Test 3 Micro Econ
Rose, who grows geraniums to sell, is currently producing a level of output at which her marginal cost equals her average variable cost. What must be true about Rose's average total cost at this level of output? a. It is falling with increased output. b. It is equal to average variable cost. c. It is at a minimum. d. It is at a maximum.
a. It is falling with increased output.
As quantity increases, which of the following must be true if average total costs are rising? a. Marginal cost must be greater than average total cost. b. Average fixed cost must be increasing. c. Average fixed cost must be less than average variable cost. d. Marginal cost must be less than average total cost
a. Marginal cost must be greater than average total cost.
Refer to Exhibit 11-10. At output level 0Q, average variable cost equals: a. QE. b. QD. c. FE. d. QF.
a. QE.
The table below shows how total cost varies with output in a factory producing watches: Output Total Cost (Per Week) (Dollars) 0 $ 50 1 $ 60 2 $ 65 3 $ 69 4 $ 72 5 $ 95 6 $120 Refer to Exhibit 11-11. If the output equals four watches per week, then the average total cost of producing a watch equals: a. $72. b. $18. c. $3. d. $5.50.
b. $18.
A firm has $300 million in revenues and explicit costs of $100 million. If its owners have invested $150 million in the company at an opportunity cost of 10 percent a year, the firm's accounting profit is: a. $50 million. b. $200 million. c. $150 million. d. $185 million.
b. $200 million.
Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of $70,000. If he could have been paid $80,000 working for a computer company, his accounting profit as a contractor was ____ and his economic profit was ____. a. $10,000; $50,000 b. $50,000; -$30,000 c. $50,000; $40,000 d. $40,000; $50,000
b. $50,000; -$30,000
What do foregone interest on money invested in a firm, wages paid to production workers, interest paid on bank loans, and the purchase of parts for assembly have in common? a. All are explicit costs. b. All are opportunity costs. c. None are opportunity costs. d. All are implicit costs.
b. All are opportunity costs.
Why can't a firm in a perfectly competitive industry charge a price above the market-clearing price? a. Government-imposed price ceilings prevent prices from being raised. b. Numerous competitors produce the same product and charge the market price. c. Perfectly competitive firms are price searchers. d. Firms in a perfectly competitive industry face significant barriers to entry.
b. Numerous competitors produce the same product and charge the market price.
At the level of output where marginal revenue equals marginal cost, price is less than average total cost but greater than average variable cost. In this instance, a profit-maximizing firm should: a. cease production as it is incurring an economic loss. b. continue operating at that output level in the short term, since total revenue will cover all of the firm's variable costs and some of its fixed costs. c. decrease output to where marginal revenue exceeds marginal cost by the greatest dollar amount. d. continue operating at that output level in the short term, since total revenue will cover all of the firm's fixed costs and a portion of its variable costs.
b. continue operating at that output level in the short term, since total revenue will cover all of the firm's variable costs and some of its fixed costs.
"I'm losing money, but since my fixed costs are so high, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be: a. incorrect since a firm should shut down whenever price falls below average total cost in the short run. b. correct if the firm is covering all of its variable costs. c. correct if price is less than average variable cost. d. incorrect because a firm experiencing economic losses should never continue to operate.
b. correct if the firm is covering all of its variable costs.
Exhibit 11-2 # of Pickers Total # of Oranges Picked 1 5,000 2 10,000 3 15,000 4 19,000 5 20,350 6 27,000 7 30,000 8 31,000 9 30,000 Refer to Exhibit 11-2. The marginal product of labor begins to diminish with the addition of the ____ picker. a. fifth b. fourth c. seventh d. eighth
b. fourth
As exit from a perfectly competitive industry that is currently unprofitable pushes up the market price, producers will move from a situation where price ____ average total cost to one where price ____ average total cost. a. equals; exceeds. b. is less than; equals. c. exceeds; equals. d. equals; is less than.
b. is less than; equals.
The short run is a time period such that: a. the existing firms in the industry do not have sufficient time to adjust the quantity of any inputs which they employ. b. the existing firms in the market do not have sufficient time to increase the size of their existing plants or build new factories. c. new entrants have sufficient time to build factories and enter the industry. d. the existing firms in the industry do not have sufficient time to adjust their current rate of output.
b. the existing firms in the market do not have sufficient time to increase the size of their existing plants or build new factories.
