Econ Exam 3 chapter 14
15.For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $7. It follows that the a. production of the 100th unit of output increases the firm's profit by $3. b. production of the 100th unit of output increases the firm's average total cost by $7. c. firm's profit‐maximizing level of output is less than 100 units. d. production of the 99th unit of output must increase the firm's profit by less than $3.
A
28.The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should a. shut down because staying open would be more expensive. b. lower their prices to increase their profits. c. stay open because shutting down would be more expensive. d. stay open because the firm is making an economic profit.
A
33.Refer to Figure 14‐2. If the market price is P1, in the short run the firm will earn a. positive economic profits. b. negative economic profits but will try to remain open. c. negative economic profits and will shut down. d. zero economic profits.
A
37.Refer to Figure 14‐2. Which of the four prices corresponds to a firm earning positive economic profits in the short run? a. P1 b. P2 c. P3 d. P4
A
4.Which of the following statements best reflects a price‐taking firm? a. If the firm were to charge more than the going price, it would sell none of its goods. b. The firm has an incentive to charge less than the market price to earn higher revenue. c. The firm can sell only a limited amount of output at the market price before the market price will fall. d. Price‐taking firms maximize profits by charging a price above marginal cost.
A
41.In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit‐ maximizing firm is to shut down if a. price is less than average total cost. b. price is greater than average total cost. c. average revenue is greater than average fixed cost. d. average revenue is greater than marginal cost.
A
45.The short‐run market supply curve in a perfectly competitive industry a. shows the total quantity supplied by all firms at each possible price. b. is perfectly inelastic at the market price. c. is perfectly elastic at the market price. d. shows the variety of prices that different firms will charge for a given quantity.
A
47.Timmy's Trophies operates in a perfectly competitive market. If trophies sell for $20 each and average total cost per trophy is $15 at the profit‐maximizing output level, then in the long run a. more firms will enter the market. b. some firms will exit from the market. c. the equilibrium price per trophy will rise. d. average total costs will fall.
A
48.In a perfectly competitive market, the process of entry and exit will end when firms face a. marginal revenue equal to long‐run average total cost. b. total revenue equal to average total cost. c. average revenue greater than marginal cost. d. accounting profits equal to zero.
A
10.Refer to Table 14‐5. The price of the product is a. $9. b. $11. c. $13. d. $15.
B
11.Refer to Table 14‐5. The average revenue when 14 units are produced and sold is a. $9. b. $11. c. $13. d. $15.
B
14.If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. a one‐unit increase in output will increase the firm's profit. b. a one‐unit decrease in output will increase the firm's profit. c. total revenue exceeds total cost. d. total cost exceeds total revenue.
B
16.Marcia is a fashion designer who runs a small clothing business in a competitive industry. Marcia specializes in making designer dresses. Marcia sells 10 dresses per month. Her monthly total revenue is $5,000. The marginal cost of making a dress is $600. In order to maximize profits, Marcia should a. make more than 10 dresses per month. b. make fewer than 10 dresses per month. c. continue to make 10 dresses per month. d. We do not have enough information with which to answer the question
B
18.Refer to Table 14‐9. If the firm produces 4 units of output, a. marginal cost is $4. b. total revenue is greater than variable cost. c. marginal revenue is less than marginal cost. d. the firm is maximizing profit.
B
19.Refer to Table 14‐9. At which quantity of output is marginal revenue equal to marginal cost? a. 3 units b. 6 units c. 8 units d. 9 units
B
24.Refer to Table 14‐9. If the firm's marginal cost is $5, it should a. reduce fixed costs by lowering production. b. increase production to maximize profit. c. decrease production to maximize profit. d. maintain its current level of production to maximize profit.
B
3.Free entry means that a. the government pays any entry costs for individual firms. b. no legal barriers prevent a firm from entering an industry. c. a firm's marginal cost is zero. d. a firm has no fixed costs in the short run.
B
31.In the short run, a firm operating in a competitive industry will shut down if price is a. less than average total cost. b. less than average variable cost. c. greater than average variable cost but less than average total cost. d. greater than marginal cost.
B
35.Refer to Figure 14‐2. If the market price is P3, in the short run the firm will earn a. positive economic profits. b. negative economic profits but will try to remain open. c. negative economic profits and will shut down. d. zero economic profits.
B
38.Refer to Figure 14‐2. Which of the four prices corresponds to a firm earning zero economic profits in the short run? a. P1 b. P2 c. P3 d. P4
B
5.Which of the following statements regarding a competitive market is not correct? a. There are many buyers and many sellers in the market. b. Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume. c. Price and average revenue are equal. d. Price and marginal revenue are equal.
B
9.Refer to Table 14‐1. If the firm doubles its output from 3 to 6 units, total revenue will a. increase by less than $15. b. increase by exactly $15. c. increase by more than $15. d. Total revenue cannot be determined from the information provided.
B
1.Who is a price taker in a competitive market? a. buyers only b. sellers only c. both buyers and sellers d. neither buyers nor sellers
C
12.Refer to Table 14‐5. The marginal revenue of the 12th unit is a. $9. b. $10. c. $11 d. The marginal revenue cannot be determined without knowing the total revenue when 11 units are sold.
C
13.For a firm operating in a competitive industry, which of the following statements is not correct? a. Price equals average revenue. b. Price equals marginal revenue. c. Total revenue is constant. d. Marginal revenue is constant.
