APECON Unit 3

Given the information above, the average variable cost of 25 units of output is (A) $2 (B) $6 (C) $25 (D) $50 (E) $75

(A) $2

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? (A) $50 (B) $60 (C) $70 (D) $90 (E) $180

(A) $50

Which of the following must be true if at the tenth unit of output, marginal cost (MC) is $130 and average total cost (ATC) is $150? (A) ATC of producing the ninth unit is higher than $150. (B) ATC of producing the ninth unit is less than $150. (C) MC of producing the ninth unit is higher than $130. (D) The average variable cost of producing the tenth unit is higher than $150. (E) The average variable cost of producing the tenth unit is equal to $20.

(A) ATC of producing the ninth unit is higher than $150.

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? (A) As output increases, the MC curve slopes upward. (B) As output increases, the MC curve slopes downward and becomes flatter. (C) As output increases, the MC curve slopes downward and becomes steeper. (D) The MC curve is horizontal. (E) The MC curve is vertical.

(A) As output increases, the MC curve slopes upward.

If a typical firm in a perfectly competitive market earns positive economic profit in the short run, what will most likely happen in the long run? (A) Firms will enter the market and cause the price to fall. (B) Firms will enter the market and cause the price to rise. (C) Firms will exit the market and cause the price to fall. (D) Firms will exit the market and the cause price to rise. (E) There will be no change in the market because profit is maximized.

(A) Firms will enter the market and cause the price to fall.

At a perfectly competitive firm's current output level, average total cost is $15, average variable cost is $10, and marginal cost is $8 and increasing. If the product price is $15, what should this firm do to maximize profits? (A) Increase the quantity of output produced. (B) Increase the product price. (C) Decrease the product price to increase sales. (D) Shut down immediately. (E) Continue to produce at its current output level.

(A) Increase the quantity of output produced.

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? (A) Price: Increase, Output: Increase, Profit: Increase (B) Price: Increase, Output: Decrease, Profit: Decrease (C) Price: Increase, Output: Increase, Profit: Decrease (D) Price: No change, Output: Decrease, Profit: Decrease (E) Price: Decrease, Output: Increase, Profit: Increase

(A) Price: Increase, Output: Increase, Profit: Increase

Assume a perfectly competitive firm is currently producing 100 units of output. Its marginal cost is $6 and rising at that output quantity. Its average variable cost is $7 and its average fixed cost is $3. If the product's price is $6, which of the following will the firm do in the short run to maximize its profit? (A) Shut down (B) Produce, but less than 100 units of output (C) Produce more than 100 units of output (D) Continue to produce at exactly 100 units of output (E) Increase its p

(A) Shut down

A profit-maximizing firm is currently producing a quantity at which price is less than average variable cost. To maximize profit, the firm will do which of the following in the short run and the long run? (A) Shut down in the short run and exit the market in the long run. (B) Produce less quantity in the short run and increase its scale of production in the long run. (C) Produce more quantity in the short run and increase its scale of production in the long run. (D) Continue producing the sa

(A) Shut down in the short run and exit the market in the long run.

The following two questions refer to the cost and revenue conditions of a monopolistically competitive firm shown in the graph below. MC= marginal cost, ATC = average total cost, AVC =average variable cost, and MR = marginal revenue. The firm's profit-maximizing output in the short run is (A) zero, because P<AVC (B) Q1, because MR=MC (C) Q2, because P=MC (D) Q3, because MC=ATC (E) impossible to determine

(A) zero, because P<AVC

Habib withdrew $100,000 from his bank account paying 5% interest to purchase equipment for his construction company. If Habib earns an accounting profit of $10,000 and he has no other opportunity costs, his economic profit will be equal to (A) $0 (B) $5,000 (C) $15,000 (D) $105,000 (E) $115,000

(B) $5,000

The marginal revenue of the third unit of output is (A) $3 (B) $8 (C) $10 (D) $17 (E) $24

(B) $8

Bruce is a talented writer and graphic artist who enjoys both types of work equally. Instead of earning $45,000 as a writer, Bruce now earns $25,000 in accounting profits as a graphic artist using the same computer equipment he would have used as a writer. What is Bruce's economic profit from choosing to work as a graphic artist? (A) -$45,000 (B) -$20,000 (C) $20,000 (D) $45,000 (E) $70,000

