Exam #2 (Ch 6-7) (EB 010)

A profit - maximizing firm will enter a competitive market if market price exceeds: a. Minimum average cost. b. Marginal revenue. c. Minimum average variable cost. d. Average revenue. e. Minimum marginal cost.

a. Minimum average cost.

The revenue curve plots the relationship between: a. Revenue and output. b. Total and marginal revenue. c. Marginal revenue and output. d. Revenue and costs. e. Marginal revenue and marginal cost.

a. Revenue and output.

If it costs the firm $54 to produce 6 units of output and $40 to produce 5 units of output, average cost: a. Is greater than marginal cost and average cost is rising b. Is less than marginal cost and average cost is rising c. Equals marginal cost d. Is greater than marginal cost and average cost is falling e. Is less than marginal cost and average cost is falling

b. is less than marginal cost and average cost is rising

It costs a firm $110 to produce 1,000 units of output and $133 to produce 1,100 units of output. The marginal cost of producing one more unit in this range of output is: a. $0.11. b. $0.12. c. $0.14. d. $0.18. e. $0.23.

e. $0.23.

It costs a firm $525 to produce 6 units of output and $560 to produce 7 units of output. Marginal cost is: a. $35. b. $65. c. $525. d. $560. e. $1,085.

a. $35.

If output exactly doubles when the total quantity of all inputs is double d, the production function exhibits: a. Constant returns . b. Diminishing returns . c. Increasing returns . d. Economies of scale . e. None of the above .

a. Constant returns

The statement that firms in competitive markets are price takers means that: a. Firms accept the price set by the market . b. Firms maximize profits . c. Production has constant returns . d. Marginal cost is upward sloping . e. Average cost equals marginal cost at the minimum average cost .

a. Firms accept the price set by the market

The concept of economies of scope means that: a. It is less expensive to produce a variety of goods together than to produce them separately . b. It is more expensive to produce a large quantity than a small quantity c. The average cost of production is lower when a larger quantity is produced . d. The marginal cost curve is downward sloping . e. A and b .

a. It is less expensive to produce a variety of goods together than to produce them separately

A profit - maximizing firm operating in a competitive market will set output where the line indicating the market price it faces intersects its: a. Marginal cost curve. b. Average fixed cost curve. c. Marginal product curve. d. Average variable cost curve. e. Average cost curve.

a. Marginal cost curve.

For a firm in a competitive market: a. Marginal revenue equals price. b. Marginal revenue equals total revenue. c. Marginal revenue minus price is positive and constant. d. The firm has no control over the output it sells. e. Average revenue falls with output.

a. Marginal revenue equals price.

When the firm balances the extra revenue from producing one more unit with the extra cost of producing that unit, the firm is practicing: a. Profit maximization. b. Revenue maximization. c. Cost maximization. d. Value minimization. e. Utility minimization

a. Profit maximization.

If a profit - maximizing firm operating in a competitive market faces a situation in which marginal cost exceeds marginal revenue, it should: a. Reduce output. b. Reduce price. c. Expand output. d. Raise price. e. Reduce costs.

a. Reduce output.

The most important cost for the firm's decision makers is: a. marginal cost b. variable cost c. fixed cost d. total cost e. average variable cost

a. marginal cost

If a firm operating in a competitive market faces a situation in which marginal revenue exceeds marginal cost: a. The firm will increase profit if it increases output. b. The firm will reduce profit if it increases output. c. The firm must be making a loss. d. The firm will increase profit if it reduces output. e. The firm's profit will stay constant if it increases output.

a. The firm will increase profit if it increases output.

Total cost equa ls: a. The sum of fixed and variable costs . b. The product of fixed and variable costs . c. The ratio of fixed and variable costs . d. The sum of average costs and average variable costs . e. None of the above .

a. The sum of fixed and variable costs

As a general rule, when fixed costs are relatively important in an industry: a. There will be a small number of firms b. Marginal costs will approach zero for the industry c. The industry will tend to become large relative to the typical firm d. There will be a decline in the number of firms e. There will be a large number of firms

a. There will be a small number of firms

For a firm in a competitive market, the total revenue curve is: a. Upward sloping with a constant slope. b. Vertical. c. Downward slo ping with a constant slope. d. Horizontal. e. Upward sloping with a declining slope.

a. Upward sloping with a constant slope.

