AP MICRO

Which of the following MUST be true of the long run? A It is at least one year in duration. B All factors of production are variable. C At least one factor of production is fixed. D Marginal costs are constant. E Average total costs are constant.

b

Marginal cost is defined as the A change in total cost resulting from producing an additional unit of output B change in total cost resulting from using an additional unit of input C difference between total cost and total variable cost D difference between total variable cost and total fixed cost E difference between average total cost and average variable cost divided by output

A

Which of the following are characteristics of a perfectly competitive industry? New firms can enter the industry easily. There is no product differentiation. The industry's demand curve is perfectly elastic. The supply curve of an individual firm in the industry is perfectly elastic. A I and II only B I and III only C II and IV only D I, II, and IV only E I, III, and IV only

A

Which of the following factors can cause a firm's cost curves to shift upward? A An increase in wages B An increase in the firm's output C An increase in the output price D A decrease in the firm's output E A decrease in the price of energy

A

A firm produces 400 books and sells each book for $15. If the explicit cost of producing the books is $4,500 and the implicit cost is $1,000, the firm's economic profit is A $0 B $500 C $1,000 D $1,500 E $5,000

B

At the current production level of good X, price is greater than marginal cost. Which of the following actions would lead to greater efficiency? A Decreasing the production of good X B Increasing the production of good X C Maintaining the current level of production of good X D Imposing a tax on the production of good X E Imposing an effective price floor on good X

B

Beyond a certain level of output, the short-run marginal cost will rise because A there is no fixed input and costs will increase B at least one input is fixed and eventually diminishing returns will occur C the cost of the variable input increases when marginal product increases D the demand for the good decreases when production is limited E input prices increase when production increases and consumption is limited

B

Refer to the following diagram and assume a perfectly competitive market structure. At the price 0A, economic profits are A ABJG B ABKH C ABLI D ACMG E C0FM

B

The following question refers to the diagram below, which shows the demand and cost curves for a profit-maximizing firm. Which of the following statements best describes the graph? A Economic losses are incurred, and the firm will increase price until no losses are incurred. B Economic losses are incurred, and exit of firms from the market will cause prices to increase in the long run. C Economic profits are earned, and costs will increase until no profits are earned. D Economic profits are earned, and entry of firms into the market will cause prices to decrease in the long run. E Economic profits are earned, and neither exit nor entry of firms will occur in the long run.

B

Under which of the following circumstances is a firm experiencing economics of scale? A The firm increases only its labor input, and output decreases. B The firm doubles its inputs, and output triples. C The firm builds a new plant, and the average cost of production increases. D The firm hires a new plant manager, and profits increase. E The product price increases, and the firm increases its output.

B

Which of the following is true for a perfectly competitive firm in long-run equilibrium? A It earns positive economic profit. B It is allocatively efficient. C It experiences economic losses. D It is productively inefficient. E It maximizes revenues.

B

Which of the following statements is true about a firm that sells its output in a perfectly competitive market? A The demand for its product is a downward-sloping function. B The firm will earn zero economic profits in long-run equilibrium. C Advertising is an important tool of the firm. D The firm will increase its total economic profits if it charges a price that is lower than the market price. E The marginal revenue that firm receives from selling an additional unit of output will be different from the price at which it sells that unit.

B

As output of a firm increases, the difference between the firm's average total cost and its average variable cost gets smaller because the firm's A total cost is increasing B marginal cost is increasing C average fixed cost is decreasing D marginal product of labor is decreasing E long-run average total cost is decreasing

C

Assume that a firm uses only one variable input. If a firm is experiencing diminishing returns, which of the following is true as more of the variable input is used? A Marginal cost will decrease at a constant rate. B Marginal cost will decrease at a diminishing rate. C Marginal cost will increase. D Marginal product will increase at a constant rate. E Marginal product will increase at a diminishing rate.

C

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? A Marginal CostAverage Total Cost$35$40 B Marginal CostAverage Total Cost$35$35 C Marginal CostAverage Total Cost$25$35 D Marginal CostAverage Total Cost$25$25 E Marginal CostAverage Total Cost$10$25

C

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output? A $2 B $5 C $7 D $9 E $12

C

At 100 units of output, a firm's total cost is $10,000. If the firm's total fixed cost is $4,000, its average variable cost is equal to A $140 B $100 C $60 D $40 E $0

C

Given the cost and demand schedules depicted above, if the firm increased output from q1 to q2, it would A earn a normal profit B experience an increase in profits C experience a decline in profits D increase revenues but not costs E increase costs but not revenues

C

If a perfectly competitive industry is in long-run equilibrium, which of the following is most likely to be true? A Some firms can be expected to leave the industry. B Individual firms are not operating at the minimum points on their average total cost curves. C Firms are earning a return on investment that is equal to their opportunity costs. D Some factors are not receiving a return equal to their opportunity costs. E Consumers can anticipate price increases.

