be considered a competitive market because: the products of pirates are not identical to those of Microsoft. pirate producers are not profit-maximizing entrepreneurial firms. buyers are not price takers. there are significant barriers to entry.

there are significant barriers to entry.

Number of workers: Total output: 1 4 2 10 3 18 4. 28 5 35 6 41 7 45 8 48 9 50 10 49 Refer to the table shown. The marginal product of the sixth worker is: 6. 7. 8. 9.

6

A perfectly competitive firm in the long run: can earn positive or negative economic profits. can earn negative accounting profits as long as economic profits are positive. makes zero economic profits. makes zero accounting profits.

makes zero economic profits