Figure 12.1 shows a profit-maximizing firm's total revenue and total cost curves. The firm's fixed cost is: a. $100. b. $100 divided by the firm's profit-maximizing output. c. $100 multiplied by the firm's profit-maximizing output. d. $100 plus its variable cost. e. Its total cost less $100.

a. $100.

The marginal product of a factor of production is the: a. Change in output divided by the change in the amount of the factor of production the firm uses b. Output divided by the amount of the factor of production the firm uses c. Firm's output divided by its total cost of production d. Amount of output attributable to that factor of production e. Change in the average output divided by the change in the amount of the factor of production the firm uses

a. Change in output divided by the change in the amount of the factor of production the firm uses

If the number of workers is plotted against on the horizontal axis of a diagram showing isoquants for different output level, an increase in the number of workers, holding output constant, will mean that the marginal rate of substitution: a. Diminishes b. Remains constant c. Increases and then decreases d. Decreases and then increases e. Is fixed

a. Diminishes

Factors of production that cannot be increased or decreased in the production processes are referred to as: a. fixed inputs b. variable inputs c. diminished returns d. increased returns e. total factors

a. Fixed inputs

Figure 12.3 shows a profit-maximizing firm's cost curves, and a variety of different marginal revenue curves. All the firm's fixed costs are sunk (have to pay them; cannot recover them by stopping production or exiting the industry). A firm that has already entered the market has a supply curve that corresponds to the marginal cost curve above_____ , below which point the firm will produce no output. a. P1 b. P2 c. P3 d. P4 e. P5

a. P1

Figure 12.3 shows a profit-maximizing firm's cost curves, and a variety of different marginal revenue curves. All the firm's fixed costs are sunk (have to pay them; cannot recover them by stopping production or exiting the industry). The firm will not shut down so long as price exceeds: a. P1 b. P2 c. P3 d. P4 e. P5

a. P1

The relationship between the factors of production (inputs) and the level of output is called the: a. Production function b. Production possibilities curve c. Average cost curve d. Total cost curve e. Marginal cost curve

a. Production function

Total profit equals: a. Revenue minus cost b. Price minus marginal cost c. Marginal revenue minus marginal cost d. Price minus average cost e. Revenue minus variable cost

a. Revenue minus cost

The market supply curve is the: a. Sum of the amounts that each firm is willing to supply at any given price. b. Sum of the firms' total cost curves. c. Sum of the prices that each firm is willing to charge at any given output. d. Sum of the firms' average cost curves. e. Sum of the firms' average cost curves above minimum average variable cost.

a. Sum of the amounts that each firm is willing to supply at any given price.

Average cost minus average fixed cost equals: a. average variable cost b. average marginal cost c. marginal cost d. fixed cost e. marginal fixed cost

a. average variable cost

If a firm increases the amount of a factor it uses in the production process and output increases less than proportionately, the production function is said to exhibit: a. diminishing returns b. constant returns c. decreasing costs d. increasing returns e. diminishing production possibilities

a. diminishing returns

If a firm doubles its output in the long run and its average cost declines, this represents evidence that: a. Economies of scale exist b. Diseconomies of scale exist c. Diminishing returns have set in d. Marginal cost exceeds average cost e. There are constant returns to scale

a. economies of scale exist

Which of the following inputs to a farm is most likely to result in a fixed cost to the farmer? a. Insurance premiums on property b. Fertilizer c. Water used in irrigation d. Seed e. An additional farmhand

a. insurance premiums on property

If labor is the only variable input and there are diminishing returns to labor, the marginal cost curve is: a. Positively sloped b. Initially negatively sloped and eventually positively sloped c. Horizontal d. Initially positively sloped and eventually negatively sloped e. Negatively sloped