(B) -$20,000

Given the production schedule above, what is the maximum number of workers the firm can hire before the effects of diminishing marginal returns set in? (A) 1 (B) 2 (C) 3 (D) 4 (E) 5

(B) 2

The table above shows a firm's short-run production function using labor as the only variable input. The marginal product of the third worker is (A) 5 units (B) 7 units (C) 9 units (D) 20 units (E) 27 units

(B) 7 units

The table below shows a competitive firm's total variable cost (TVC) and total fixed cost (TFC) at various units of output. When output is 3 units, which of the following is correct? (A) Average variable cost: 5 Marginal cost: 6 (B) Average variable cost: 5 Marginal cost: 7 (C) Average variable cost: 6 Marginal cost: 5 (D) Average variable cost: 7 Marginal cost: 7 (E) Average variable cost: 7 Marginal cost: 6

(B) Average variable cost: 5 Marginal cost: 7

A graph shows quantity of output produced on the horizontal axis and shows total variable cost and total cost on the vertical axis. Which of the following is true about the vertical distance between total variable cost and total cost as output increases? (A) It decreases. (B) It remains constant. (C) It increases. (D) It decreases and then increases. (E) It increases and then decreases.

(B) It remains constant.

Which of the following is true when total product is at its maximum? (A) Marginal product is at its maximum. (B) Marginal product is equal to zero. (C) Marginal product is equal to average product. (D) Average product is increasing. (E) Average product is equal to zero.

(B) Marginal product is equal to zero.

The graph above shows per unit cost information for firm X. At what quantity of output do diminishing returns begin for firm X? (A) Q1 (B) Q2 (C) Q3 (D) Q4 (E) Q5

(B) Q2

A perfectly competitive firm's short-run supply curve is the portion of the marginal cost curve that is (A) above the average total cost curve (B) above the average variable cost curve (C) above the minimum average fixed cost curve (D) above the demand curve (E) between the average fixed cost curve and the average variable cost curve

(B) above the average variable cost curve

The table below shows the long-run total cost function of a firm. The firm's cost function exhibits. (A) diseconomies of scale (B) constant returns to scale (C) economies of scale (D) decreasing marginal cost (E) increasing marginal cost

(B) constant returns to scale

The graph above shows the short-run cost curves for a perfectly competitive firm. Assume that the market price is P0 and the firm is producing at quantity Q0. To maximize profit, the firm should (A) increase production to quantity Q3, where average total cost is at its minimum (B) increase production to quantity Q2, where price is equal to marginal cost (C) increase production to quantity Q1, where average variable cost is at its minimum (D) shut down and incur losses equal to fixed costs (

(B) increase production to quantity Q2, where price is equal to marginal cost

Kieran owns and operates his own bike shop. In the past week, a competitor offered to buy Kieran's bike shop for $100,000 and hire Kieran for $50,000 per year. Assume the annual interest rate is 6 percent, and Kieran's accounting profit from his bike shop is $60,000. Kieran's economic profit is (A) −$96,000 (B) −$90,000 (C) $4,000 (D) $10,000 (E) $60,000

(C) $4,000

If there is only one variable input, diminishing marginal returns first occur with the production of which unit of output? (A) 7th (B) 6th (C) 5th (D) 4th (E) 3rd

(C) 5th

A competitive profit-maximizing firm is currently producing at an output level at which the marginal revenue is equal to marginal cost. Which of the following changes will NOT affect the profit-maximizing quantity? (A) An increase in the price (B) An increase in variable costs (C) An increase in fixed costs (D) An increase in labor productivity (E) An increase in the firm's revenues

(C) An increase in fixed costs

The firm's short-run supply curve is which of the following? (A) The AVC curve above P1 (B) The AVC curve above P2 (C) The ATC curve above P3 (D) The MC curve above P2 (E) The MC curve above P3

(D) The MC curve above P2

Which of the following is true about economies of scale and increasing returns to scale? (A) Economies of scale and increasing returns to scale are the same thing. (B) Economies of scale refers to the relationship between inputs and output. Increasing returns to scale refers to the relationship between long-run average total cost and the size of the firm. (C) Economies of scale refers to the relationship between long-run average total cost and the size of the firm. Increasing returns to scale

(C) Economies of scale refers to the relationship between long-run average total cost and the size of the firm. Increasing returns to scale refers to the relationship between inputs and output.