Quantity of Bicycles (in thousands) 0 1 2 3 4 5 6 Total Cost of Production (in thousands) $5 $8 $12 $16.5 $20 $27.5 $36 Refer to Exhibit 11-13. What is the level of the firm's total fixed cost (in thousands)? a. $0 b. $25 c. $5 d. $8
c. $5
Which of the following most accurately describes the long-run period? a. In the long run, the firm is able to expand output by utilizing additional workers and raw materials, but not physical capital. b. The long run is a period of time in which a firm is unable to vary some of its factors of production. c. The long run is of sufficient length to allow a firm to alter its plant capacity and all other factors of production. d. The long run is of sufficient length to allow a firm to transform economic losses into economic profits.
c. The long run is of sufficient length to allow a firm to alter its plant capacity and all other factors of production.
Economic profits are equal to accounting profits: a. In all cases b. When implicit costs equal explicit costs c. When implicit costs are zero d. In no cases
c. When implicit costs are zero
Assume that the equilibrium price in a perfectly competitive industry is $4.25. If a firm in this industry produced and sold 10 units with an average total cost of $5.00, what would be the result would be: a. a profit of $0.75 b. a profit of $7.50 c. a loss of $7.50 d. a loss of $0.75
c. a loss of $7.50
Assume that a firm's total revenue is less than its total cost for the level of output it is producing. In the short run, this firm should: a. shut down. b. contract output. c. expand output. d. There is not enough information to answer the question.
d. There is not enough information to answer the question.
Refer to Exhibit 11-10. At output level 0Q, total variable cost equals: a. area ADEB. b. area CFQ0. c. area ADQ0. d. area BEQ0.
d. area BEQ0.
Economic profits are: a. greater than accounting profits even if implicit costs are zero. b. less than accounting profits even if implicit costs are zero. c. greater than accounting profits if implicit costs are greater than zero. d. less than accounting profits if implicit costs are greater than zero
d. less than accounting profits if implicit costs are greater than zero
The behavior of an individual perfectly competitive firm has a perceptible influence on the market price. a. True b. False
b. False
In the short run, some costs are fixed. a. True b. False
a. True
An economic profit of zero indicates a satisfactory situation for the firm. a. True b. False
a. True
If the marginal cost is less than average total cost, average total cost will decrease. a. True b. False
a. True
In the long run, firms can vary all inputs in the production process. a. True b. False
a. True
Campbell recently began running his brother's lumber mill. Last month he took in $10,000 in sales revenue and paid $6,800 in out-of-pocket costs. He made an economic profit last month if his implicit costs were: a. $2000. b. $4800. c. $6600. d. $3200.
a. $2000.
If average total costs are $40 and average variable cost are $20 at 10 units of output and the marginal cost of the 11th unit is $30, what is the average total cost of 11 units? a. $39.09 b. $20.09 c. $30.00 d. $23.00
a. $39.09
Which of the following statements is not characteristic of a perfectly competitive industry in long-run equilibrium?Ceteris paribus, there is no tendency for firms to either enter or exit the industry. a. A profit-maximizing firm may produce any output level at which P < LRATC. b. Ceteris paribus, there is no tendency for firms to either enter or exit the industry. c. No firm earns an economic profit. d. Every firm produces at an output level at which MC = LRATC.
a. A profit-maximizing firm may produce any output level at which P < LRATC.
In the table below, which of the following is true? Labor T-Shirts 3 150 4 210 5 300 6 360 7 390 a. The region of declining total product not illustrated anywhere in the available data. b. the marginal product of the 3rd worker is 50. c. the marginal product of the 5th worker is 60. d. the marginal product of the 7th worker is -30.
a. The region of declining total product not illustrated anywhere in the available data.
An economist's measurement of profit differs from an accountant's in that: a. accountants do not always include all of the opportunity costs when calculating total production costs. b. economists do not always include all of the opportunity costs when calculating total production costs. c. accountants calculate total revenue differently than do economists. d. economic profit generally exceeds accounting profit.
a. accountants do not always include all of the opportunity costs when calculating total production costs.
