Econ Final

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current market price?

$12

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be

$12

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 4 workers, the firm produces 50 units of output. If the fixed cost of production is $4, the variable cost per unit of labor is $20, and the marginal product of labor for the fifth unit of labor is 2, what is the average total cost of production when the firm hires 5 workers?

$2.00

A firm in a competitive market has the following cost structure: Output Total Costs 0 $1 1 $6 2 $9 3 $10 4 $17 5 $26 What is the lowest price at which this firm might choose to operate?

$3

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produced?

$35

Price Quantity $4 0 $4 1 $4 2 $4 3 $4 4 $4 5 Use this table for this question. For a firm operating in a competitive market, the marginal revenue from selling the 3rd unit is

$4

Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business?

$5,000

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost?

$60

Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws $50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his savings account is 2%. Abdul's explicit cost of capital is

$8,000

Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be

-$3,875

Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her sister Kate to work for her. Both she and Kate can make 35 pieces of pottery per week. What is Kate's marginal product?

15 pieces of pottery

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L=6,Q=147) and (L=7,Q=174). The marginal product of the seventh worker is

27 units of output.

Suppose for some firms that average total cost is minimized at Q1 units of output. For a monopolistically competitive firm in long-run equilibrium, Q1 does which of the following? is also the level of output at which marginal cost equals average total cost. exceeds the level of output at which there is a point of tangency between the demand curve and the average total cost curve. exceeds the level of output at which marginal revenue equals marginal cost. All of the above are correct.

All of the above

Competitive firms differ from monopolies in which of the following ways? Select all that apply. (i) Competitive firms do not have to worry about the price effect lowering their total revenue. (ii) Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge. (iii) Monopolies must lower their price in order to sell more of their product, while competitive firms do not.

All of them

Which of the following statements about a production function is correct for a firm that uses labor to produce output?: The production function depicts the relationship between the quantity of labor and the quantity of output. The slope of the production function measures marginal product. The slopes of the production function and the total cost curve are inversely related; if one is increasing, the other is decreasing.

All of them

The marginal revenue curve for a monopoly firm starts at the same point on the vertical axis as what other curves? Select all that apply: (i) average revenue curve. (ii) marginal cost curve. (iii) demand curve.

Average Revenue Curve and Demand Curve

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium? Profit > Marginal Revenue and Profit = Marginal Cost Average Total Cost = demand and Marginal Revenue = MC Profit < Marginal Cost and demand = Average Total Cost Profit > Average Total Cost and demand > MR

Average Total Cost = demand and Marginal Revenue = Marginal Cost

Which of the following is a characteristic of a natural monopoly? Fixed costs are typically a small portion of total costs. Average total cost declines over large regions of output. The product sold is a natural resource such as diamonds or water. All of the above are correct.

Average total cost declines over large regions of output.

Which of the following statements is not correct? : In the long run, there are no fixed costs. Marginal cost is independent of fixed costs. Economies of scale is a short-run concept. Diminishing marginal product explains increasing marginal cost.

Economies of scale is a short-run concept

what does the entry of new firms into a monopolistic competitive market create?

Externalities

Which of the following statements is correct? : If marginal cost is rising, then average total cost is rising. If marginal cost is rising, then average variable cost is rising. If average variable cost is rising, then marginal cost is minimized. If average total cost is rising, then marginal cost is greater than average total cost.

If average total cost is rising, then marginal cost is greater than average total cost.

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.

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.

Which of the following statements is correct? : For all firms, marginal revenue equals the price of the good. Only for competitive firms does average revenue equal the price of the good. Marginal revenue can be calculated as total revenue divided by the quantity sold. Only for competitive firms does average revenue equal marginal revenue.

Only for competitive firms does average revenue equal marginal revenue.

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium? Profit > Average Revenue Marginal Revenue > Marginal Cost Profit > Marginal Cost All of the above are correct.

