micro exam 3
Diminishing marginal product first sets in at the minimum point of the a. ATC curve. b. AVC curve. c. AFC curve. d. MC curve.
MC curve
when marginal product (MP) is rising, marginal cost (MC) will be
falling
Diseconomies of scale are most likely at very low levels of output. a. True b. False
false
Which one of the following is not a characteristic of a perfectly competitive market? a. Competing products are virtually identical. b. Firms earn zero economic profit in the long run. c. Firms advertise in order to distinguish their products and increase market share. d. Firms are price takers
firms advertise in order to distinguish their products and increase market share
When economies of scale exist: a. per unit production costs increase as output expands. b. per unit production costs decline as output expands. c. per unit production costs remain constant as output expands. d. marginal cost must decrease as output expands.
per unit production costs decline as output expands
If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue, it should: a. not alter its production level since it is earning a profit. b. increase output. c. shut down. d. reduce output, but continue producing in the short run.
reduce output, but continue producing in the short run
A firm's average fixed cost curve is: a. U-shaped. b. a curve that increases as output expands. c. a vertical line. d. a curve that declines as output expands and approaches the X-axis when output is very large
a curve that declines as output expands and approaches the X-axis when output is very large
If AVC is subtracted from the ATC, the result is: a. economic profit. b. accounting profit. c. average fixed cost. d. marginal cost.
average fixed cost
Accountants calculate __________ differently than do economists: a. Profits. b. Total revenue. c. Total costs. d. Both total costs and profits
both total costs and profits
Constant cost industries: a. significantly increase the demand for inputs when expanding output, and as a result, input prices rise. b. use large portions of the total supply of specialized resources. c. do not use inputs in sufficient quantities that a change in industry output would affect the prices of the inputs. d. are those in which the cost curves of individual firms shift upwards as industry output expands.
do not use inputs in sufficient quantities that a change in industry output would affect the prices of the inputs
If Jason's fixed cost totals $800 with variable cost per unit of $10 at a quantity of 100 units, what would his average total cost equal? a. $90.00 b. $18.00 c. $91.00 d. $8.10
$18
If Jason's fixed cost totals $800 with variable cost per unit of $10 at a quantity of 80 units, what would his average total cost at 80 units of output equal? a. $18 b. $20 c. $810 d. $10
$20
A firm is producing 200 units of output at a total cost of $1,000. The firm's average variable cost equals $4 per unit. Total fixed cost: a. equals $1,000. b. equals $200. c. equals $800. d. equals $2.
$200
Average Total Cost (ATC)
ATC = TC/Q = AFC + AVC
In long-run equilibrium, a perfectly competitive firms produces at the output level at which: a. average total cost is minimized. b. short-run variable cost is minimized. c. total revenue is maximized. d. long-run marginal cost is minimized.
ATC is minimized
Total Costs (TC)
TC = FC + VC
Average Fixed Cost (AFC)
TFC/ Q output
Average Variable Cost (AVC)
TVC/Q
Which of the following is true? a. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its marginal revenue and marginal cost. b. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average variable cost. c. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average total cost. d. The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its total revenues and total cost.
The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its total revenues and total cost
Perfect competition is the term used to describe: a. an industry in which numerous price-taking firms produce identical products. b. an industry in which a few price-taking firms produce identical products. c. an industry in which firms are price takers and compete for market share by varying the qualitative characteristics of products. d. an industry in which numerous firms are price makers and produce identical products.
an industry in which numerous price-taking firms produce identical products
an explicit cost is both..
an opportunity cost and an out of pocket cost
The vertical distance between the average total cost curve and the average variable cost curve equals: a. average fixed cost. b. total fixed cost. c. marginal cost. d. total variable cost.
average fixed cost
If average variable cost exceeds marginal cost, then: a. the average variable cost is decreasing and the average total cost may be increasing or decreasing. b. average variable cost is increasing and the average total cost is decreasing. c. both the average variable and average total cost are decreasing. d. the average variable cost is decreasing and the average total cost is increasing.
both the average variable and average total cost are decreasing
At the level of output where marginal revenue equals marginal cost, price is less than average total cost but greater than average variable cost. In this instance, a profit-maximizing firm should: a. cease production as it is incurring an economic loss. b. continue operating at that output level in the short term, since total revenue will cover all of the firm's variable costs and some of its fixed costs. c. continue operating at that output level in the short term, since total revenue will cover all of the firm's fixed costs and a portion of its variable costs. d. decrease output to where marginal revenue exceeds marginal cost by the greatest dollar amount
continue operating at that output level in the short term, since total revenue will cover all of the firm's variable costs and some of its fixed costs
#39 Refer to Exhibit 12-3. If the market price decreased to $4.70 in Graph B, this firm should: a. immediately shut down if price is greater than average variable cost. b. increase output. c. decrease output. d. continue producing the same level of output.
