AP Micro Unit 3

A firm is producing 100 units of output at a total cost of $400. The firm's average variable cost is $3 per unit. What is the firm's total fixed cost?

$100

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?

$125,000

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

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

$500

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 Responses

$60

The average total cost to the firm of producing 2 units of output is

$95.00

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is

20.00

If the product price is $85, how many units of output must the firm produce in order to maximize profits?

5

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

5 trains

Which of the following MUST be true of the long run?

All factors of production are variable.

For a perfectly competitive, increasing-cost industry, an increase in the industry's demand will lead to which of the following in the long run?

An upward shift in each firm's long-run average cost curve

Which of the following provides an example of the law of diminishing returns?

As more of a variable input—for example, labor is used with a fixed number of machines— output increases but at a diminishing rate.

If a firm's production function exhibits diminishing marginal product of the variable input in the short run, which of the following about the firm's short-run marginal cost (MC) curve must be true?

As output increases, the MC curve slopes upward.

When marginal product exceeds average product, which of the following must be true?

Average product is increasing.

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.

Suppose that price in a perfectly competitive industry decreases and it is now below minimum average total cost but remains above minimum average variable cost. Which of the following will occur in the short run?

Firms will produce the output at which marginal cost equals the new price.

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

I and IV only

The following questions refer to the graph below, which shows the cost curves of a firm. Which of the following will be true if the firm is in a perfectly competitive market and the price is P1?

In the long run, existing firms in the industry will produce an output level greater than Q1.

Which of the following is true of a firm in a perfectly competitive industry?

It faces a perfectly elastic demand curve.

In the short run, which of the following is true of a firm's average total cost of production?

It is equal to average fixed cost plus average variable cost.

The table above shows the short-run production function for picking apples. Based on the production data, which of the following statements about the marginal product of the fifth worker is true?

It is less than the marginal product of the third worker due to diminishing returns.

Which of the following is true about a firm's average variable cost?

It will equal average total cost when fixed costs are zero.

If a perfectly competitive firm increases its price above the market equilibrium price, which of the following will be true for this firm?

It will not be able to sell any output.

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?

Price: Increase Output: Increase Profit: Increase

Which of the following is a characteristic of firms in a perfectly competitive industry?

Producing identical products

When a perfectly competitive firm sells additional units of output, its total revenue will

increasing at a constant rate

Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the firm hires additional workers, one would expect the marginal product to

rise initially, but eventually fall

A firm is producing the allocatively efficient level of output if

price is equal to marginal cost

In microeconomics, the short run is defined as which of the following?

A period during which some inputs in a firm's production process cannot be changed

With capital held constant, when Zane employs one additional worker, the marginal product of labor decreases by 5 units. Which economic concept best characterizes Zane's production process?

Diminishing marginal returns

If a perfectly competitive industry is in long-run equilibrium, which of the following is most likely to be true?

Firms are earning a return on investment that is equal to their opportunity costs.

A perfectly competitive firm is producing 10units of output and sells the product for $5per unit. At this level of output the average total cost is $4, the average variable cost is $3 and the marginal cost is $7. What should this firm do to maximize short-run profits?

Decrease output until price is equal to marginal cost.

JC pizzeria has a year remaining on an unbreakable lease on its building, requiring a payment of $20,000 a year. If JC operates over the next year, it estimates that its revenues will be $200,000 and that its expenses, in addition to the lease, will be $190,000. Which of the following statements is true?

JC should operate, since its loss is less than its fixed cost.

The graph above shows the marginal product (MP) and the average product (AP) of labor for a firm that uses labor as the only variable input and hires its labor in a perfectly competitive market. At which quantity of labor does marginal cost change from decreasing to increasing?

L2

Which of the following indicates the presence of economies of scale as the quantity of output increases?

Long-run average total cost decreases.

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 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?

Marginal Cost: $25 Average Total Cost: $35

In the short run, a profit-maximizing firm, faced with U-shaped average cost curves, is producing a level of output at which the average total cost of production is minimized. At this level of output, which of the following is true for the firm?

Marginal cost equals average total cost.

Assume that labor is the only variable input. If a firm's short-run marginal cost is increasing as output rises, which of the following must be true?

Marginal product of labor is decreasing.

Assume Nadia voluntarily leaves a job with a salary of $100 per day to open and run a restaurant instead. After deducting all explicit costs from the restaurant revenues, Nadia has a gain of $120. Assuming there are no additional implicit costs, which of the following statements is true?

Nadia has an economic profit of $20

In the absence of barriers to entry, a typical firm is currently in long-run equilibrium. Assume there is an increase in the market demand for the good that the firm is producing. Which of the following will happen in the long run?

New firms will enter the market.

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?

Short Run Price: Decrease Short Run Industry Output: Decrease Movement Firms: Exit

Which of the following statements is true for a perfectly competitive firm but not true for a monopoly?

The firm cannot affect the market price for its good.

Under which of the following circumstances is a firm experiencing economics of scale?

The firm doubles its inputs, and output triples.

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.

Which of the following indicates that a firm is experiencing economies of scale?

The firm's long-run average total cost decreases as output increases.

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?

The firm's marginal costs will increase at each level of output.

Which of the following is true for a perfectly competitive, decreasing-cost industry?

The long-run market supply curve will be downward sloping.

Assume the marginal product of labor first rises, reaches a maximum, and then falls. If the average product of labor is falling, which of the following is true?

The marginal product of labor must be falling.

An increase in which of the following will cause a firm's marginal cost curve to shift upward?

The price of a variable input

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?

Total fixed cost

One characteristic of perfectly competitive markets is that individual firms

are free to enter or exit an industry in the long run

The following questions refer to the graph below, which shows the cost curves for a profit maximizing, perfectly competitive firm

average fixed cost of producing Q1 units of output

If the output of a firm doubles when the firm doubles all of its inputs, the firm must be experiencing

constant returns to scale

Question is based on the following graph, which shows a firm's marginal cost (MC), average total cost (ATC), and average variable cost (AVC). In the short run, the firm will

continue to produce as long as the price is greater than P2

If a perfectly competitive firm is producing where marginal cost is rising and greater than marginal revenue, to maximize profits it should

decrease the level of production

If a firm's long-run average total cost increases as output increases, the firm is experiencing

diseconomies of scale

The long-run average cost curve will be sloping downward if a firm experiences

economies of scale

When total physical product is at its maximum, marginal physical product must be

equal to zero

If total revenue is increasing as output increases, marginal revenue is always

greater than zero

The following question is based on the graph below showing the long-run adjustment of a constant-cost perfectly competitive industry. The long-run industry supply curve for corn is

horizontal

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

increase output to 18 units because this is the output at which price equals marginal cost