Micro Unit 3

The Sweet Success Bakery sells 400 cakes at a price of $10 per cake. Its total economic costs for producing 400 cakes are $500. The Sweet Success Bakery¹s economic profits are (2pts) $100. $3,500. $4,500.

$3,500.

At the Pampered Pet Salon the marginal products of the first, second, and third workers are 20, 16, and 10 dogs washed, respectively. The total product (number of dogs washed) of the two worker is (2pts) 16 20 36 46

36

2/2 An industry with a horizontal long-run supply curve is called a(n) ________ industry. (2pts) decreasing-profit constant-cost increasing-cost decreasing-cost

constant-cost

If revenues exceed ________, operating profit is ________. (2pts) variable cost; negative total cost; negative fixed cost; positive variable cost; positive

variable cost; positive

The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger¹s total fixed costs are (2pts) $0 $3,000 $5,000

$3,000

For Elliot¹s dog-walking service, the only variable input is labor. Elliot¹s labor costs are $300 a day and his service walks 30 dogs per day. To walk 31 dogs per day, his labor costs increase to $305 a day. The marginal cost of walking that 31st dog is (2pts) $5. $9.83. $19.52.

$5.

The Oh So Humble Bakery sells 300 muffins at a price of $1 per muffin. Its explicit costs for producing 300 muffins are $250. If the bakery is earning a normal rate of return, then implicit costs must be (2pts) $50.00 $100.00 $250.00 $350.00

$50.00

Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets? (2pts) $300 $305 $500 $800

$800

Which of the following is an example of economies of scale? (2pts) A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially. As the demand for calculators increased, the price of calculators actually fell. As the computer industry has expanded, the number of professionally trained computer programmers has also increased, which has caused the salaries of computer programmers to increase.

A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially.

An act of production, as economists use the term, is demonstrated by which of the following? (2pts) An individual buying municipal bonds to avoid taxes A local nonprofessional theater company performing a play A firm buys a pre-existing building in order to expand its operations. A worker placing money in a pension fund

A local nonprofessional theater company performing a play

Economies of scale cannot be due only to the sheer size of a firm¹s operation. (2pts) True False

False

In the short run, firms can enter an industry but not exit an industry. (2pts) True False Correct

False

Input prices fall as entry occurs in an increasing-cost industry. (2pts) True False

False

________ are likely a fixed cost of a firm (2pts) Travel expenses to meet with clients The payments for supplies Lease payments for office space Wages paid to employees

Lease payments for office space

The profit-maximizing level for all firms, regardless of industry structure, is the output level where (2pts) MC = MR. P = MC. ATC = P. TR = MC.

MC = MR.

Firms are making profits in an increasing-cost industry. Which of the following statements describes what will happen in the long run? (2pts) More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift up. Firms will exit this industry, causing the industry supply schedule to shift to the right and the LRAC curve to shift down. Firms will exit this industry, causing the industry supply schedule to shift to the left and the LRAC curve to shift down. More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift down.

More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift up.

Economic profit is (2pts) TVC -TFC. TR -TFC. TR -TC. TR -TVC.

TR -TC.

Operating profit is (2pts) TR -TVC. TR -TFC. TVC -TFC.

TR -TVC.

Dana spends $10,000 on remodeling a storefront that she then opens as a shoe store. The business has not been very successful, and she needs an additional $3,000 to keep the shoe store open. Which of the following is TRUE? (2pts) The $10,000 Dana spent on remodeling is a fixed cost of her business. The $10,000 Dana spent on remodeling represents a part of the total variable cost of her business. The $3,000 represents her marginal costs of production. The $3,000 Dana needs to keep the deli open represents her total fixed costs

The $10,000 Dana spent on remodeling is a fixed cost of her business.

The owner of Tie-Dyed T-shirts, a perfectly competitive firm, has hired you to give him some economic advice. He has told you that the market price for his shirts is $20 and that he is currently producing 200 shirts at an AVC of $15 and an ATC of $25. What would you recommend to him? (2pts) You tell him you cannot make any recommendations until you know what his fixed costs are. To continue to produce in the short run, even though he is earning a loss, and to expand in the future with the hope of increasing market share and total revenue. To shut down in the short run, as he is incurring a loss, and to leave the industry in the long run, if there are no changes in economic conditions. To continue producing in the short run, as his loss from production is less than his fixed costs, but to exit the industry in the long run if there are no changes in economic conditions.

To continue producing in the short run, as his loss from production is less than his fixed costs, but to exit the industry in the long run if there are no changes in economic conditions.

Marginal revenue is the (2pts) additional profit the firm earns when it sells an additional unit of output. ratio of total revenue to quantity. added revenue that a firm takes in when it increases output by one additional unit. difference between total revenue and total costs.

added revenue that a firm takes in when it increases output by one additional unit.

If marginal cost is above average variable cost, then (2pts) average variable cost is decreasing. average variable cost is constant. marginal cost must be decreasing. average variable cost is increasing.

average variable cost is increasing.

If the marginal cost curve is below the average variable cost curve, then (2pts) average variable costs could either be increasing or decreasing. average variable costs are decreasing. marginal cost must be decreasing. average variable costs are increasing.

average variable costs are decreasing.

