micro ch 8

Refer to Figure 8.8. If this farmer produces the profit maximizing level of soybeans when the market price is $8 per bushel, then her profit would be

$0

Refer to Figure 8.9. If this farmer produces the profit maximizing quantity when the market price is $18, her profit is

$0

Refer to Table 8.2. If Sherry produces three pairs of earrings, her total variable costs are

$140

A firm in a perfectly competitive industry produces its profit‐maximizing quantity, 40 units. Industry price is $3, total fixed costs are $45, and total variable costs are $60. The firmʹs economic profit is

$15

Refer to Figure 8.4. The marginal cost of the third microwave oven is

$150

Refer to Figure 8.4. Micro Ovenʹs average total costs are if it produces six microwave ovens

$200.00

Refer to Table 8.2. If Sherry produces four pairs of earrings, her average fixed costs are

$25

Refer to Figure 8.4. Micro Ovenʹs average fixed costs of producing two units of output are

$250

Refer to Figure 8.5. The total fixed costs for Ollieʹs Ovens are

$250

Refer to Figure 8.1 above. The total fixed costs for Cyndyʹs Floral Arrangements are $1,000. If Cyndyʹs Floral Arrangements produces 200 silk flower arrangements, the average fixed costs are

$5

Refer to Figure 8.8. If this farmer produces the profit maximizing level of soybeans when the market price is $8 per bushel, then her total revenue would be

$5,600

Refer to Figure 8.5. The marginal cost of the third oven is

$50

Refer to Table 8.2. If Sherry produces one pair of earrings, her total variable costs are

$50

A farmer producing bushels of soybeans in the perfectly competitive soybean industry is currently maximizing profits. If the market price of soybeans falls and the farmer adjusts output to the new price, he will produce ___ soybeans and make ___ profit.

fewer; less

Refer to the figure above. Assuming the wool market (industry) is perfectly competitive, each wool producer faces a(n) ___ demand curve starting at $3.00 per pound.

horizontal

Assume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers per day. At this output level, price exceeds this firmʹs marginal and average variable costs. To maximize profits, Dell should

increase their output

An individual wheat farmer produces wheat in a perfectly competitive market. An increase in the market demand for wheat will cause the farmerʹs marginal revenue to ___ and his profit maximizing level of output to ___ .

increase; increase

Strawberries, a normal good, are produced in a perfectly competitive market. Average consumer incomes increase. This will cause the individual strawberry farmerʹs marginal revenue to ___ and their profit maximizing level of output to ___ .

increase; increase

In the short run marginal cost is positive and decreasing at output levels where total variable cost is ___ at a(n) ____ rate.

increasing; decreasing

In the short run marginal cost is positive and increasing at output levels where total variable cost is at a(n) rate.

increasing; increasing

Refer to Table 8.1. Assume that the relevant time period is the short run. Assuming the price of capital (K) is $10 per unit and the price of labor (L) is $5 per unit, this firmʹs total cost of producing one unit of output is

indeterminate from this information.

Refer to Table 8.3. What is the total cost of producing zero units of output?

$0

Refer to Figure 8.4. If three microwave ovens are produced, average variable costs are

$166.67

The Lawn Ranger, a landscaping company, has total costs of $7,000 and total fixed costs of $5,000. The Lawn Rangerʹs total variable costs are

$2,000

Refer to Table 8.3. The marginal cost of the fourth unit is ___ and the average total cost of the fourth unit is ___

$30; $35

Refer to Table 8.2. If Sherry produces five pairs of earrings, her total costs are

$370

Assume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers per day. At this output level, price equals this firmʹs marginal cost. Assuming price exceeds average variable cost, to maximize profits Dell should

make no adjustments as they are already maximizing their profits

Joeʹs Butcher Shop is producing where MR = MC, Joeʹs Butcher Shop must be

maximizing profits

The average variable cost of producing 100 sundaes is $3. At this level of output, average variable cost is minimized. Which of the following statements is TRUE?

Average total cost is minimized at an output greater than 100 sundaes

Refer to Figure 8.10. Panel represents the demand curve facing a perfectly competitive producer of wheat

B

Refer to Table 8.1. Assuming the price of capital (K) is $10 per unit and the price of labor (L) is $5 per unit, the firm will use production technique ___ to produce ___ of output

B; the first two units of output and production technique A to produce the third unit

T/F A firmʹs demand curve in a perfectly competitive industry is price inelastic.

FALSE

T/F Average fixed costs rise continuously as quantity of output rises

FALSE

T/F Firms maximize their profits by producing the output level where MR=ATC.

