ECON 101 Exam 3

40. (Table: Soybean Cost) Look at the table Soybean Cost. What is the shut-down price for this farmer? A) $10 B) $11 C) $12 D) $13

A) $10

12. If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its marginal revenue is: A) $10. B) more than $10. C) less than $10. D) $300.

A) $10.

Output and Costs ------------------------ Q FC VC TC MC ------------------------ 1 20 10 30 ______ 2 20 18 38 3 20 31 --- 13 4 20 68 17 41. (Table: Output and Costs) Look at the table Output and Costs. When output is 4, total variable cost equals: A) $48. B) $38. C) $58. D) $28.

A) $48.

20. Mikail's perfectly competitive camera memory card-producing factory is making positive economic profits. If the price of memory cards is $9, if Mikail's output is 3,000 cards a month, and if his monthly average total cost is $7, what are his monthly profits? A) $6,000 B) $27,000 C) $21,000 D) $2

A) $6,000

3. After earning your BA, you have to decide whether to take a job that will pay you $45,000 per year or spend an additional two years earning an MBA. If you decide to pursue the graduate degree, your annual expenses for tuition, books, board, and lodging will be $32,000. You have been offered a scholarship for $10,000 per year, but to pay the remaining $22,000 per year, you would have to cash in savings bonds from your grandparents that have been earning $500 in interest per year. The annual opportunity cost of earning your MBA is: A) $67,500. B) $77,000. C) $99,000. D) $77,500.

A) $67,500.

5. Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in Orlando. Sarah's husband, an economist, claims Sarah lost $43,002 running her pottery studio. This means her husband is claiming that she incurred _____ in _____ costs. A) $86,004; implicit B) $43,002; implicit C) $43,002; explicit D) $86,004; explicit

A) $86,004; implicit

Use the following to answer questions 16-17: Total Product and Marginal Product ——————————————————————- Labor per day Total Products (units per period) ——————————————————————- 0........................... 0 1........................... 10 2........................... 30 3........................... 70 4........................... 90 5........................... 100 6........................... 107 7........................... 110 8........................... 105 16. (Table: Total Product and Marginal Product) Look at the table Total Product and Marginal Product. The marginal product of the fourth worker is _____ units. A) 20 B) 22.5 C) 50 D) 90

A) 20

25. Once diminishing returns have set in, as output increases, the total cost curve: A) gets steeper. B) gets flatter. C) becomes horizontal. D) increases at first, and then decreases.

A) gets steeper.

17. If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: A) produce at a loss. B) produce at a profit. C) shut down production. D) produce more than the profit-maximizing quantity.

B) produce at a profit.

4. Magnificent Blooms is a florist specializing in floral arrangements for weddings, graduations, and other events. Magnificent Blooms has a fixed cost associated with space and equipment of $100 per day. Each worker is paid $50 per day. The daily production function for Magnificent Blooms is shown in the accompanying table. Calculate the marginal product of each worker. What principle explains why the marginal product per worker declines as the number of workers employed increases?

C. the principle of diminishing returns

23. Consider a perfectly competitive firm in the short run. Assume that it is sustaining economic losses but continues to produce at the profit-maximizing (loss-minimizing) output. Which statement is FALSE? A) Marginal cost is less than average total cost. B) Marginal cost is equal to marginal revenue. C) Price is equal to marginal cost. D) Marginal cost is less than average variable cost.

D) Marginal cost is less than average variable cost.

2. Which of the following statements about opportunity cost is FALSE? A) Opportunity cost may be larger than monetary cost. B) Opportunity cost includes both explicit and implicit costs. C) The real or opportunity cost of something is what you must give up to get it. D) Opportunity cost is synonymous with explicit cost.

D) Opportunity cost is synonymous with explicit cost.

4. Which of the following is NOT a characteristic of a perfectly competitive industry? A) Firms seek to maximize profits. B) Profits may be positive in the short run. C) There are many firms. D) Products are differentiated.

D) Products are differentiated.

