Microeconomics - Exam 3 Practice Questions

Krista sets up a business selling coffee from a coffee cart. She earns $12,000 in revenue a month. She incurs costs of $3,000 per month in supplies (coffee cups, creamer, sugar, pastries, napkins, and so on). She used to earn $3,500 per month as a barista. The coffee cart is very specialized and has no other uses. What is Krista's implicit cost of capital per month?

$0

Mike's Outdoors has a fixed cost of $300 per year. The firm's average variable cost is $100 for 10 trips. At this level of output, the firm's average total cost equals _______.

$130

If a perfectly competitive firm decreases production from 10 units to 9 units and the market price is $20 per unit, total revenue for 9 units is ______ and total revenue is lower by _______ compared to before.

$180; $20

If a perfectly competitive firm decreases production from 110 units to 100 units, and the market price is $20 per unit, the firm's total revenue will be:

$2,000

If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 11 units is:

$220

If Jerry produces four units, his average fixed cost is $1.50 and his average variable cost is $4.50. Jerry's total cost to produce four units is:

$24

An accountant tells Jill that she made a profit of $23,000 running a business. Jill's husband, claims her economic loss is $23,000 for the same business. This means her husband is claiming that she incurred ________ in _________ costs.

$46,000; implicit

Look at the table. What is the total fixed cost for this bicycle firm?

$50

Zoe's Bakery operates in a perfectly competitive industry. When the market price of iced cupcakes is $5, the profit maximizing output level is 150 cupcakes. Her average total cost is $4, and her average variable cost is $3. Zoe's marginal cost is _______, and her short run profits are ________.

$5; $150

Mikail's perfectly competitive camera memory card-producing factory is making positive economic profits. If the price of memory cards is $9, if Mikail's output is 3,000 cards a month, and if his monthly average total cost is $7, what are his monthly profits?

$6,000

Until recently Rosemarie worked as an accountant, earning $30,000 annually. Then she inherited a piece of commercial real estate that had been renting for $12,000 annually. Rosemarie decided to leave her job and operate a Peruvian restaurant in the space she inherited. At the end of the first year, her books showed total revenues of $260,000 and total costs of $230,000 for food, utilities, cooks, and other supplies. Her economic profit at the end of one year is:

-$12,000

Look at the table. The marginal product of the fifth worker is:

4

Refer to the graph. The market for avocados is perfectly competitive. If the market price of a bushel of avocados is $14. Find the optimal level of output.

4

If four workers at Taco Land can make 200 tacos in an hour and five workers can make 240 tacos in an hour, then the marginal product of the fifth worker is:

40 tacos

Use the table. If Tom wants to maximize his happiness, how many hours does he work?

5 hours

Look at the figure. The total product for three workers is ______ bushels.

51

The market for breakfast cereals contains hundreds of similar types of cereals, such as a Fruit Loops, Cornflakes, and Rice Krispies, that are seen by buyers as different products. This situation violates the perfect competition assumption of:

A standardized product

The LOWEST point on a perfectly competitive firm's short-run supply curve corresponds to the minimum point on the _______ curve.

AVC

Marginal cost is the

change in total cost for a one unit change in output

In making an "either-or" decision, it is generally recommended to:

choose the activity that results in the greater economic profit

In the short run, the average total cost curve slopes upward because of:

diminishing returns

The difference between total revenue and total cost is:

economic profit or loss

Accountants use only __________ costs in their computations.

explicit

A cost that does not depend on the quantity of output produced is:

fixed

A firm's ____________ are costs that are incurred even if there is no output. In the short run, these costs _____________ as production increases

fixed costs; do not change

A perfectly competitive firm will incur an economic loss but continue to produce a positive quantity of output in the short run if the price is:

greater than average variable cost and less than average total cost

In long-run equilibrium in a perfectly competitive industry, all firms will:

have the same marginal cost

If Yohan gives up some of his salary so he can spend more time volunteering at an animal shelter, Yohan is demonstrating _____.

his value of nonmonetary rewards

The assumption of perfect competition imply that:

individuals in the market accept the market price as given

The marginal revenue received by a firm in a perfectly competitive market:

is the change in total revenue divided by the change in output

In the _____ run, _____ inputs are variable.