decrease output
fixed costs
do not vary with the level of output ex. rent
In short run equilibrium in a perfectly competitive industry whose firms are earning economic profits, a firm: a. has no incentive to expand its factory. b. has no incentive to change its output. c. has no incentive to change its plant size. d. has no incentive to leave the industry.
has no incentive to change its output
If a particular perfectly competitive industry uses only a small fraction of the supply of any of its inputs, the long run supply curve for that industry will tend to be: a. upward sloping. b. horizontal. c. downward sloping. d. vertical.
horizontal
William is a wheat farmer and wheat sells in a perfectly competitive market, with an equilibrium price of $5 per bushel. Its marginal revenue: a. cannot be determined from the above information. b. is less than $5. c. is $5. d. is greater than $5
is $5
Which of the following is true at the output level where diminishing marginal product first set in? a. Both marginal product and marginal cost are at a minimum. b. Marginal product is at a maximum and marginal cost is at a minimum. c. Marginal product is at a minimum and marginal cost is at a maximum. d. Both marginal product and marginal cost are at a maximum.
marginal product is at a maximum and marginal cost is at a minimum
both implicit and explicit costs are
opportunity costs
A perfectly competitive, increasing cost industry is initially in long run equilibrium. Then, there is an increase in demand. Compared with the initial equilibrium, once the new long run equilibrium is reached: a. price will be higher and total output will be greater than before. b. price will be lower and total output will be greater than before. c. price will be the same and total output will be greater than before. d. price will be higher, and therefore total output will be smaller than before.
price will be higher and total output will be greater than before
Which of the following is most likely a fixed cost? a. Raw materials costs. b. Property insurance premiums. c. Fuel costs for running the factory. d. Shipping charges.
property insurance premiums
Marginal Cost (MC)
the addition to total cost from producing one more unit of output
#38 Refer to Exhibit 12-9. This pair of graphs demonstrates the chain of events for a lawn care firm, beginning with an increase in the market demand for lawn care services. Which of the following statements is incorrect? a. The overall quantity of lawn care services increases in the industry. b. This particular firm increases its production of lawn care services in response to an increase in the price of lawn care services. c. The diagrams depict an increasing cost industry. d. The equilibrium price of lawn care services is initially P0, then increases to P1 because of the increase in demand, and eventually decreases to P0 once again when the market supply of output increases as a result of new firms entering the industry.
the diagrams depict an increasing cost industry
When a firm makes zero economic profit, it means that: a. the firm is running at an accounting loss. b. the firm is covering explicit costs alone. c. the firm is covering the total opportunity costs of its resources. d. the firm is covering implicit costs alone.
the firm is covering the total opportunity costs of its resources
short run
the period of time during which at least one of a firm's inputs is fixed while the others are variable
long run
the time period in which all inputs can be varied, no fixed costs
A perfectly competitive firm cannot make economic profits in the long run because: a. it faces a perfectly elastic demand curve. b. its advertising costs will rise to eliminate any economic profits. c. there are no barriers to entry into the industry. d. it is a price taker
there are no barriers to entry into the industry
accounting profit
total revenue - explicit costs
economic profit
total revenue minus total cost, including both explicit and implicit costs
variable costs
vary with the level of output ex. labor and raw materials added
In long-run equilibrium under perfect competition a. the demand curve facing individual firms will fall to the level tangent to the minimum average total cost curve. b. firms will earn economic profits due to the existence of barriers to entry. c. price will equal minimum average fixed cost. d. firms will produce at the level of output where marginal revenue exceeds marginal cost by the greatest dollar amount.
the demand curve facing individual firms will fall to the level tangent to the minimum average total cost curve
In a perfectly competitive market, in response to a permanent decrease in demand: a. we cannot know whether the short run equilibrium price will be above, below or equal to the eventual long run equilibrium price. b. the short run equilibrium price will be lower than the eventual long run equilibrium price. c. the short run equilibrium price will be higher than the eventual long run equilibrium price. d. the short run equilibrium price will be the same as than the eventual long run equilibrium price
the short run equilibrium price will be lower than the eventual long run equilibrium price