Micro 3

The chart below gives a firm's total cost of producing different levels of output. The profit-maximizing level of output for this firm is

?

Economies of scale can be illustrated by

A decreasing long-run average total cost curve as a firm produces more output

Which of the following provides an example of the law of diminishing returns?

As more of a variable input—for example, labor is used with a fixed number of machines— output increases but at a diminishing rate

If a firm's production function exhibits diminishing marginal product of the variable input in the short run, which of the following about the firm's short-run marginal cost (MC) curve must be true?

As output increases, the MC curve slopes upward

In the short run, which of the following costs must continuously decrease as output produced increases?

Average fixed cost

If a firm's long-run average total cost increases as output increases, the firm is experiencing

Diseconomies of scale

Assume that labor is the only variable input. If a firm's short-run marginal cost is increasing as output rises, which of the following must be true?

Marginal product of labor is decreasing

Average revenue

The revenue per-unit of output spread out across all the units of output sold.

Total revenue

The total amount of money taken in by a business from selling its output.

All of the following are essential characteristics of a perfectly competitive industry EXCEPT:

There are barriers to entry into and exit from the industry.

Marginal cost is defined as the

change in total cost resulting from producing an additional unit of output

In the short run, a perfectly competitive firm should shut down whenever

minimum average variable cost exceeds price

When a perfectly competitive firm sells additional units of output, its total revenue will

increase at a constant rate

What kind of costs exist in the short-run that don't exist in the long-run?

fixed costs

This graph shows the long-run adjustment of a constant-cost perfectly competitive industry. The long-run industry supply curve for corn is

horizontal

If there are many firms in an industry and each firm's product is indistinguishable from the products of all other firms, the individual firm's demand curve will be

horizontal and identical for every firm

Which of the following is true about the marginal revenue of a firm in a perfectly competitive industry?

it is constant

If a perfectly competitive firm increases its price above the market equilibrium price, which of the following will be true for this firm?

it will not be able to sell any output

For a perfectly competitive, increasing-cost industry, an increase in the industry's demand will lead to which of the following in the long run?

An upward shift in each firm's long-run average cost curve

At the current output level, a firm finds that it has the potential to increase its profit by expanding output. If P = price, MR = marginal revenue, and MC = marginal cost, which of the following must hold at the current output for this firm?

MR > MC

Which of the following best describes a perfectly competitive market?

Many small firms producing a homogeneous product and facing no significant barriers to entry

Assume that the fixed cost is $50. Based on the cost and output data in the table above, what is the marginal cost when the firm increases its output from three to four units and the average total cost of producing 4 units?

Marginal Cost = $25 Average Total Cost = $35

The most profitable level of output for any firm operating in the short run is the level of output at which

Marginal revenue equals marginal cost

A perfectly competitive firm, earning economic profits, produces and sells 100 units of output at a price of $20 per unit. If its marginal cost of increasing output to a rate of 101 units is $18, which of the following statements is correct?

The total profit from selling 101 units is $2 greater than the total profit from selling 100 units

The most profitable level of output for any firm operating in the short run is the level of output at which

marginal revenue = marginal cost

Positive Economic Profit

Total Revenue > Total Cost

Based on the cost and output data in this table, a perfectly competitive firm will shut down if price falls below

$15

Given this information, the average variable cost of 25 units of output is

$2

The average fixed cost of producing four units of output is equal to

$30

At 100 units of output, a firm's total cost is $10,000. If the firm's total fixed cost is $4,000, its average variable cost is equal to

$60

In the short run, the lowest price at which the firm will continue to produce is

$35

If the average variable cost of producing 5 units of a good is $100 and the average variable cost of producing 6 units is $150, then the marginal cost of increasing output from 5 to 6 units is

$400

This table shows a firm's total cost of producing various units of output. What is the average variable cost of producing three units?

$7

The marginal physical product of the second worker is

19

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is

20.00

Which of the following MUST be true of the long run?

All factors of production are variable

Which of the following is a source of monopoly power?

Barriers to entry

P = ATC

Breaking Even (Zero Economic Profit)

If the output of a firm doubles when the firm doubles all of its inputs, the firm must be experiencing

Constant returns to scale

This table shows the long-run total cost function of a firm. The firm's cost function exhibits

Constant returns to scale

This table shows the long-run total cost function of a firm. The firm's cost function exhibits...