a. positively sloped

If labor is the only variable input and there are diminishing returns to labor, the total cost curve is: a. Positively sloped and becoming steeper and steeper b. Positively sloped and becoming flatter and flatter c. Positively sloped with a constant slope d. Negatively sloped and becoming steeper and steeper e. Negatively sloped and becoming flatter and flatter

a. positively sloped and becoming steeper and steeper

Figure 12.1 shows a profit-maximizing firm's total revenue and total cost curves. The total cost curve gets steeper with output, which reflects: a. The lessening importance of the fixed cost as output increases. b. Diminishing returns to the variable input(s). c. Constant returns to the variable input(s). d. Increasing returns to the variable input(s). e. None of the above.

b. Diminishing returns to the variable input(s).

The curve that depicts those combinations of inputs that cost the same amount is the: a. Total cost curve . b. Isocost curve . c. Marginal cost curve . d. Variable cost curve . e. Fixed cost curve .

b. Isocost curve

The extra cost to the firm of producing an additional unit of output is its: a. Average variable cost. b. Marginal cost. c. Variable cost. d. Average total cos t. e. Average fixed cost plus average variable cost.

b. Marginal cost.

Accounting profit and economic profit differ because of: a. Fixed and sunk costs. b. Opportunity costs. c. Fixed and variable costs. d. Marginal costs. e. Average variable cost.

b. Opportunity costs.

The competitive firm's marginal cost is also its: a. Average revenue curve. b. Supply curve. c. Marginal revenue curve. d. Demand curve. e. Average variable cost curve.

b. Supply curve.

The difference between the long run and t he short is: a. That in the short run, there are constant returns, but not in the long run . b. That in the long run, all inputs can be varied . c. Three months . d. That in the short run, the average cost curve is decreasing, but it is increasing in the long run . e. A and b .

b. That in the long run, all inputs can be varied

The marginal product of an input is: a. The cost of producing one more unit of output . b. The extra output that results from hiring one more unit of the input . c. The cost required to hire one more unit of the input . d. Output divided by the number of inputs used in the production process . e. A and c .

b. The extra output that results from hiring one more unit of the input

The long - run average cost curve is: a. The sum of the short - run average cost curves . b. The lower boundary of the short - run average cost curves . c. The upper boundary of the short - run average cost curves . d. Horizontal . e. None of the above .

b. The lower boundary of the short

In the basic competitive model, a firm that charges more than the going price: a. Will lose some of its customers slowly over time . b. Will lose all of its customers . c. May keep its customers if goods are of higher quality than those of its competitors . d. Will lose no customers if its price equals its marginal cost . e. None of the above .

b. Will lose all of its customers

If it costs the firm $72 to produce 6 units of output and $60 to produce 5 units of output, the marginal cost of the sixth unit equals: a. -$12 b. $12 c. $60 d. $72 e. $132

b. $12.

With 50 units of labor, a firm can produce 1,800 units of output; with 60 units of labor the firm can produce 2,100 units of output. The marginal product of an extra unit of labor is: a. 3 b. 30 c. 35 d. 36 e. 300

b. 30

Output per unit of input is referred to as the: a. total product b. average productivity c. marginal product d. marginal cost e. variable cost

b. Average productivity

Which of the following is most likely to be a long run adjustment on the part of a firm? a. Adding an extra shift of workers b. Building a new factory c. Increasing the amount of overtime for existing workers d. Increasing the amount of irrigation to a crop that is already planted e. Laying off workers for a week

b. Building a new factory

The labor, materials and capital goods that the firm uses to produce its output are called its: a. Explicit factors b. Factors of production c. Explicit costs d. Implicit factors e. Production function

b. Factors of production

Which of the following is true of marginal cost when marginal product is decreasing? a. It is increasing initially and decreasing eventually b. It is increasing c. It is constant d. It is decreasing

b. It is increasing

Another name for fixed cost is: a. variable cost b. overhead cost c. marginal cost d. proportional cost e. total cost

