Econ 101 - Unit 3

(Table: Soybean Cost) Look at the table Soybean Cost. What is the shut-down price for this farmer?

$10

If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its marginal revenue is:

$10

Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the store earned an economic profit of $50,000 last year, the store's accounting profit equaled:

$100,000

(Table: Soybean Cost) Look at the table Soybean Cost. What is the break-even price for this farmer?

$13.50

Austin's total fixed cost is $3,600 a month at his cupcake bakery. Austin employs 20 workers and pays each worker $600 a month. If labor is his only variable cost, what is Austin's total cost?

$15,600

(Table: Output and Costs) Look at the table Output and Costs. When output is 4, total variable cost equals:

$48

(Table: Soybean Cost) Look at the table Soybean Cost. If the market price of a bushel of soybeans is $15, what will be the farmer's short-run maximum profit?

$6

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

After earning your BA, you have to decide whether to take a job that will pay you $45,000 per year or spend an additional two years earning an MBA. If you decide to pursue the graduate degree, your annual expenses for tuition, books, board, and lodging will be $32,000. You have been offered a scholarship for $10,000 per year, but to pay the remaining $22,000 per year, you would have to cash in savings bonds from your grandparents that have been earning $500 in interest per year. The annual opportunity cost of earning your MBA is:

$67,500

Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in Orlando. Sarah's husband, an economist, claims Sarah lost $43,002 running her pottery studio. This means her husband is claiming that she incurred _____ in _____ costs.

$86,004; implicit

(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $4, in the short run the farmer will produce _____ bushels of corn and earn an economic _____ equal to _____.

0; loss; total fixed costs

(Table: Total Product and Marginal Product) Look at the table Total Product and Marginal Product. The marginal product of the fourth worker is _____ units.

20

(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $10, then in the short run the farmer will produce _____ bushels of corn and take an economic loss equal to _____.

3; total fixed costs

(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $14, in the short run, the farmer will produce _____ of corn and earn an economic _____ equal to _____.

4 bushels; profit; $0

(Table: Soybean Cost) Look at the table Soybean Cost. If the market price of a bushel of soybeans is $15, how many bushels will the farmer produce to maximize short-run profit?

5

Which of the following statements concerning monopoly is TRUE?

A monopoly has no rivals

(Figure: Long-Run and Short-Run Average Cost Curves) Look at the figure Long-Run and Short-Run Average Cost Curves. If a firm faced the long-run average total cost curve shown in the figure and it expected to produce 100,000 units of the good in the long run, the firm should build the plant associated with:

ATC2

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

AVC

Which of the following is TRUE?

If price falls below average variable cost, the firm will shut down in the short run

Consider a perfectly competitive firm in the short run. Assume that it is sustaining economic losses but continues to produce at the profit-maximizing (loss-minimizing) output. Which statement is FALSE?

Marginal cost is less than average variable cost

Which of the following statements about the differences between monopoly and perfect competition is INCORRECT?

Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry

Which of the following statements about opportunity cost is FALSE?

Opportunity cost is synonymous with explicit cost

In the short run, a perfectly competitive firm produces output and earns ZERO economic profit if:

P = ATC

Which of the following is MOST likely to cause firms to exit a perfectly competitive industry?

Consumer income falls

Which of the following is NOT a characteristic of a perfectly competitive industry?

Products are differentiated

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P3, the firm will produce quantity _____ and _____ in the short run.

Q2; incur a loss

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4, the firm will produce quantity _____ and _____ in the short run.

Q3; make a profit

Which of the following statements is NOT a characteristic of perfect competition?

There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each

Which of the following is TRUE?

Total economic profit is per-unit profit times quantity

Which of the following statements is FALSE?

When the marginal product of labor is upward-sloping, the marginal cost curve is upward-sloping

You own a deli. Which of the following is a decision most likely to be made in the LONG run at your deli?

You renovate the second floor of your building to increase the size of the dining room

The term diminishing returns/product refers to:

a decrease in the extra output due to the use of an additional unit of variable input when all other inputs are held constant

Profit computed without implicit costs is _____ profit.

accounting

In the long run:

all factors are variable

In perfectly competitive long-run equilibrium:

all firms produce at the minimum point of their average total cost curves

The _______ cost curve is NOT affected by diminishing returns

average fixed

(Figure: A Firm's Cost Curves) Look at the figure A Firm's Cost Curves. The curve labeled W represents the firm's _____ cost curve.

average total

The long-run average total cost curve is tangent to an infinite number of short-run _____ cost curves.

average total

If marginal cost is GREATER THAN average total cost:

average total cost is increasing

A perfectly competitive industry is said to be efficient because the:

average total cost of production of the industry's output is maximized

People in the eastern part of Beirut are prevented by border guards from traveling to the western part of Beirut to shop for or sell food. This situation violates the perfect competition assumption of:

ease of entry and exit

A firm that is able to use its inputs more efficiently as it increases production in the long run best demonstrates:

economies of scale

Buffalo Aircraft doubles the amount of all of the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is operating with:

economies of scale

(Table: Total Product and Marginal Product) Look at the table Total Product and Marginal Product. Negative marginal returns begin when the _____ worker is added.

eighth

Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, firms will _____ the market, driving the price of haircuts _____ and the profits of individual firms _____.

