Econ 105 Ch6

53) A firm sells 30 units of its product at a price of $5 per unit. It incurs a fixed cost of $100 and a variable cost of $20. The firmʹs profit is: A) $30. B) $50. C) $100. D) $150.

A) $30.

3) When the price of a good increases by 300%, the quantity supplied of the good increases from 200 units to 900 units. The price elasticity of supply of the good is: A) 1.17. B) 1.5. C) 3. D) 4.5.

A) 1.17.

13) A firm produced 376 units with 10 workers. When the eleventh worker was hired, the output increased to 398 units. The marginal product of the eleventh worker is: A) 22 units. B) 37.6 units. C) 36.18 units. D) 398 units.

A) 22 units.

8) Which of the following examples best describes the concept of free entry? A) Jack has an old cell phone that he wants to sell. He opens an account on eBay and auctions it off. B) Purecircuit Corp. wants to expand its production, so it doubles its annual recruitment. C) To increase its market share, System Corp. decides to charge a price lower than the market price. D) The government enters the market to correct any shortage or surplus in the market for gasoline.

A) Jack has an old cell phone that he wants to sell. He opens an account on eBay and auctions it off.

7) Which of the following statements is true of the short run? A) Only some of a firmʹs input can be varied in the short run. B) All firms earn zero economic profits in the short run. C) All factors of production can be changed in the short run. D) All the factors of production are fixed in the short run.

A) Only some of a firmʹs input can be varied in the short run.

5) Which of the following situations depicts diseconomies of scale? A) The average total cost of a firm increases from $50 to $55 when it increases its production from 10 units to 20 units. B) The average total cost of a firm decreases from $50 to $40 when it increases its production from 10 units to 20 units. C) The average total cost of a firm remains at $50 when it increases its production from 10 units to 20 units. D) The average total cost of a firm remains at $50 when it decreases its production from 20 units to 10 units.

A) The average total cost of a firm increases from $50 to $55 when it increases its production from 10 units to 20 units.

17) Which of the following is an example of a sunk cost? A) The cost incurred in painting a new office space B) The wage paid to workers in a mill C) The cost of raw materials used in a factory D) The cost of electricity used in the office

A) The cost incurred in painting a new office space

1) Which of the following statements about the short run and long run is true? A) The number of firms in the industry is fixed in the short run, but in the long run the number can change. B) Free entry and exit of firms is possible in the short run, but entry and exit of firms is restricted in the long run. C) The short-run average cost curves lies below the long-run average cost curves. D) A firm can vary all of its factors of production in both the short run and the long run.

A) The number of firms in the industry is fixed in the short run, but in the long run the number can change.

10) Which of the following statements is true of the long run? A) There are no fixed inputs in the long run. B) Capital cannot be changed in the long run. C) Labor cannot be changed in the long run. D) A firm cannot alter its level of output in the long run.

A) There are no fixed inputs in the long run.

5) Sellers in a perfectly competitive market: A) are price takers. B) sell differentiated goods and services. C) are not allowed to exit the market. D) are small in number.

A) are price takers.

9) A good with a perfectly inelastic supply has a price elasticity of supply: A) equal to zero. B) between zero and one. C) equal to one. D) greater than one

A) equal to zero.

6) If the percentage change in the quantity supplied of a good is less than the percentage change in price of the good, the good is said to have a(n): A) inelastic supply. B) unit elastic supply. C) elastic supply. D) perfectly elastic supply.

A) inelastic supply.

50) Marginal revenue: A) is the change in total revenue associated with producing one more unit of output. B) is the product of the price of a good and its quantity sold minus the cost of production. C) is always greater than the total revenue. D) is always equal to the price of the good.

A) is the change in total revenue associated with producing one more unit of output.

10) As the amount of inventories maintained by a firm increases: A) its elasticity of supply increases. B) its elasticity of supply decreases. C) the elasticity of demand for its product increases. D) the elasticity of demand for its product decreases.

A) its elasticity of supply increases.

