Micro Final

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be A. $12. B. less than $12. C. more than $12. D. Any of the above may be correct depending on the price elasticity of demand for the product.

A. $12.

Which of the following statements is correct for both a monopolist and a perfectly competitive firm? (i) The firm maximizes profits by equating marginal revenue with marginal cost. (ii) The firm maximizes profits by equating price with marginal cost. (iii) Demand equals marginal revenue. (iv) Average revenue equals price. A. (i) and (iv) only B. (i), (iii), and (iv) only C. (i), (ii), and (iv) only D. (i), (ii), (iii), and (iv)

A. (i) and (iv) only

Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. At the end of the first year of operating his new business, Victor's accountant reported an accounting profit of $150,000. What was Victor's economic profit? A. -$25,000 B. -$50,000 C. $25,000 D. -$150,000

A. -$25,000

A production function describes A. how a firm turns inputs into output. B. the minimal cost of producing a given level of output. C. the relationship between cost and output. D. how a firm maximizes profits.

A. how a firm turns inputs into output.

If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost.Farmer Brown's marginal-cost curve is A. increasing. B. decreasing. C. U-shaped. D. constant.

A. increasing.

A firm that is a natural monopoly A. is not likely to be concerned about new entrants eroding its monopoly power. B. would experience a lower average total cost if more firms entered the market. C. is taking advantage of diseconomies of scale. D. All of the above are correct.

A. is not likely to be concerned about new entrants eroding its monopoly power.

If a profit-maximizing monopolist faces a downward-sloping market demand curve, its A. marginal revenue is less than the price of the product. B. average revenue is less than marginal revenue. C. average revenue is less than the price of the product. D. marginal revenue is greater than the price of the product.

A. marginal revenue is less than the price of the product.

What is the shape of the monopolist's marginal revenue curve? A. a downward-sloping line that is identical to the demand curve B. a downward-sloping line that lies below the demand curve C. a horizontal line that is identical to the demand curve D. a horizontal line that lies below the demand curve

B. a downward-sloping line that lies below the demand curve

A firm that is the sole seller of a product without close substitutes is A. an oligopolist. B. a monopolist. C. monopolistically competitive. D. perfectly competitive.

B. a monopolist.

Which of the following measures of cost is best described as "the cost of a typical unit of output if total cost is divided evenly over all the units produced?" A. average variable cost B. average total cost C. average fixed cost D. marginal cost

B. average total cost

Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should A. continue the flight. B. continue flying until the lease expires and then drop the run. C. drop the flight now but renew the lease if conditions improve. D. drop the flight immediately.

B. continue flying until the lease expires and then drop the run.

Suppose ABC Aluminum Inc. owns 80% of the world's bauxite, a mineral used in the production of aluminum. Which of the following reasons describes the fundamental barrier to entry for the aluminum industry? A. government regulation B. monopoly resources C. the production process D. Both a and b are correct.

B. monopoly resources

When a monopolist is able to sell its product at different prices, it is engaging in A. arbitrage. B. price discrimination. C. quality-adjusted pricing. D. distribution pricing.

B. price discrimination.

At all levels of production higher than the point where the marginal cost curve crosses the average variable cost curve, average variable cost A. remains unaffected. B. rises. C. falls. D. All of the above are possible depending on the shape of the marginal cost curve.

B. rises.

When total revenue is less than variable costs, a firm in a competitive market will A. continue to operate as long as average revenue exceeds marginal cost. B. shut down. C. raise its price. D. continue to operate as long as average revenue exceeds average fixed cost.

B. shut down

Competitive firms that earn a loss in the short run should A. raise their price. B. shut down if P < AVC. C. lower their output. D. All of the above are correct.

B. shut down if P < AVC.

When a firm experiences continually declining average total costs, A. the firm will earn higher profits than if average total costs are increasing. B. society is better served by having one firm supply the product. C. the firm is a price taker. D. All of the above are correct.

B. society is better served by having one firm supply the product.

Total revenue minus only explicit costs is called A. implicit profit. B. average total cost. C. accounting profit. D. economic profit.

C. accounting profit.

A fundamental source of monopoly market power arises from A. perfectly inelastic demand. B. availability of "free" natural resources, such as water or air. C. barriers to entry. D. perfectly elastic demand.