C

If the output of a firm doubles when the firm doubles all of its inputs, the firm must be experiencing A economies of scale B increasing returns to scale C constant returns to scale D decreasing returns to scale E diseconomies of scale

C

In the short run in perfect competition, the industry's demand curve and a firm's demand curve have which of the following slopes? A Industry's Demand CurveFirm's Demand CurveHorizontalDownward sloping B Industry's Demand CurveFirm's Demand CurveHorizontalHorizontal C Industry's Demand CurveFirm's Demand CurveDownward slopingHorizontal D Industry's Demand CurveFirm's Demand CurveDownward slopingDownward sloping E Industry's Demand CurveFirm's Demand CurveVerticalHorizontal

C

In the short run, which of the following is true of a firm's average total cost of production? A It is equal to marginal cost plus average variable cost. B It is equal to marginal cost plus average fixed cost. C It is equal to average fixed cost plus average variable cost. D It always increases when a firm increases production. E It is zero if the firm shuts down.

C

Locotek produces toy trains and pays each worker $350 per week. Five workers can produce 40 trains per week and six workers can produce 45 trains per week. The marginal product per week of the sixth worker is A $70 B $350 C 5 trains D 7.5 trains E 42.5 trains

C

The following questions are based on the table below, which gives cost information for a perfectly competitive firm. The average total cost to the firm of producing 2 units of output is A $35.00 B $85.00 C $95.00 D $100.00 E $130.00

C

The relationship in the graph above best illustrates the economic concept of A opportunity cost B diminishing marginal utility in consumption C diminishing marginal returns in production D production possibilities E comparative advantage

C

Which of the following is a result of increasing returns to scale? A Upward-sloping short-run marginal cost curve B Downward-sloping marginal physical product of labor curve C Downward-sloping long-run average total cost curve D Diseconomies of scale E Diminishing returns

C

If the marginal cost of producing the first unit of some good is $20 and the marginal cost of producing the second unit is $30, the average variable cost of producing 2 units is A $5 B $10 C $20 D $25 E $50

D

In microeconomics, the short run is defined as which of the following? A A period that is less than one year B A period that is between one year and four years C A period that is too short for a firm to be able to change its level of output D A period during which some inputs in a firm's production process cannot be changed E A period during which a firm's fixed costs exceed its variable costs

D

Refer to the following diagram and assume a perfectly competitive market structure. In the short run, the firm will stop production when the price falls below A 0A B 0B C 0C D 0D E 0E

D

Shelby is an entrepreneur who has decided to open a small advertising firm. She rents office space at a cost of $25,000 per year, she has employed an assistant at a salary of $30,000 per year, and she incurs annual utility and office supply expenses of $20,000. Her best alternative is to work elsewhere and to earn a salary of $50,000 per year. How much annual revenue must her firm receive so that Shelby earns zero economic profit? A $50,000 B $75,000 C $100,000 D $125,000 E $150,000

D

The diagram above shows a perfectly competitive firm's short-run cost curves. If the price of the output increases from $8 to $10, the profit-maximizing firm will A continue producing 15 units because average total cost is a minimum B continue producing 15 units because average total cost is equal to marginal cost C increase output to 20 units because this is the output at which price equals average total cost D increase output to 18 units because this is the output at which price equals marginal cost E decrease output to 10 units because this is the output at which average variable cost is at a minimum

D

Which of the following is always true of the relationship between average and marginal costs? A Average total costs are increasing when marginal costs are increasing. B Marginal costs are increasing when average variable costs are higher than marginal costs. C Average variable costs are increasing when marginal costs are increasing. D Average variable costs are increasing when marginal costs are higher than average variable costs. E Average total costs are constant when marginal costs are constant.

D

he following questions are based on the table below, which gives cost information for a perfectly competitive firm. If the product price is $85, how many units of output must the firm produce in order to maximize profits? A 0 B 3 C 4 D 5 E 6

D

A farmer produces peppers in a perfectly competitive market. If the price falls, in the short run the farmer should A increase production until the new price equals average revenue B increase production to offset the fall in price C discontinue production if the new price is less than marginal revenue D continue to produce only if the new price covers average fixed costs E continue to produce only if the new price covers average variable costs

E

Based on the cost and output data in the table above, a perfectly competitive firm will shut down if price falls below A $30 B $20 C $18 D $16 E $15

E

When a perfectly competitive firm sells additional units of output, its total revenue will A remain constant B increase rapidly at first, then decline C increase at a decreasing rate D increasing at an increasing rate E increasing at a constant rate

E

Which of the following is true about a firm's average variable cost? A It will rise if marginal cost is less than average variable cost. B It will never equal the firm's marginal cost. C It will decline when the firm's marginal product declines. D It will be negative if marginal revenue declines. E It will equal average total cost when fixed costs are zero.

E