Which of the following is ignored when calculating accounting profit? (A) Total revenue (B) Variable costs (C) Implicit costs (D) Fixed costs (E) Total costs

(C) Implicit costs

If individual firms in a perfectly competitive market are earning positive economic profits, the number of firms and the price of the product in the market will most likely change in which of the following ways in the long run? (A) Number of firms: Increase, Price: Increase (B) Number of firms: Decrease, Price: Increase (C) Number of firms: Increase, Price: Decrease (D) Number of firms: Decrease, Price: Decrease (E) Number of firms: No change, Price: Decrease

(C) Number of firms: Increase, Price: Decrease

The graph shows a firm in a perfectly competitive industry. Assume all the firms in the industry have identical costs. Given the price ⁢P4, what is a firm's profit-maximizing quantity of output? (A) Q1 (B) Q2 (C) Q3 (D) Q4 (E) 0

(C) Q3

A firm has only five possible factory (plant) sizes to choose from, represented by the short-run average total cost (SRATC) curves on the long-run average total cost (LRATC) curve shown on the graph below. The firm's minimum efficient scale occurs on (A) SRATC1 (B) SRATC2 (C) SRATC3 (D) SRATC4 (E) SRATC5

(C) SRATC3

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? (A) TW (B) RST (C) STV (D) STW (E) RSVT

(C) STV

Which of the following best explains why a firm's short-run marginal cost curve shifts down when it purchases new, more efficient equipment and experiences an increase in its total cost? (A) The situation represents an exception to the law of diminishing returns. (B) The average total cost curve shifts upward as a result of the equipment purchase, and there is a movement up along the marginal cost curve. (C) The equipment purchase is a fixed cost, and the new equipment will cause a reductio

(C) The equipment purchase is a fixed cost, and the new equipment will cause a reduction in the cost of producing each additional unit.

At the current quantity that a firm is selling, the firm has marginal revenue of $750 and marginal cost of $800. Which of the following is true? (A) The firm is maximizing profit. (B) The firm's profits would increase if the firm increased the quantity sold. (C) The firm's profits would increase if the firm decreased the quantity sold. (D) The firm earns negative economic profit. (E) The firm earns zero accounting profit.

(C) The firm's profits would increase if the firm decreased the quantity sold.

When the marginal cost curve lies below the average total cost curve, it is true that as output increases (A) marginal cost is decreasing (B) marginal cost is increasing (C) average total cost is decreasing (D) average total cost is increasing (E) average variable cost is decreasing

(C) average total cost is decreasing

In the short run, the firm will (A) shut down if the price falls below P3 (B) continue to produce as long as the price is greater than P1 (C) continue to produce as long as the price is greater than P2 (D) earn economic profits as long as the price is greater than P2 (E) cover its fixed cost as long as the price is less than P3

(C) continue to produce as long as the price is greater than P2

According to the cost schedule in the table above, the firm's total fixed cost is (A) increasing (B) decreasing (C) $90 (D) $100 (E) impossible to determine

(D) $100

A perfectly competitive firm operates with a fixed amount of capital that costs $1,000 per day. Labor is the only variable input. The firm hires labor in a perfectly competitive labor market at $100 per day per worker. The table below shows the firm's production function. What is the marginal product of the third worker? (A) 5 (B) 10 (C) 20 (D) 24 (E) It cannot be determined from the information given.

(D) 24

The firm's profit maximizing quantity is (A) 2 (B) 3 (C) 4 (D) 5 (E) 6

(D) 5

At a firm's current output level, average fixed cost is $10, average variable cost is $30, average total cost is $40, and marginal cost is $55. Which of the following must be true? (A) Average fixed cost, average variable cost, and average total cost are all decreasing. (B) Average fixed cost, average variable cost, and average total cost are all increasing. (C) Average fixed cost and average total cost are both decreasing, while average variable cost is increasing. (D) Average fixed cost is

(D) Average fixed cost is decreasing, and both average variable cost and average total cost are increasing.