C. barriers to entry.

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to A. decrease by more than 20 percent. B. increase. C. remain unchanged. D. decrease by less than 20 percent.

C. remain unchanged.

Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 at the profit-maximizing output level, then in the long run A. average total costs will fall. B. more firms will enter the market. C. some firms will exit from the market. D. the equilibrium price per duck call will fall.

C. some firms will exit from the market.

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term A. implicit cost. B. variable cost. C. sunk cost. D. explicit cost.

C. sunk cost.

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In long-run equilibrium, market price is determined by A. the minimum point on the firms' average variable cost curve. B. the portion of the marginal cost curve below average variable cost. C. the minimum point on the firms' average total cost curve. D. a firm's level of sunk costs.

C. the minimum point on the firms' average total cost curve.

Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws $100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her savings account is 2%. Emily's implicit cost of capital is A. $12,000. B. $4,000. C. $2,000. D. $14,000.

C.$2,000

Marginal Cost=

MC(Change in Total cost/Change in quantity)

Marginal Revenue=

MR(Change in Total Revenue/Change in quantity)

Change in Profit=

P(Marginal Revenue-Marginal Cost)

Profit=

P(Total Revenue-Total Cost)

Total Cost=

TC

Total Revenue=

TR(Price x Quantity)

Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist's marginal revenue curve can be expressed as MR=90-2Q. The monopolist has constant marginal costs and average total costs of $10. The profit-maximizing monopolist will earn profits of A. $800. B. $6,400. C. $3,200. D. $1,600.

D. $1,600.

Marginal Revenue

Difference in Total Revenue/Difference in Quantity

Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws $100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her savings account is 2%.Emily's explicit cost of capital is? a)$4,000 b)$12,000 c)$14,000 d) $2,000

b)$12,000

Jamar used to work as an office manager, earning $40,000 per year. He gave up that job to start a life-coaching business. In calculating the economic profit of his life-coaching business, the $40,000 income that he gave up is counted as part of the life-coaching business's a)marginal costs b)opportunity costs c)total revenue d)explicit costs

b)opportunity costs

Average Revenue=

Total Revenue/Quantity

Which of the following statements is not correct? A. If marginal cost is rising, then average variable cost must be rising. B. The marginal cost of the fifth unit of output equals the total cost of five units minus the total cost of four units. C. The marginal cost of the fifth unit of output equals the total variable cost of five units minus the total variable cost of four units. D. The total variable cost of seven units equals the average variable cost of seven units times seven.

A. If marginal cost is rising, then average variable cost must be rising.

Which of the following would be most likely to have monopoly power? A. a local cable TV provider B. a long-distance telephone service provider C. a large department store D. a gas station

A. a local cable TV provider

Patent and copyright laws encourage A. creative activity. B. lower prices due to decreasing average total costs. C. competition among firms. D. All of the above are correct.

A. creative activity.

The price effect describes the situation when a monopolist lowers the price of output and, all else equal, total revenue A. decreases. B. increases. C. is unchanged. D. is maximized.

A. decreases.

When firms in a competitive market have different costs, it is likely that A. some firms will earn positive economic profits in the long run. B. long-run market supply will be downward sloping. C. the market will no longer be considered competitive. D. free entry and exit in the market will be violated.

A. some firms will earn positive economic profits in the long run.

Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws $100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her savings account is 2%. Emily's total opportunity cost of capital is A. $14,000. B. $2,000. C. $4,000. D. $12,000.

A.$14,000

Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. At Q=499, the firm's total costs equal A. $5,999. B. $5,983. C. $5,988. D. $5,995.

B. $5,983.

Which of the following is not a property of a firm's cost curves?A. Economies of scale will exist when average total cost falls as output rises. B. Average total cost will cross marginal cost at the minimum of marginal cost. C. Marginal cost must eventually rise as a result of diminishing marginal product. D. Average total cost is U-shaped.

B. Average total cost will cross marginal cost at the minimum of marginal cost

Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. Julia's economic profits are A. $160,000. B. $135,000. C. $125,000. D. $150,000.