Constant returns to scale

If firms in a market are experiencing economic loss, what will happen to the number of firms in that market in the long-run?

Correct answer: Decrease as firms exit the industry

A farmer grows wheat using two inputs: labor and land whose prices are constant. If she doubles her inputs, she finds that the quantity of wheat produced more than doubles. Therefore, it must be true that in this output range her long-run average total cost curve is

Downward sloping

Which of the following is a result of increasing returns to sale?

Downward-sloping long-run average total cost curve

P < ATC

Economic Loss (Negative Economic Profit)

At a firm's current rate of output, the marginal cost is $65, the average variable cost is $35, the average fixed cost is $30, and the product price is $65. Which of the following statements is true for the firm?

Economic profits are zero because price equals average total cost

The costs that would still need to be paid in the short-run even if a firm chooses to shut down.

Fixed Costs

If total revenue is increasing as output increases, marginal revenue is always

Greater than zero

The graph above shows the short-run cost curves of a firm in a perfectly competitive market. Which of the following are true at the firm's profit-maximizing output level? I. Price exceeds average total cost. II. Economic profits are zero. III. Marginal cost equals average total cost. IV. New firms are likely to enter the market in the long run.

I and IV only

Which of the following best describes the relationship between the average total cost curve and the marginal cost curve in the short run?

If the average total cost curve is rising, the marginal cost curve is above the average total cost curve

This graph illustrates a representative firm in a perfectly competitive, constant-cost industry, which shows the firm's marginal cost (MC), average total cost (ATC), and average variable cost (AVC). Which of the following MUST be true in the long run?

If the price is above P3, new firms will enter the industry.

Which of the following statements correctly identifies a difference between perfect competition and monopolistic competition?

In perfect competition the firms all sell products that are exactly the same, but in monopolistic competition each firm sells a slightly differentiated product.

At a perfectly competitive firm's current output level, average total cost is $15, average variable cost is $10, and marginal cost is $8 and increasing. If the product price is $15, what should this firm do to maximize profits?

Increase the quantity of output produced.

The graph above shows the marginal product (MP) and the average product (AP) of labor for a firm that uses labor as the only variable input and hires its labor in a perfectly competitive market. At which quantity of labor does marginal cost change from decreasing to increasing?

L2

In the absence of barriers to entry, a typical firm is currently in long-run equilibrium. Assume there is an increase in the market demand for the good that the firm is producing. Which of the following will happen in the long run?

New firms will enter the market.

In which of the following market structures do firms recognize their mutual interdependence?

Oligopoly

At which level of output is profit maximized?

Q3

Assume that olive oil is produced in a constant-cost, perfectly competitive industry, which is currently in long-run equilibrium. If the current price of olive oil is $5 per quart and the demand for olive oil increases, then the price of olive oil will change in which of the following ways in the short run and long run?

Short Run = Be more than $5 Long Run = Be equal to $5

This graph shows the long-run adjustment of a constant-cost perfectly competitive industry. Assume that the corn market is initially in long-run equilibrium at point R. What are the short-run and long-run prices of corn if more corn is used as a source of alternative energy?

Short-Run = P2 Long-Run = P

Price is less than Average Variable Cost

Shut Down

Price is greater than or equal to Average Variable Cost

Stay open

Marginal revenue

The additional revenue generated from selling one more unit of output.

At the current quantity that a firm is selling, the firm has marginal revenue of $750 and marginal cost of $800 . Which of the following is true?

The firm's profits would increase if the firm decreased the quantity sold

How do we know the firm represented by the graph above is experiencing economic loss?

The minimum of the average total cost (ATC) curve is above the demand curve. Thus P < ATC.

Economic Loss (Negative Economic Profit)

Total Revenue < Total Cost

Breaking Even (Zero Economic Profit)

Total Revenue = Total Cost

The costs that can be eliminated by shutting down in the short-run.

