Microeconomics Exam 3
what is the profit maximizing quantity?
When MC=MR
How do you calculate total revenue?
TR=P*Q
A monopolist's profits with price discrimination will be Select one: a.higher than if the firm charged just one price because the firm will capture more consumer surplus. b.lower than if the firm charged a single, profit-maximizing price. c.higher than if the firm charged a single price because the costs of selling the good will be lower. d.the same as if the firm charged a single, profit-maximizing price.
A
How do you find Average Fixed Cost?
AFC = FC / Q (total fixed costs / quantity)
How do you find Average Total Cost?
ATC = TC / Q (total cost / quantity)
What is the formula to find ATC?
ATC=AFC+AVC
How do you find Average Variable Cost?
AVC = VC / Q (total variable costs / quantity)
only counts explicit costs.
Accounting Profit
What is the difference between "accounting costs" and "economic costs"?
Accounting costs only count explicit costs. Economic costs count both explicit and implicit costs.
When new firms enter a perfectly competitive market, Select one: a.economic profits of existing firms will continue to be zero. b.prices will rise as existing firms raise prices to keep new firms out of the market. c.entering firms will earn zero economic profit upon entry into the market. d.existing firms may see their costs rise if more firms compete for limited resources.
D
counts explicit and implicit costs
Economic Profit
What is the difference between "fixed costs" and "variable costs"?
Fixed costs remain the same regardless of production output. Variable costs change based on the amount of output produced.
Minimum ATC is where...
Long run equilibrium for perfectly competitive markets lie
How do you calculate the Marginal product labor
MPL is: ∆Q/∆L
the increase in total cost if we increase quantity by one
Marginal Cost
The cost of producing the last unit of the good that you make
Marginal cost
How do you calculate the marginal cost?
Marginal cost = Change in total cost / Change in quantity
What are two ways to calculate profit?
Profit = TR-TC or Profit= Q(P-ATC)
Formula for economic profit?
TR - (explicit + implicit costs)
How do you calculate total cost?
TC= total fixed cost + total variable cost or TC=Explicit+Implicit
What is the amount received from selling quantity?
Total revenue
A market structure with only a few sellers, each offering similar or identical products, is known as Select one: a.oligopoly. b.monopoly. c.perfect competition. d.monopolistic competition
a
A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 15-1. At Q = 500, the firm's marginal cost is Select one: a.$30. b.greater than $34. c.$34. d.less than $30.
a
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 this market, an increase in demand will Select one: a.increase price in the short run but not in the long run. b.increase price both in the short and the long run. c.not affect price in either the short or the long run. d.increase price in the long run but not in the short run
a
Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from her first year in her own practice is Select one: a.−$39,000. b.$184,000. c.$163,000. d.$124,000.
a
Monopolies are socially inefficient because the price they charge is Select one: a.above marginal cost. b.equal to marginal revenue. c.above demand. d.equal to demand.
a
Ms. Joplin sells colored pencils. The colored-pencil industry is competitive. Ms. Joplin hires a business consultant to analyze her company's financial records. The consultant recommends that Ms. Joplin increase her production. The consultant must have concluded that, at her current level of production, Ms. Joplin's Select one: a.marginal revenue exceeds her marginal cost. b.total revenues equal her total economic costs. c.marginal cost exceeds her marginal revenue. d.marginal revenue exceeds her total cost.
a
When a firm has a natural monopoly, the firm's Select one: a.average total cost curve is downward sloping. b.total cost curve is horizontal. c.marginal cost curve must lie above the firm's average total cost curve. d.marginal cost always exceeds its average total cost.
a
When a monopolist increases the amount of output that it produces and sells, average revenue Select one: a.decreases, and marginal revenue decreases. b.decreases, and marginal revenue increases. c.increases, and marginal revenue increases. d.increases, and marginal revenue decreases.
a
When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is Select one: a.upward sloping. b.vertical. c.downward sloping. d.horizontal
a
Which of the following explains why long-run average total cost at first decreases as output increases? Select one: a.Gains from specialization of inputs b.Diseconomies of scale c.Fixed costs becoming spread out over more units of output d.Less-efficient use of inputs
a
A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will Select one: a.fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. b.fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. c.fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. d.not fall in the short run because firms will exit to maintain the price.
b
A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to Select one: a.no change in profits for all hotels/motels. b.reduced efficiency of local lodging markets. c.increased price competition among hotels/motels in the community. d.a request by consumers to increase the number of billboards.
