ECO 3101 Final

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In a perfectly competitive market, A) firms can freely enter and exit. B) firms sell a differentiated product. C) transaction costs are high. D) All of the above.

A

An isoquant:

A curve that shows all the combinations of inputs that yield the same total output

A price taker is:

A firm that cannot influence the market price A perfectly competitive firm

Which of the following costs always declines as output increase?

Average fixed cost

An isoquant represents levels of capital and labor that A) have constant marginal productivity. B) yield the same level of output. C) incur the same total cost. D) All of the above.

B

If firms in a competitive market are not identical, then an increase in cost will ______ in the long run. A) shift marginal cost to the right. B) push the most inefficient firms out of the market. C) push the most efficient firms out of the market. D) Need more information.

B

The marginal rate of technical substitution always equals A) the slope of the total product curve. B) the ratio of the marginal products of inputs. C) the change in output due to a change in the amount of one input. D) the distance between two isoquant

B

Variable costs are A) a production expense that does not vary with output. B) a production expense that changes with the quantity of output produced. C) equal to total cost divided by the units of output produced. D) the amount by which a firm's cost changes if the firm produces one more unit of output.

B

A horizontal marginal revenue curve for a firm implies that A) the firm is a monopoly. B) the market the firm is operating in is not competitive. C) the firm is selling in a competitive market. D) the products of that firm are very different from other firms' products.

C

Economists proclaim that competitive firms make zero economic profit in the long run. This shows how A) detached economists are from the real world. B) unrealistic economic theory is. C) firms cover all their cost, both monetary and non-monetary. D) firms cover only monetary cost when economic profits are zero

C

If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be true at that level of output? A) p > MC. B) MR > MC. C) p ≥ AVC. D) All of the above.

C

If a firm makes zero economic profit, then the firm A) has total revenues greater than its economic costs. B) must shut down. C) can be earning positive business profit. D) must have no fixed costs.

C

Suppose a firm can only vary the quantity of labor hired in the short run. An increase in the cost of capital will A) increase the firm's marginal cost. B) decrease the firm's marginal cost. C) have no effect on the firm's marginal cost. D) More information is needed to answer the question.

C

The competitive firm's supply curve is equal to A) its marginal cost curve. B) the portion of its marginal cost curve that lies above AC. C) the portion of its marginal cost curve that lies above AVC. D) the portion of its marginal cost curve that lies above AFC.

C

Technological improvement:

Can hide the presence of diminishing returns. Allows more output to be produced with the same combination of inputs. Can be shown as a shift in the total product curve

Which of the following inputs are variable in the long run?

Capital and equipment, plant size, labor

If the inverse demand function for a monopoly's product is p = a - bQ, then the firm's marginal revenue function is ___________. A) a B) a - (1/2)bQ C) a - bQ D) a - 2bQ

D

In the long run, profits will equal zero in a competitive market because of A) constant returns to scale. B) identical products being produced by all firms. C) the availability of information. D) free entry and exit.

D

L-shaped isoquants imply that production requires that the inputsA) are perfect substitutes. B) are imperfect substitutes. C) cannot be used together. D) must be used together in a certain proportion.

D

Suppose there are 20 (identical) competitive firms in a market. The supply curve of each firm is p = 12q. The market supply will be equal to ________. A) P = 10Q B) P = 110Q C) Q = 110P D) Q = 40P

D

The slope of the total product curve always equals A) the ratio of the marginal product and the average product. B) the change in input divided by the change in output. C) the average product of the input. D) the marginal product of the input.

D

What is a key assumption of a perfectly competitive market?

Each seller has a very small share of the market

Which of the following costs are always increasing as output increases?

Total costs and variable costs

A function that indicates the maximum output per unit of time that a firm can produce for every combination of inputs with a given technology, is called:

a production function

The short run is:

a time period in which at least one input is fixed

As we move downward along a typical isoquant the slope of the isoquant:

becomes flatter

If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is:

continue operating but plan to go out of business

The perfectly competitive firm's marginal revenue curve is:

horizontal

A production function defines the output that can be produced....

if the firm is technically efficient

The slope of the total product curve is the:

marginal product

The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the:

marginal rate of technical substitution

The total cost of producing a given level of output is:

minimized when the ratio of marginal product to input price is equal for all inputs

In the short run, a perfectly competitive firm earning positive economic profit is:

on the up-ward sloping portion of its ATC

Fixed costs are fixed with respect to changes in:

output

When an isocost line is just tangent to an isoquant, we know that:

output is being produced at minimum cost

Revenue is equal to:

price X quantity

The marginal rate of technical substitution is equal to the:

ratio of the marginal products of the inputs

A production function assumes a given....

technology

The marginal product of an input is:

the addition to total output due to the addition of the last unit of an input, holding all other inputs constant

If a graph of a perfectly competitive firms shows that the MR=MC point occurs where MR is above AVC but below ATC

the firm is earning negative profit, but will continue to produce where MR=MC in the short run

According to the law of diminishing returns:

the marginal product of an input will eventually decline

The difference between the economic and accounting costs of a firm are:

the opportunity costs of the factors of production that the firm owns

When the TR and TC curves have the same slope,

they are the furthest from each other

An L-shaped isoquant:

would indicate that capital and labor cannot be substituted for each other in production


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