C. $125,000.

BUBBA is a shrimp fisherman who can catch 4,000 pounds of shrimp per year. Bubba is considering hiring his cousin Bobby to work for him. Bobby can catch 3,000 pounds of shrimp per year. If Bubba hires Bobby, what will be the total output of his shrimp business? A. 3,500 pounds B. 3,000 pounds C. 7,000 pounds D. 1,000 pounds

C. 7,000 pounds

Which of the following statements is correct? A. Economists consider opportunity costs to be included in a firm's total revenues. B. Opportunity costs equal explicit minus implicit costs. C. Economists consider opportunity costs to be included in a firm's costs of production. D. All of the above are correct.

C. Economists consider opportunity costs to be included in a firm's costs of production.

To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where A. MR = MC. B. MR intersects the demand curve. C. MC intersects the demand curve. D. MR exceeds MC by the greatest amount.

C. MC intersects the demand curve.

If a firm operating in a competitive industry shuts down in the short run, it can avoid paying A. total costs. B. fixed costs. C. The firm must pay all its costs, even if it shuts down. D. variable costs

D. variable costs

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should A. shut down her business in the short run but continue to operate in the long run. B. continue to operate in both the short run and long run. C. continue to operate in the short run but shut down in the long run. D. shut down in both the short run and long run.

C. continue to operate in the short run but shut down in the long run.

If a firm in a competitive market doubles its number of units sold, total revenue for the firm will A. increase but by less than double. B. may increase or decrease depending on the price elasticity of demand. C. double. D. more than double.

C. double.

Suppose that a firm's long-run average total costs of producing televisions decreases as it produces between 10,000 and 20,000 televisions. For this range of output, the firm is experiencing A. coordination problems. B. constant returns to scale. C. economies of scale. D. diseconomies of scale.

C. economies of scale.

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should A. reduce its output but continue operating. B. continue to produce at the current levels. C. increase its output. D. shut down.

C. increase its output

When there are economies of scale over the relevant range of output for a monopoly, the monopoly A. is a government-granted monopoly. B. has monopoly power due to the ownership of a patent or copyright. C. is a natural monopoly. D. has monopoly power due to the ownership of a key production resource.

C. is a natural monopoly.

Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500. Ellie's annual economic costs will equal A. $55,200. B. $75,200. C. $80,500. D. $135,700.

D. $135,700.

Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. At Q = 999, the firm's total costs equal A. $24,975. B. $24,970. C. $25,025. D. $24,980.

D. $24,980.

Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. At Q = 999, the firm's profits equal A. $5,030. B. $5,000. C. $5,020. D. $4,990.

D. $4,990

Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Murphy can paint five houses per week. What is the maximum total output possible if Eldin hires Murphy? A. 3 houses B. 5 houses C. 2 houses D. 8 houses

D. 8 houses

Which of the following statements about a production function is correct for a firm that uses labor to produce output? A. The slope of the production function measures marginal product. B. The slopes of the production function and the total cost curve are inversely related; if one is increasing, the other is decreasing. C. The production function depicts the relationship between the quantity of labor and the quantity of output. D. All of the above are correct.

D. All of the above are correct.

Which statement best describes the effect(s) that occur when a monopoly firm reduces the price of its product? A. The "output effect" causes total revenue to rise. B. The "price effect" causes total revenue to fall. C. The "revenue effect" causes total revenue to remain constant. D. Both a and b are correct.

D. Both a and b are correct.

Which of the following is the preferred strategy for the government to follow to remedy the inefficient allocation of resources associated with monopolies? A. doing nothing B. regulating the prices that monopolies can charge C. preventing mergers through antitrust laws D. None of the above strategies is preferred. Each is a viable strategy.

D. None of the above strategies is preferred. Each is a viable strategy.

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if A. average revenue is greater than average fixed cost. B. average revenue is greater than marginal cost. C. price is greater than average total cost. D. price is less than average total cost.

D. price is less than average total cost.

For a firm, the production function represents the relationship between A. quantity of output and total cost. B. quantity of inputs and total cost. C. implicit costs and explicit costs. D. quantity of inputs and quantity of output.

D. quantity of inputs and quantity of output.

Quantity=

Q

Price=

Revenue/Quantity

The amount of money that a firm pays to buy inputs is called a)total cost b)fixed cost c)marginal cost d)variable cost

a)total cost