Econ 201 Exam 3
I'Ma Big Corp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7000 can openers, the company incurred variable costs of $28,000 and total costs of $45,000. I'Ma Big Corp.'s average fixed cost to produce the 7000 can openers was;
$2.43
In a constant cost industry, the market price and average cost are equal to $23. Therefore, which of the following is correct:
ALL
Firms are profitable when price is:
Greater than average cost
To maximize profit, firms should keep producing as long as marginal revenue is:
Greater than marginal cost
The term _____________ is used to describe the additional cost of producing one more unit.
Marginal Cost
Under perfect competition, any profit-maximizing producer faces a market price equal to its
Marginal Cost
__________ refers to the additional revenue gained from selling one more unit.
Marginal Revenue
A firm maximizes profits when:
Marginal Revenue equals Marginal Cost
If the quantity differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?
Price of competing products.
Firms will enter an industry when the:
Price rises above the minimum of the average total cost curve.
Price times quantity minus cost equals:
Profit
Which of the following is an example of a fixed cost?
Research and development costs for a new medicine
In the ___________, the perfectly competitive firm will seek out ___________.
Short run; quantity of output where profits are highest.
If a firm's revenues do not cover its average variable costs, then the firm has reached its __________.
Shutdown point
If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?
divide total costs into 2 categories: fixed costs that cant be changed in the short run and variable costs that can be.
Average cost equals total cost _________ quantity.
divided by
I'Ma Gold Miner has benefited from a record rise in gold prices in the global commodities market. While its price of output is highly influenced by market speculation, if it wants to increase production to take advantage of the current profit-maximizing opportunity, the company
must accept market price for its physical capital inputs
A market becomes more competitive as there are __________ buyers and _________ sellers.
more; more
The decision to enter or exit an industry is based:
on lifetime expected profits.
For a perfectly competitive firm, the marginal cost curve is identical to the firm's ___________.
supply curve
The short run is defined as:
the period before entry or exit can occur.
Stating that TR=TC is the equivalent to stating that
P=AC
To maximize profit, a firm in a competitive market increases output until:
P=MC
Firms operating in a market situation that creates, sell their product in a market with other firms who produce identical or extremely similar products.
Perfect Competition
________ occur when the marginal gain in output diminishes as each additional unit of input is added.
Diminishing Marginal Returns
Damien produces 400 gallons of milk a day in a very competitive industry. The market price for a gallon of milk is $2. Damien's marginal revenue per gallon of milk is:
$2
In economics, a firm that faces no competitors is referred to as:
A monopoly
In a decreasing industry:
A cost falls as the industry expands.
An ___________ is calculated by subtracting the firm's costs from its total revenues, _____________.
Accounting profit; Excluding opportunity cost
The marginal cost curve intersects the average cost curve;
At its minimum point
In order to determine _____________, the firm's total costs must be divided by the quantity of its output.
Average Cost
What statement about cost is correct?
Average total cost is U-shaped.
Which of the following statements is TRUE?
Costs increase if a decreasing cost industry becomes smaller
If a firm is experiencing ___________, then as the quantity of output rises, the average cost of production rises.
Decreasing Returns to Scale
When I'Ma Gold Miner chooses what quantity of gold each of its miners will produce over the next 12 months, this quantity, along with the prices prevailing in the market for outputs and inputs, will
Determine the company's total revenue, total costs, and its profits.
An industry is said to be perfectly competitive when:
Each firm has virtually no influence over the price of their product.
The term __________ describes a situation where the quantity of output rises, but the average cost of production falls.
Economies of Scale
When _________ exists, doubling of all input will result in more than doubling output, which means _______________.
Economies of Scale; a larger factory can produce at a lower average cost than a smaller company.
Which of the following best illustrates a product sold in a perfectly competitive market?
Eggs
In order to calculate marginal cost, the change in _________ is divided by the amount of change in quantity.
Either total cost or variable cost
The term "constant returns to scale" describes a situation where;
Expanding all inputs does not change the average cost of production.
A firm's ______ consist of expenditures that must be made before production starts that typically, over the short run, ________ regardless of the level of production.
Fixed Costs; Do not change
Why are some producers forced to sell their products at the prevailing market value?
High degree of similarity to competitor's products.
Which of the following statements is true?
High profits in an industry give entrepreneurs an incentive to enter than industry.
A perfectly competitive industry is a:
Hypothetical extreme
Firms in competitive industries:
I, II, and III.
Total cost incorporates:
Implicit and explicit costs
Economic profit differs from accounting profits because of its inclusion of:
Implicit costs
Economic profit can be derived from calculating total revenues minus all the firm's costs,
Including its opportunity costs
In microeconomics, the term __________ is synonymous with economies of scale.
Increasing returns to scale
In the ________, the perfectly competitive firm will react to losses by ___________.
Long run; reducing production or shutting down
When deciding on the profit maximizing level of output, firms compare ________ of an additional unit of output to the _________.
Marginal Revenue; Marginal cost of producing the additional unit of output
In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ___________ and ____________.
Marginal Revenue; Total cost
In economics, the term "shutdown point" refers to the point where the;
Marginal cost curve crosses the average variable cost curve.
__________ arises where many firms are competing in a market to sell similar but differentiated products.
Monopolistic competition
In the long run, demand is _________ the short run.
More elastic than in
A flat firm-level demand curve means:
No market pricing power
In their calculations of profit, accountants typically do not take into account:
Opportunity Cost
Which of the following is an example of an implicit cost of production?
Opportunity Cost
A firm should exit an industry if:
P-AC<0
If a perfectly competitive firm is a price taker, then
Pressure from competing firms will force acceptance of the prevailing market price.
The term refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.
Price Taker
If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the ________ and the vertical axis will represent __________.
Quantity produced; both total revenue and total costs measured in dollars.
If Homer operates a small bakery and sells donuts for $4/dozen, he should:
Sell an additional dozen donuts as long as the marginal cost of producing an additional dozen donuts is less than $4.
Which of the following show typically be ignored because spending has already been made and cannot be changed?
Sunk Costs
Marginal Cost is:
The change in total cost from producing one more unit of output.
When there are too many buyers and sellers of a good and the product sold is identical across firms,
The demand curve for each firm's output is perfectly elastic.
A market is considered perfectly competitive if:
There are many sellers, each small relative to the total market. Product sold is similar across sellers
The total amount of money that a firm receives from sales of its output is called:
Total Revenue
Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.
Total Revenue
_________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.
Total Revenue
Profit is defined as:
Total revenue-total cost
Which of the following statements is true?
Unlike implicit costs, explicit costs require monetary outlays.
The amount of money the firm pays for its inputs is called:
Variable Costs
______ include all of the costs of production that increase with the quantity produced.
Variable Costs
In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following states that choice?
What quantity to produce.
Which of the following statements is false?
When marginal cost is below average cost, average cost is rising.
Which of the following is NOT a key decision firms must make?
Where to produce
Perfectly competitive firms produce at the quantity where marginal revenue ________ marginal cost.
equals
Total costs equals fixed costs _________ variable costs.
plus
