ECON 1030 Chapter 8

production technique A production technique B++ The firm is indifferent between production technique A and production technique B. It is impossible to determine if the firm should select production technique A or B because total fixed costs are not given.

Refer to Table 8.1. Assuming the price of capital (K) is $10 per unit and the price of labor (L) is $5 per unit, what production technique should this firm use to produce 2 units of output?

two three four++ five

Refer to Table 8.2. Assume that Sherryʹs Earrings is producing in a perfectly competitive market and the market price for earrings is $60. To maximize profits Sherry should produce ________ pairs of earrings.

$26.67. $140.++ $175. $225.

Refer to Table 8.2. If Sherry produces three pairs of earrings, her total variable costs are

$0. $50. $100.++ indeterminate from this information.

Refer to Table 8.2. If Sherry produces zero earrings, her total fixed costs are

three; $5 four; $7 five; $14 six; $14++

Refer to Table 8.5. Assume that Exotic Fruit sells fruit baskets in a perfectly competitive market. The market price of a fruit basket is $22. To maximize profits, Exotic Fruit should sell ________ fruit basket(s) and their profit is ________

total fixed costs only. ++ total variable costs only. total costs only. both total variable costs and total costs.

Short-run costs that do NOT depend on the level of output are

$2,000.++ $3,000. $5,000. indeterminate because the firm's output level is unknown.

The Lawn Ranger, a landscaping company, has total costs of $7,000 and total fixed costs of $5,000. The Lawn Ranger's total variable costs are

above below equal to++ sometimes above and sometimes below

The relationship between the price that a perfectly competitive firm can charge buyers and the firm's marginal revenue is that the price is ________ marginal revenue over all output.

$306. $400. $600. $1,000.++

Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $6 and its total variable cost is $400. The total cost of producing 100 widgets is ____.

Wages paid to employees The payments for supplies Lease payments for office space++ Travel expenses to meet with clients

________ are likely a fixed cost of a firm.

The interest payments made on loans The franchiser's fee that a restaurant must pay to the national restaurant chain The monthly rent on office space that it leased for a year The payroll taxes that are paid on employee wages++

________ is (are) most likely a variable cost for a firm.

the government imposes price ceilings on the products produced in perfectly competitive markets. any firm may freely enter into and/or exit from the market. each firm's product perfectly substitutes for every other firm's product.++ the market demand for products produced in perfectly competitive markets is perfectly price elastic.

A firm in a perfectly competitive market has no control over price because

increase; increase++ increase; decrease decrease; increase decrease; decrease

An individual wheat farmer produces wheat in a perfectly competitive market. An increase in the market demand for wheat will cause the farmer's marginal revenue to ________ and his profit maximizing level of output to ________

make no adjustments as they are already maximizing their profits. increase their output++ decrease their output. stop producing since it is earning a loss.

Assume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers per day. At this output level, price exceeds this firmʹs marginal and average variable costs. To maximize profits, Dell should

decreasing average variable costs. decreasing marginal costs. increasing marginal costs.++ decreasing average fixed costs.

Diminishing marginal returns implies

$0.20. $5.++ $20. $50.

Refer to Figure 8.1 above. The total fixed costs for Cyndyʹs Floral Arrangements are $1,000. If Cyndyʹs Floral Arrangements produces 200 silk flower arrangements, the average fixed costs are

$3. $5. $8.++ $80.

Refer to Figure 8.3. If total fixed costs are $50, then average total cost of producing 10 basketballs is

$250.++ $425. $500. indeterminate from this information.

Refer to Figure 8.4. Micro Ovenʹs average fixed costs of producing two units of output are

$133.33. $150.++ $350. indeterminate from this information.

Refer to Figure 8.4. The marginal cost of the third microwave oven is

$9. $1,000. $5,600. $9,000.++

Refer to Figure 8.8. What is the total cost of producing the profit maximizing level of output?