27. The change in total output resulting from a one-unit increase in the quantity of an input used, holding the quantities of all other inputs constant, is: A) average cost. B) average product. C) marginal cost. D) marginal product.

D) marginal product.

13. An input whose quantity can be changed in the short run is a(n) _____ input. A) marginal B) fixed C) incremental D) variable

D) variable

30. (Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $14, in the short run, the farmer will produce _____ of corn and earn an economic _____ equal to _____. A) 4 bushels; profit; $0 B) 4 bushels; profit; just less than $80 per bushel C) 2 bushels; profit; $0 D) 2 bushels; loss; just more than $80 per bushel

A) 4 bushels; profit; $0

28. Which of the following is TRUE? A) If price falls below average variable cost, the firm will shut down in the short run. B) Total revenue and marginal revenue are the same in perfect competition. C) Economic profit per unit is found by subtracting MC from price. D) Economic profit is always positive in the long run.

A) If price falls below average variable cost, the firm will shut down in the short run.

28. Which of the following statements is FALSE? A) When the marginal product of labor is upward-sloping, the marginal cost curve is upward-sloping. B) The average fixed cost curve is downward-sloping and approaches the horizontal axis. C) The marginal cost curve intersects the average variable cost curve at the minimum of average variable cost. D) When the marginal cost curve is above the average cost curve, the average cost curve is upward-sloping.

A) When the marginal product of labor is upward-sloping, the marginal cost curve is upward-sloping.

33. The _____ cost curve is NOT affected by diminishing returns. A) average fixed B) average variable C) average total D) marginal

A) average fixed

37. If marginal cost is GREATER THAN average total cost: A) average total cost is increasing. B) average total cost is decreasing. C) average total cost is unchanged. D) marginal cost is decreasing.

A) average total cost is increasing.

22. Zoe's Bakery determines that P < ATC and P > AVC. In the short run, Zoe should: A) continue to operate even though she is taking an economic loss. B) continue to operate, as she is making an economic profit. C) shut down immediately, as she is taking an economic loss. D) raise the price until she has maximized her profits.

A) continue to operate even though she is taking an economic loss.

44. Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, the typical firm is likely to: A) earn an economic profit. B) incur an economic loss. C) have no change in its economic profit. D) have neither an economic profit nor an economic loss.

A) earn an economic profit.

47. A firm that is able to use its inputs more efficiently as it increases production in the long run best demonstrates: A) economies of scale. B) diseconomies of scale. C) labor-intensive production. D) capital-intensive production.

A) economies of scale.

32. For most restaurants, the average total cost curve _____ at _____ levels of output, then _____ at _____ levels. A) falls; low; rises; high B) rises; low; falls; high C) rises; high; rises; low D) falls; high; falls; low

A) falls; low; rises; high

29. (Figure: Costs and Profits for Tomato Producers) Look at the figure Costs and Profits for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $18. If the market price increases to $20, the farmer's marginal revenue _____ and the profit-maximizing output _____. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

A) increases; increases

35. The marginal cost curve intersects the average variable cost curve at: A) its lowest point. B) its maximum. C) its end point. D) no point; the curves don't intersect.

A) its lowest point.

9. Economic profit is: A) less than accounting profit if implicit costs exist. B) always equal to accounting profit. C) greater than accounting profit if implicit costs exist. D) less than accounting profit if implicit costs are zero.

A) less than accounting profit if implicit costs exist.

41. In perfect competition, the assumption of easy entry and exit implies that in the _____ run all firms in the industry will earn _____ economic profits. A) long; zero B) short; positive C) short; zero D) long; positive

A) long; zero

14. A perfectly competitive firm will maximize profits when the: A) marginal revenue equals marginal cost. B) marginal revenue is lower than average variable cost. C) price is lower than marginal cost. D) price is higher than marginal cost.

A) marginal revenue equals marginal cost.

2. A perfectly competitive firm is a: A) price taker. B) price searcher. C) cost maximizer. D) quantity taker.

A) price taker.