Variable costs

A perfectly competitive firm's short-run supply curve is the portion of the marginal cost curve that is

above the average variable cost curve

If labor is the only variable input of a firm and the marginal product of labor is falling, the firm will always produce

at a level of output where marginal costs are rising

As output of a firm increases, the difference between the firm's average total cost and its average variable cost gets smaller because the firm's

average fixed cost is decreasing

When marginal product exceeds average product, which of the following must be true?

average product is increasing

When the marginal cost curve lies below the average total cost curve, it is true that as output increases

average total cost is decreasing

When total physical product is at its maximum, marginal physical product must be

equal to zero

Which of the following will most likely lead to zero economic profits?

free entry and exit of firms

At a perfectly competitive firm's current output level, average total cost is $15, average variable cost is $10, and marginal cost is $8 and increasing. If the product price is $15, what should this firm do to maximize profits?

increase the quantity of output produced

A profit-maximizing firm will shut down in the short run any time the firm's total revenue is less than its

total variable cost

When is total product (TP) maximized?

when MP=0

The following questions are based on the table below, which gives cost information for a perfectly competitive firm. If the product price is $85, how many units of output must the firm produce in order to maximize profits?

5

Locotek produces toy trains and pays each worker $350 per week. Five workers can produce 40 trains per week and six workers can produce 45 trains per week. The marginal product per week of the sixth worker is

5 trains

If there is only one variable input, diminishing marginal returns first occur with the production of which unit of output?

5th

Which of the following must be true if a firm is experiencing economies of scale?

Long-run average total cost decreases as the firm's output increases

Which of the following best describes an oligopolistic market?

A few competing sellers with similar products and high barriers to entry

Which of the following statements about a constant-cost perfectly competitive industry in long-run equilibrium must be true?

An increase in demand will cause no change in the long-run equilibrium price.

If a firm is experiencing economies of scale, which of the following will decrease as output increases?

Long-run average total cost

If a perfectly competitive firm is producing where marginal cost is rising and greater than marginal revenue, to maximize profits it should

Decrease the level of production

A merger of two firms may increase economic efficiency by

Decreasing average total cost through an increase in economies of scale

At a firm's current rate of output, the marginal cost is $65, the average variable cost is $35, the average fixed cost is $30, and the product price is $65. Which of the following statements is true for the firm?

Economic profits are zero because price equals average total cost.

Categorize each characteristic with the proper concept: Economies of Scale Diseconomies of Scale

Economies of Scale: Also called "Increasing Returns to Scale" Benefits of buying in bulk A business builds another factory and their per-unit costs of production go down A business is "growing for its own good" Diseconomies of Scale: Also called "Decreasing Returns to Scale" A business is "growing too big for its own good" Management difficulties A business builds another factory and their per-unit costs of production go up

In the short run in perfect competition, the industry's demand curve and a firm's demand curve have which of the following slopes?

Industry Demand Curve = Downward Sloping Firms Demand Curve = Horizontal

Which of the following is true of the marginal cost curve?

It intersects the average variable cost curve and the average total cost curve at each curve's minimum point

For a perfectly competitive firm producing the profit-maximizing quantity, the average total cost is $10 and the average variable cost is $8. If the market price for its product is $10, which of the following is true for the firm?

It is earning zero economic profit and will remain in business.

The table above shows the short-run production function for picking apples. Based on the production data, which of the following statements about the marginal product of the fifth worker is true?

It is less than the marginal product of the third worker due to diminishing returns

Which of the following is true of a perfectly competitive firm in long-run equilibrium?

It produces its output at minimum average total cost

If a firm's production process exhibits economies of scale, which of the following will occur when the firm's output increases?

Its long-run average total costs will fall

A profit-maximizing, perfectly competitive firm is currently in long-run equilibrium. It is earning $15,000 of total revenue from a sale of 1,000 units. Its total fixed cost of production is $2,500. Which of the following can correctly be inferred from the information provided?

Its marginal cost is $15.00, and its average variable cost is $12.50

JC pizzeria has a year remaining on an unbreakable lease on its building, requiring a payment of $20,000 a year. If JC operates over the next year, it estimates that its revenues will be $200,000 and that its expenses, in addition to the lease, will be $190,000. Which of the following statements is true?

JC should operate, since its loss is less than its fixed cost.

In the graph above, why does Marginal Product (MP) eventually turn and start to decrease?