Which of the following is true for a firm that uses labor as a variable input and capital as a fixed input in the short run? (A) If the marginal product of labor is negative, the average product of labor must also be negative. (B) If the marginal product of labor is rising, the average product of labor must be greater than the marginal product of labor. (C) If the average product of labor is rising, the marginal product of labor must be rising. (D) If the average product of labor is falling,

(D) If the average product of labor is falling, the marginal product of labor must be less than the average product of labor.

A profit-maximizing, perfectly competitive firm is currently in long-run equilibrium. It is earning $15,000 of total revenue from a sale of 1,000 units. Its total fixed cost of production is $2,500. Which of the following can correctly be inferred from the information provided? (A) Its marginal cost is $12.50, and its average total cost is $12.50. (B) Its marginal cost is $12.50, and its average variable cost is $12.50. (C) Its marginal cost is $15.00, and its average total cost is $12.50. (

(D) Its marginal cost is $15.00, and its average variable cost is $12.50.

How many units of output should a firm with the cost and demand curves shown above produce to maximize profit? (A) 0 (B) Q1 (C) Q2 (D) Q3 (E) Q4

(D) Q3

Currently, XYZ Corporation can produce 50 units of output using 20 workers and 8 units of capital. Which of the following changes in the number of workers, units of capital, and quantity of output are consistent with constant returns to scale? (A) Workers: 40 Capital: 8 Output: 100 (B) Workers: 40 Capital: 16 Output: 90 (C) Workers: 20 Capital: 4 Output: 25 (D) Workers: 10 Capital: 4 Output: 25 (E) Workers: 10 Capital: 8 Output: 25

(D) Workers: 10 Capital: 4 Output: 25

Economies of scale can be illustrated by (A) an increasing short-run marginal cost curve as a firm produces more output (B) a decreasing short-run average total cost curve as a firm produces more output (C) a downward-sloping long-run supply curve for an industry (D) a decreasing long-run average total cost curve as a firm produces more output (E) an increasing long-run average total cost curve as a firm produces more output

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

The average fixed cost of producing four units of output is equal to (A) $120 (B) $95 (C) $75 (D) $50 (E) $30

(E) $30

Jamal quits a job that was paying him $30,000 per year and decides to start his own business. He runs his business out of his house in a room he had been renting to his colleague for $12,000 a year. Jamal withdraws the $20,000 in his savings account that had been earning him a 10 percent annual interest to purchase computers and related accessories and equipment for the business. During the first year of operation, Jamal's business incurred $30,000 in explicit costs and generated $60,000 in to

(E) -$14,000

Given a short-run production function, which of the following is true when total product is increasing at a decreasing rate? (A) Average product must be positive and increasing. (B) Average product must be negative and decreasing. (C) Marginal product must be negative and decreasing. (D) Marginal product must be positive and increasing. (E) Marginal product must be positive and decreasing.

(E) Marginal product must be positive and decreasing.

In a comparison of a profit-maximizing perfectly competitive firm's short-run equilibrium to its long-run equilibrium, which of the following is true? (A) Price must equal marginal cost in the long run, but not necessarily in the short run. (B) Economic profit must be positive in the long run, but not necessarily in the short run. (C) The firm can set price in the short run, but not necessarily in the long run. (D) The firm must produce at minimum average total cost in the short run, but not

(E) Price equals average total cost in the long run, but not necessarily in the short run.

A firm has only five possible factory (plant) sizes to choose from, represented by the short-run average total cost (SRATC) curves on the long-run average total cost (LRATC) curve shown on the graph below. Which of the following ranges of output illustrates diseconomies of scale? (A) Q1 to Q2 (B) Q1 to Q3 (C) Q2 to Q3 (D) Q2 to Q4 (E) Q3 to Q5

(E) Q3 to Q5

The graph shows a firm in a perfectly competitive industry. Assume all the firms in the industry have identical costs. Firms will have no incentive to exit or enter this market if the price in this market is (A) above P4 (B) below P2 (C) between P2 and P3 (D) equal to marginal cost (E) equal to average total cost

(E) equal to average total cost

The characteristic that causes firms in a perfectly competitive industry to earn zero economic profits in the long run is (A) firms are price takers (B) firms produce identical products (C) individual firms account for a small fraction of the total market (D) the industry supply curve is horizontal (E) there are no barriers to entry or exit

(E) there are no barriers to entry or exit