FIN 311 Final - Midterm Questions

A competitive, profit-maximizing firm hires workers up to the point where the a. marginal product equals zero b. marginal revenue product equals zero c. marginal product equals the wage d. the marginal revenue product equals the wage

d

Suppose than you run a house-painting company and currently have 2 workers painting a total of 4 houses per month. If you hire a third worker, 6 houses can be painted per month. If you hire a fourth worker, 9 houses can be painted and a fifth and sixth worker will increase the number of houses painted to 13 and 15, respectively. Diminishing returns set in when which worker is hired?

6th

When a firm earns less than a normal profit, a. the revenues generated cannot pay all explicit costs and the opportunity cost of using owner-supplied resources b. accounting profit is negative c. economic profit is zero d. normal profit is negative e. all of the above

A

If a firm is producing a given level of output in a technically efficient manner, then it must be the case that, a. this is the lowest cost method of producing that output b. each input is producing its maximum marginal product c. this output level is the most than can be produced with the given levels of inputs d. both a and c e. all of the above

C

If the quantity of gidgets demanded increases when the price of gadgets decreases, are they substitutes or complements?

Complements

Suppose that more people want Ducks tickets than the number of tickets available. Which of the following statements is correct? a. There is a shortage of Ducks tickets at the box office price. b. The box office price is higher than the equilibrium price for Ducks tickets. c. If the box office price were raised, the excess demand for Ducks tickets would decrease. d. Both a and c e. All of the above

D

Which of the following would lead to a decrease in the demand for iPods? a. An increase in the price of iPods b. A decrease in the price of Itunes c. An increase in the cost of producing iPods d. A decrease in average household income when iPods are a normal good e. All of the above.

D

If input prices increase, all else equal, supply will

Decrease

What happens to consumer surplus if the price of good increases?

Decreases

Supposed that when a firm increases all input by 50% and output increases by less than 50%. The firm is experiencing: __________ returns to ________

Decreasing returns to scale

If average product is decreasing, then marginal product a. must be greater than average product b. Must be less than average product c. must be decreasing d. cannot be decreasing e. both b and c

E

In which of the following cases must price always fall? a. Demand increases and supply increases b. Demand decreases and supply decreases c. Supply increases and demand remains constant d. Demand decreases and supply increases e. Both c and d

E

Until recently you worked as an accounting, earning $50,000 annually. Then you inherited a piece of commercial real estate bringing in $12,000 in rent annually. You decide to leave your job and operate a coffee shop in the office space you inherited. At the end of the first year, your book showed total revenues of $70,000 and total costs of $50,000 for labor, utilities, taxes, and supplies. What economic profit do you earn by operating the coffee shop? A. $42,000 b. $30,000 c. $12,000 d. -$12,000 e. none of the above

E

If the price elasticity of oil is -.5 and price increases 20%, what happens to the quantity of oil demanded?

Quantity decrease by 10%

A profit maximizing firm with market power will always produce a level of output where a. demand is elastic b. demand is inelastic c. price is greater than ATC d. MR is greater than ATC

a

Economic rent a. is the payment to a more productive resource above its opportunity cost b. cannot be earned in long-run competitive equilibrium c. is competed away in the long-run d. both b and c e. all of the above

a

Short-run average cost is a. always greater or equal to long-run average cost b. always less than long-run average cost c. less than short-run marginal cost when short-run marginal cost is decreasing d. both a and c e. none of the above

a

When price is below average variable cost, a firm in a competitive market will a. shut down and incur fixed costs b. shut down and incur both variable and fixed costs c. continue to operate as long as average revenue exceeds marginal cost d. continue to operate as long as average revenue exceeds average fixed cost

a

A natural monopoly occurs when a. the product is sold in its natural state (such as water or diamonds) b. there are economies of scale over the relevant range of output c. the firm is characterized by a rising marginal cost curve d. production requires the use of free natural resources, such as water or air