12) The change in the total output of a firm associated with using one more unit of an input is referred to as the: A) marginal product of the input. B) total product. C) average product of the input. D) variable product of the input.

A) marginal product of the input.

6) In the long run, a firm should exit when: A) price is less than average total cost. B) price is equal to average total cost. C) price is equal to marginal cost. D) price is more than marginal cost.

A) price is less than average total cost.

5) The process by which inputs are transformed to outputs is referred to as: A) production. B) distribution. C) depreciation. D) absorption.

A) production.

19) Increases in the marginal product of labor can be attributed to: A) specialization of workers. B) depreciation of capital. C) diminishing returns to workers. D) congestion and thus better use of work space.

A) specialization of workers.

22) The Law of Diminishing Marginal Returns states that: A) successive increases in inputs eventually lead to less additional output. B) successive increases in product prices lead to a fall in revenue. C) the demand for a good decreases as the price of the good increases. D) the net benefits of a perfectly competitive firm decrease as more firms enter the market.

A) successive increases in inputs eventually lead to less additional output.

29) Total cost of production refers to the: A) sum of variable costs and fixed costs. B) product of variable costs and fixed costs. C) difference between variable costs and fixed costs. D) ratio of variable costs to fixed costs.

A) sum of variable costs and fixed costs.

5) If new firms are expected to enter an existing market, ________. A) the market price is likely to fall B) the market demand is likely to increase C) the market supply is likely to fall D) the profits of all firms are likely to increase

A) the market price is likely to fall

2) In a perfectly competitive market: A) the sellers produce identical goods. B) there are restrictions on the entry of new firms. C) each seller charges a different price for its product. D) bargaining over prices is a common phenomenon.

A) the sellers produce identical goods.

40) Marginal cost is the change in the: A) total cost associated with producing one more unit of output. B) average total cost associated with producing one more unit of output C) average variable cost associated with producing one more unit of output. D) opportunity cost associated with producing one more unit of output.

A) total cost associated with producing one more unit of output.

14) A firm with a fixed cost of $300 every month and variable cost of $200 every month decides to shut down. In such a situation it would lose: A) $200 every month. B) $300 every month. C) $500 every month. D) $0 every month.

B) $300 every month.

A firm has an average total cost of $50. If it sells 20 units of its product at $80 each, what is its profit? A) $30 B) $600 C) $1,000 D) $1,600

B) $600

39) The total cost of a firm is $50, the average variable cost is $2, and the average fixed cost is $3. How may units of the output does the firm produce? A) 5 units B) 10 units C) 15 units D) 18 units

B) 10 units

1) Which of the following statements is true? A) In the long run, a firm cannot vary any of its inputs. B) In the long run, a firm can vary all its inputs. C) In the short run, a firm cannot vary any of its inputs. D) In the short run, a firm can vary all its inputs.

B) In the long run, a firm can vary all its inputs.

2) Which of the following is true about price elasticity of supply? A) Price elasticity of supply = Percentage change in quantity supplied / Absolute change in price B) Price elasticity of supply = Percentage change in quantity supplied / Percentage change in price C) Price elasticity of supply = Percentage change in quantity supplied × Absolute change in price D) Price elasticity of supply = Percentage change in quantity supplied × Percentage change in price

B) Price elasticity of supply = Percentage change in quantity supplied / Percentage change in price

24) Which of the following refers to diminishing marginal returns? A) The revenue of a cell phone manufacturer decreased when it increased its product price. B) The additional output produced in a firm decreased as more workers were hired. C) The profits of an entrepreneur increased substantially after he fired a few of his employees. D) The total output of a firm decreased as more workers were hired.

B) The additional output produced in a firm decreased as more workers were hired.

18) Which of the following is an example of a variable cost? A) The cost incurred on the installation of new software in all office computers B) The cost of electricity used in the office C) The cost incurred on the purchase of land for a new office space D) The annual rent paid for an office space

B) The cost of electricity used in the office

11) Firm A and Firm B produce the same goods but with different inputs. If the inputs used by firm A are more easily available than the inputs used by firm B, then which of the following statements is true? A) The elasticity of supply of firm A and firm B will be equal. B) The elasticity of supply of firm A will be higher than the elasticity of supply of firm B. C) The elasticity of supply of firm A will be lower than the elasticity of supply of firm B. D) The elasticity of supply of firm A and firm B cannot be compared without information on price change.