FALSE

The formula for total fixed cost is

TFC = TC ‐TVC

Total cost is calculated as

TFC+TVC

The formula for average fixed costs is

TFC/q

T/F Average total cost is minimized at a higher level of output than average variable cost

TRUE

Marginal revenue is the

added revenue that a firm takes in when it increases output by one additional unit

In the short run

all firms must bear some costs regardless of their output.

Total variable costs with increasing output

always increase

In perfect competition, a firmʹs marginal revenue curve

and the demand curve facing the firm are identical

Refer to Figure 8.6. The vertical distance AB is Outdoor Equipmentʹs ___ cost.

average fixed

Average variable and average total costs get closer together as output increases because ___ as output increases

average fixed costs decrease

In the short run a firm using variable labor and fixed capital inputs achieves the efficient (lowest cost) level of output at the minimum point on its ___ cost curve.

average total

Refer to Figure 8.6. Curve 3 is Outdoor Equipmentʹs ___ cost curve

average total

Marginal cost intersects ____ at its minimum

average total cost

Corn is produced in a perfectly competitive market. The demand for ethanol decreases. This will cause the individual corn farmerʹs marginal revenue to ___ and their profit maximizing level of output to ___ .

decrease; decrease

In perfect competition, a firmʹs marginal revenue curve is

horizontal

Free entry implies that

if an industryʹs existing firms make excessively high profits, new firms are likely to enter the industry

As output decreases, average fixed costs

increase

Marginal cost is the

increase in total cost resulting from producing one more unit of output.

Jerry sells cherry sno‐cones along the boardwalk in New Jersey. During the summer this is a perfectly competitive business, and Jerry faces a perfectly price elastic demand curve. If he wants to try to increase revenues, he should

keep the price the same but produce more to increase revenues

Both Kate and Kyle own saltwater taffy factories. Kateʹs factory has low fixed costs and high variable costs. Kyleʹs factory has high fixed costs and low variable costs. Currently, each factory is producing 1,000 boxes of taffy at the same total cost. Complete the following statement with the correct answer. If each produces

more, the costs of Kateʹs factory will exceed those of Kyleʹs factory

Firms can their costs in the short run

not change; fixed

Refer to Table 8.1. Assuming the price of capital (K) is $10 per unit and the price of labor (L) is $5 per unit, what production technique should this firm use to produce 2 units of output?

production technique B

Assume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers per day. At this output level, price exceeds the firmʹs marginal and average variable costs. It follows that producing one more computer will cause this firmʹs

profits to increase

Refer to Figure 8.5. The marginal cost is equal to average variable cost when ___ ovens are produced

six

Refer to Figure 8.4. Marginal costs will equal average variable costs at

six microwave ovens

Refer to Table 8.5. Assume that Exotic Fruit sells fruit baskets in a perfectly competitive market. The market price of a fruit basket is $22. To maximize profits, Exotic Fruit should sell ___ fruit basket(s) and their profit is ___ .

six; $14

The closest example of a perfectly competitive industry is

soybeans

As output increases, in the short run

the difference between average total cost and average variable cost decreases.

Refer to Figure 8.4. The vertical distance AB represents ___ costs.

total fixed

Short‐run costs that do NOT depend on the level of output are

total fixed costs only

A short run total cost schedule is a ___ cost schedule shifted upward by the amount of ___ cost

total variable; total fixed

Profit‐maximizing firms want to maximize the difference between ___ revenue and ___ cost.

total; total

If marginal cost is below average total cost, average total cost will

decrease

Wilburʹs Widgets, a widget company, produces 100 widgets. Its average fixed cost is $6 and its total variable cost is $400. The total cost of producing 100 widgets is ___

$1,000

Refer to Figure 8.2 above. The total fixed costs for The Barber Shop are $3,000. If The Barber Shop produces 300 hair cuts, the average fixed costs are

$10

Refer to Figure 8.5. Average variable costs are ___ if Ollieʹs Ovens produces two ovens.

$100

Refer to Table 8.1. Assuming the price of capital (K) is $10 per unit and the price of labor (L) is $5 per unit, the lowest long‐run total cost of producing one unit of output is

$100

Refer to Table 8.2. If Sherry produces zero earrings, her total fixed costs are

$100

Refer to Figure 8.4. The marginal cost of the sixth microwave oven is

$116.67

Labor is the only variable input for Elliotʹs dog‐walking service. His labor costs are $300 a day and his service walks 25 dogs per day. His labor costs increase to $315.50 a day to walk 26 dogs per day. The marginal cost of walking that 26th dog is

$15.50

If the average variable cost of the fifth hat is $30, then the total variable cost of five hats is

$150

Refer to Figure 8.3. The marginal cost of the 10th basketball is

$2

Refer to Figure 8.9. If this farmer is producing the profit maximizing level of output, her profit is

$2,000

ATC is

TC/q

Total cost is

TFC + TVC

T/F If demand in a perfectly competitive market decreases, then an individual firm in that industry will see its profits fall.