b. Overhead cost

Figure 12.3 shows a profit-maximizing firm's cost curves, and a variety of different marginal revenue curves. All the firm's fixed costs are sunk (have to pay them; cannot recover them by stopping production or exiting the industry). A firm that is contemplating entering a market has a supply curve that corresponds to the marginal cost curve above _____ , below which point the firm will produce no output (i.e., would not enter the market). a. P1 b. P2 c. P3 d. P4 e. P5

b. P2

Which of the following statements about marginal and average cost is correct? a. The marginal cost curve intersects the average cost curve at maximum average cost b. The marginal cost curve intersects the average cost curve at minimum average cost c. The average cost curve intersects the marginal cost curve at minimum marginal cost d. The average cost curve intersects the marginal cost curve at maximum marginal cost e. The marginal cost curve and the average cost curve never intersect

b. The marginal cost curve intersects the average cost curve at minimum average cost

Whenever a producer is operating under conditions of diminishing returns, marginal cost will be: a. decreasing b. increasing c. constant d. stable e. horizontal

b. increasing

Which of the following statements about variable costs is correct? a. They are the costs associated with variable inputs, and they do not vary with output b. They are the costs associated with variable inputs, and they vary with output c. Fixed costs plus overhead costs equal total costs d. They are the costs associated with fixed inputs, and they vary with output e. They are the costs associated with fixed inputs, and the do not vary with output

b. They are the costs associated with variable inputs, and they vary with output

According to economists, a firm's decision makers should compute costs: a. By considering both fixed and variable costs. b. To include opportunity costs. c. By considering fixed and sunk costs. d. By focusing on accounting costs. e. To exclude opportunity costs

b. To include opportunity costs.

If labor is the only variable input and there are increasing returns to labor, the total cost curve is: a. Positively sloped and becoming steeper and steeper b. Positively sloped and becoming flatter and flatter c. Positively sloped with a constant slope d. Negatively sloped and becoming steeper and steeper e. Negatively sloped and becoming flatter and flatter

b. positively sloped and becoming flatter and flatter

Factors of production that can be increased or decreased in the production processes are referred to as: a. fixed inputs b. variable inputs c. diminished returns d. increased returns e. total factors

b. variable inputs

Figure 12.2 shows a competitive firm's marginal revenue, marginal cost, and average cost curves. If the firm were producing Q3, it should: a. Expand output to Q3 to maximize profit. b. Reduce output to Q1 to maximize profit. c. Continue to produce Q3, which is the profit-maximizing output. d. Expand output to Q4 to maximize profit. e. Expand output beyond Q4 to maximize profit.

c. Continue to produce Q3, which is the profit-maximizing output.

The costs the firm must pay before it produces anything are its: a. Variable costs. b. Marginal costs. c. Fixed costs. d. Total costs. e. Hidden costs.

c. Fixed costs.

A profit-maximizing firm operating in a competitive market will set output such that: a. Marginal revenue exceeds marginal cost. b. Marginal cost exceeds marginal revenue. c. Marginal revenue equals marginal cost. d. Total cost equals total revenue e. Total revenue equals marginal revenue.

c. Marginal revenue equals marginal cost.

Accounting profi t overlooks a firm's: a. Variable costs. b. Sunk costs. c. Opportunity costs. d. Revenues. e. Fixed costs.

c. Opportunity costs.

The concept of increasing returns to scale means that: a. It is more expensive to produce a variety of goods together than to produce them separately . b. It is more expensive to produce a large quantity than a small quanti ty . c. The average cost of production is lower when a larger quantity is produced . d. The marginal cost curve is downward sloping . e. A and b

c. The average cost of production is lower when a larger quantity is produced

In the short run, the typical average cost curve is: a. Upward sloping . b. Downward sloping . c. U - shaped . d. Horizontal . e. None of the above .