B) The elasticity of supply of firm A will be higher than the elasticity of supply of firm B.

1) Which of the following statements is true of a perfectly competitive market? A) Sellers in the market produce differentiated goods. B) There is free entry and exit in the market. C) There are only a few buyers and sellers in the market. D) Sellers and buyers are both price makers.

B) There is free entry and exit in the market.

28) Which of the following statements identifies the difference between variable costs and fixed costs? A) Variable costs are the costs incurred on variable factors of production, whereas fixed costs are the costs incurred on all factors of production. B) Variable costs of a firm are zero after it shut downs, whereas it continues to incur the fixed costs of production in the short run. C) Variable costs exist even when the production is zero, whereas fixed costs exist only when there is some positive production. D) Variable costs are incurred only in the long run, whereas a firm incurs some fixed costs in both the short run and the long run.

B) Variable costs of a firm are zero after it shut downs, whereas it continues to incur the fixed costs of production in the short run.

5) Exit of a firm refers to: A) a short-run decision by a firm to not produce anything. B) a long-run decision by a firm to leave the market. C) a refusal to work organized by a group of employees at the firm. D) an exclusion of employees of a firm from their place of work until certain terms are agreed upon by them.

B) a long-run decision by a firm to leave the market.

27) What a firm must pay for its inputs is referred to as its: A) production value. B) cost of production. C) opportunity cost. D) loss in production.

B) cost of production.

1) Graphically, producer surplus is the: A) difference between the demand curve and the price a consumer pays. B) difference between the supply curve and the price a consumer pays. C) difference between total cost and total revenue. D) product of price of a good and quantity sold.

B) difference between the supply curve and the price a consumer pays.

3) Free entry is said to exist in an industry when: A) all firms entering an industry enjoy economies of scale. B) entry is unfettered by any special legal or technical barriers. C) equal amounts of inputs are available to all firms entering an industry. D) the government subsidizes costs for all new firms entering an industry.

B) entry is unfettered by any special legal or technical barriers.

6) When price is less than the firmsʹ minimum average total cost, ________. A) new firms will enter the market B) existing firms will leave the market C) prices are likely to fall further D) firmsʹ profits are likely to be maximum

B) existing firms will leave the market

4) A business entity that produces goods or services is referred to as a(n): A) market. B) firm. C) government. D) industry.

B) firm.

3) Short-run average total cost curves lie above the long-run average cost curves because: A) prices of inputs are less when acquired for a longer time period. B) in the long run, firms have more flexibility to change input combinations. C) specialization of inputs increases productivity only in the long run. D) the firms earn positive profits in the long run.

B) in the long run, firms have more flexibility to change input combinations.

57) If the marginal cost of a perfectly competitive firm producing a good is $50 and the market price of the good is $100, the firm should: A) decrease its output. B) increase its output. C) try to increase the market price. D) try to decrease the market price.

B) increase its output.

54) A firm will maximize profit at the level of output where: A) its marginal revenue equals total cost. B) its marginal revenue equals marginal cost. C) its total cost equals total revenue. D) its average revenue equals average cost.

B) its marginal revenue equals marginal cost.

1) The goal of a seller is primarily to: A) maximize sales. B) maximize profits. C) minimize costs. D) minimize consumer surplus.

B) maximize profits.

1) A supply curve shows the relationship between: A) output and the total cost of production. B) output and prices. C) output and consumer income. D) output and revenue.

B) output and prices.

55) In a perfectly competitive market: A) price is always greater than marginal revenue. B) price is always equal to marginal revenue. C) price is always greater than marginal cost. D) price is always equal to marginal cost.

B) price is always equal to marginal revenue.