29. The larger the output, the more output over which fixed cost is distributed. Called the _____ effect, this leads to a ______ average _____ cost. A) spreading; lower; fixed B) spreading; higher; fixed C) diminishing returns; lower; variable D) diminishing returns; higher; variable

A) spreading; lower; fixed

18. You own a deli. Which of the following is most likely a fixed input at your deli? A) the dining room B) the bread used to make sandwiches C) the tomato sauce used to make soups D) the employees

A) the dining room

24. The sum of fixed and variable costs is _____ cost. A) total B) marginal C) variable D) average

A) total

2. Changes in the prices of key commodities can have a significant impact on a company's bottom line. Energy is an input into virtually all types of production; corn is an input into the production of beef, chicken, highfructose corn syrup, and ethanol (the gasoline substitute fuel). When the cost of corn increases, what happens to the average total cost curve of an ethanol producer? What happens to its marginal cost curve?

A. Average total costs and marginal costs both increase and both curves will shift upward.

5. You have the information shown in the accompanying table about a firm's costs. Complete the missing data. Based on your completed table, choose the correct statement.

A. The average total cost of 1 unit of output is $40.

39. (Table: Soybean Cost) Look at the table Soybean Cost. What is the break-even price for this farmer? A) $13.00 B) $13.50 C) $14.00 D) $14.50

B) $13.50

31. (Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $4, in the short run the farmer will produce _____ bushels of corn and earn an economic _____ equal to _____. A) 0; loss; average fixed costs B) 0; loss; total fixed costs C) 3; loss; $30 per bushel D) 3; profit; $20 per bushel

B) 0; loss; total fixed costs

37. (Table: Soybean Cost) Look at the table Soybean Cost. If the market price of a bushel of soybeans is $15, how many bushels will the farmer produce to maximize short-run profit? A) 2 B) 5 C) 3 D) 7

B) 5

43. (Figure: Long-Run and Short-Run Average Cost Curves) Look at the figure Long-Run and Short-Run Average Cost Curves. If a firm faced the long-run average total cost curve shown in the figure and it expected to produce 100,000 units of the good in the long run, the firm should build the plant associated with: A) ATC1. B) ATC2. C) ATC3. D) ATC1 or ATC2.

B) ATC2.

27. The lowest point on a perfectly competitive firm's short-run supply curve corresponds to the minimum point on the _____ curve. A) ATC B) AVC C) AFC D) MC

B) AVC

18. In the short run, a perfectly competitive firm produces output and earns ZERO economic profit if: A) P<ATC. B) P=ATC. C) P<MC. D) P>ATC.

B) P=ATC.

19. Which of the following is TRUE? A) Profit per unit is price minus MC. B) Total economic profit is per-unit profit times quantity. C) If price is less than ATC, the firm will break even in the short run. D) If price is less than marginal cost, the perfectly competitive firm should raise the price and increase output.

B) Total economic profit is per-unit profit times quantity.

7. Profit computed without implicit costs is _____ profit. A) explicit B) accounting C) implicit D) economic

B) accounting

46. In the long run: A) all factors are fixed. B) all factors are variable. C) production choices are more limited than in the short run. D) production is always greater than zero.

B) all factors are variable.

40. (Figure: A Firm's Cost Curves) Look at the figure A Firm's Cost Curves. The curve labeled W represents the firm's _____ cost curve. A) average fixed B) average total C) average variable D) total variable

B) average total

26. The total cost curve(or production function) gets steeper as output increases because of: A) increasing returns to the variable input. B) decreasing returns to the variable input. C) increases in fixed cost. D) decreases in overhead costs.

B) decreasing returns to the variable input.

48. Buffalo Aircraft doubles the amount of all of the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is operating with: A) increasing marginal cost. B) economies of scale. C) increasing average total cost. D) decreasing average variable cost.

B) economies of scale.

45. Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, firms will _____ the market, driving the price of haircuts _____ and the profits of individual firms _____. A) enter; up; back to zero B) enter; down; back to zero C) leave; up; up D) leave; up; back to zero

B) enter; down; back to zero

11. Marginal revenue: A) is the slope of the average revenue curve. B) equals the market price in perfect competition. C) is the change in quantity divided by the change in total revenue. D) is the price divided by the change in quantity.