enter; down; back to zero

Economic profits in a perfectly competitive industry encourage firms to _____ the industry, and losses encourage firms to _____ the industry

enter; exit

Marginal revenue:

equals the market price in perfect competition

De Beers became a monopoly by:

establishing control over diamond mines

When marginal cost is BELOW average variable cost, average variable cost must be:

falling

For most restaurants, the average total cost curve _______ at ______ levels of output, then ______ at ______ levels.

falls; low; rises; high

If firms are making positive economic profits in the short run, then in the long run:

firms will enter the industry

An input whose quantity CANNOT be changed in the short run is:

fixed

Once diminishing returns have set in, as output increases, the total cost curve:

gets steeper

Marginal revenue is a firm's

increase in total revenue when it sells an additional unit of output

(Figure: Costs and Profits for Tomato Producers) Look at the figure Costs and Profits for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $18. If the market price increases to $20, the farmer's marginal revenue _____ and the profit-maximizing output _____.

increases, increases

A curve that shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run _____ curve

industry supply

The marginal cost curve intersects the average variable cost curve at:

its lowest point

Economic profit is:

less than accounting profit if implicit costs exist

When a fine caterer produces 30 catered meals, its marginal cost and average variable cost each equal $10. Therefore, assuming normally shaped cost curves, at 29 meals its marginal cost is _____ $10 and its average variable cost is _____ $10

less than; more than

In perfect competition, the assumption of easy entry and exit implies that in the _____ run all firms in the industry will earn _____ economic profits.

long; zero

(Figure: A Firm's Cost Curves) Look at the figure A Firm's Cost Curves. The curve labeled V represents the firm's _____ cost curve.

marginal

The short-run supply curve for a perfectly competitive firm is its:

marginal cost curve above its average variable cost curve

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

marginal product

The change in total output resulting from a one-unit increase in the quantity of an input used, holding the quantities of all other inputs constant, is:

marginal product

A perfectly competitive firm will maximize profits when the:

marginal revenue equals marginal cost

In the model of perfect competition:

no individual or firm has enough power to affect price

The perfectly competitive model assumes all of the following EXCEPT:

patents and copyrights that serve as barriers to entry into the industry

In a perfectly competitive industry, the market demand curve is usually:

perfectly elastic

A perfectly competitive firm is a:

price taker.

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

produce at a profit

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm should:

produce more guidebooks, because the next guidebook produced increases profit by $5

A monopoly:

produces a product with no close substitutes

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is less than P2, the firm will _____ in the short run.

shut down

A perfectly competitive small organic farm produces 1,000 cauliflower heads in the short run. Its ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. To maximize profits or minimize losses, this farm 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

The average total cost curve has a U shape because the ______ effect is dominant at low levels of output, and the ________ effect is dominant at high levels of output

spreading; diminishing returns

The larger the output, the more output over which fixed cost is distributed. Called the _______ effect, this leads to a _______ average _____ cost.

spreading; lower; fixed

You own a deli. Which of the following is most likely a fixed input at your deli?

the dining room

If the accounting profit for a firm is negative:

the economic profit must be negative

You own a small deli that sells sandwiches, salads, and soup. Which of the following is an implicit cost of the business?

the job offer you did not accept at a local catering service

The break-even price for a perfectly competitive firm is equal to:

the minimum average value of average total cost

Market structures are categorized by:

the number of firms and whether products are differentiated

Jacquelyn is a student at a major state university. Which of the following is NOT an explicit cost of her attending college?

the salary that she could have earned working full-time

The marginal product of labor is:

the slope of the total product of labor curve

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 total revenues can't cover variable costs

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4:

there will be economic profits and firms will enter the industry in the long run

The sum of fixed and variable cost is ______ cost.

total

Profit is the difference between ______ and _____

total revenues; total costs

The total cost curve for a snowmobile dealership shows how _____ cost depends on the quantity of _______.

total; output

An input whose quantity can be change in the short run is a(n) ______ input

variable

In the long run, all costs are:

variable

Diminishing returns/product to an input occur:

when some inputs are fixed and some are variable

The total product curve (or production function):

will become flatter as output increases if there are diminishing returns of variable input

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, the typical firm is likely to:

earn an economic profit

(Figure: Long-Run and Short-Run Average Cost Curves) Look at the figure Long-Run and Short-Run Average Cost Curves. If a firm is producing at point C on the ATC2 but anticipates increasing output to 225,000 units in the long run, the firm will build a _____ plant and have _____ of scale.

bigger; diseconomies

A fixed cost:

can be positive, even if the firm doesn't produce any output in the short run

Zoe's Bakery determines that P<ATC and P>AVC. In the short run, Zoe should:

continue to operate even though she is taking an economic loss

The total cost curve (or production function) gets steeper as output increases because of:

decreasing returns to the variable input

The larger the output, the more variable input required to produce additional units. Called the _______ effect, this leads to a _______ average ______ cost

diminishing returns; higher; variable

Zoe's Bakery operates in a perfectly competitive industry and has standard cost curves. The variable costs at Zoe's Bakery increase, so all of the cost curves (except fixed cost) shift upward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increase, Zoe's Bakery will _____ its price and _____ its level of production.

do nothing to; decrease