Econ Exam 2

Economies of scale are associated with: indivisible setup costs. zero setup costs. the short run. diminishing marginal productivity.

indivisible setup costs.

A firm is producing 100 units of output at a total cost of $700. The firm's average variable cost is $4 per unit. What is the firm's total fixed cost? $1 $50 $100 $300

$300

If fixed costs equal $120, variable costs equal $800, and output is 20, average variable cost equals: $40. $80. $92. $120.

$40.

Picture Refer to the graph shown. Marginal cost is minimized when output equals: 6 units. 12 units. 21 units. 25 units.

12 units.

Picture Refer to the graph shown. If market price is currently $3.00 per unit, this perfectly competitive firm will maximize profit by producing: 450 units of output. 650 units of output. 850 units of output. between 550 and 650 units of output.

450 units of output.

Average Total Cost (ATC)

Average Fixed Cost (AFC) + Average Variable Cost (AVC)

Marginal Cost (MC)

Change in Total Cost/Change in Quantity

Marginal Product (MP)

Difference between total output

inIn the 1990s the number of hogs slaughtered rose to record levels. The increase in production was the result of the rise of megaproducers that operated at a lower average cost than smaller producers. What economic concept does this describe? Economies of scope. Economies of scale. Indivisible setup costs Minimum efficient production.

Economies of scale.

Picture Refer to the graph shown. The average total cost curve is represented by which curve? I II III IV

III

Picture Refer to the graph shown. What price represents the shutdown price? P1 P2 P3 P4

P1

Picture Refer to the graph shown. If a firm expected to produce 300 units when it built its plant but now desires to expand its output to 600 units in the long run, it will use the plant size represented by: SATC1. SATC2. SATC3. SATC4.

SATC2.

Picture Refer to the graph shown. If a firm expected to produce 900 units when it built its plant but now desires to reduce its output to 600 units in the short run, it will use the plant size represented by: SATC1. SATC2. SATC3. SATC4.

SATC3. SATC4.

Average Variable Cost (AVC)

Variable Cost (VC)/Quantity

The long run is a period during which: no inputs can be varied and all inputs are fixed. some inputs can be varied and some inputs are fixed. some inputs can be varied and no inputs are fixed. all inputs can be varied and no inputs are fixed.

all inputs can be varied and no inputs are fixed.

If marginal cost is less than average variable cost, average variable cost will: increase as output rises. decrease as output rises. remain constant as output rises. equal average total cost.

decrease as output rises.

If the demand for flat screen television sets is rising while at the same time the price of a flat screen TV is falling, there is evidence of: economies of scale. diseconomies of scale. constant returns to scale. diminishing marginal product.

economies of scale.

Picture Which graph depicts a perfectly competitive firm in long-run equilibrium? graph I graph II graph III graph IV

graph II

Picture Refer to the graph shown. The graph exhibits diseconomies of scale: in region a. in region b. in region c. over the entire range of output.

in region c.

A perfectly competitive firm facing a price of $10 decides to produce 100 widgets. If its marginal cost of producing the last widget is $9 and it is seeking to maximize profit, the firm should: produce more widgets. produce fewer widgets. continue producing 100 widgets. shut down.

produce more widgets.

Picture Refer to the graph shown. A perfectly competitive firm would never operate if the price dropped to which segment of the marginal cost curve? AC CD DE CE

AC

Total Cost (TC)

Fixed Cost (FC)+Variable Cost (VC)

Average Fixed Cost (AFC)

Fixed Cost (FC)/Quantity

Which of the following costs is independent of output? Variable costs Total costs Marginal costs Fixed costs

Fixed costs

Suppose you operate a factory that produces calculators Your current output is 1,000 calculators. If your fixed cost is $10,000 and your total cost is $50,000, the: average total cost of production is $500. average variable cost of production is $40. average variable cost of production is $50. marginal cost of production is $40,000.

average variable cost of production is $40.

Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her total costs of the new business include: only the expenses incurred for office space, equipment, and supplies. only her forgone salary of $42,000 per year. both the expenses incurred for office space, equipment, and supplies and her forgone salary of $42,000 per year. neither the expenses incurred for office space, equipment, and supplies nor her forgone salary of $42,000 per year.

both the expenses incurred for office space, equipment, and supplies and her forgone salary of $42,000 per year.

As long as marginal cost is below marginal revenue, a perfectly competitive firm should: increase production. hold production constant. decrease production. reconsider past production decisions.

increase production.

At the minimum efficient level of production: a firm will be at the only technically efficient level of production. the market has expanded sufficiently to take advantage of all economies of scale. production has expanded to make the firm profitable at any price. a firm will be at the only short-run economically efficient level of production.

the market has expanded sufficiently to take advantage of all economies of scale.

Picture Refer to the table shown. The average fixed cost of producing 5 units of output is: $0. $1. $2. $3.

$1.

A business owner makes 50 items by hand in six hours. She could have earned $20 an hour working for someone else. If each item sells for $10 and the explicit costs total $100, economic profit equals: $0. $64. $176. $280.

$280.

If output changes by 10 units while total costs rise by $500, marginal cost is approximately: $500. $10. $50. $5,000.

$50.

