Microecon 247 MC Questions

c

As production increases, how does a unit's share of fixed costs change? a. It continually rises as output increases. b. It remains constant as output increases. c. It continually decreases as output increases. d. It becomes negligible once variable costs are covered.

C

Assume a firm is producing 500 units of output and that it sells each unit for $6. Its average total cost is $4. What is its profit? a. -$2000 b. -$1000 c. $1000 d. $2000

d

At all levels of production beyond the point where the marginal-cost curve crosses the average variable cost curve, what happens to average variable cost? a. It falls and then rises. b. It falls. c. It rises and then falls. d. It rises.

a

Suppose a certain firm is able to produce 160 units of output per day when 15 workers are hired. Holding other inputs fixed, the firm is able to produce 180 units of output per day when 16 workers are hired. What is the marginal product of the 16th worker? a. 20 units of output b. 21 units of output c. 19 units of output d. 22 units of output

C

Suppose a regulatory commission sets the price required for efficient allocation of resources. What consequence would this have on the firm? a. It earns an economic profit. b. It earns a normal profit. c. It incurs losses. d. It may earn an economic profit, but only if it minimizes the average cost of production.

D

Suppose that the price that Firm XYZ can receive for its output is $15 per unit. The average variable cost of production is $12 per unit. The average total cost of production is $17. In the short run, what conclusion can be reached about this firm? a. It is earning an economic profit. b. It should shut down. c. It is earning zero economic profits. d. It should continue producing.

B

Suppose you bought a ticket to a football game for $40, and you place a $45 value on seeing the game. If you lose the ticket, what is the maximum price you should pay for another ticket? a. $40 b. $45 c. $50 d. $60

B

The Wheeler Wheat Farm has a long-term lease on 5000 acres of land in Saskatchewan. The annual lease payment is $240,000. Prior to planting in the spring of 2017, the farm's economist predicted that the farm would have $135,000 left after paying all of its costs except the annual lease payment. In this case, the Wheeler Wheat Farm should a. continue to operate because total revenue exceeds total cost. b. continue to operate even though it predicts an accounting loss of $105,000. c. shut down and experience an accounting loss of $135,000. d. exit the market and experience an accounting loss of $240,000.

B

A perfectly competitive firm is producing pencils for 10 cents each. If the firm produces 1500 pencils, what is its total revenue? a. $1.50 b. $15 c. $150 d. $1500

A

As a general rule, what do we know about the level at which profit-maximizing producers in a competitive market produce output? a. Marginal cost is increasing. b. Marginal cost is decreasing. c. Marginal revenue is increasing. d. Marginal revenue is decreasing.

D

What can measure the economic inefficiency of a monopolist? a. the number of consumers who are unable to purchase the product because of its high price b. the excess profit generated by monopoly firms c. the loss of producer surplus by monopoly firms d. the deadweight loss

c

What distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm? a. In the short run, there are no fixed costs. b. In the short run, the number of workers used to produce the firm's product is fixed. c. In the short run, the size of the factory is fixed. d. In the short run, output is not variable.

D

When a firm in a competitive market produces 15 units of output, it has a marginal revenue of $8.00. What would be the firm's total revenue when it produces 8 units of output? a. $4.80 b. $6.00 c. $48.00 d. $64.00

D

When a firm in a competitive market receives $8000 in total revenue, it has a marginal revenue of $20. What is the average revenue, and how many units were sold? a. $5 and 1000 units b. $10 and 500 units c. $20 and 100 units d. $20 and 400 units

a

When a firm is able to put idle equipment to use by hiring another worker, what will result? a. Variable costs will rise. b. Fixed costs will fall. c. Variable costs will fall. d. Fixed costs and variable costs will rise.

B

A firm that shuts down temporarily still has to pay its a. variable costs. b. fixed costs. c. total costs. d. marginal costs.

a

A certain firm manufactures and sells computer chips. Suppose that last year it sold four million chips at a price of $8 per chip. Which of the following terminology correctly accounts for the $32 million to this firm? a. Its total revenue amounted to $32 million. b. Its explicit costs amounted to $32 million. c. Its accounting profit amounted to $32 million. d. Its economic profit amounted to $32 million.