TRUE

One formula for AVC is

TVC/q

Economists usually assume that labor ___ is input in the ___ run

a variable; short

There are outputs for which costs exceed costs in the short run

average total; average variable

If marginal cost equals average total cost, average total cost will

be minimized

A firm in a perfectly competitive market has no control over price because

each firmʹs product perfectly substitutes for every other firmʹs product

Refer to Table 8.3. If the firm is in a perfectly competitive industry with a market price of $30 per unit, the firm will produce ____ units and earn a profit of ____

four; -$20

Refer to figure above. Assuming the coffee market (industry) is perfectly competitive, each coffee producer faces a(n) demand curve starting at $4.00 per pound.

horizontal

Refer to Figure 8.6. Curve 1 is Outdoor Equipmentʹs ___ cost curve

marginal

The added revenue that a firm takes in when it increases output by one additional unit is ___ revenue

marginal

The rising part of a perfectly competitive firmʹs ___ cost curve is the firmʹs short-run ___ curve

marginal; supply

The law of supply holds for perfectly competitive firms assuming that each firm tries to

maximize profits

If a perfectly competitive firmʹs average total cost curve is above its demand schedule at every level of output, then the firm will earn ___ profits.

negative

If P = MC and MC > ATC, then a perfectly competitive firm will earn ___ profits

positive

Because marginal cost is always ___ in the short run, total variable cost always when ___ output increases

positive; increases

In the short run when the marginal product of labor ___ , the marginal cost of an additional unit of output ___

rises; falls

If a firm in a perfectly competitive industry raises its price above the market price, its

sales will drop to zero

T/F Perfectly competitive firms sell heterogeneous products.

FALSE

T/F The marginal revenue curve for a perfectly competitive firm will be downward sloping.

FALSE

Which statement is NOT true regarding the total variable cost curve?

The total variable cost curve is a horizontal line

Average fixed costs

fall as output rises

Refer to Table 8.2. Assume that Sherryʹs Earrings is producing in a perfectly competitive market and the market price for earrings is $60. To maximize profits Sherry should produce ___ pairs of earrings

four

Diminishing marginal returns implies

increasing marginal costs

Refer to Figure 8.3. The marginal cost of the ninth basketball is

less than $2

A point on a total variable cost curve shows the variable cost a firm will bear to produce a certain output

lowest

If the average variable cost curve is above the marginal cost curve, then

marginal costs can be either increasing or decreasing

The marginal cost curve intersects the average variable cost curve at the ___ value of the average variable cost curve

minimum

Refer to Figure 8.5. The average total costs are minimized when ___ ovens are produced

more than six

Refer to Figure 8.8. If this farmer is producing the profit‐maximizing level of output, her profit is

$3,000

Related to the Economics in Practice on page 170: Janice owns an ice cream shop. Monthly revenue is $12,000. Her fixed cost of operation include rent, electricity, interest on a loan, etc. and come to $3,500 per month. Her variable costs include wages for her workers and ice cream supplies which are $4,000 per month. Janice is trying to decide whether to stay in business or return to her previous occupation as an elementary school teacher. Janice should return to teaching only if she earns more than ___ a month.

$4,500

Refer to Figure 8.7. If Buffy gives 17 perms per day, her daily profit is

$51

Refer to Figure 8.9. If this farmer produces the profit maximizing level of hay when the market price is $18 per bale, her total revenue would be

$6,300

The Framing Gallery frames posters and has total fixed costs of $1,000. The Framing Gallery is currently framing ___ posters if its average variable cost is $20 and its average total cost is $30.

100

Refer to Figure 8.9. If the market price of hay falls to $18, then to maximize profits this farmer should produce

350 bales of hay

Refer to Figure 8.9. This farmerʹs profit‐maximizing level of output is units of output

500

Refer to Figure 8.4. Average variable costs are minimized at an output level of

6

Refer to Figure 8.8. What is the total cost of producing the profit maximizing level of output?