Law of Diminishing Marginal Returns

As you add variable resources to fixed resources the ADDITIONAL OUTPUT will eventually decrease. What law in Economics does the previous statement represent?

Law of diminishing marginal returns

Match each question to the proper time frame where it's answered: How many Taco Bells should be built? How many tacos should be produced?

Long-run Short-run

A typical firm in a perfectly competitive constant-cost industry is operating with an economic loss in the short run. When the industry returns to long-run equilibrium, what will happen to the number of firms in the industry, the market price, and the typical firm's quantity?

Number of Firms = Decrease Market Price = Increase Firm's Quantity = Increase

Reff Corp is a firm with total revenue of $1,000, marginal cost of $5, and average variable cost of $4. Both the output and the input markets are perfectly competitive, and Reff Corp is currently in long-run equilibrium. Reff Corp's output and total fixed cost of production must be equal to which of the following?

Output = 200 Fixed Cost = $200

P > ATC

Positive Economic Profit

Assume that a perfectly competitive firm is in long-run equilibrium. If industry demand for the product increases, how will this firm's price, output, and profit change in the short run?

Price = Increase Output = Increase Profit = Increase

Which of the following indicates that a perfectly competitive firm is in long-run equilibrium?

Price equals marginal cost, which equals average total cost

Believe it or not, it is sometimes beneficial for a business that's losing money to stay open, despite experiencing economic loss. It comes down to what's called the stay open vs shut down decision. What is the only time frame where the stay open vs shut down decision is relevant?

Short-run

Which of the following best explains why the short-run average total cost curve is U-shaped?

Spreading total fixed costs over a larger output, and eventually diminishing returns

This lesson is all about production analysis. In other words, we are trying to measure how productive our inputs are as a business owner. Understanding the difference between Total Product (TP) and Marginal Product (MP) is very important for this lesson. Please categorize the definitions and formulas to the proper measure of production.

TP: Total output produced from all inputs The sum of all outputs from a given number of inputs MP: Additional output produced from one more input Change in Output/Change in Input

This question is based on this graph, which shows a firm's marginal cost (MC), average total cost (ATC), and average variable cost (AVC). The firm's short-run supply curve is which of the following?

The MC curve above P2

Which of the following best explains why a firm's short-run marginal cost curve shifts down when it purchases new, more efficient equipment and experiences an increase in its total cost?

The equipment purchase is a fixed cost, and the new equipment will cause a reduction in the cost of producing each additional unit

Assume that a profit-maximizing, perfectly competitive firm has economic losses in the short run. If the firm continues to produce and sell its goods, then which of the following must be true?

The firm is covering all of its variable costs but not all of its fixed costs of production.

How do we know the firm represented by the graph above is experiencing economic profit?

The minimum of the average total cost (ATC) curve is below the demand curve. Thus P > ATC.

How do we know the firm represented by the graph above is breaking even (experiencing zero economic profit)?

The minimum of the average total cost (ATC) curve is right on the demand curve. Thus P = ATC.

In the short run, if a firm produces the level of output at which marginal revenue is equal to marginal cost but price is less than average total cost, the firm will

continue to operate if price is greater than its average variable cost

This question is based on this graph, which shows a firm's marginal cost (MC), average total cost (ATC), and average variable cost (AVC). In the short-run, the firm will

continue to produce as long as the price is greater than P2

In a perfectly competitive industry, the market price of the product is $12. A firm produces at a level of output where average total cost is $16, marginal cost is $16, and average variable cost is$8. To maximize its profit, the firm should

decrease output but keep producing

If a perfectly competitive firm is producing where marginal cost is rising and greater than marginal revenue, to maximize profits it should

decrease the level of production

The relationship in the graph above best illustrates the economic concept of

diminishing marginal returns in production

Assume that, for a perfectly competitive firm, marginal cost equals average variable cost at $10, marginal cost equals average total cost at $15, and marginal revenue equals marginal cost at $12. On the basis of this information, the firm should

operate in the short run, even though it will sustain a loss

Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the firm hires additional workers, one would expect the marginal product to

rise initially, but eventually fall

The reason that firms in perfect competition earn zero economic profit in the long run is that

there are no barriers to entrance or exit