Midterm 3 pt 2

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

new firms will enter the market

A good is excludable if a. people can be prevented from using it. b. the government can regulate its availability. c. it is not a normal good. d. one person's use of the good diminishes another person's enjoyment of it.

people can be prevented from using it.

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is a. downward sloping. b. horizontal. c. upward sloping. d. vertical.

upward sloping

Which of the following statements regarding a competitive firm is correct? a. Because each firm faces a downward sloping demand, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. b. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. c. For all firms, average revenue equals the price of the good. d. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price.

For all firms, average revenue equals the price of the good

A firm that shuts down temporarily has to pay a. its variable costs but not its fixed costs. b. its fixed costs but not its variable costs. c. both its variable costs and its fixed costs. d. neither its variable costs nor its fixed costs.

Its fixed costs but not variable costs

Refer to Figure 13-5. Which of the following statements is correct? Average total cost is declining for quantities less than C because average variable cost is less than average total cost. b. Marginal cost is rising for quantities higher than D because marginal cost is higher than average total cost. c. Marginal cost is minimized at B because at that quantity, marginal cost equals average variable cost. d. Average variable cost is declining for quantities less than B because marginal cost is lower than average variable cost.

Marginal cost is minimized at B because at that quantity, marginal cost equals average variable cost.

Refer to Figure 13-3. Which of the following can be inferred from the figure above? a. Marginal product is increasing at all levels of output. b. Marginal cost is increasing at all levels of output, and marginal product is increasing at low levels of output. c. Marginal product is increasing at low level of output and decreasing at high level of output. d. Marginal cost is increasing at all levels of output, and marginal product is decreasing at high level of output.

Marginal product is increasing at low level of output and decreasing at high level of output.

Refer to Figure 14-2. If the market price is $6, what is the firm's short-run economic profit? a. $18 b. $15 c. $12 d. $0

$0

Refer to Figure 14-4. When 100 identical firms participate in this market, at what price will 15,000 units be supplied to this market? a. $2.00 b. $1.00 c. The price cannot be determined from the information provided. d. $1.50

$1.50

Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are a. $75, and her economic profits are $125. b. $25, and her economic profits are $100. c. $100, and her economic profits are $75. d. $100, and her economic profits are $25.

$100, and her economic profits are $25.

Refer to Figure 14-2. If the market price is $10, what is the firm's short-run economic profit? a. $15 b. $9 c. $30 d. $50

$15

The Three Amigo's company produced and sold 500 dog beds. The average cost of production per dog bed was $50. Each dog bed can be sold for a price of $65. The Three Amigo's total costs are A. $25,000. b. $32,500. c. $7,500. d. $67,500.

$25,000.

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 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? a. $25 b. $10 c. $30 d. $35

$35

Refer to Figure 14-1. The firm's short-run supply curve is its marginal cost curve above $13. b. $10. c. $4. d. $6.

$6

Sue earns income of $80,000 per year. Her average tax rate is 50 percent. Sue paid $5,000 in taxes on the first $30,000 she earned. What was the marginal tax rate on the first $30,000 she earned, and what was the marginal tax rate on the remaining $50,000? a. 6.25 percent and 50.00 percent, respectively b. 16.67 percent and 60.00 percent, respectively c. 16.67 percent and 70.00 percent, respectively d. 10.00 percent and 70.00 percent, respectively

16.67 percent and 70.00 percent, respectively

Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the cost of building the park equally. If the residents vote to determine the size of park to build, basing their decision solely on their own willingness to pay 10,24,6- Sophia sam Cedric a. 1 acre b. 3 acres c. 2 acres d. 0 acres

2 acres

Refer to Figure 14-4. If at a market price of $1.75, 52,500 units of output are supplied to this market, how many identical firms are participating in this market? a. 250 b. 100 c. 300 d. 75

300

Refer to Figure 13-2. Curve A represents which type of cost curve? a. Average total cost b. Average fixed cost c. Marginal cost d. Average variable cost

Average fixed cost

Which of the following is not a characteristic of a public good? a. It is not excludable. b. Its benefits cannot be withheld from anyone. c. Because it is a free good, there is no opportunity cost. d. It is not diminished or depreciated as additional people consume the good.