$9,000

Consider an output beyond the minimum point of a firmʹs short run average total cost curve. At this level of output the firm can use its ___ input at a lower average cost but only by using its ___ input at a higher average cost.

fixed capital; variable labor

Refer to Figure 8.4. Micro Oven minimizes average total costs at ___ microwave oven

greater than six

A firm is producing output less than the output associated with the minimum point on the firmʹs short run average variable cost curve. At this level of output the firm uses its fixed capital input ___ and its variable labor input ___

inefficiently; inefficiently

Average total cost

is the average cost of producing each unit of output

Refer to Table 8.3. From the information in the given table

the firm experiences diminishing returns to its variable input

Total cost refers to

the full economic costs of production

T/F In perfectly competitive industries all firms supply a homogeneous product

TRUE

T/F Marginal costs reflect changes in variable costs

TRUE

T/F Perfectly competitive firms are price takers

TRUE

T/F The best combination of inputs at one level of production may not be best at other levels.

TRUE

T/F The increase in total cost that results from producing one more unit of output is the marginal cost

TRUE

T/F The shut-down decision is a short‐run decision

TRUE

If a firm is producing where MR > MC

the revenue gained by producing one more unit of output exceeds the cost incurred by doing so

If a perfectly competitive firm is currently producing where P = MC and MC = ATC, then the firm will earn ___ profits

zero

Marginal revenue (MR) is

ΔTR/Δq

One formula for MC is

ΔTVC/Δq

Economists do NOT consider the fast‐food industry perfectly competitive because

fast‐food products are heterogeneous

Refer to Table 8.5. Assume that Exotic Fruit sells fruit baskets in a perfectly competitive market. The market price of a fruit basket is $15. To maximize profits, Exotic Fruit should sell ___ fruit basket(s) and their profit it ___.

five; -$21

Refer to Figure 8.8. A soybean farmerʹs profit‐maximizing level of output is ___ units of output.

1,000

A perfectly competitive firm will earn positive economic profits in the range of output for which the firmʹs price is ___ its minimum average total cost.

above

If the marginal cost curve is below the average variable cost curve, then

average variable cost is decreasing

If the marginal cost curve is above the average variable cost curve, then

average variable cost is increasing

Refer to Figure 8.4. Up to point A ___ costs are ___

average variable; decreasing

Refer to Figure 8.4. After point A ___ costs are ___

average variable; increasing

Economists usually assume that ___ is a fixed input in the ___ run.

capital; short

A firm will begin to experience diminishing returns at the output where marginal

cost increases

If an industry supply curve decreases while the industry demand curve remains the same, then an individual firm in a perfectly competitive industry currently earning losses will see its losses

decrease

The short‐run average total cost curve eventually begins to increase at an increasing rate because of

diminishing returns phenomena

If we know average total cost and the amount of output, then we can always calculate total cost by ___ average total cost ___ the amount of output.

multiplying; by

If a profit maximizing firm is currently producing output where MR = MC, it should

not change output because it is already maximizing profit

If an individual perfectly competitive firm charges a price above the industry equilibrium price while competitors charge the equilibrium price, the firm will

not sell any of what it produces

Perfectly competitive firms

sell homogeneous products are price takers. are small relative to the size of the market.

Refer to Table 8.2. If Sherry produces two pairs of earrings, her marginal cost is

$40

Refer to Table 8.1. Assuming the price of capital (K) is $10 per unit and the price of labor (L) is $5 per unit, the marginal cost of producing the third unit of output is

$40.

If a firmʹs total costs are $100 when 10 units of output are produced and $105 when 11 units of output are produced, the marginal cost of the 11th unit is

$5

If a firmʹs total costs are $75 when it produces 10 units of output and $80 when it produces 11 units of output, then the marginal cost of producing the 11th unit is

$5

Refer to Figure 8.4. If three microwave ovens are produced, Micro Ovenʹs total variable costs are

$500

The Lawn Ranger, a landscaping company, has total costs of $5,000 and total variable costs of $1,000. The Lawn Rangerʹs total fixed costs are

$6,000.

Refer to Figure 8.5. The marginal cost of the sixth oven is

$66.67

A dairy company, Farley Farm, has total costs of $10,000 and total variable costs of $3,000. Farley Farmʹs total fixed costs are

$7,000

Refer to Figure 8.3. If total fixed costs are $50, then average total cost of producing 10 basketballs is

$8

Refer to Figure 8.4. ʹs average fixed costs are ___ if it produces six microwave ovens

$83.33

Refer to Figure 8.5. Average variable costs are ___ if Ollieʹs Ovens produces three ovens

$83.33

Refer to Table 8.1. Assume that the relevant time period is the short run. Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per unit, the average total cost of producing two unit of output is

$90

Refer to Figure 8.8. If the market price of soybeans falls to $8, then to maximize profits this farmer should produce

700 bushels of soybeans

The profit‐maximizing level for all firms, regardless of industry structure, is the output level where

MC = MR

T/F Average total cost of producing 100 units of output is $5. If the marginal cost of producing the 101st unit is $6, then average total cost of 101 units is less than $5

FALSE

T/F For a perfectly competitive firm, when P=MC=ATC the firm should reduce its output so as to increase its profits.