B) equals the market price in perfect competition.

42. If firms are making positive economic profits in the short run, then in the long run: A) the short-run industry supply curve will shift leftward. B) firms will enter the industry. C) industry output will rise and the price will rise. D) firms will leave the industry.

B) firms will enter the industry.

14. An input whose quantity CANNOT be changed in the short run is: A) marginal. B) fixed. C) incremental. D) variable.

B) fixed.

38. When a fine caterer produces 30 catered meals, its marginal cost and average variable cost each equal $10. Therefore, assuming normally shaped cost curves, at 29 meals its marginal cost is _____ $10 and its average variable cost is _____ $10. A) more than; less than B) less than; more than C) more than; more than D) equal to; equal to

B) less than; more than

10. The demand curve for a perfectly competitive firm is: A) perfectly inelastic. B) perfectly elastic. C) downward-sloping. D) relatively but not perfectly elastic.

B) perfectly elastic.

34. (Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4, the firm will produce quantity _____ and _____ in the short run. A) q1; break even B) q3; make a profit C) q4; break even D) q5; lose fixed costs

B) q3; make a profit

3. If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a _____ share of the market, and consumers will consider her strawberries and her competitors' strawberries to be _____. Therefore, _____ advertising will take place in this market. A) large; standardized; no B) small; standardized; little or no C) small; differentiated; no D) large; differentiated; extensive

B) small; standardized; little or no

31. The average total cost curve has a U shape because the ______ effect is dominant at low levels of output, and the _____ effect is dominant at high levels of output. A) diminishing returns; spreading B) spreading; diminishing returns C) comparative advantage; absolute advantage D) absolute advantage; comparative advantage

B) spreading; diminishing returns

6. If the accounting profit for a firm is negative: A) the economic profit must be positive. B) the economic profit must be negative. C) the firm should produce more. D) the firm will not owe any taxes.

B) the economic profit must be negative.

4. You own a small deli that sells sandwiches, salads, and soup. Which of the following is an implicit cost of the business? A) wages paid to part-time employees B) the job offer you did not accept at a local catering service C) bread, meat, and vegetables used to produce the items on your menu D) your monthly utility bill

B) the job offer you did not accept at a local catering service

15. The marginal product of labor is: A) the change in labor divided by the change in total product. B) the slope of the total product of labor curve. C) the change in average product divided by the change in the quantity of labor. D) the change in output that occurs when capital increases by one unit.

B) the slope of the total product of labor curve.

25. During the summer, Alex runs a mowing service, and lawn mowing is a perfectly competitive industry. In the short run, Alex will shut down if: A) the total revenues can't cover fixed costs. B) the total revenues can't cover variable costs. C) the total revenues can't cover total costs. D) the price exceeds the average total cost.

B) the total revenues can't cover variable costs.

36. (Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4: A) firms will leave the industry and the price will fall in the long run. B) there will be economic profits and firms will enter the industry in the long run. C) the market supply curve will shift to the left and price will fall in the long run. D) the firm will produce q4.

B) there will be economic profits and firms will enter the industry in the long run.

21. Diminishing returns/product to an input occur: A) when all inputs are fixed. B) when some inputs are fixed and some are variable. C) when all inputs are variable. D) only when there are no fixed inputs.

B) when some inputs are fixed and some are variable.

12. The total product curve(or production function): A) shows the relation between output and the quantity of a variable input for varying levels of the fixed input. B) will become flatter as output increases if there are diminishing returns to the variable input. C) will be downward-sloping if there are diminishing returns to the variable input. D) will become horizontal when the marginal product of the variable input is constant.

B) will become flatter as output increases if there are diminishing returns to the variable input.