Because it is a free good, there is no opportunity cost.

Refer to Figure 13-5. The efficient scale of production occurs at which quantity? a. B b. A c. C d. D

C

Refer to Figure 14-1. If the market price is $10, the firm will earn negative economic profits in the short run but remain in business. b. zero economic profits in the short run. c. negative economic profits and shut down. d. positive economic profits in the short run.

Negative economic profits in the short run but remain in business

Refer to Figure 14-3. Firms would be encouraged to enter this market for all prices that exceed a. P3. b. P2. c. P4. d. P1.

P4

The Pennsylvania Turnpike is a tolled freeway running through the state of Pennsylvania. Motorists must pay tolls at various points along the Turnpike based on the distance they traveled on the freeway. Suppose that despite the tolls, many motorists in the urban areas use the Turnpike causing traffic to slow during peak times. What type of good would the Turnpike be classified as in this case? a. Club good b. Public good c. Common resource d. Private good

Private good

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

Produce fewer custom-made shoes

Which of the following represents the firm's short-run condition for shutting down?

Shut down if TR < VC

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.

Refer to Figure 14-7. Assume that the market starts in equilibrium at point W in graph (b). An increase in demand from D0 to D1 will result in a. a new market equilibrium at point X. b. falling prices and falling profits for existing firms in the market. c. an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. d. rising prices and falling profits for existing firms in the market.

an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z.

When marginal cost is less than average total cost, a. average total cost is falling. Correct b. marginal cost must be falling. c. average variable cost must be falling. d. average total cost is rising.

average total cost is falling

An efficient tax system is one that imposes small a. marginal rates and deadweight losses. b. marginal rates and transfers of money. c. deadweight losses and administrative burdens. d. administrative burdens and transfers of money.

deadweight losses and administrative burdens

In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits a. economies of scale because total cost is rising as output rises. b. diseconomies of scale because average total cost is rising as output rises. c. diseconomies of scale because total cost is rising as output rises. d. economies of scale because average total cost is falling as output rises.

economies of scale because average total cost is falling as output rises.

Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is a. exactly $13. b. less than $6. c. less than $13 but more than $6. d. above $13.

exactly $13.

A difference between explicit and implicit costs is that a. implicit costs must be greater than explicit costs. b. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do. Correct c. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do. d. explicit costs must be greater than implicit costs.

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

When a firm experiences diseconomies of scale, a. long-run average total cost is minimized. b. long-run average total cost decreases as output increases. c. long-run average total cost increases as output increases. d. short-run average total cost is minimized.

long-run average total cost increases as output increases

If marginal cost is rising, a. marginal product must be rising. b. average variable cost must be falling. c. average fixed cost must be rising. Incorrect d. marginal product must be falling.

marginal product must be falling

If your income is $50,000, your income tax liability is $10,000, and you paid $0.25 in taxes on the last dollar you earned, your a. marginal tax rate is 20 percent. b. average tax rate is 25 percent. c. average tax rate is 5 percent. d. marginal tax rate is 25 percent.

marginal tax rate is 25 percent.

Refer to Figure 14-1. If the market price falls below $6, the firm will earn a. zero economic profits in the short run. b. negative economic profits in the short run and shut down. c. positive economic profits in the short run. d. negative economic profits in the short run but remain in business.

negative economic profits in the short run and shut down.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which a. total revenue is equal to variable cost. b. profit is maximized. c. total revenue is equal to total cost. d. total revenue is equal to fixed cost.

profit is maximized

The accountants hired by Forever Fitness 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, Forever Fitness should

shut down because staying open would be more expensive.

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called a. explicit costs. b. sunk costs. c. implicit costs. d. opportunity costs.

sunk costs

A person's marginal tax rate equals a. her tax obligation divided by her income. b. the increase in taxes if her average tax rate were to rise by 1percent. c. the increase in taxes she would pay as a percentage of the rise in her income. d. her tax obligation divided by her average tax rate.

the increase in taxes she would pay as a percentage of the rise in her income.