Economists usually assume that ________ is a fixed input in the ________ run. (2pts) labor; short capital; long labor; long capital; short

capital; short

Industries in which firms are suffering losses are likely to ________ in the long-run. (2pts) expand contract

contract

The explanation for why marginal cost is positive and rising in the short run is ________ marginal product of labor in the production process. (2pts) a zero a constant diminishing an increasing

diminishing

Firms that are "breaking even" are (2pts) earning less than a normal rate of return. earning zero economic profits shutting down in the short run.

earning zero economic profits

If economic profit is zero, a firm (2pts) earns a negative rate of return earns exactly a normal rate of return. earns a positive but below normal rate of return. will leave the industry

earns exactly a normal rate of return.

If Pets.com is earning a rate of return less than necessary for the business to continue operations, then (2pts) normal profit is zero economic costs exceed total revenue. total revenue exceeds economic costs. economic profit is zero.

economic costs exceed total revenue.

In the short run (2pts) existing firms can exit an industry. all firms have costs that they must bear regardless of their output. existing firms do NOT face limits imposed by a fixed input. new firms can enter an industry.

existing firms do NOT face limits imposed by a fixed input.

Average fixed costs (2pts) reach their minimum at the output level where the average fixed cost curve is intersected by the marginal cost curve. fall as output rises. are the costs associated with producing an additional unit of output. provide a per unit measure of costs.

fall as output rises.

In the short run, (2pts) all firms that earn a loss will shut down. firms act to minimize losses or maximize profits. if current firms are earning a profit, new firms will enter the industry.

firms act to minimize losses or maximize profits.

Marginal revenue for a perfectly competitive firm is (2pts) upward sloping downward sloping vertical horizontal

horizontal

Economic costs (2pts) include both a normal rate of return on investment and the opportunity cost of each factor of production. are equal to total revenue minus accounting profit. are equal to total revenue minus accounting profit. are equal to the direct costs of hiring all factors of production.

include both a normal rate of return on investment and the opportunity cost of each factor of production.

When a decrease in the scale of production leads to higher average costs, the industry exhibits (2pts) diminishing returns. decreasing returns to scale. constant returns to scale. increasing returns to scale.

increasing returns to scale.

An industry with a positive sloping long-run supply curve is called a(n) ________ industry. (2pts) decreasing-cost constant-cost increasing-cost decreasing-profit

increasing-cost

In efficient markets ________ flows toward ________ opportunities. (2pts) consumption; profit investment capital; profit investment capital; consumption consumption; investment

investment capital; profit

If labor is a variable input in production, the law of diminishing marginal returns implies that in the short run (2pts) total product is negative. labor¹s marginal product decreases after a certain point. labor¹s marginal product is constant. total product is negative after a certain point has been reached.

labor¹s marginal product decreases after a certain point.

Assume the tennis ball industry, a perfectly competitive, increasing cost industry, is in long-run equilibrium with a market price of $5. If the demand for tennis balls DECREASES, long-run equilibrium will be reestablished at a price (2pts) equal to $5. less than $5. greater than $5. either greater than or less than $5, depending on the number of firms that enter the industry.

less than $5.

If diminishing marginal returns have already set in for The Picture Perfect Framing Store and the marginal product of the fifth picture framer is 20, then the marginal product of the sixth picture framer must be (2pts) negative zero less than 20 greater than 20

less than 20

If marginal product is greater than average product, then (2pts) marginal product must be increasing average product must be decreasing marginal product must be decreasing marginal product could either be increasing or decreasing.

marginal product could either be increasing or decreasing.

The law of supply holds for perfectly competitive firms assuming that each firm tries to (2pts) maximize revenue maximize profits minimize total costs minimize variable costs

maximize profits

The optimal method of production is the one that (2pts) maximizes inputs. maximizes output regardless of cost minimizes cost. minimizes the normal rate of return.

minimizes cost.

If we know average total cost and the amount of output, then we can always calculate total cost by (2pts) multiplying average total cost by the amount of output. dividing average total cost by the amount of output. adding average total cost and the amount of output. subtracting the amount of output from average total cost.

multiplying average total cost by the amount of output.

You are hired as an economic consultant to The Pampered Pet Shop. The Pampered Pet Shop operates in a perfectly competitive industry. This firm is currently producing at a point where market price equals its marginal cost. The Shop¹s total revenue exceeds its total variable cost, but is less than its total cost. You should advise the firm to (2pts) lower its price so that it can sell more units of output. cease production immediately because it is incurring a loss. raise its price until it breaks even. produce in the short run to minimize its loss, but exit the industry in the long run.

produce in the short run to minimize its loss, but exit the industry in the long run.

In the short run, as output increases, (2pts) the difference between total cost and average variable cost decreases. marginal cost eventually decreases. the difference between average total cost and average variable cost decreases.

the difference between average total cost and average variable cost decreases.

The fast-food industry is not considered perfectly competitive because: (2pts) entry and exit are strictly regulated by the government. there are a very large number of firms. there are a small number of dominant firms. the firm's products are not homogeneous.

the firm's products are not homogeneous.

To determine the optimal method of production for a good or service, a perfectly competitive firm needs to know all of the following EXCEPT: (2pts) the price of inputs the market price of output the technologies of production that are available to the firm. the prices charged by its rivals

the prices charged by its rivals

Perfectly competitive firms must make all of the following decisions EXCEPT (2pts) which production technology to use. how much output to supply what price to charge for its output how much of each input to demand

what price to charge for its output