C
2.In a competitive market, the actions of any single buyer or seller will a. discourage entry by competitors. b. influence the profits of other firms in the market. c. have a negligible impact on the market price. d. None of the above is correct
C
21.Refer to Table 14‐9. In order to maximize profit, the firm will produce a level of output where marginal cost is equal to a. $5. b. $7. c. $9. d. $10.
C
26.When price is greater than marginal cost for a firm in a competitive market, a. marginal cost must be falling. b. the firm must be minimizing its losses. c. there are opportunities to increase profit by increasing production. d. the firm should decrease output to maximize profit.
C
27.Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. a. In the short run, Susan should shut down her business, and in the long run she should exit the industry. b. In the short run, Susan should continue to operate her business, but in the long run she should exit the industry. c. In the short run, Susan should continue to operate her business, but in the long run she will probably face competition from newly entering firms. d. In the short run, Susan should continue to operate her business, and she is also in long‐run equilibrium.
C
30.When a profit‐maximizing firm is earning profits, those profits can be identified by a. P Q. b. (MC ‐ AVC) Q. c. (P ‐ ATC) Q. d. (P ‐ AVC) Q.
C
36.Refer to Figure 14‐2. If the market price is P4, in the short run the firm will earn a. positive economic profits. b. negative economic profits but will try to remain open. c. negative economic profits and will shut down. d. zero economic profits.
C
39.Refer to Figure 14‐2. Which of the four prices corresponds to a firm earning negative economic profits in the short run but trying to remain open? a. P1 b. P2 c. P3 d. P4
C
43.A firm's marginal cost has a minimum value of $2, its average variable cost has a minimum value of $4, and its average total cost has a minimum value of $5. Then the firm will shut down if the price of its product is less than a. $5 but more than $2. b. $5. c. $4. d. There is not enough information given to answer the question.
C
46.When new firms enter a perfectly competitive market, a. economic profits of existing firms will continue to be zero. b. entering firms will earn zero economic profit upon entry into the market. c. existing firms may see their costs rise if more firms compete for limited resources. d. prices will rise as existing firms raise prices to keep new firms out of the market.
C
49.The long‐run supply curve for a competitive industry may be upward sloping if a. there are barriers to entry. b. firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry. c. some resources are available only in limited quantities. d. accounting profits are positive.
C
6.Refer to Table 14‐1. The price and quantity relationship in the table is most likely a demand curve faced by a firm in a a. monopoly. b. concentrated market. c. competitive market. d. strategic market.
C
17.A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now‐higher price. Once the firm has adjusted, its a. quantity of output is higher than it was previously. b. average total cost is higher than it was previously. c. marginal revenue is higher than it was previously. d. All of the above are correct.
D
20.Refer to Table 14‐9. In order to maximize profit, the firm will produce a level of output where marginal revenue is equal to a. $6. b. $7. c. $8. d. $9.
D
22.Refer to Table 14‐9. The maximum profit available to the firm is a. $2. b. $3. c. $4. d. $5.
D
23.Refer to Table 14‐9. If the firm's marginal cost is $11, it should a. increase production to maximize profit. b. increase the price of the product to maximize profit. c. advertise to attract additional buyers to maximize profit. d. reduce production to increase profit.
D
25.If marginal cost exceeds marginal revenue, the firm a. is most likely to be at a profit‐maximizing level of output. b. should increase the level of production to maximize its profit. c. should reduce its average fixed cost in order to lower its marginal cost. d. may still be earning a positive accounting profit.
D
29.A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firm's average revenue? a. The firm increases its output above 500 doorknobs. b. The firm decreases its output below 500 doorknobs. c. The market price of doorknobs rises above $10. d. The market price of doorknobs falls below $10.
D
32.The short‐run supply curve for a firm in a perfectly competitive market is a. horizontal. b. likely to slope downward. c. determined by forces external to the firm. d. the portion of its marginal cost curve that lies above its average variable cost.
D
34.Refer to Figure 14‐2. If the market price is P2, in the short run the firm will earn a. positive economic profits. b. negative economic profits but will try to remain open. c. negative economic profits and will shut down. d. zero economic profits.
D
40.Refer to Figure 14‐2. Which of the four prices corresponds to a firm earning negative economic profits in the short run and shutting down? a. P1 b. P2 c. P3 d. P4
D
42.A firm will shut down in the short run if, for all positive levels of output, a. its losses exceed its fixed costs. b. its total revenue is less than its variable costs. c. the price of its product is less than its average variable cost. d. All of the above are correct.
D
44.When economists refer to a production cost that has already been committed and cannot be recovered, they use the term a. implicit cost. b. explicit cost. c. variable cost. d. sunk cost.
D
50.When firms in a competitive market have different costs, it is likely that a. free entry and exit in the market will be violated. b. the market will no longer be considered competitive. c. long‐run market supply will be downward sloping. d. some firms will earn positive economic profits in the long run.
D
7.Refer to Table 14‐1. Over which range of output is average revenue equal to price? a. 1 to 5 units b. 3 to 7 units c. 5 to 9 units d. Average revenue is equal to price over the entire range of output.
D
8.Refer to Table 14‐1. Over what range of output is marginal revenue declining? a. 1 to 6 units b. 3 to 7 units c. 7 to 9 units d. Marginal revenue is constant over the entire range of output.
D