8. You produce widgets. Currently you produce 4 widgets at a total cost of $40. What is your average total cost?

B. $10 per widget

7. Mark and Jeff operate a small company that produces souvenir footballs. Their fixed cost is $2,000 per month. They can hire workers for $1,000 per worker per month. Their monthly production function for footballs is as given in the accompanying table. At what level of output is Mark and Jeff's average total cost minimized?

B. 1,200 footballs per month

3. Changes in the prices of key commodities can have a significant impact on a company's bottom line. Energy is an input into virtually all types of production; corn is an input into the production of beef, chicken, highfructose corn syrup, and ethanol (the gasoline substitute fuel). The introduction of new fracking technologies has resulted in a large decrease in energy costs across the United States. Suppose energy is a fixed cost and energy prices fall. What happens to the economy's average total cost curve? What happens to its marginal cost curve? Choose the answer below that best explains what happens.

B. Average total costs decrease but marginal costs remain unchanged; the average total cost curve will shift down but the marginal cost curve remains in its initial position.

1. Changes in the prices of key commodities can have a significant impact on a company's bottom line. Energy is an input into virtually all types of production; corn is an input into the production of beef, chicken, highfructose corn syrup, and ethanol (the gasoline substitute fuel). Which of the following correctly describes the cost of energy for a company?

B. The cost of energy for a company can be both a fixed cost and a variable cost.

9. You produce widgets. Currently you produce 4 widgets at a total cost of $40. Suppose you could produce one more (the fifth) widget at a marginal cost of $5. If you do produce that fifth widget, what will your average total cost be? Has your average total cost increased or decreased?

B. Your average total cost has decreased to $9

48. In perfectly competitive long-run equilibrium: A) all firms make positive economic profits. B) all firms produce at the minimum point of their average total cost curves. C) the industry supply curve must be upward-sloping. D) all firms face the same price, but the value of marginal cost will vary directly with firm size.

B. all firms produce at the minimum point of their average total cost curves.

8. Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the store earned an economic profit of $50,000 last year, the store's accounting profit equaled: A) $10,000. B) $50,000. C) $100,000. D) $200,000.

C) $100,000.

34. Austin's total fixed cost is $3,600 a month at his cupcake bakery. Austin employs 20 workers and pays each worker $600 a month. If labor is his only variable cost, what is Austin's total cost? A) $3,600 B) $1,200 C) $15,600 D) $12,000

C) $15,600

38. (Table: Soybean Cost) Look at the table Soybean Cost. If the market price of a bushel of soybeans is $15, what will be the farmer's short-run maximum profit? A) $75 B) $69 C) $6 D) $5

C) $6

32. (Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $10, then in the short run the farmer will produce _____ bushels of corn and take an economic loss equal to _____. A) 0; average fixed costs B) 0; total variable costs C) 3; total fixed costs D) 3; $22 per bushel

C) 3; total fixed costs

5. Which of the following statements is NOT characteristic of perfect competition? A) All firms produce the same standardized product. B) There are many producers, and each has only a small market share. C) There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each. D) There are no obstacles to entry into or exit from the industry

C) There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each.

19. You own a deli. Which of the following is a decision most likely to be made in the LONG run at your deli? A) You order more breadsticks. B) You order more soft drinks for next week. C) You renovate the second floor of your building to increase the size of the dining room. D) You advertise for part-time workers.

C) You renovate the second floor of your building to increase the size of the dining room.

23. A fixed cost: A) will exist only in the long run. B) depends on the level of output. C) can be positive, even if the firm doesn't produce any output in the short run. D) decreases until the point of diminishing returns is reached.

C) can be positive, even if the firm doesn't produce any output in the short run.

9. In a perfectly competitive industry, the market demand curve is usually: A) perfectly inelastic. B) perfectly elastic. C) downward-sloping. D) relatively elastic.

C) downward-sloping.

43. Economic profits in a perfectly competitive industry encourage firms to _____ the industry, and losses encourage firms to _____ the industry. A) exit; enter B) enter; enter C) enter; exit D) exit; exit

C) enter; exit

36. When marginal cost is BELOW average variable cost, average variable cost must be: A) at its minimum. B) at its maximum. C) falling. D) rising.

