Micro econ exam 3
Which of the following statements is correct?
The long-run supply curve for a purely competitive increasing-cost industry will be upsloping.
Which of the following represents a long-run adjustment?
Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants.
A purely competitive seller is:
a "price taker."
Refer to the above table. The total fixed cost of production is:
$10
Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. Refer to the data. The marginal product of the sixth worker is:
15 units of output.
Refer to the short-run data. The profit-maximizing output for this firm is:
320 units.
Refer to the above graph showing the marginal product (MPL) and the average product of labor (APL). At which quantity of labor employed does diminishing marginal returns set in?
B
Which of the following distinguishes the short run from the long run in pure competition?
Firms can enter and exit the market in the long run but not in the short run.
Which of the following is most likely to be a variable cost?
Fuel and power payments.
Which of the following is true concerning purely competitive industries?
In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.
Marginal product of labor refers to the:
Increase in output resulting from employing one more unit of labor
Fixed costs are those costs which are:
Independent of the rate of output
The demand curve faced by a purely competitive firm:
Is the same as its marginal revenue curve
The law of diminishing returns in a manufacturing plant of a fixed capacity implies that, eventually, employing one: Multiple Cho
More worker will decrease the average amount of output per worker
Refer to the graphs above for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information:
New firms will be attracted into the industry
Which of the following is not a characteristic of pure competition?
Price strategies by firms.
Refer to the above graphs for a competitive market in the short run. What will happen to the firm's economic profits as long-run market adjustments occur?
Profits will increase to zero
Which of the following is most likely to be a fixed cost?
Property insurance premiums.
Refer to the above graphs for a competitive market in the short run. What will happen in the long run to industry supply S and the equilibrium price P of the product?
S will decrease, P will increase
Which would contribute most to a firm experiencing "economies of scale"?
Specialization of production within a firm
Variable costs are:
The change in total cost due to the production of an additional unit of output
Refer to the above graphs for a competitive market in the short run. Which of the following statements is true?
The firm is experiencing economic losses
Under what conditions would an increase in demand lead to a lower long-run equilibrium price?
The firms in the market are part of a decreasing-cost industry.
For a purely competitive seller, price equals:
all of these.
Refer to the diagram. At the profit-maximizing output, the firm will realize:
an economic profit of ABGH.
Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price:
and industry output will be less than the initial price and output.
Average fixed cost
declines continually as output increases.
The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.
downsloping; perfectly elastic
Refer to the diagram for a purely competitive producer. If product price is P3:
economic profits will be zero.
For a purely competitive firm, total revenue:
has all of these characteristics.
Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be:
higher and total output will be larger than originally.
The MR = MC rule applies:
in both the short run and the long run.
If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to:
increase, output to increase, price to decrease, and profits to decrease.
Entrepreneurs in purely competitive industries:
innovate to lower operating costs and generate short-run economic profits.
In the short run, a purely competitive seller will shut down if product price:
is less than AVC.
The minimum efficient scale of a firm:
is the smallest level of output at which long-run average total cost is minimized.
Suppose that an industry's long-run supply curve is downsloping. This suggests that:
it is a decreasing-cost industry.
If a purely competitive firm shuts down in the short run:
it will realize a loss equal to its total fixed costs.
In the short run, the individual competitive firm's supply curve is that segment of the:
marginal cost curve lying above the average variable cost curve.
If in the short run a firm's total product is increasing, then its:
marginal product must be decreasing.
A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating:
marginal revenue and marginal cost.
Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices:
between P2 and P3.
Under pure competition in the long run:
both allocative efficiency and productive efficiency are achieved.
If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that:
both relatively small and relatively large firms can be viable in the industry.
Assume for a competitive firm that MC = AVC at $10, MC = ATC at $14.50, and MC = MR at $17. This firm will:
maximize its profit by producing in the short run.
Marginal product:
may initially increase, then diminish, and ultimately become negative
Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will:
minimize its losses by producing in the short run.
Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can:
not compare the original and the new prices without knowing what cost conditions exist in the industry.
Diseconomies of scale arise primarily because:
of the difficulties involved in managing and coordinating a large business enterprise.
A purely competitive firm is precluded from making economic profits in the long run because:
of unimpeded entry to the industry.
Innovations that lower production costs or create new products:
often generate short-run economic profits that do not last into the long run.
When total product is increasing at an increasing rate, marginal product is:
positive and increasing.
Refer to the data. Marginal product becomes negative with the hiring of the __________ unit of labor.
seventh
Assume for a competitive firm that MC = AVC at $23, MC = ATC at $27, and MC = MR at $19. This firm will:
shut down in the short run.
When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that:
the LCD television industry is a decreasing-cost industry.
The basic characteristic of the short run is that:
the firm does not have sufficient time to change the size of its plant.
Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then:
there is no tendency for the firm's industry to expand or contract.
A firm reaches a break-even point (normal profit position) where:
total revenue and total cost are equal.
A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its:
total variable costs.
In the short run, a purely competitive firm that seeks to maximize profit will produce:
where total revenue exceeds total cost by the maximum amount.
The process by which new firms and new products replace existing dominant firms and products is called:
creative destruction.
The range over which average variable cost is increasing is the same as the range over which:
Average product is decreasing
Refer to the diagram. At output level Q2:
resources are overallocated to this product and productive efficiency is not realized.
Refer to the diagram. At output level Q1:
resources are underallocated to this product and productive efficiency is not realized.
Long-run competitive equilibrium:
results in zero economic profits.
Refer to the above table. The marginal cost of producing the sixth unit of output is:
$25
Which of the following is a short-run adjustment?
A local bakery hires two additional bakers.
Which of the following industries most closely approximates pure competition?
Agriculture.
Refer to the short-run data. Which of the following is correct?
Any level of output between 100 and 440 units will yield an economic profit.
Which of the following is not correct as it relates to cost curves?
Average fixed cost declines for a time, but then begins to increase when diminishing returns set in.
Which of the following is not correct?
Average product continues to rise so long as total product is rising.
In a purely competitive industry, each firm:
Can easily enter or exit the industry
Marginal cost can be defined as the:
Change in total cost resulting from one more unit of production
Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?
Consumer and producer surplus will be maximized.
Productive efficiency refers to:
Cost minimization, where P = minimum ATC
The reason the marginal cost curve eventually increases as output increases for the typical firm is because of:
Diminishing marginal returns
Refer to the diagram. To maximize profit or minimize losses, this firm will produce:
E units at price A.
Price is taken to be a "given" by an individual firm selling in a purely competitive market because:
Each seller supplies a negligible fraction of total market
Which of the following statements is correct?
Economic profits induce firms to enter an industry; losses encourage firms to leave.
Economic profits are:
Equal to the difference between accounting profits and implicit costs
A firm encountering economies of scale over some range of output will have a:
Falling long-run average cost curve
Which would be an implicit cost for a firm? The cost:
Of wages foregone by the owner of the firm
In the short run, a purely competitive firm will earn a normal profit when:
P = ATC.
Which of the following conditions is true for a purely competitive firm in long-run equilibrium?
P = MC = minimum ATC.
Allocative efficiency is achieved when the production of a good occurs where:
P = MC.
In the short run, a purely competitive firm will always make an economic profit if:
P > ATC.
Refer to the diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is:
P2.
A perfectly elastic demand curve implies that the firm:
can sell as much output as it chooses at the existing price.
On a per unit basis, economic profit can be determined as the difference between:
product price and average total cost.
A constant-cost industry is one in which:
resource prices remain unchanged as output is increased.