Econ 303 Chapter 8 Quiz Review

Although the long-run equilibrium price of oil is $80 per barrel, some producers have much lower costs because their oil reserves are relatively close to the surface and are easier to extract. If the low-cost producers have a minimum LAC equal to $20 per barrel, then the difference ($60 per barrel) is: A. an economic rent due to the scarcity of low-cost oil reserves. B. an above-normal economic profit. C. a profit that will go to zero as new oil producers enter the market. D. none of the above

A. an economic rent due to the scarcity of low-cost oil reserves.

Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of $250 per year on all restaurants that operate in the city. How does this affect Ronny's profit maximizing decisions? A. Ronny's will remain in business but will definitely produce less pizza B. Ronny's decision depends on the circumstances -- if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down. C. Ronny's will definitely shut down D. No impact on the restaurant's decision

B. Ronny's decision depends on the curcumstances -- if their profits are larger than $250 then the tax does not impact output; otherwise, Ronny's pizza House will shut down

Suppose a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. What is the likely outcome from this error? A. Firm produces more than optimal quantity and earns higher profits B. Firm produces less than optimal quantity and earns lower profits C. Firm produces more than optimal quantity and earns lower profits D. Firm produces less than optimal quantity and earns higher profits

C. Firm produces more than optimal quantity and earns lower profits

Which of the following is NOT a necessary condition for long-run equilibrium under perfect competition? A. Each firm earns zero economic profit. B. No firm has an incentive to enter the market. C. Prices are relatively low. D. No firm has an incentive to exit the market. E. Each firm is maximizing profit.

C. Prices are relatively low

An increasing-cost industry is so named because of the positive slope of which curve? A. Each firm's long-run average cost curve B. Each firm's long-run marginal cost curve C. The industry's long-run supply curve D. Each firm's short-run marginal cost curve E. Each firm's short-run average cost curve

C. The industry's long-run supply curve

At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves? A. They must intersect, with TC cutting TR from above. B. They must be tangent to each other. C. They must have the same slope. D. They must intersect, with TC cutting TR from below. E. They cannot be tangent to each other.

C. They must have the same slope.

Consider the following statements when answering this question I. In the long-run equilibrium of a perfectly competitive market, a firm's producer surplus equals the sum of the economic rents earned on its inputs to production. II. In the long-run equilibrium of a perfectly competitive market, the amount of economic profit earned can differ across firms, but not the amount of producer surplus. Identify if the statements are True or False. A. I and II are true. B. I and II are false. C. I is false, and II is true. D. I is true, and II is false

D. I is true, and II is false

The authors note that the goal of maximizing the market value of the firm may be more appropriate than maximizing short-run profits because: A. managers will not focus on increasing short-run profits at the expense of long-run profits. B. the market value of the firm is based on long-run profits. C. this would more closely align the interests of owners and managers. D. all of the above

D. all of the above

When the TR and TC curves have the same slope, A. profit is zero. B. profit is negative. C. they are closest to each other. D. they are the furthest from each other. E. they intersect each other.

D. they are the furthest from each other.

A firm's producer surplus equals its economic profit when A. marginal costs equal marginal revenue. B. average variable costs are minimized. C. average fixed costs are minimized. D.total revenues equal total variable costs. E. Fixed costs are zero

E. Fixed Costs are zero

In the short run, a perfectly competitive firm earning positive economic profit is A. at the minimum of its ATC. B. on the downward-sloping portion of its ATC. C. above its ATC. D. below its ATC. E. on the upward-sloping portion of its ATC.

E. on the upward-sloping portion of its ATC.