C) falling.

46. A curve that shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run _____ curve. A) marginal revenue B) marginal cost C) industry supply D) production

C) industry supply

39. (Figure: A Firm's Cost Curves) Look at the figure A Firm's Cost Curves. The curve labeled V represents the firm's _____ cost curve. A) total B) average total C) marginal D) average variable

C) marginal

26. The short-run supply curve for a perfectly competitive firm is its: A) demand curve above its marginal revenue curve. B) marginal revenue curve to the right of its marginal cost curve. C) marginal cost curve above its average variable cost curve. D) average total cost curve below its marginal cost curve.

C) marginal cost curve above its average variable cost curve.

11. The _____ is the increase in output that is produced when a firm hires an additional worker. A) average product B) total product C) marginal product D) marginal cost

C) marginal product

1. In the model of perfect competition: A) the consumer is at the mercy of powerful firms that can set prices wherever they prefer. B) individual firms can influence the price, but only slightly. C) no individual or firm has enough power to affect price. D) the price is determined by how many years are left in the product's patent.

C) no individual or firm has enough power to affect price.

15. The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm should: A) raise the price of guidebooks, because the firm is losing money. B) keep output the same, because the firm is producing at minimum average variable cost. C) produce more guidebooks, because the next guidebook produced increases profit by $5. D) shut down, because the firm is losing money.

C) produce more guidebooks, because the next guidebook produced increases profit by $5.

33. (Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P3, the firm will produce quantity _____ and _____ in the short run. A) q2; make a profit B) q1; break even C) q2; incur a loss D) q4; incur a loss

C) q2; incur a loss

35. (Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is less than P2, the firm will _____ in the short run. A) produce q1 and break even B) produce q1 and incur a loss C) shut down D) produce q3 and make a profit

C) shut down

24. A perfectly competitive small organic farm produces 1,000 cauliflower heads in the short run. Its ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. To maximize profits or minimize losses, this farm should: A) increase output. B) reduce output but continue to produce. C) shut down. D) do nothing; the firm is already maximizing profits.

C) shut down.

1. Jacquelyn is a student at a major state university. Which of the following is NOT an explicit cost of her attending college? A) tuition B) textbooks C) the salary that she could have earned working full-time D) computer lab fees

C) the salary that she could have earned working full-time

10. Profit is the difference between _____ and _____. A) total sales; total revenues B) total profits; total costs C) total revenues; total costs D) marginal costs; marginal revenues

C) total revenues; total costs

22. The total cost curve for a snowmobile dealership shows how _____ cost depends on the quantity of _____. A) total; fixed inputs B) average; variable inputs C) total; output D) marginal; output

C) total; output

45. In the long run, all costs are: A) fixed. B) constant. C) variable. D) marginal.

C) variable.

11. In your economics class, each homework problem set is graded on the basis of a maximum score of 100. You have completed 9 out of 10 of the problem sets for the term, and your current average grade is 88. What range of grades for your 10th problem set will raise your overall average? What range will lower your overall average?

C. Any grade for your 10th problem set greater than 88 will raise your overall average; any grade lower than 88 will lower it.

10. You produce widgets. Currently you produce 4 widgets at a total cost of $40. Suppose that a fifth widget could be produced at a marginal cost of $20. If you do produce that fifth widget, what will your average total cost be? Has your average total cost increased or decreased?

C. Your average total cost has increased to $12.

49. A perfectly competitive industry is said to be efficient because the: A) marginal cost of production of the last unit of output is minimized. B) product is standardized across firms in the industry. C) average total cost of production of the industry's output is minimized. D) market price of the good is equal to economic profit for all firms in the industry.

C. average total cost of production of the industry's output is minimized.

20. The term diminishing returns/product refers to: A) a falling interest rate that can be expected as one's investment in a single asset increases. B) a reduction in profits caused by increasing output beyond the optimal point. C) a decrease in total output due to the firm hiring uneducated workers. D) a decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant.