2) Net benefits of sellers represent their: A) revenue. B) profits. C) sales. D) inventory

B) profits.

6) A firm is said to be a price taker if it: A) can affect the market price of goods by changing its supply. B) sells as much of any good as it wants at the prevailing market price. C) consults the government before fixing the price of its goods and services. D) is not free to enter a new market or exit from an existing market.

B) sells as much of any good as it wants at the prevailing market price.

12) A short-run decision by a firm to not produce anything during a specific period is referred to as a(n): A) lockout. B) shutdown. C) buyout. D) exit.

B) shutdown.

12) A ________ is a payment or a tax break used as an incentive for an agent to complete an activity. A) tariff B) subsidy C) wage D) rent

B) subsidy

4) The total producer surplus in the entire market is given by the: A) product of the individual sellerʹs surplus. B) sum of all the individual sellersʹ producer surplus. C) area between the market supply curve and the market demand curve. D) area between the market demand curve and the price line.

B) sum of all the individual sellersʹ producer surplus.

47) A firm sells 20 units of a good at a price of $5 per unit. If the average cost of production of the good equals $3 per unit, the firmʹs revenue is: A) $40. B) $60. C) $100. D) $120.

C) $100.

41) A firm producing 10 units of output incurs a total cost of $800. When it produces 11 units, the total cost increases to $890. What is the marginal cost of producing the eleventh unit? A) $10 B) $80 C) $90 D) $100

C) $90

14) A firm produces 200 units of a good when it employs 7 workers. The marginal product of the eighth worker is 46 units. If the eighth worker is hired, the firmʹs total product will increase to: A) 208 units. B) 228 units. C) 246 units. D) 322 units.

C) 246 units.

48) A firm earns $600 of total revenue from selling its product at $200 per unit. If the per-unit cost of producing the good is $150, the firm sells ________ units(s) of the good. A) 1 B) 2 C) 3 D) 4

C) 3

8) Which of the following best describes a good with perfectly elastic supply? A) Any increase in the price of the good leads to an increase in the sellerʹs revenue. B) Any increase in the price of the good decreases the quantity supplied of the good by more than the price change. C) Any increase in the price of the good will induce the firm to supply an infinite quantity of the good. D) Any increase in the price of the good increases the quantity supplied of the good exactly by the amount of the price change.

C) Any increase in the price of the good will induce the firm to supply an infinite quantity of the good.

4) ________ occur when the average total cost falls as the quantity produced increases. A) Increasing marginal returns B) Decreasing marginal returns C) Economies of scale D) Diseconomies of scale

C) Economies of scale

21) Which of the following is an example of specialization? A) The output of workers in a chocolate factory doubled when a new manager was appointed. B) The cost of production of a light bulb making factory decreased as its capacity increased. C) Instead of a worker making an entire shoe, the total productivity increased when different workers were allotted different jobs in the production process. D) Import of better technology and machinery from developed countries greatly increased the number of laser printers that a company was manufacturing.

C) Instead of a worker making an entire shoe, the total productivity increased when different workers were allotted different jobs in the production process.

56) Which of the following relationships correctly identifies the profit maximization condition of a firm in a perfectly competitive market? A) Marginal cost < Price = Marginal revenue B) Marginal cost > Price = Marginal revenue C) Marginal cost = Price = Marginal revenue D) Marginal cost = Price < Marginal revenue

C) Marginal cost = Price = Marginal revenue

2) Which of the following statements is true? A) In the short run, a firm can vary all its inputs. B) In the long run, a firm cannot vary any of its inputs. C) Short-run cost curves lie above long-run cost curves. D) Short-run cost curves lie below long-run cost curves.

C) Short-run cost curves lie above long-run cost curves.

16) ________ are costs that, once committed, can never be recovered and should not affect current and future production costs. A) Opportunity costs B) Marginal costs C) Sunk costs D) Variable costs

C) Sunk costs

23) Which of the following statements is true of the marginal product of an input? A) The marginal product of an input is given by the ratio of the firmʹs total output to the units of the input used. B) The marginal product of an input increases as more and more inputs are used. C) The marginal product of an input can take negative values. D) The marginal product of the first unit of a variable input is zero.