b

The demand for beer is price inelastic, while the supply is relative elastic. If a $.50 tax is imposed on beer the price to buyers will rise by a. Less than $.25 b. Between .25 and .5 c. .5 d. More than .5

b

A producer is hiring 200 units of labor and 60 units of capital. The price of labor is $10, the price of capital is $2, and the marginal products of labor and capital are both equal to 20. When the firm has adjusted its input to produce at lowest cost a. MPL will be less than 20 b. MPk will be less than 20 c. MPl will be 5 times MPk d. a and b e. none of the above

c

A producer is hiring 200 units of labor and 60 units of capital. The price of labor is $10, the price of capital is $2, and the marginal products of labor and capital are both equal to 20. The producer a. Is using the optimal combination of capital and labor b. Should use more labor and less capital c. Should use more capital and less labor d. Cannot determine without more information

c

A monopolistically competitive industry is in the process of moving toward long-run equilibrium. This period the product of a typical firm has more substitutes than last period. This means that a. there was entry into the industry b. a typical firm will produce more this period c. a typical firm's profits will fall this period d. both a and c e. all of the above

d

A producer is hiring 200 units of labor and 60 units of capital. The price of labor is $10, the price of capital is $2, and the marginal products of labor and capital are both equal to 20. If the producer increases capital by one unit and decreases labor by 1 unit, then a. cost remains constant and output increases by 20 units b. cost remains constant and output decreases by 20 units c. output remains constant and cost increases by $8 d. output remains constant and cost decreases by $8 e. both cost and output remain constant

d

Diminishing returns refers to the decrease in a. profit that results from increases in output b. average total cost that results from decreases in input prices c. average product that results from increases in the variable input d. marginal product that results from increases in the variable input e. long-run average cost that results from increases in output

d

Marginal revenue product is defined as the additional a. output a firm would receive after hiring one more factor of product b. cost of hiring one more factor of production c. revenue earned from selling one more unit of product d. revenue earned from hiring one more factor of production

d

Suppose that when a firm increases output by 50%, long-run total cost increases by more than 50%. The firm will experience a. increasing marginal returns b. economies of scope c. economies of scale d. diseconomies of scale

d

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 a. the monopolist is currently maximizing profits and its total profits are $375 b. the monopolist is currently maximizing profits and its total profits are $300 c. The monopolist is not currently maximizing profits; it should produce more units and charge a lower price d. The monopolist is not currently maximizing profits; it should produce fewer units and charge a higher price

d

The demand for good X will be more elastic than the demand for good Y when a. Good X has fewer substitutes than good Y b. Good X accounts for a larger percentage of a typical consumer's budget than good Y c. Consumers have more time to adjust to a change in the price of good X then they have time to adjust to a change in the price of good Y, and neither good is durable d. both b and c e. all of the above

d

Which of the following is true of a monopolist in the long run? a. the firm will charge a price that is higher than long-run marginal cost b. the firm will charge a price that is equal to or greater than long-run average cost c. the firm will produce that level of output at which long run average cost is minimum d. a and b e. b and c

d

All of the following could be a barrier to entry EXCEPT a. a government franchise b. decreasing long-run average cost c. patents d. switching cost e. rising LMC

e

Firm A and B both have total revenues of $250,000 and total cost of $300,000; firm A has total fixed costs of $40,000, while firm B has total fixed costs of $70,000. Which of the following statements are true in the short-run? a. Firm A should operate b. Firm B should operate c. Firm A should shut down d. Firm B should shut down e. Both b and c

e

In a monopolistically competitive market, a. firms are small relative to the total market b. no firm has any market power c. there is easy entry and exit in the market d. a and b e. a and c

e

Total revenue increased for a firm operating in the elastic range of its demand curve. Which of the following statements is correct? a. The firm must have raised price b. The firmed must have lowered price c. Quantity demanded must have increased d. both a and c e. both b and c

e

When a perfectly competitive industry is in long-run equilibrium a. firms have no incentive to enter or exit the industry b. market price is equal to minimum long-run average cost c. each firms earns a normal return d. both a and c e. all of the above

e