long; all

Investors who are reluctant to sell a stock that has dropped in value are exhibiting:

loss aversion

George owns a dude ranch in Texas. He pays $32,000 per year in insurance, $408,000 in wages, and $23,000 in supplies. He forgoes $32,000 per year he could make as a police officer. His total revenue last year equaled $460,000. That means his economic ____________ equaled ___________.

losses; $35,000

The ________________ is the increase in output that is produced when a firm hires an additional worker.

marginal product

A perfectly competitive firm will maximize profit when:

marginal revenue is equal to marginal cost

In the long-run equilibrium of a perfectly competitive industry, production is efficient because costs are _____ and _____ resources are wasted.

minimized; no

In the model of perfect competition:

no individual or firm has enough power to affect price

Penelope is a student at Fresno State University. Which of the following statements is NOT true about Penelope attending university?

opportunity cost is synonymous with explicit cost

Consider a perfectly competitive firm in the short run. Assume the firm produces the profit-maximizing output and earns economic profits. Which statement is FALSE?

price is equal to average total cost

Suppose John's moving service is operating in a perfectly competitive market and can charge $10 per hour of service. This means that the marginal revenue earned by John is equal to the:

price it can charge for the service

Without _____, automobile insurance would not likely exist.

risk aversion

If the price is consistently below the average variable cost, then in the short run, a perfectly competitive firm should:

shut down

If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a _________ share of the market, and consumers will consider her strawberries and her competitors' strawberries to be _________. Therefore, _________ advertising will take place in this market.

small; standardized; little or no

In the short run:

some inputs are fixed and some inputs are variable

Which of these industries is classified as a perfectly competitive industry because it produces a standardized product?

soybean industry

If a California avocado stand operates in a perfectly competitive market, that stand owner will be a price:

taker

The long run is best defines as a time period

that is long enough to change all factors of production

Linda employs 11 people on her farm. The marginal product of the eleventh worker is 10 bushels of wheat. If she hires a twelfth worker, the marginal product of that worker will be:

the answer cannot be determined with the information available

Which of the following options is NOT included in the marginal cost of a production decision?

the fixed salary of the site manager

The economic cost of capital is:

the opportunity cost of capital used by a business

During the summer, Alex runs a mowing service, and lawn mowing is a perfectly competitive industry. In the short run, Alex will shut down if:

the price can't cover average variable costs

Gene has a bakery where he produces fresh-baked bread to sell. He employs between one and three workers, depending on demand for his bread. He has two ovens in which he cooks the bread. In his current building, Gene does not have room to add another oven, and his lease on this building runs for 10 more months. Which statement about Gene's bakery is true?

the workers are a variable input; the ovens are a fixed input

A firm's total output times the price at which it sells that output is __________ revenue.

total

Which one of the following decisions exhibits the behavior of mental accounting?

treating a $20 balance on a gift card differently from a $20 bill in one's wallet

People who consistently think that they will improve their behavior tomorrow are exhibiting:

unrealistic expectations about future behavior

A firm's __________ are costs that increase as quantity produced increases. These costs often show ___________ illustrated by the increasingly steeper slope of the total cost curve

variable costs; diminishing marginal returns

One thing that distinguishes the short run from the long run is

wether any costs are fixed

Diminishing returns to an input occur:

when some inputs are fixed and some are variable

If two firm are identical in all respects except that one has more of the fixed input capital than another, the marginal product curve for the firm with more capital:

will lie above the marginal product curve for the firm with less capital

Bounded rationality implies that the decision maker:

will make a choice that is good enough even if it is not completely optimal

You own an orange juice stand in a competitive market, and so you are a price-taking firm. Which event would MOST likely increase your market power?

you acquire exclusive rights to harvest oranges from all domestic citrus orchards

Diminishing returns to an input occur when:

at least one input is fixed

Which of the following is an "either-or" decision?

Dylan must decide whether to major in economics or finance

Lorelei has 11 people working in her orange grove. The marginal product of the 11th worker is 13 bushels of oranges. If she hires a 12th worker, the marginal product of that worker will be ________ bushels.

The answer cannot be determined with the information provided

Which is the best example of a firm adding a variable input?

a pottery studio purchases clay for making vases

The total product curve indicates the relationship between _________ when all other inputs are fixed

a variable input and output