In long-run equilibrium, the perfectly competitive firm produces: a. at a level of output such that all of the above are true. b. where its long-run average cost curve is tangent to its horizontal demand curve. c. where P = MC = AC. d. at the lowest point on its long-run average cost curve.
a. at a level of output such that all of the above are true.
Marginal revenue for a perfectly competitive firm equals: a. average revenue at all levels of output. b. marginal cost at all levels of output. c. average total cost at all levels of output. d. the addition to total cost from producing one more unit of output.
a. average revenue at all levels of output.
A perfectly competitive firm faces a demand curve that is: a. horizontal and perfectly elastic. b. vertical and perfectly inelastic. c. horizontal and perfectly inelastic. d. vertical and perfectly elastic.
a. horizontal and perfectly elastic.
In a perfectly competitive market, in response to a permanent decrease in demand: a. the short run equilibrium price will be lower than the eventual long run equilibrium price. b. we cannot know whether the short run equilibrium price will be below the eventual long run equilibrium price. c. the short run equilibrium price will be higher than the eventual long run equilibrium price. d. the short run equilibrium price will be the same as than the eventual long run equilibrium price.
a. the short run equilibrium price will be lower than the eventual long run equilibrium price.
If perfectly competitive industry B is currently realizing economic profits, we would expect that: a. industry output will fall, good B will rise in price, and economic profits will tend to disappear. b. industry output will fall, good B will fall in price, and economic profits will tend to disappear. c. industry output will rise, good B will fall in price, and economic profits will tend to disappear. d. industry output will rise, good B will fall in price, and economic profits will tend to increase.
c. industry output will rise, good B will fall in price, and economic profits will tend to disappear.
Darlene runs a fruit and vegetable stand in a medium-sized community where there are many such stands. Her weekly total revenue equals $3,500. Her weekly total cost of running the stand equals $3,500, consisting of $2,500 of variable costs and $1,000 of fixed costs. An economist would likely advise Darlene to: a. keep the stand open for a while longer because she is covering all of her fixed costs and some of her variable costs. b. keep the stand open for a while longer because she is covering all of her variable costs and some of her fixed costs. c. keep the stand open because it is generating a normal profit. d. shut down as quickly as possible because the stand is generating losses.
c. keep the stand open because it is generating a normal profit.
Economists normally assume that the goal of a firm is to: a. sell as many units of output as possible. b. maximize sales revenue. c. maximize profits. d. sell products at the highest prices possible.
c. maximize profits.
Cassie produces and sells 400 jars of homemade jelly each month for $3 each. Each month, she pays $200 for jars, $150 for ingredients, and uses her own time, with an opportunity cost of $300. Her economic profits each month are: a. $850. b. $700. c. $900. d. $550
d. $550
Which of the following factors of production is not variable in the long run? a. land b. highly skilled labor c. the size of the firm's plant d. All factors are variable in the long run.
d. All factors are variable in the long run.
Farmer Brady sells wheat in a market where sellers are price takers. Which of the following is true in regard to Farmer Brady's production and pricing decisions? a. Since the market dictates the price of his product, Farmer Brady will have no incentive to minimize per-unit production costs. b. Since the market dictates the price of his product, Farmer Brady has no production decisions to make. c. Farmer Brady will be able to increase the total revenue from the sale of his wheat if he increases the price of the wheat. d. It would be senseless for Farmer Brady to try to increase sales by lowering the price of his product. His entire output can be sold at the market price.
d. It would be senseless for Farmer Brady to try to increase sales by lowering the price of his product. His entire output can be sold at the market price.
A firm replaces a machine by hiring 3 hourly production workers instead. a. Both its fixed and variable costs will fall. b. Its fixed costs will rise and its variable costs will fall. c. Both its fixed and variable costs will rise. d. Its fixed costs will fall and its variable costs will rise.
d. Its fixed costs will fall and its variable costs will rise.
In the short run, ATC is not always higher than a. AFC b. Zero c. AVC d. MC
d. MC
A firm is operating at a scale where diseconomies of scale are present. Which of the following could help explain what that means? a. The firm is operating at a scale where average total cost is constant as output expands. b. The firm is operating at a scale where the average total cost of production is falling as output expands. c. The firm is operating at a scale where total fixed costs are not minimized. d. The firm has grown so large that average total cost increases as output expands
d. The firm has grown so large that average total cost increases as output expands