c. U - shaped

A firm increases the number of hours its workers are employed from 7,000 to 8,000, and output increases from 140,000 bushels to 155,000 bushels. The marginal product of an extra hour is: a. 5 b. 10 c. 15 d. 20 e. 100

c. 15

If it is less expensive for one firm to produce a set of products than it is for multiple firms each producing one product, there are: a. Diminishing returns b. Decreasing returns c. Economies of scope d. Economies of scale e. Increasing returns to scale

c. Economies of scope

Which of the following is most likely to be a short run adjustment on the part of a firm? a. Expanding the size of an existing plant b. Changing the crop that is to be planted c. Hiring workers to work additional hours d. Closing down a production facility e. Building a new factory

c. Hiring workers to work additional hours

Which of the following statements about marginal cost and average cost is correct? a. If marginal cost exceeds average cost, average cost may be rising or falling b. If marginal cost is rising, average cost must be rising c. If marginal cost is less than average, average cost must be falling d. If average cost is falling, marginal cost must be falling e. Marginal cost can never fall below minimum average cost

c. If marginal cost is less than average, average cost must be falling

If there are constant returns to scale in the production process, this means that, if all inputs are increased in proportion to each other, output: a. Increases less than in proportion to the increase in inputs b. Stays constant c. Increases in proportion to the increase in inputs d. Falls e. Increases more than in proportion to the increase in inputs

c. Increases in proportion to the increase in inputs

When labor is the single variable input, we often observe diminishing returns to labor in the production process, which means that, as the amount of: a. output increases, the amount of labor diminishes b. labor increases, the amount of output falls c. labor increases, the marginal product of labor falls d. labor diminishes, the amount of output increases e. labor increases, the marginal product of increases

c. Labor increases, the marginal product of labor falls

A profit-maximizing firm operating in a competitive market will set output such that: a. Price exceeds marginal cost. b. Marginal cost exceeds price. c. Price equals marginal cost. d. Total cost equals total revenue. e. Average revenue equals price.

c. Price equals marginal cost.

Figure 12.1 shows a profit-maximizing firm's total revenue and total cost curves. The profit-maximizing output for the firm is: a. zero b. Q1 c. Q2 d. Q3 e. Greater than Q3

c. Q2

Marginal cost is: a. the change in fixed cost when an additional unit of output is produced b. the change in average fixed cost c. the change in total cost when an additional unit of output is produced d. the inverse of the marginal product e. the change in overhead cost when an additional unit of output is produced

c. The change in total cost when an additional unit of output is produced

For many firms, overhead costs are important, or managerial prolems grow with size, either of which explains: a. The characteristic U-shape of the short-run average cost curve b. The law of diminishing returns c. The characteristic U-shape of the long-run average cost curve d. Why fixed costs do not vary with output e. Why marginal cost equals average cost at minimum average cost

c. The characteristic U-shape of the long-run average cost curve

Costs will be minimized when: a. The firm uses the smallest amount of the variable factors b. The firm has eliminated fixed costs c. The marginal rate of technical substitution equals the relative prices d. The difference between fixed and variable costs is equal to zero e. Fixed costs equal variable costs

c. The marginal rate of technical substitution equals the relative prices

If variable cost is plotted on a graph against output, with output on the horizontal axis, the variable cost curve is: a. horizontal b. vertical c. upward-sloping d. downward-sloping e. upward-sloping initially and downward-sloping eventually

c. Upward-sloping

Total cost equals: a. fixed cost plus marginal cost b. variable cost plus marginal cost c. variable cost plus fixed cost d. variable cost minus fixed cost e. fixed cost minus overhead cost

c. Variable cost plus fixed cost

Average variable cost is _______. a. fixed cost divided by output b. variable cost divided by total cost c. variable cost divided by output d. marginal cost divided by average cost e. overhead cost divided by output

c. variable cost divided by output (variable cost/output)

If, contrary to the previous assumption, each firm's cost structure rises with entry (e.g., inputs become increasingly scarce and rise in price), then which of the following statements about the effect of a rise in demand in a competitive market is correct? [I.e., starting from a competitive equilibrium, but following an increase in demand for the product]. a. Entry will occur. b. The price will initially rise, but then decline with entry, but not return to its original level. c. Initially, each firm produces more output in response to the higher price. d. All of the above. e. None of the above.

d. All of the above.