C

A competitive market is in long-run equilibrium. If demand decreases, what can we be certain will happen to price? a. Price will fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise. b. Price will fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise. c. Price will fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise. d. Price will not fall in the short run because firms will exit to maintain the price.

b

A firm has $300 million in revenues and explicit costs of $100 million. Its owners have invested $100 million in the company. This could have been invested at 10 percent per year. What is the firm's economic profit? a. $0 million b. $190 million c. $200 million d. $300 million

B

A profit-maximizing firm in a competitive market is able to sell its product for $8. At its current level of output, the firm's average total cost is $11. Its marginal-cost curve crosses the marginal revenue curve at an output level of 10 units. At that point, what does the firm experience? a. a loss of more than $30 b. a loss of exactly $30 c. a profit of exactly $30 d. a profit of more than $30

B

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has an average revenue of $10, and its average total cost is $9. What is the firm's profit/loss? a. The firm has a loss of $100. b. The firm has a profit of $100. c. The firm has a loss of $200. d. The firm has a profit of $200.

d

A total-cost curve shows a. the relationship between the total cost of production and total revenue. b. the relationship between the total cost of production and profit. c. the relationship between the quantity of an input used and the total cost of production. d. the relationship between the quantity of output produced and the total cost of production.

D

At what level of output would a monopolist produce to maximize profit? a. producing the output for which price is less than marginal cost b. producing the output for which average total cost is minimized c. producing the output for which price equals marginal cost d. producing the output for which marginal revenue equals marginal cost

b

Average total cost is equal to a. average cost minus average quantity of output. b. total cost divided by output. c. average variable cost plus total fixed cost. d. output divided by total variable cost.

A

Because no money flows out of the business to pay for opportunity costs, they never show up on the financial statements. Therefore, which of these statements follows? a. This must be an economist's analysis of the business. b. This must be an accountant's analysis of the business. c. The business must have only profits as there are no costs. d. The business does not owe any taxes to the Canada Revenue Agency.

B

For a firm in a perfectly competitive market, the price of the good must always be a. equal to marginal revenue. b. equal to total revenue. c. greater than average revenue. d. less than average revenue

d

For a firm, what does constant returns to scale refer to? a. Short-run average total cost changes at a constant rate as the quantity of output changes. b. Long-run average total cost changes at a constant rate as the quantity of output changes. c. Short-run average total cost does not change as the quantity of output changes. d. Long-run average total cost does not change as the quantity of output changes.

C

For all positive levels of output, a firm will shut down in the short run a. when its loss exceeds its average costs. b. when its total revenue is less than its average variable costs. c. when the price of its product is less than its average variable cost. d. when it cannot cover its sunk costs.

A

How does marginal-revenue curve for a monopoly appear? a. It lies below its demand curve. b. It is upward sloping. c. It is greater than the average-revenue curve. d. It can never be negative.

a

How does the average-fixed-cost curve behave? a. It always declines with increased levels of output. b. It always rises with increased levels of output. c. It declines as long as it is above marginal cost. d. It declines as long as it is below marginal cost.

D

If a competitive firm is currently producing a level of output at which profit is not maximized, then which of the following must be true for the firm? a. Marginal revenue exceeds marginal cost. b. Marginal cost exceeds marginal revenue. c. Total cost exceeds total revenue. d. Marginal revenue is not equal to marginal cost.

a

If a firm produces nothing, which of the following costs will be zero? a. variable cost b. opportunity cost c. total cost d. fixed cost

D

If a profit-maximizing monopolist faces a downward-sloping market demand curve, what do we know? a. Its average revenue is less than the price of the product. b. Its average revenue equals marginal revenue. c. Its marginal revenue equals total revenue. d. Its marginal revenue is less than the price of the product.

D

If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, what do we know regarding the long run? a. The long-run market supply curve is equal to the sum of individual firms' marginal-cost curves. b. The long-run supply curve for the market must slope downward. c. The long-run market supply curve must slope upward. d. The long-run supply curve for the market is horizontal and equal to the minimum of long-run average cost for each firm.

b

If marginal cost is rising, what must be happening? a. Marginal product must be rising. b. Marginal product must be falling. c. Average variable cost must be falling. d. Average fixed cost must be rising.

b

If prices tend to increase as industry output increases in the long run, which term best describes the long-run supply curve? a. vertical b. slopes upward c. horizontal d. slopes downward

D

In calculating accounting profit, what do accountants typically exclude? a. long-run costs b. sunk costs c. explicit costs of production d. opportunity costs that do not involve an outflow of money

C

In the case of price discrimination, what would necessitate a lower price in the market? a. more consumers b. a less elastic demand c. a more elastic demand d. fewer consumers

A

In the long run, all of a firm's costs are variable. In this case, what is the exit criterion for a profit-maximizing firm? a. price is less than average total cost b. price is more than average total cost c. average revenue is greater than average fixed cost d. average revenue is greater than marginal cost