C) The marginal product of an input can take negative values.

4) Entry of new firms into an existing market causes: A) an upward movement along the market supply curve. B) a downward movement along the market supply curve. C) a rightward shift of the market supply curve. D) a leftward shift of the market supply curve.

C) a rightward shift of the market supply curve.

13) A firm should shut down in the short run if the price is less than the: A) average fixed cost. B) average total cost. C) average variable cost. D) marginal cost.

C) average variable cost.

44) When the marginal cost curve lies above the average cost curve, ________. A) the marginal cost curve slopes upward, while the average cost curve slopes downward B) the marginal cost curve slopes downward, while the average cost curve slopes upward C) both the marginal cost curve and the average cost curve slope upward D) both the marginal cost curve and the average cost curve slope downward

C) both the marginal cost curve and the average cost curve slope upward

11) In the long run, under perfect competition: A) firms earn positive economic profit because of economies of scale. B) firms earn positive accounting profit because of government regulations. C) firms earn zero economic profit because of free entry and exit of firms. D) firms earn negative economic profit because of free entry and exit of firms.

C) firms earn zero economic profit because of free entry and exit of firm

4) In a perfectly competitive market, because an individual seller tends to sell only a fraction of the total amount of the good produced: A) he can independently determine the market price. B) he can charge prices above the equilibrium price. C) his individual choices do not affect market outcomes. D) he always earns positive profit.

C) his individual choices do not affect market outcomes.

7) Price in a perfectly competitive market: A) is affected by government policies. B) is determined through auctions. C) is affected by the combined decision of all sellers. D) is determined by buyers alone.

C) is affected by the combined decision of all sellers.

19) The short-run supply curve of a competitive firm is the portion of: A) its average cost curve that lies above its marginal cost curve. B) its average cost curve that lies below its marginal cost curve. C) its marginal cost curve that lies above its average variable cost curve. D) its marginal cost curve that lies below its average cost curve

C) its marginal cost curve that lies above its average variable cost curve.

49) The equilibrium price in a market occurs where the: A) market demand and the firmsʹ average cost curves intersect. B) market supply and the firmsʹ average cost curves intersect. C) market demand and the market supply curves intersect. D) market supply and the firmsʹ revenue curves intersect.

C) market demand and the market supply curves intersect.

2) The entry and exit of firms in a perfectly competitive market is mostly dependent on: A) the number of firms in the market. B) government regulations. C) profitability. D) the number of consumers in the market.

C) profitability.

43) When the marginal cost curve lies below the average cost curve, ________. A) the marginal cost curve is vertical B) the marginal cost curve is horizontal C) the average cost curve slopes downward D) the average cost curve slopes upward

C) the average cost curve slopes downward

51) The equilibrium price of a good sold in a competitive market is $10. If an individual firm decides to sell its product at a price higher than $10, ________. A) the firmʹs profits will increase B) the firmʹs revenue will increase C) the firm will lose all its consumers D) the firmʹs cost of production will decrease

C) the firm will lose all its consumers

7) The long-run supply curve of a firm is: A) its marginal cost curve. B) its average total cost curve. C) the portion of its marginal cost curve that lies above its average total cost curve. D) the portion of its marginal cost curve that lies below its average total cost curve.

C) the portion of its marginal cost curve that lies above its average total cost curve.

46) Total revenue earned from the sale of a good is: A) the price at which the good is sold. B) the difference between price and cost of production of the good. C) the product of price and quantity of the good sold in the market. D) the product of cost of production and quantity of the good sold in the market.

C) the product of price and quantity of the good sold in the market.

6) A production function establishes the relationship between: A) the market price of a good and the sales revenue generated. B) the quantity of output produced and the firmʹs profit. C) the quantity of inputs used and the quantity of output produced. D) the market price of a good and the quantity of output supplied.

C) the quantity of inputs used and the quantity of output produced.