Picture With the long-run average cost curve above, a seller must produce 18 units just to break even if the price the seller expects is roughly: $50. $52. $54. $58.

$50.

Picture Refer to the graph shown. To maximize profit, this firm should produce: 120 units of output. 250 units of output. 450 units of output. 525 units of output.

450 units of output.

A firm can use 5 workers and 10 machines, 7 workers and 9 machines, or 8 workers and 9 machines to produce four cars. If each worker costs $200 and each machine is rented for $50, the economically efficient input combination is: 5 workers and 10 machines. 7 workers and 9 machines. 8 workers and 9 machines. none of these input combinations.

5 workers and 10 machines.

Picture Refer to the table shown. The marginal product of the sixth worker is: 6. 7. 8. 9.

6.

Picture Refer to the graph shown. What distance represents average profits? AB BF AF FW

AB

Which of the following statements is true? Any technically efficient production process is always economically efficient. Any economically efficient production process is always technically efficient. A production process is either economically efficient or technically efficient but never both. A production process must always be both economically efficient and technically efficient.

Any economically efficient production process is always technically efficient.

Picture Refer to the graph shown. What area represents total economic profits? DAFM CBWT MFWT DABC

DABC

Average Product (AP)

Marginal Product/Quantity or Number of workers

The "cow carousel" video and associated Bowles commentary highlight The problems of industrial agriculture. happy California cows. The role of technological change in business. The reason the short-run average cost curve is "U" shaped.

The role of technological change in business.

Picture The marginal product and average product curves: are A and B, respectively. are B and A, respectively. could be either A or B. are not drawn properly.

are A and B, respectively.

Picture Refer to the graph shown which shows total product. At point A: marginal product is at its minimum. marginal product is at its maximum. marginal product is zero. average product per worker is at its maximum.

average product per worker is at its maximum.

A new fertilizer has been discovered that significantly increases the corn crop yield per acre. As a result, the farmers': average total cost curves become downward-sloping. long-run average total cost curve becomes flatter. average total cost curve shifts downward. cost curves do not change their shape or position.

average total cost curve shifts downward.

If marginal cost equals average total cost: average total cost is minimized. marginal cost is minimized. average variable cost is minimized. average variable cost is falling.

average variable cost is falling.

Which of the following industries most closely resembles perfect competition? management consulting services coal college football shoes

coal

The long-run average cost of producing 19 units of output is $56, and the long-run average cost of producing 20 units is also $56. These numbers imply that: decreasing marginal productivity is present. constant returns to scale are present. economies of scale are present. diseconomies of scale are present.

constant returns to scale are present.

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.

Average variable cost is total variable cost: divided by output. multiplied by output. divided by input. multiplied by price.

divided by output.

The market demand curve for a product produced in a perfectly competitive industry is normally: a vertical line. upward-sloping. a horizontal line. downward-sloping.

downward-sloping.

The downward-sloping part of the long-run average cost curve is explained by: economies of scale. diseconomies of scale. output levels that exceed the minimum efficient level of production. decreasing marginal productivity.

economies of scale.

The reason for the merger of two businesses that sell unrelated goods but can share business practices and sales forces might best be explained by: indivisible costs. learning by doing. economies of scope. economies of scale.

economies of scope.

The existence of negative economic profits induces firms to: enter an industry, which shifts the market supply curve to the left and decreases market price. enter an industry, which shifts the market supply curve to the right and increases market price. exit an industry, which shifts the market supply curve to the left and increases market price. enter an industry, which shifts the market supply curve to the right and decreases market price.

exit an industry, which shifts the market supply curve to the left and increases market price.

Economies of scope cannot exist in: the presence of economies of scale. the presence of diseconomies of scale. firms that produce a single product. firms that produce multiple products.

firms that produce a single product.

Refer to the following graph. Picture The perfectly competitive firm depicted is currently: earning positive economic profit. earning zero economic profit. incurring a loss, but the loss is smaller than it would be if the firm shut down. incurring a loss that is larger than total fixed cost, and so the firm should shut down.

incurring a loss, but the loss is smaller than it would be if the firm shut down.

Picture Refer to the graph shown. If the firm increases output from 40 to 50, total revenue will increase: more than total cost, and so profit will increase. more than total cost, and so profit will decrease. less than total cost, and so profit will increase. less than total cost, and so profit will decrease.

more than total cost, and so profit will increase.

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.

A perfectly competitive firm in the long run earns: positive economic profits but zero normal profits. positive normal profits but zero economic profits. positive economic profits and positive normal profits. zero economic profits and zero normal profits.

positive normal profits but zero economic profits.

An entrepreneur is willing to bring a supply of goods to the market if expected: price and expected average total cost are equal. price is greater than expected average total cost. average total cost is greater than expected price. average revenue is equal to expected price.

price is greater than expected average total cost.

Suppose a firm finds that an additional dollar spent on labor increases output more than does an additional dollar spent on machines. Under these conditions, the firm: is technically efficient. is economically efficient. should substitute labor for machines if it wants to increase economic efficiency. should substitute machines for labor if it wants to increase economic efficiency.

should substitute labor for machines if it wants to increase economic efficiency.

The standard long-run model assumes that: technology improves at an increasing rate over time. technological advance is impossible. technology is fixed. costs of production are fixed.

technology is fixed.