b
Adibok knows that it produces and sells high-quality athletic shoes. Wurkout knows that it produces and sells low-quality athletic shoes. According to the signaling theory of advertising, Select one: a.neither Adibok nor Wurkout has an incentive to spend a large amount of money on advertising for their athletic shoes. b.Adibok has an incentive to spend a large amount of money on advertising for its athletic shoes, but Wurkout does not. c.both Adibok and Wurkout have incentives to spend large amounts of money on advertising for their athletic shoes. d.Wurkout has an incentive to spend a large amount of money on advertising for its athletic shoes, but Adibok does not
b
Average total cost is very high when a small amount of output is produced because Select one: a.average variable cost is high. b.average fixed cost is high. c.marginal cost is high. d.marginal product is high.
b
If long-run average total cost decreases as the quantity of output increases, the firm is experiencing Select one: a.fixed costs greatly exceeding variable costs. b.economies of scale. c.coordination problems arising from the large size of the firm. d.diseconomies of scale.
b
In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits Select one: a.economies of scale because total cost is rising as output rises. b.economies of scale because average total cost is falling as output rises. c.diseconomies of scale because total cost is rising as output rises. d.diseconomies of scale because average total cost is rising as output rises.
b
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 Select one: a.zero. b.less than $12. c.more than $12. d.$12.
b
If a firm uses labor to produce output, the firm's production function depicts the relationship between Select one: a.fixed inputs and variable inputs in the short run. b.the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor. c.the number of workers and the quantity of output. d.marginal product and marginal cost.
c
Marginal cost is equal to average total cost when Select one: a.average fixed cost is rising. b.marginal cost is at its minimum. c.average total cost is at its minimum. d.average variable cost is falling.
c
When a factory is operating in the short run, Select one: a.average fixed cost rises as output increases. b.it cannot alter variable costs. c.it cannot adjust the quantity of fixed inputs. d.total cost and variable cost are usually the same.
c
When an industry is a natural monopoly, Select one: a.a larger number of firms may lead to a lower average total cost. b.it is characterized by constant returns to scale. c.a larger number of firms will lead to a higher average total cost. d.it is characterized by diseconomies of scale.
c
Which of the following is not an example of a barrier to entry? Select one: a.A musician obtains a copyright for her original song. b.Mighty Mitch's Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world. c.An entrepreneur opens a popular new restaurant. d.A pharmaceutical company obtains a patent for a specific high blood pressure medication.
c
In the long run to exit means to ___
completely leave the industry
ATC does not change as output increases
costant returns to scale
A difference between explicit and implicit costs is that Select one: a.explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do. b.implicit costs must be greater than explicit costs. c.explicit costs must be greater than implicit costs. d.implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
d
A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100, Select one: a.average total cost is $4. b.average fixed cost is $10. c.average total cost is $5. d.average variable cost is $3.
d
A perfectly price-discriminating monopolist is able to Select one: a.maximize profit, but not produce a socially optimal level of output. b.exercise illegal preferences regarding the race and/or gender of its employees. c.produce a socially optimal level of output, but not maximize profit. d.maximize profit and produce a socially optimal level of output.
d
If a profit-maximizing monopolist faces a downward-sloping market demand curve, its Select one: a.average revenue is less than the price of the product. b.marginal revenue is greater than the price of the product. c.average revenue is less than marginal revenue. d.marginal revenue is less than the price of the product.
d
Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product? Select one: a.55 bouquets b.35 bouquets c.22.5 bouquets d.15 bouquets
d
Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to Select one: a.decrease by less than 20 percent. b.decrease by more than 20 percent. c.increase. d.remain unchanged.
d
The long-run market supply curve in a competitive market will Select one: a.be above the competitive firm's efficient scale. b.be the portion of the MC that lies above the minimum of AVC for the marginal firm. c.always be horizontal. d.typically be more elastic than the short-run supply curve.
d
Tom's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equal Select one: a.$90 b.$100 c.$80 d.$110
d
Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue Select one: a.always increases. b.always decreases. c.increases if MR < ATC and decreases if MR > ATC. d.does not change.
d
Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce. Refer to Scenario 13-3. What is the total opportunity cost of the day that Farmer Ziva spent in the field planting lettuce? Select one: a.$300 b.$250 c.$130 d.$380
d
ATC increases as output increases
diseconomies of scale
If MR < MC, profits go ______
down
the relationship between the quantity of output and average total cost
economies and diseconomies of scale
when ATC falls as output increases
economies of scale
Costs that you actually pay money or a given amount for
explicit cost
costs that we still pay even if we produce 0
fixed cost
Cost that you could have done something other with your time
implicit (opportunity) cost
how much more output we get from using one more input
marginal product
Minimum AVC (Average Variable cost) is what point in a market?
shut down point.
If shut down in SR, _________________ . If exit in LR, ______________.
still must pay fixed cost; there are zero costs
to find the average of anything
the total divided by the amount of something
what is the amount spent to produce the quantity sold?
total cost
Formula for accounting profit?
total revenue - explicit costs
If MR > MC, profits go ______
up
costs that we only pay when we produce something
variable cost