FALSE

T/F If marginal cost is increasing, then average variable cost must be increasing simultaneously

FALSE

T/F Perfectly competitive firms minimize their losses by producing the output level where P=MR=AVC.

FALSE

T/F The short run is a period of less than one year

FALSE

T/F The upward sloping portion of the perfectly competitive firmʹs average variable cost curve is the firmʹs short run supply curve

FALSE

T/F Total variable cost divided by output is marginal cost

FALSE

T/F When marginal cost is between average variable cost and average total cost, marginal cost is decreasing.

FALSE

___ are likely a fixed cost of a firm

Lease payments for office space

A perfectly competitive firm breaks even at the level of output where

P = ATC

If a firmʹs demand curve is perfectly elastic, then at the profit maximizing level of output

P = MR = MC.

Any firmʹs total revenue equals

P × q

T/F The total revenue curve for a perfectly competitive firm will be a straight line with positive slope

TRUE

Dana spends $10,000 on remodeling a storefront that she then opens as a shoe store. Her business has not been very successful, and she needs an additional $3,000 to keep the shoe store open. Which of the following is TRUE?

The $10,000 Dana spent on remodeling is a fixed cost of her business

Amy spends $6,000 on remodeling a storefront that she then opens as a take‐out deli. After opening her deli her business is terrible and she needs an additional $2,000 to keep the deli open. Which of the following is TRUE?

The $6,000 Amy spent on remodeling represents a sunk cost of her business

___is(are) most likely a variable cost for a firm

The payroll taxes that are paid on employee wages

Refer to Figure 8.6. Curve 2 is Outdoor Equipmentʹs ___ cost curve

average variable

Related to the Economics in Practice on page 166: When considering expanding its student body a college should

compare the marginal cost of educating an additional student to the tuition that student pays.

Which statement is NOT true? Variable costs are

constant as output increases.

If industry supply increases while the industry demand remains the same, then an individual firm in a perfectly competitive industry currently earning positive profits will see its profits

decrease

Assume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers per day. At this output level, marginal cost exceeds this firmʹs price. Assuming price exceeds average variable cost, to maximize profits Dell should

decrease their output

In a short run production process a(n) ___ marginal product of labor explains why marginal cost is positive and ____

diminishing; rises

Fixed costs

do NOT exist in the long run.

A market demand curve is

downward sloping

If the wool industry is perfectly competitive, the market demand curve for wool is ___ and an individual wool producerʹs demand curve is ___ .

downward sloping; horizontal

It is difficult for a wool producer in a perfectly competitive wool industry to make excess profits because

entry into the wool industry is free

The relationship between the price that a perfectly competitive firm can charge buyers and the firmʹs marginal revenue is that the price is ___ marginal revenue over all output

equal to

Marginal cost is ___ average variable cost when ___

equal to; average variable cost is minimized

Twenty‐five students in a class take a test for which the average grade is 75. Then a twenty‐ sixth student enters the class, takes the same test, and scores 70. The test average grade calculated with 26 students will

fall below 75

The main decision for a profit maximizing perfectly competitive firm is NOT what ___ but what ___ .

price to charge; level of output to produce

The law of diminishing marginal returns

results in average variable cost (AVC), average total cost (ATC), and marginal cost (MC) curves eventually increasing at an increasing rate.

If an individual perfectly competitive firm charges a price below the industry equilibrium price while competitors charge the equilibrium price, the firm will

sell all that it produces but forgo revenue that it could have had

Related to the Economics in Practice on page 170: You are the owner of an ice cream shop. You normally close at 8pm, but are considering staying open an additional hour. You

should only stay open if the additional revenue you generate exceeds the marginal cost of operating an additional hour.

Related to the Economics in Practice on page 166: In higher education

the average total cost of educating students exceeds the marginal cost of educating an additional student.

Refer to Figure 8.6. Outdoor Equipmentʹs average total costs are minimized at the output level

where Curves 1 and 3 intersect

A firm facing a perfectly price elastic demand curve, ceteris paribus

will have zero quantity demanded if it raises its price above the market price