D

In the long run, when will a profit-maximizing firm choose to exit a market? a. when average fixed cost is falling b. when variable costs exceed sunk costs c. when marginal cost exceeds marginal revenue at the current level of production d. when total revenue is less than total cost

C

In the short run, what is the level of output a profit-maximizing price taker should choose? a. ATC is minimized b. P = MC, but only if P ≥ ATC c. P = MC, but only if P ≥ AVC d. P = MC, but only if P ≥ AFC

c

Joe wants to start his own business. The business he wants to start will require that he purchase a factory that costs $500,000. To finance this purchase, he will use $200,000 of his own money, on which he has been earning 10% interest per year. In addition, he will borrow $300,000, and he will pay 12% interest per year on that loan. For the first year of operation, what is the explicit cost of purchasing the factory? a. $12,000 b. $20,000 c. $36,000 d. $44,000

b

John owns a shoe-shine business. Which of the following costs does his accountant most likely include on his financial statements? a. dividends John's money was earning in the stock market before John sold his shares and bought a shoe-shine booth b. the cost of shoe polish c. wages John could have earned for unclaimed overtime labour hours d. wages John could earn washing windows

d

Long-run average-total-cost curves are often U-shaped a. for the same reasons that short-run average-total-cost curves have the identical U-shape. b. because of increasing coordination problems at low levels of production and increasing specialization of workers at high levels of production. c. because of constant returns to scale. d. because of increasing specialization of workers at low levels of production and increasing coordination problems at high levels of production.

D

Managers of a firm think at the margin and make incremental adjustments to the level of production. For the managers to be satisfied with the correct level of production, what must result? a. average variable cost must exceed marginal cost b. total cost must be less than average revenue c. costs must be minimized d. profit must be maximized

A

Mr. Smith's apple farm operates in a competitive market. If Smith reduces production by 15 percent, which consequence should ensue? a. no change in his prices b. a reduction in demand for his apples and a reduction in his prices of 15 percent c. an increase in demand for his apples and an increase in his prices of 15 percent d. a decrease in his supply costs of 15 percent

c

On a 200-acre farm, a farmer is able to produce 3000 bushels of wheat when he hires two workers. He is able to produce 4400 bushels of wheat when he hires three workers. How many bushels of wheat could the farmer produce when he hires four workers? a. 6000 b. 5800 c. 5700 d. 6400

D

What do we know about the short-run supply curve for a firm in a perfectly competitive market? a. It is likely to be horizontal. b. It is likely to slope downward. c. It is determined by forces external to the firm. d. It is the same as its marginal-cost curve (above average variable cost).

b

What does the concept of average total cost represent? a. the cost of the last unit of output, if total cost does not include a fixed cost component b. the cost of a typical unit of output, if total cost is divided evenly over all the units produced c. the variable cost of a firm that is producing at least one unit of output d. the total cost of the first unit of output, if total cost is divided evenly over all the units produced

A

What happens if a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost? 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

What is a barrier to entry? a. a downward-sloping demand curve b. a single producer is more efficient than a large number of producers c. no close substitute for a product d. a homogeneous product

C

What is a characteristic of a perfectly competitive market? a. Marginal revenue exceeds average revenue. b. Average revenue exceeds total revenue. c. Marginal revenue equals average revenue. d. Average revenue exceeds marginal revenue.

C

What is a short-run supply curve for a perfectly competitive firm? a. the firm's average-variable-cost curve b. the portion of the firm's average-total-cost curve that lies above the average-variable-cost curve c. the portion of the firm's marginal-cost curve that lies above the average-variable-cost curve

C

What is a sunk cost? a. a fixed cost that is reoccurring every period b. a fixed cost below a variable cost c. a cost that has already been committed and cannot be recovered d. a cost that has been recovered after a firm's start-up price has been met

a

What is added to profit to obtain total revenue? a. total cost b. net profit c. capital profit d. operational cost

C

What is average total cost? a. the cost that comes from a change in input b. the cost of an average input c. total cost divided by the quantity of output d. variable cost divided by the quantity of output

A

What is average-cost pricing best used for? a. limiting a regulated monopolist to normal profits b. requiring that the company receive a public subsidy c. to obtain an efficient allocation of resources d. to obtain a less than optimal total surplus

C

What is generally the case for a monopolist's average revenue? a. It is equal to marginal revenue. b. It is less than marginal revenue. c. It is equal to the price of its product. d. It is less than the price of its product.

d

What is happening when marginal cost is less than average total cost? a. Marginal cost must be falling. b. Marginal cost must be rising. c. Average variable cost must be falling. d. Average total cost must be falling.