Which of the following statements about the effect of a rise in demand i n a competitive market is correct? [I.e., starting from a competitive equilibrium, but follow ing an increase in demand for the product]. a. Entry will occur. b. The price will initially rise, but return to its previous level following entry. c. Initially, each firm produces more output in response to the higher price. d. All of the above. e. None of the above.

d. All of the above.

Fixed inputs are: a. Inputs that cannot be moved . b. Inputs that can be purchased in only one fixed configuration . c. Inputs that can be purchased at a fixed price . d. Inputs that do not depend on the level of output . e. None of the above .

d. Inputs that do not depend on the level of output

Figure 12.2 shows a competitive firm's marginal revenue, marginal cost, and average cost curves. At outputs Q1 and Q4, the firm is: a. Making negative profit. b. Making positive profit. c. Just covering its fixed costs. d. Just covering its fixed and variable costs. e. just covering its variable costs

d. Just covering its fixed and variable costs.

The extra revenue that a firm receives from selling an additional unit of output is its: a. Net profit. b. Contribution to costs. c. Average cost. d. Marginal revenue. e. Total revenue.

d. Marginal revenue.

A profit - maximizing firm will set output where: a. Total revenue equals total cost. b. Total cost exceeds total revenue by the smallest amount. c. Total cost exceeds total revenue by the largest amount. d. Total revenue exceeds total cost by the largest amount. e. Total revenue exceeds total cost by the smallest amount.

d. Total revenue exceeds total cost by the largest amount.

Isoquants illustrate the different: a. Marginal costs that lead to a constant marginal product b. Combinations of inputs that lead to the same total cost c. Costs that yield the same output d. Combinations of inputs that produce the same quantity e. Outputs that require the same amounts of inputs

d. Combinations of inputs that produce the same quantity

Figure 12.1 shows a profit-maximizing firm's total revenue and total cost curves. At points A and B, the firm is: a. Making negative profit. b. Making positive profit. c. Just covering its fixed costs. d. Just covering its fixed and variable costs. e. Just covering its variable costs.

d. Just covering its fixed and variable costs.

Which of the following statements about marginal cost and average cost is correct? a. If average cost is rising, marginal cost may be rising or falling b. Average cost equals marginal cost at the minimum point of the marginal cost curve c. If marginal cost is rising, average cost must be rising d. Marginal cost equals average cost at the minimum point of the average cost curve e. If marginal cost is falling, average cost may be rising or falling

d. Marginal cost equals average cost at the minimum point of the average cost curve

As a general rule, when fixed costs are relatively unimportant in an industry: a. Marginal cost approaches zero for the industry b. There tends to be a small number of firms c. There tends to be a decline in the number of firms d. There tends to be a large number of firms e. The industry tends to become concentrated

d. There tends to be a large number of firms

Any costs that vary with the output the firm produces represent its: a. hidden costs b. overhead costs c. sunk costs d. variable costs e. fixed costs

d. Variable Costs

Which of the following is most likely to be a variable cost? a. Property taxes b. Interest on outstanding bonds c. Insurance premiums d. Wage payments e. Payments to employees with long-term contracts

d. Wage Payments

Which of the following statements about the short run and the long run is correct? a. In the short run, a firm does not have to pay all its bills; in the long run it does b. Firms pay for fixed inputs in the short run; in the long run, they have to pay for variable inputs too c. In the short run, costs are real; in the long run they are hypothetical d. Inputs that are fixed in the short run may be variable inputs in the long run e. You should only go for a long run once a week when training for a marathon

d. inputs that are fixed in the short run may be variable inputs in the long run

If the cost of a fixed input increases: a. The average cost and marginal cost curves both shift downward b. The marginal cost curve shifts upward, but the average cost curve is unchanged c. Neither the average cost curve nor the marginal curve is affected d. The average cost curve upward, but the marginal cost curve is unchanged e. The average cost and marginal cost curves both shift upward

d. the average cost curve upward, but the marginal cost curve is unchanged

A firm gererates total revenue of $80,000. Labor costs $40,000, materials cost $20,000 and the owner could have earned $15,000 working for someone else. To an economist, profit equals ____, to an accountant, profit equals ____ . a. $40,000; $5,000. b. $5,000; $40,000. c. $40,000; $15,000. d. $20,000; $5,000. e. $5,000; $20,000.

e. $5,000; $20,000.