D) a decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant.

Output and Costs ------------------------ Q FC VC TC MC ------------------------ 1 20 10 30 ______ 2 20 18 38 3 20 31 --- 13 4 20 68 17 42. The long-run average total cost curve is tangent to an infinite number of short-run _____ cost curves. A) total B) marginal C) average variable D) average total

D) average total

44. (Figure: Long-Run and Short-Run Average Cost Curves) Look at the figure Long-Run and Short-Run Average Cost Curves. If a firm is producing at point C on the ATC2 but anticipates increasing output to 225,000 units in the long run, the firm will build a _____ plant and have _____ of scale. A) smaller; economies B) smaller; diseconomies C) bigger; economies D) bigger; diseconomies

D) bigger; diseconomies

30. The larger the output, the more variable input required to produce additional units. Called the _____ effect, this leads to a ______ average _____ cost. A) spreading; lower; fixed B) spreading; higher; fixed C) diminishing returns; lower; variable D) diminishing returns; higher; variable

D) diminishing returns; higher; variable

16. Zoe's Bakery operates in a perfectly competitive industry and has standard cost curves. The variable costs at Zoe's Bakery increase, so all of the cost curves (except fixed cost) shift upward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increase, Zoe's Bakery will _____ its price and _____ its level of production. A) raise; increase B) decrease; increase C) raise; decrease D) do nothing to; decrease

D) do nothing to; decrease

8. People in the eastern part of Beirut are prevented by border guards from traveling to the western part of Beirut to shop for or sell food. This situation violates the perfect competition assumption of: A) price-setting behavior. B) a small number of buyers and sellers. C) differentiated goods. D) ease of entry and exit.

D) ease of entry and exit.

Total Product and Marginal Product ——————————————————————- Labor per day Total Products (units per period) ——————————————————————- 0........................... 0 1........................... 10 2........................... 30 3........................... 70 4........................... 90 5........................... 100 6........................... 107 7........................... 110 8........................... 105 17. (Table: Total Product and Marginal Product) Look at the table Total Product and Marginal Product. Negative marginal returns begin when the _____ worker is added. A) fifth B) sixth C) seventh D) eighth

D) eighth

13. Marginal revenue is a firm's: A) ratio of profit to quantity. B) ratio of average revenue to quantity. C) price per unit times the number of units sold. D) increase in total revenue when it sells an additional unit of output.

D) increase in total revenue when it sells an additional unit of output.

7. The competitive model assumes all of the following EXCEPT: A) a large number of buyers. B) easy entry to and exit from the market. C) standardized product. D) patents and copyrights that serve as barriers to entry into the industry.

D) patents and copyrights that serve as barriers to entry into the industry.

6. The perfectly competitive model assumes all of the following EXCEPT: A) a great number of buyers. B) easy entry to and exit from the market. C) a standardized product. D) that firms attempt to maximize their total revenue.

D) that firms attempt to maximize their total revenue.

21. The break-even price for a perfectly competitive firm is equal to: A) the minimum value of average variable cost. B) the marginal revenue, provided that marginal revenue is equal to marginal cost. C) the average fixed cost at the given output level. D) the minimum value of average total cost.

D) the minimum value of average total cost.

47. Which of the following is MOST likely to cause firms to exit a perfectly competitive industry? A) Consumer tastes and preferences for this product get stronger. B) A technological advance allows all firms to produce more efficiently. C) The price of a key variable input falls. D) Consumer income falls.

D. Consumer income falls.

6. Mark and Jeff operate a small company that produces souvenir footballs. Their fixed cost is $2,000 per month. They can hire workers for $1,000 per worker per month. Their monthly production function for footballs is as given in the accompanying table. For each quantity of labor, calculate average variable cost (AVC), average fixed cost (AFC), average total cost (ATC), and marginal cost (MC). Based on your answers, choose the correct statement.

D. The minimum ATC is $4.17.

https://people.ucsc.edu/~nuclear/econ1/testinfo/Krugman2e_Solutions_CH12.pdf

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