Unit 3 Econ

Which of the following statements about short-run costs is true?

Total fixed cost plus total variable cost equals total cost.

Economies of scale can be illustrated by

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

As a firm expands its output, it initially experiences economies of scale and then diseconomies of scale. The firm's long-run average cost curve is

downward sloping and then upward sloping

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 explains the difference between short-run and long-run costs?

All costs are variable in the long run but not in the short run.

Instead of being employed at a printing company at a salary of $25,000 per year, Sally starts her own printing firm. Rather than renting a building that she owns to someone else for $10,000 per year, she uses it as the location for her company. Her costs for workers, materials, advertising, and energy during her first year are $125,000. If the total revenue from her printing company is $155,000, her total economic profit is

-5000

In the short run, the firm will stop production when the price falls below

0D

According to the cost schedule in the table above, the firm's total fixed cost is

100

The table below is partially filled in with the different types of costs for a firm. Based on the information in the table, what is the marginal cost of producing the second unit?

50

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

7

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

AFC

When output is 3 units, which of the following is correct?

AVC 5 MC 7

Which of the following statements about cost is always true for both monopolies and perfectly competitive firms?

Average total cost equals marginal cost when average total cost is a minimum.

Which of the following is always true of the relationship between average and marginal costs?

Average variable costs are increasing when marginal costs are higher than average variable costs.

Firm XYZ produces and sells corn in a perfectly competitive market and hires its workers in a perfectly competitive labor market. Which of the following best describes the demand curve for XYZ's corn and XYZ's demand curve for labor?

B Demand for XYZ's CornXYZ's Labor DemandHorizontalDownward sloping

Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?

Decrease, decrease, exit

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.

Which of the following statements is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run profit-maximizing equilibrium?

Economic profits equal zero, and marginal revenue equals marginal cost.

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

Free entry and exit of firms

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? Price exceeds average total cost. Economic profits are zero. Marginal cost equals average total cost. New firms are likely to enter the market in the long run.

I and IV

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?

Increase, increase, increase

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.

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?

MC 25 ATC 35

When a competitive firm maximizes short-run economic profits, it produces at the output level where

MR=MC

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 a firm is maximizing short-run profits and that price is greater than average variable cost. Which of the following must be true at the firm's level of output?

Marginal revenue is equal to marginal cost.

Zucchini is produced in a perfectly competitive market with a downward-sloping demand curve and an upward-sloping supply curve. Dawson Farm is a typical perfectly competitive farm that produces and sells zucchini at the equilibrium price of

No buyer in the market is willing to pay more than $1.75 per pound for zucchini from Dawson Farm.

Which of the following market structures results in allocative efficiency?

Perfect compettion

The graph above shows the cost curves for May's Fruit Farm, where MC is marginal cost, ATC is average total cost, and AVC is average variable cost. May's short-run supply curve includes which of the following points?

STV

The graph above shows the cost curves for a competitive firm that produces 20 units of output. What are the total cost and the total fixed cost of producing 20 units of output?

TC 120 TFC 20

In the short run, assume diminishing marginal product of labor sets in with the hiring of the second worker. Which of the following will remain constant as a firm produces more output?

TFC

Which of the following is true for a perfectly competitive firm?

The firm is a price taker.

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.

If the price of a firm's variable input increases, which of the following will occur?

The firm will decrease its level of production.

If marginal revenue is equal to P1, all of the following statements are true EXCEPT:

The firm will increase production in the long run.

In the short run, which of the following must be true for a perfectly competitive firm that is maximizing profits?

The firm will produce where MR = MC as long as P is greater than average variable cost.

If accounting profit is greater than zero for a firm in a competitive industry, then which of the following must be true?

The firm's total revenue exceeds its explicit cost.

A perfectly competitive market in equilibrium is allocatively efficient and it maximizes

the sum of total consumer surplus and total producer surplus

The graph provided shows the demand (d), marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves for a perfectly competitive firm. In order to maximize short-run profits, this perfectly competitive firm should produce at which of the following quantities of production?

zero