52) Profits equal: A) total revenue minus variable costs. B) revenue minus fixed costs. C) total revenue minus total costs. D) total revenue.

C) total revenue minus total costs.

7) In a perfectly competitive market, the price in the long run: A) will always be more than the minimum average total cost of the industry. B) will always be less than the minimum average total cost of the industry. C) will always equal the minimum average total cost of the industry. D) will always equal the average fixed cost of the industry.

C) will always equal the minimum average total cost of the industry.

20) Specialization is the result of: A) hiring experienced workers. B) paying higher wages to experienced workers. C) workers developing a certain skill set. D) increased demand for a firmʹs commodity

C) workers developing a certain skill set.

10) In a perfectly competitive market, all firms in the long run earn: A) positive economic profit. B) positive accounting profit. C) zero economic profit. D) zero accounting profit

C) zero economic profit.

4) If the price elasticity of supply of a good is 2, a 200% increase in the price of the good, will change the quantity supplied by: A) 50%. B) 100%. C) 200%. D) 400%.

D) 400%.

59) Which of the following is true? A) Accounting profits = Revenues - Implicit costs - Explicit costs B) Economic profits = Revenues - Explicit costs C) Accounting profits = Revenues - Implicit costs D) Economic profits = Accounting profits - Implicit costs

D) Economic profits = Accounting profits - Implicit costs

9) Which of the following inputs can be changed in the short run? A) Machinery B) Land owned C) Office Space D) Labor employed

D) Labor employed

11) A firm uses workers, land, and machinery for its production process. Which of the following statements is then true? A) The only way the firm can change its output level in the long run is by changing the number of workers. B) The only way the firm can change its output level in the long run is by changing the amount of land it owns. C) The only way the firm can change its output level in the long run is by changing the amount of machinery. D) The firm can change its output level in the long run by changing any or all of its three inputs.

D) The firm can change its output level in the long run by changing any or all of its three inputs.

3) Which of the following is NOT an element of a sellerʹs decision‐making process in a perfectly competitive market? A) The relationship between the inputs and outputs B) The cost of the inputs C) The price of the output D) The number of buyers

D) The number of buyers

8) In the long run: A) all factors of production are fixed. B) only some inputs of a firm can be changed. C) all firms earn positive economic profits. D) all factors of production can be changed.

D) all factors of production can be changed.

45) The marginal cost curve intersects: A) the total cost curve at its minimum. B) the average fixed cost curve at its maximum. C) the average fixed cost curve at its minimum. D) both the average variable cost curve and the average total cost curve at their minimum

D) both the average variable cost curve and the average total cost curve at their minimum

30) In the short run, when a firm is about to begin production it pays only: A) variable costs. B) opportunity costs. C) sunk costs. D) fixed costs.

D) fixed costs.

5) A good is said to have an elastic supply if its price elasticity of supply is: A) equal to zero. B) between zero and one. C) equal to one. D) greater than one.

D) greater than one.

8) The long-run supply curve for a firm in a perfectly competitive industry is: A) negatively sloped. B) positively sloped. C) vertical. D) horizontal.

D) horizontal.

42) When the marginal product ________, the marginal cost ________. A) increases; remains the same B) remains the same; increases C) increases; increases D) increases; decreases

D) increases; decreases

3) In a competitive market, there are a ________ number of buyers and a ________ number of sellers. A) large; small B) small; large C) small; small D) large; large

D) large; large

7) If with a small decrease in the price of a good, the quantity supplied falls to zero, the supply of the good is said to be: A) unit elastic. B) inelastic. C) perfectly inelastic. D) perfectly elastic.

D) perfectly elastic.

9) In a perfectly competitive market: A) the long-run market price is equal to the average fixed cost of the industry. B) the long-run market price is less than the minimum average cost of the industry. C) the long-run market price is more than the minimum average cost of the industry because of free entry and exit of firms. D) the long-run market price is equal to the minimum average cost of the industry because of free entry and exit of firms.

D) the long-run market price is equal to the minimum average cost of the industry because of free entry and exit of firms.