ECON final exam review questions

Scenario 13-12 Ariana withdrew $400,000 out of her personal savings account and used it to start her new Internet cafe. The savings account pays 3 percent interest per year. During the first year of her business, Ariana sold 2,000 cups of coffee for $2.50 per cup and 4,000 hours of Internet time, also at $2.50 per hour. During the first year, the business made monetary outlays of $9,000. You may assume that there is no opportunity cost to Ariana's time. Ariana's economic profit for the year was - $-6,000. - $-394,000. - $3,000. - $6,000.

$-6,000

If Danielle sells 300 wrist bands for $0.50 each, her total revenues are - $299.50 - $150 - $600 - $300

$150

The concert promoters of a heavy-metal band, WeR2Loud, know that there are two types of concert-goers: die- hard fans and casual fans. For a particular WeR2Loud concert, there are 1,000 die-hard fans who will pay $150 for a ticket and 500 casual fans who will pay $50 for a ticket. There are 1,500 seats available at the concert venue. Suppose the cost of putting on the concert is $50,000, which includes the cost of the band, lighting, security, etc. How much profit will the concert promoters earn if they set the price of each ticket at $50? - $150,000 - $25,000 - $100,000 - $75,000

$25,000

Gwen has decided to start her own photography studio. To purchase the necessary equipment, Gwen withdrew $2,000 from her savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gwen's annual opportunity cost of the financial capital that has been invested in the business? $60 $280 $660 $340

$340

Scenario 15-9 Suppose executives at an art museum know that 100 adults are willing to pay $12 for admission to the museum on a weekday. Suppose the executives also know that 200 students are willing to pay $8 for admission on a weekday. The cost of operating the museum on a weekday is $2,000. How much profit will the museum earn if it charges all customers $8 for admission? - $400 - $200 - $2,400 - $800

$400

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below - $4. - $7. - We do not have enough information to answer the question. - $6.

$6

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue? - $40 - this cannot be determined from the given info - $160 - $80

$80

We can measure the profits earned by a firm in a competitive industry as - (P - MC) × Q. - (P - ATC) × Q. - (MC - ATC) × Q. - MR × MC.

(P - ATC) × Q

Granting a pharmaceutical company a patent for a new medicine will lead to (i) a product that is priced higher than it would be without the exclusive rights. (ii) incentives for pharmaceutical companies to invest in research and development. (iii) higher quantities of output than without the patent. - (ii) and (iii) only - (i), (ii), and (iii) - (i) and (ii) only - (i) and (iii) only

(i) and (ii) only

Scenario 15-2 Consider a local, privately-owned electrical cooperative named Poweshiek Power Company (PPCo). PPCo has just completed a clean-coal-burning electrical power plant in Iowa. Currently, PPCo can meet the electricity needs of all residents in the county. In fact, its capacity far exceeds the needs of the county. After just a few years of operation, the shareholders of PPCo experienced incredibly high rates of return on their investment due to the profitability of the corporation. Which of the following statements is most likely to be true? (i) New entrants to the market know they will have a smaller market share than PPCo currently has. (ii) PPCo is a natural monopoly. (iii) PPCo would experience higher profits if it were government-run. - (i) and (ii) only - (i) and (iii) only - (i), (ii), and (iii) - (ii) and (iii) only

(i) and (ii) only

Which of the following statements is correct? Monopolies are socially inefficient because they (i) charge a price above marginal cost. (ii) produce too little output. (iii) earn profits at the expense of consumers. (iv) maximize the market's total surplus. - (i), (ii), (iii), and (iv) - (iii) and (iv) only - (i) and (ii) only - (iii) only

(i) and (ii) only

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i) Marginal revenue equals $4. (ii) Average revenue equals $100. (iii) Total revenue equals $1,600. - (iii) only - (i) only - (i) and (iii) only - (i), (ii), and (iii)

(i) and (iii) only

What happens to the price and quantity sold of a drug when its patent runs out? (i) The price will fall. (ii) The quantity sold will fall. (iii) The marginal cost of producing the drug will rise. - (i) only - (i), (ii), and (iii) - (i) and (ii) only - (ii) and (iii) only

(i) only

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 5, Q = 125) and (L = 6, Q = 152). Then the marginal product of the 6th worker is - 25 units of output. - 37 units of output. - 162 units of output. - 27 units of output.