Fixed costs: a. Are the costs associated with fixed inputs . b. Do not change with the level of output . c. Include payments to some variable factors . d. All of the a bove . e. A and b .

e. A and b

The long - run average cost curve: a. May slope down because of overhead costs . b. May eventually slope up because of managerial problems . c. Always exhibits increas ing returns to scale . d. A and c . e. A and b .

e. A and b

Profits e qual: a. Fixed costs minus average costs . b. Revenues minus fixed costs . c. Revenues minus variable costs . d. Price minus average cost . e. Revenues minus total cost .

e. Revenues minus total cost

The revenue curve of a firm in a competitive market is a straight line because: a. The competitive firm has no control over its output. b. Price equals total revenue. c. Revenue rises prortionately with price. d. Marginal revenue equals total revenue. e. The price the firm charges does not vary with output.

e. The price the firm charges does not vary with output.

A profit - maximizing firm will enter a comp etitive market if total revenues exceeds: a. Total variable cost. b. The cost of the firm's fixed input(s). c. The firm's fixed cost. d. The cost of the firm's variable input(s). e. Total cost.

e. Total cost.

The principle of diminishing returns implies that: a. Marginal product diminishes as more of the input is hired . b. Marginal cost increases with the level of output . c. Productivity is higher in large firms . d. All of the above . e. A and b

e. A and b

Which of the following statements about the effect of a reduction in demand in a competitive market is correct? [I.e., starting from a competitive equilibrium, but following a reduction in demand for the product]. a. Fewer firms are producing output. b. The price will be lower in the long run. c. The price will initially drop, but will return to its original price following exit of firms. d. In the end, each firm will produce less output. e. Both (a) and (c) above. f. None of the above.

e. Both (a) and (c) above.

When a firm reduces one input by a unit and then raises another input enough so that final output remains the same, the extra amount of the increased input required is called the: a. Rate of diminishing returns b. Marginal rate of economies of scale c. Marginal rate of diminishing returns d. Rate of increased returns e. Marginal rate of technical substitution

e. Marginal rate of technical substitution

When the marginal cost curve is above the average cost curve: a. The average cost curve is at its minimum b. The marginal cost curve is at its maximum c. The marginal cost curve is downward sloping d. The average cost curve is downward sloping e. The average cost curve is upward sloping

e. The average cost curve is upward sloping

Total cost minus fixed cost equals: a. overhead cost b. average variable cost c. average cost d. marginal cost e. variable cost

e. Variable Costs

Which of the following always falls as output increases? a. Total cost b. Marginal cost c. Average cost d. Average variable cost e. Average fixed cost

e. average fixed cost

Any costs that the firm pays even if it produces no output represents its: a. average variable cost b. marginal cost c. average cost d. variable cost e. fixed cost

e. fixed cost

If there are increasing returns to scale in the production process, this means that, if all inputs are increased in proportion to each other, output: a. Increases less than in proportion to the increase in inputs b. Stays constant c. Increases in proportion to the increase in inputs d. Falls e. Increases more than in proportion to the increase in inputs

e. increases more than in proportion to the increase in inputs

Economies of scale is an alternative term for: a. Decreasing returns to scale b. Diminishing returns c. Constant returns to scale d. Economies of scope e. Increasing returns scale

e. increasing returns scale

The slope of the production function is the: a. total product b. average cost c. average product d. marginal cost e. marginal product

e. marginal product

If labor is the only variable input and there are increasing returns to labor, the marginal cost curve is: a. Positively sloped b. Initially negatively sloped and eventually positively sloped c. Horizontal d. Initially positively sloped and eventually negatively sloped e. Negatively sloped

e. negatively sloped