B

What is marginal cost? a. the cost the firm pays in the margin of its accounts b. the change in total cost that comes from a change in output c. total cost divided by output d. the change in quantity of output that minimizes average variable cost

d

What is one of the most important properties of cost curves? a. The average-total-cost curve first rises and then falls with increased output. b. The average-fixed-cost curve must eventually rise. c. For most producers, the average-total-cost curve never crosses the marginal cost curve. d. The marginal-cost curve eventually rises with the quantity of output.

d

What is the fundamental reason that marginal cost eventually rises as output increases? a. rising average fixed cost b. economies of scale c. diseconomies of scale d. diminishing marginal product

B

What is the industry supply curve? a. the sum of firms' average-variable-cost curves b. the sum of firms' marginal-cost curves c. the sum of firms' average-fixed-cost curves d. the sum of firms' average-total-cost curves

b

What is the marginal product of an input in the production process? a. the increase in total profit obtained from an additional unit of that input b. the increase in quantity of output obtained from an additional unit of that input c. the increase in total revenue obtained from an additional unit of that input d. the increase in profit obtained from an additional unit of that input

B

What is the practice of selling the same goods to different customers at different prices but with the same marginal cost known as? a. price selection b. price discrimination c. arbitrage d. monopoly pricing

B

What is the primary reason for a government-created monopoly? a. The critical resource is owned by a single company. b. The government gives a firm the exclusive right to sell some good or service. c. The government exercises its market control by encouraging competition among sellers. d. Government spending in a certain industry gives rise to monopoly power.

d

What is the relationship between economic profit and accounting profit? a. Economic profit is most often equal to accounting profit. b. Economic profit is a less complete measure of profitability than accounting profit. c. Economic profit is always at least as large as accounting profit. d. Economic profit will never exceed accounting profit.

A

What is the simplest way for a monopoly to arise? a. Own a key resource. b. Reduce production to increase demand for its product. c. Make pricing agreements with other firms. d. Reduce its prices without consulting other firms.

c

What must be happening when marginal cost is greater than average total cost? a. Marginal cost is rising. b. Marginal cost is falling. c. Average total cost is rising. d. Average total cost is falling.

D

What would be subtracted from a firm's revenue to measure economic profit? a. variable costs b. fixed costs c. explicit costs d. opportunity costs

c

When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision? a. A country's standard of living depends on its ability to produce goods and services. b. Prices rise when the government prints too much money. c. The cost of something is what you give up to get it. d. Governments can sometimes improve market outcomes.

C

When a perfectly competitive firm makes a decision to shut down, which of the following is most likely true? a. Marginal cost is above average variable cost. b. Marginal cost is above average total cost. c. Price is below the minimum of average variable cost. d. Fixed costs exceed variable costs.

A

When a perfectly competitive firm produces another unit of output, what equals its marginal revenue? a. price b. marginal cost c. average variable cost d. average total cost

D

When a profit-maximizing firm finds itself minimizing losses because it is unable to earn a positive profit, it accomplishes this by producing the quantity at a price that is equal to a. sunk cost. b. average fixed cost. c. average variable cost. d. marginal cost.

c

When do constant returns to scale occur? a. when a firm's long-run average-cost curve is rising as output increases b. when long-run total costs are constant as output increases c. when long-run average total costs are constant as output increases d. when a firm's long-run average-cost curve is falling as output increases

a

When do economies of scale arise? a. when workers are able to specialize in a particular task b. when fixed costs are large relative to variable costs c. when individuals in a society make purchases due to a current trend d. when an economy is self-sufficient in production

A

When firms are said to be price takers, what will happen if a firm raises its price? a. Buyers will go elsewhere. b. Buyers will pay the higher price in the short run. c. Competitors will also raise their prices. d. Firms in the industry will exercise market power.