27 units of output

Which of the following statements is correct? - Assuming that explicit costs are positive, accounting profit is equal to economic profit. - Assuming that implicit costs are positive, economic profit is positive. - Assuming that implicit costs are positive, accounting profit is greater than economic profit. - Assuming that explicit costs are positive, economic profit is greater than accounting profit

Assuming that implicit costs are positive, accounting profit is greater than economic profit

If all firms have the same costs of production, then in long-run equilibrium, - all firms have zero economic profits and just cover their opportunity costs. -some firms may earn positive economic profits. -price exceeds marginal cost for all firms. - price exceeds average total cost for all firms.

all firms have zero economic profits and just cover their opportunity costs.

For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct? - If the price of its product is $12, then the firm's loss if it produces 200 units of output is the same as its loss ifit shuts down. - In the long run, the firm will shut down if the price of its product is $14. - In the short run, the firm will shut down if the price of its product is $11. - All of the above are correct.

all of the above

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? (i) Marginal revenue equals $5. (ii) Average revenue equals $5. (iii) Price equals $5. - (i) and (ii) only - (iii) only - (i), (ii), and (iii) - (i) only

all of them

a firm that wants to achieve economies of scale could do so by - producing a smaller quantity of output - producing an output level higher than the efficient scale - assigning limited tasks to its employees, so they can master those tasks - employing a smaller number of workers

assigning limited tasks to its employees, so they can master those tasks

A monopolist will choose to increase output when - at the present level of output, marginal revenue exceeds marginal cost. - at all levels of output, marginal cost increases. - market price increases. - the demand curve shifts to the left.

at the present level of output, marginal revenue exceeds marginal cost

In the long run, a firm will exit a competitive industry if - the price exceeds average total cost. - average total cost exceeds the price. - total revenue exceeds total cost. - Both a and b are correct

average total cost exceeds the price

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible - fixed cost of production. - total cost of production. - average total cost of production. - marginal cost of production.

average total cost of production

Which of the following is a characteristic of a competitive market? - Buyers and sellers are price takers.. - There are many buyers but few sellers. - Firms sell differentiated products. - Many firms have market power because they own patents.

buyers and sellers are price takers..

If a production function shows declining marginal product of an input as the quantity of the input increases, then the production function exhibits - increasing returns to scale. - decreasing marginal product. - increasing marginal product. - diminishing profitability.

decreasing marginal product

Monopoly firms have - downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve. - horizontal demand curves, so they can sell only a limited quantity of output at each price. - horizontal demand curves, so they can sell as much output as they desire at the market price. - downward-sloping demand curves, so they can sell as much output as they desire at the market price.

downward-sloping demand curves, so they can sell only the specific price- quantity combinations that lie on the demand curve

In the long run a company that produces and sells candy bars incurs total costs of $1,200 when output is 2,400 candy bars and $1,400 when output is 2,900 candy bars. The candy bar company exhibits - economies of scale because average total cost is falling as output rises. - diseconomies of scale because average total cost is rising as output rises. - diseconomies of scale because total cost is rising as output rises. - economies of scale because total cost is rising as output rises.

economies of scale because average total cost is falling as output rises

A benefit to society of the patent and copyright laws is that those laws - help to prevent a single firm from acquiring ownership of a key resource. - discourage the production of inefficient products. - encourage creative activity. - help to keep prices down.

encourage creative activity

For a firm in a perfectly competitive market, the price of the good is always - equal to total revenue - equal to the firm's efficient scale of output - greater than average revenue - equal to marginal revenue

equal to marginal revenue

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will - more than triple. - Any of the above may be true depending on the firm's labor productivity. - exactly triple. - less than triple

exactly triple

A long-run supply curve is flatter than a short-run supply curve because - firms can enter and exit a market more easily in the long run than in the short run. - competitive firms have more control over demand in the long run. - firms in a competitive market face identical cost structures. - long-run supply curves are sometimes downward sloping.

