Econ Exam 2

What best describes economic profit and accounting profit? A) Economic profit equals total revenue minus both explicit and implicit costs; Accounting profit equals total revenue minus total explicit cost B) Economic profit and Accounting profit are the same C) Economic profit is always increasing; accounting profit is always decreasing D) None of the above

A. Economic profit equals total revenue minus both explicit and implicit costs; Accounting profit equals total revenue minus total explicit cost

What are economies of scale? A) Long-run average total cost falls as the quantity of output increases B) Long-run average total cost stays the same as the quantity of output changes C) Long-run average total cost rises as the quantity of output increases D) All of the above

A. Long-run average total cost falls as the quantity of output increases

Which definition best describes diminishing marginal product? A) Marginal product of an input declines as the quantity of the input increases B) Average product increases as input decreases C) Marginal cost is equal to average cost D) All of the above

A. Marginal product of an input declines as the quantity of the input increases

Marginal returns start to decrease when more and more workers _______. A. have to share the same equipment and workspace B. produce less and less output C. require jobs to be too specialized D. produce less and less average product

A. have to share the same equipment and workspace

Average variable cost is at a minimum when ______. A. marginal cost equals average variable cost B. average total cost is at a minimum C. marginal cost exceeds average fixed cost D. average total cost exceeds average variable cost

A. marginal cost equals average variable cost

The average product of labor increases as output increases if _______. A. marginal product exceeds average product B. average product exceeds marginal product C. total product increases D. marginal product increases

A. marginal product exceeds average product

An increase in the wage rate ______. A. shifts the average total cost curve and the marginal cost curve upward B. shifts the average fixed cost and average variable cost curve upward C. increases average variable cost but does not change marginal cost D. does not change average variable cost but increases average total cost

A. shifts the average total cost curve and the marginal cost curve upward

Perfect competition is efficient because all the following conditions hold except ________. A. total product is maximized B. firms maximize profit and produce on their supply curves C. consumers get a real bargain and pay a price below the value of the good D. firms minimize their average total cost of producing the good

A. total product is maximized

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it A) maximizes both the total revenue for firms and the quantity supplied of the product. B) maximizes the combined welfare of buyers and sellers. C) minimizes costs and maximizes output. D) minimizes the level of welfare payments.

B maximizes the combined welfare of buyers and sellers.

The demand curve for a monopoly is A) horizontal because the demand is perfectly elastic. B) downward sloping. C) vertical because the demand is perfectly inelastic. D) upward sloping. E) undefined because it is the only supplier in the market.

B) downward sloping.

The deadweight loss associated with a monopoly occurs because the monopolist A) maximizes profits. B) produces an output level less than the socially optimal level. C) produces an output level greater than the socially optimal level. D) equates marginal revenue with marginal cost.

B) produces an output level less than the socially optimal level.

All else equal, what happens to consumer surplus if the price of a good increases? A) Consumer surplus increases B) Consumer surplus decreases C) Consumer surplus is unchanged D) Consumer surplus may increase, decrease, or remain unchanged

B. Consumer surplus decreases

In perfect competition, all the following situations arise except ________. A. firms produce an identical good or service B. each firm chooses the price at which to sell the good it produces C. firms can sell any quantity they choose to produce at the market price D. buyers know each seller's price

B. each firm chooses the price at which to sell the good it produces

A permanent increase in demand ______ economic profit in the short run and some firms will ____ in the long run. A. does not change; exit the market B. increases; enter the market C. increases; raise their price D. does not change; advertise their good

B. increases; enter the market

Which of the following is not a characteristic of perfect competitive markets? A) Market with many buyers and sellers B) Trading identical products C) Each buyer and seller are a price maker D) Firms can freely enter or exit the market

C) Each buyer and seller are a price maker

Which of the following statements is true? A) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. B) Average revenue is the same as price for monopoly firms but not competitive firms. C) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. D) Average revenue is the same as price for competitive firms but not monopoly firms.

C) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.

The social cost of a monopoly is equal to its A) economic profit. B) fixed cost. C) deadweight loss. D) variable cost.

C) deadweight loss.

A monopolist's profits with price discrimination will be A) lower than if the firm charged a single, profit-maximizing price. B) the same as if the firm charged a single, profit-maximizing price. C) higher than if the firm charged just one price because the firm will capture more consumer surplus. D) higher than if the firm charged a single price because the costs of selling the good will be lower.

C) higher than if the firm charged just one price because the firm will capture more consumer surplus.

A firm's short-run supply curve is the same as _____ if it produces the good. A. its marginal revenue curve B. the upward-sloping part of its marginal cost curve C. its marginal cost curve above minimum average variable cost D. its marginal cost curve above minimum average total cost

C. its marginal cost curve above minimum average variable cost

An increase in the rent that a firm pays for its factory does not increase ______. A. total cost B. fixed cost C. marginal cost D. average fixed cost

C. marginal cost

A firm that is producing the quantity at which marginal cost exceeds both average total cost and the market price will increase its economic profit by _______. A. producing a larger quantity B. raising the price to equal marginal cost C. producing a smaller quantity D. producing the quantity that minimizes average total cost

C. producing a smaller quantity

In the long run, with an increase in the plant size, _____ . A. the short-run average total cost curve shifts downward B. the long-run average cost curve slopes downward C. the short-run average total cost curve shifts downward if economies of scale exist D. the average total cost of production rises

C. the short-run average total cost curve shifts downward if economies of scale exist

A monopolist faces A) a perfectly elastic demand curve. B) a perfectly inelastic demand curve. C) a horizontal demand curves. D) a downward-sloping demand curve.

D) a downward-sloping demand curve.

A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise. As a result, the consumer surplus in the market for red grapes A) increases, and the consumer surplus in the market for red wine increases. B) increases, and the consumer surplus in the market for red wine decreases. C) decreases, and the consumer surplus in the market for red wine increases. D) decreases, and the consumer surplus in the market for red wine decreases.

D) decreases, and the consumer surplus in the market for red wine decreases.

Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book? A) 6 B) 2 C) 4 D) 8

D. 8

In the short run, the profit-maximizing firm will ______. A. break even if marginal revenue equals marginal cost B. make an economic profit if marginal cost is less than average total cost C. incur an economic loss if average fixed cost exceeds marginal revenue D. incur an economic loss if average total cost exceeds marginal revenue

D. incur an economic loss if average total cost exceeds marginal revenue

When average variable cost is at its minimum level, marginal product _________. A. equals average product B. exceeds average product C. is less than average product D. is at its maximum level

D. is at its maximum level

A firm will shut down in the short run if at the profit-maximizing quantity, ___________. A. total revenue is less than total cost B. marginal revenue is less than average fixed cost C. average total cost exceeds the market price D. marginal revenue is less than average variable cost

D. marginal revenue is less than average variable cost

A firm's cost of production equals ________. A. all the costs paid with money, called explicit costs B. the implicit costs of using all the firm's own resources C. all explicit costs and implicit costs, excluding normal profit D. the costs of all resources used by the firm whether bought in the marketplace or owned by the firm

D. the costs of all resources used by the firm whether bought in the marketplace or owned by the firm

If a perfectly competitive firm is maximizing its profit and is making an economic profit, which of the following is correct? i. Price equals marginal revenue. ii. Marginal revenue equals marginal cost. iii. Price is greater than average total cost. A) i only B) i and ii only C) ii and iii only D) i and iii only E) i, ii, and iii

E) i, ii, and iii

A buyer is willing to buy a product at a price greater than or equal to his willingness to pay but would refuse to buy a product at a price less than his willingness to pay. A) True B) False

false

All else equal, an increase in supply will cause an increase in consumer surplus. TrueFalse

true