D

When is price discrimination a rational strategy for a profit-maximizing monopolist? a. when the monopolist finds itself able to produce only limited amounts of output b. when consumers are unable to be segmented into identifiable markets c. when the monopolist wishes to increase the deadweight loss that results from profit-maximizing behaviour d. when there is no opportunity for arbitrage across market segmentations

c

When profit-maximizing firms in a competitive market are earning profits, a. market demand must exceed market supply at the market equilibrium price. b. market supply must exceed market demand at the market equilibrium price. c. new firms will enter the market. d. the most inefficient firms will be encouraged to leave the market.

d

When would one expect to observe diminishing marginal product of labour? a. when union workers are told to reduce their work effort in preparation for a new round of collective bargaining talks b. when only new workers are trained in using the most productive capital c. when workers are discouraged about the lack of help from other workers d. when crowded factory space reduces the productivity of new workers

D

Which equation is consistent for a competitive firm? a. total revenue = average revenue b. total revenue = marginal revenue c. total cost = marginal revenue d. average revenue = marginal revenue

B

Which of the following best explains inefficient allocation of resources under monopoly? a. MR > MC b. P > MC c. P < MC d. MR < MC

a

Which of the following is an example of variable cost in the short run? a. raw materials, energy costs, and hourly labour b. a new factory extension c. purchase of new durable equipment d. launch of a new product line

B

Which of the following is the condition for a perfectly competitive market? a. There are many sellers. b. There are many sellers and buyers, and the products produced in the market are similar. c. There are many buyers. d. There is a high entry barrier into the market with many buyers.

A

Which of the following represents the costs of regulation? a. costs of conforming to federal regulation b. inefficient resource allocation mandated by regulation c. incentives to cut costs d. expansion fees

d

Which of the following would be an example of an implicit cost of production? a. the cost of employee training programs b. the cost of a delivery truck in a business that rarely makes deliveries c. the cost of raw materials for producing bread in a bakery d. the cost of lost income a student could have earned had they not gone to university

D

Which one of the following is NOT a condition for a firm's long-run decision to exit the market? a. TR < TC b. TR/Q < ATC c. P < ATC d. P < TC

B

Which production decision is a profit-maximizing firm in a competitive market most likely to take when price falls below the minimum of average variable cost? a. The firm will continue to produce to attempt to pay fixed costs. b. The firm will immediately stop production to minimize its losses. c. The firm will stop production as soon as it is able to pay its sunk costs. d. The firm will continue to produce in the short run, but will likely exit the market in the long run.

D

Which statement applies when marginal cost equals average total cost? a. Marginal cost is greater than average total cost. b. Marginal cost is less than average total cost. c. Average total cost is at its maximum. d. Average total cost is at its minimum.

D

Which statement best applies to a perfectly competitive firm with a positive economic profit? a. It will continue in the long run with a few efficient firms. b. It will shift the industry demand function rightward. c. It will result in an increase in long-run equilibrium price. d. It will attract new firms into the industry in the long run.

a

Which statement best applies to the long run? a. All costs can vary. b. There are both fixed costs and variable costs. c. There are only fixed costs. d. Firms cannot respond to price signals.

c

Which statement best characterizes fixed costs? a. They are costs that do not vary with output in the short run. b. They are costs that do not vary with output in the long run. c. They are costs that do not vary with output. d. They decline as output expands in the long run.

A

Which statement best describes a monopoly? a. A single firm supplies the industry's entire output. b. Numerous firms supply the industry's entire output. c. The demand for the firm's output is perfectly elastic. d. The firm is the only buyer of a specific input.

D

Which statement best explains economies of scale? a. Average fixed cost declines in the short run. b. Marginal product rises in the short run. c. Marginal cost rises in the short run. d. Average cost declines in the long run.

A

Which statement is an example of explicit costs? a. Payments made by the firm to others. b. Payments made to labour only. c. Opportunity cost of resources owned by the firm. d. Same as accounting profit.

c

Which statement is an example of implicit costs? a. Payments made to labour only. b. Payments made by the firm to others. c. Opportunity cost of resources owned by the firm. d. Same as accounting profit.

A

Which statement is the most accurate for a natural monopoly? a. A single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. b. Total revenue will always increase when it increases the price of its product. c. A key resource is owned by a single firm. d. Governments may issue exclusive rights of production to a specific firm.

D

Why do natural monopolies differ from other forms of monopoly? a. They are not subject to barriers to entry. b. They are not regulated by government. c. They generally don't make a profit. d. They are generally not concerned about competition.

A

Why is a long-run supply curve flatter than a short-run supply curve? a. Firms can enter and exit a market more easily in the long run than in the short run. b. Long-run supply curves are sometimes downward sloping. c. Competitive firms have more control over demand in the long run. d. Firms in a competitive market face economies of scales in the long run.

d

Zach took $500,000 out of the bank and used it to start his new cookie business. The bank account pays 4% interest per year. During the first year of his business, Zach sold 15,000 boxes of cookies for $3 per box. Also, during the first year, the cookie business incurred costs that required outlays of money amounting to $14,000. What was Zach's accounting profit for the year? a. -$455,000 b. -$56,000 c. $1000 d. $31,000