firms can enter and exit a market more easily in the long run than in the short run.

a difference between explicit and implicit costs is that - explicit costs do not require a direct monetary outlay by the firm, whereas implicit cost do - explicit cost must be greater than implicit costs - implicit costs must be greater than explicit costs - implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by - a breakdown of the "free entry and exit" feature of the competition. - a stable demand curve for the good, that is, a demand curve that never shifts. - a breakdown of the "price-taking" feature of the competition. - - increases in production costs resulting from more firms coming into the market

increases in production costs resulting from more firms coming to the market

A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a - loss of exactly $27. -loss of more than $27. -profit of more than $27. -profit of exactly $27.

loss of exactly $27

Economist normally assume that the goal of a firm is to a. sell as much of its profits as possible b. set the price of the product as high as possible c. maximize profits

maximize profits

When a firm experiences continually declining average total costs, the firm is a - government-created monopoly. - price taker. - natural monopoly. - revenue maximize

natural monopoly

Jumar used to work as an office manager, earning $40,00 per year. he gave that job to start a life-coaching business. In calculating the economic profit of his life-coaching business, the $40,00 income that he gave up is counted as part of the life-coaching business's. - marginal costs - explicit costs - opportunity costs - total revenue

opportunity costs

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the - profits it earns - the price at which it sells its butter - quantity of butter to produce - all of the above

price at which it sells its butter

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do? - shut down the business - produce more custom-made shoes - decrease the price - produce fewer custom-made shoes

produce fewer custom-made shoes

The deadweight loss associated with a monopoly occurs because the monopolist - produces an output level less than the socially optimal level. - maximizes profits. - produces an output level greater than the socially optimal level. - equates marginal revenue with marginal cos

produces an output level less than the socially optimal level

Which of these types of costs can be ignored when an individual or a firm is making decisions? - marginal costs - sunk costs - variable costs - opportunity costs

sunk costs

Patrice owns a travel agency. Her accountant most likely includes which of the following costs on her financial statements? - wages Patrice could earn giving tennis lessons - dividends Patrice's money was earning in the stock market before Patrice sold her stock and leased the space for her travel agency - Both b and c are correct. - the cost of utilities for operating the storefront

the cost of utilities for operating the storefront

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is - zero. - a horizontal line. - the market supply curve. - equal to the industry profits

the market supply curve

Which of the following statements is not correct? - The competitive firm produces where MR = MC. - The monopolist produces where MR = MC. - The monopolist produces where P = MC. - The competitive firm produces where P = MC.

the monopolist produces where P=MC

If a firm uses labor to produce output, the firm's production function depicts the relationship between - the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor. - fixed inputs and variable inputs in the short run. - marginal product and marginal cost. - the number of workers and the quantity of output.

the number of workers and the quantity of output

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing - to produce the quantity at which average variable cost is minimized. - the quantity at which market price is equal to Mr. McDonald's marginal cost of production. - to produce the quantity at which average fixed cost is minimized. - the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount

the quantity at which price is equal to Mr. McDonald's marginal cost of production

The nature of a firm's cost (fixed or variable) depends on the - explicit but not implicit costs. - price the firm charges for output. - time horizon under consideration. - firm's revenues.

time horizon under sonsideration

In the long run, a profit-maximizing firm will choose to exit a market when - total revenue is less than total cost. - average fixed cost is falling. - marginal cost exceeds marginal revenue at the current level of production. - variable costs exceed sunk costs.

total revenue is less than total cost

shelley's salsa produces and sells organic salsa. Last year it sold 3 million tubs of salsa at a price of $3 per tub. for last year the firm's - total revenue was $9 million - economic profit was $9 million - accounting profit was $9 million - explicit cost were $9 million

total revenue was $9 million

you purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively, you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $6 value on reading a book. - You should stay and watch the remainder of the show. -You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going home will earn you at least $8 of satisfaction. -You should go home and read a book. -You should go home and watch TV.

you should stay and watch the remainder of the show