Profit > Marginal Cost

Which of the following statements is correct? The benefits that accrue to a monopoly's owners are equal to the costs that are incurred by consumers of that firm's product. The deadweight loss that arises in monopoly stems from the fact that the profit-maximizing monopoly firm produces a quantity of output that exceeds the socially-efficient quantity. The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product. The primary social problem caused by monopoly is monopoly profit.

The deadweight loss caused by monopoly is similar to the deadweight loss cause by a tax on a product

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?

The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

The firm will immediately stop production to minimize its losses.

Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal revenue is $5 per unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit. What can we conclude about this monopolist?

The monopolist is not currently maximizing profits; it should produce fewer units and charge a higher price to maximize profits.

Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business's costs.

Tyler says his costs are $25,900, and Greg says his costs are $66,500.

What happens to a product when consumers are exposed to additional choices that result from the introduction of a new product?

a product-variety externality is said to occur.

What factors is most likely to shift IBM's total cost and marginal cost curves downward?

a technological advance resulting in increased productivity

When we compare economic welfare in a monopoly market to a competitive market, what do the profits earned by the monopolist represent?

a transfer of benefits from the buyer to the seller.

what could a firm do if it wants to achieve economies of scale?

assign limited tasks to its employees, so they can master those tasks.

When a firm is experiencing economies of scale, what effect does it have on average total cost and long-run marginal cost?

average total cost is greater than long-run marginal cost.

If Franco's Pizza Parlor knows that the marginal cost of the 500th pizza is $3.50 and that the average total cost of making 499 pizzas is $3.30, then

average total costs are rising at Q = 500.

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, what would happen?

competition would force producers to pass the lower production costs on to consumers in the long run.

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

continue to operate in the short run but exit the industry in the long run.

What happens to average variable cost when marginal cost is rising?

could be rising or falling.

Joe's Juice Shop operates in a monopolistically competitive market. Joe's is currently producing where its average total cost is minimized. In the long run we would expect Joe's output to do what?

decrease and average total cost to increase.

As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters what?

diminishing marginal product.

Describe a monopoly's curve, and explain their output

downward-sloping demand curves, and they can sell only a limited quantity of output at each price.

In comparison to perfect competition, monopolistic competition is characterized by what?

excess capacity.

In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure: Output Total Cost 0 $0 1 $10 2 $12 3 $15 4 $24 5 $40 What is the Long-run supply curve for this market?

horizontal at a price of $5.

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, what will an increase in demand cause?

increase price in the short run but not in the long run.

A certain competitive firm sells its output for $20 per unit. The 50th unit of output that the firm produces has a marginal cost of $22. Production of the 50th unit of output does not necessarily

increase the firm's average variable cost by $0.44.

Number of Workers Output (Students tutored per week) 0 0 1 20 2 45 3 60 4 70 Suppose that Charles's math tutoring company has a fixed cost of $50 per month for his cell phone. Each worker costs Charles $60 per day. As output increases from 0 to 45 students, Charles's total cost curve

increases but gets flatter.

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

is still 1,000 pounds.

Suppose a firm has a monopoly on the sale of a computer game and faces a downward-sloping demand curve. When selling the 50th game, the firm will always receive

less marginal revenue on the 50th game than it received on the 49th game.

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should

make fewer than 20 wedding cakes per month.

The competitive firm's short-run supply curve is that portion of the

marginal cost curve that lies above average variable cost.

What does diminishing marginal product suggests?

marginal cost is upward sloping.

Discuss firms in a monopolistic competitive market, and explain the governments role.

may have too many or too few firms, but the government can do little to rectify the situation.

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

new firms to enter the market.

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

price is above or below marginal cost.

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

shut down because staying open would be more expensive.

Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? wages Pete could earn washing windows dividends Pete's money was earning in the stock market before Pete sold his stock and bought a shoe-shine booth the cost of shoe polish Both b and c are correct.

the cost of shoe polish

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average_______ _________.

total cost.

If the profit-maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, how will it effect economic profit?

will have zero economic profit at the profit-maximizing quantity.