Economic Test.2

In the graph above, Average Variable Cost is labeled _____, Average Total Cost is labeled _____, and Marginal Cost is labeled A. A;B;C B. C;B;A C. B;C;A D. C; A; B

B. C;B;A

Which of the following is most likely to be a fixed factor of production at a university? A. The number of personal computers. B. The number of lecture halls. C. The number of professors and lecturers. D. The amount of chalk.

B. The number of lecture halls.

Implicit costs A. are always fixed. B. measure the forgone opportunities of the owners of the business. C. always exceed explicit costs. D. are irrelevant to business decisions.

B. measure the forgone opportunities of the owners of the business.

Suppose the firm knows that it is not going to shut down but it is going to earn a loss. It should pick the output level where A. total costs are minimized. B. price equals marginal costs. C. total revenues are maximized. D. the costs of the variable factors of production are minimized.

B. price equals marginal costs.

If you were to start your own business, your implicit costs would include A. rent that you have paid in advance for use of a building. B. the opportunity cost of your time. C. profit over and above normal profit D. interest that you pay on your business loans.

B. the opportunity cost of your time.

One reason that variable factors of production tend to show diminishing returns in the short run is that A. too much capital equipment is idle. B. there are too many workers using a fixed amount of productive resources. C. the firm has become too large to effectively manage workers. D. the cost of hiring additional workers increases as firms seek to hire more.

B. there are too many workers using a fixed amount of productive resources.

The shutdown condition for a firm is where A. total revenues are less than the total cost of fixed and variable factors of production. B. total revenues are less than the cost of variable factors of production. C. total revenues are less than the cost of fixed factors of production. D. profits are zero.

B. total revenues are less than the cost of variable factors of production.

The primary objective of most private firms is to A. maximize revenue. B. maximize profit. C. minimize cost. D. maximize output.

B.Maximize profit

Perfectly competitive firms maximize profit when A. average costs are minimized B. total costs are minimized C. average costs equal price D. marginal costs equal price

D. marginal costs equal price

Marginal cost is calculated as A. total revenue minus total costs. B. the change in output divided by the change in total costs. C. the percentage change in total costs divided by the percentage change in output. D. the change in total costs divided by the change in output.

D. the change in total costs divided by the change in output.

If a firm is earning zero economic profits A. its revenues are sufficient to pay explicit costs, but not implicit costs. B. the owner will not be able to pay himself or herself a salary. C. it will shut down in the long run, but will continue to operate in the short run. D. the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment.

D. the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment.

A price taker confronts a demand curve that is A. vertical at the market price. B. upward sloping. C. downward sloping. D. horizontal at the market price.

D.horizontal at the market price.

Refer to the figure above. When the demand is P2 = $15, this producer will earn a _____of _______. A. Loss, $60 B. Profit, $180 C. Loss, $300 D. Loss, $900

A. Loss, $60

Which of the following is most likely to be a variable factor of production at a university? A. The number of teaching assistants and work-study students. B. The size of the basketball arena or football stadium. C. The school mascot. D. The location of the university.

A. The number of teaching assistants and work-study students.

An increase in the price the firm receives for its output will cause the firm to A. expand output and earn greater profits or smaller losses. B. leave output unchanged and earn greater profits. C. leave output unchanged and earn greater profits or smaller losses. D. contract output and earn greater profits.

A. expand output and earn greater profits or smaller losses.

Suppose a firm is collecting $1700 in total revenues and the total costs of its variable factors of production are $1900 at its current level of output. One can predict that the firm will A. shut down. B. raise its price. C. earn a loss. D. continue to operate.

A. shut down

Refer to the figure above. When the demand is P2 = $15, what is the profit maximizing output? A. 30 B. 45 C. 60 D. 80

C. 60

Average variable cost is defined as A. Total cost divided by output B. Total cost divided by number of workers. C. Variable cost divided by output D. Variable cost divided by price

C. Variable cost divided by output

When the market price of mushrooms is $40 per bushel, if Moe chooses the profit maximizing quantity he will A. earn zero profits B. earn negative profits (losses) C. earn positive profits D. shut down

C. earn positive profits

Economic profits are A. the same as accounting profits. B. equal to total revenue minus the sum of explicit fixed and variable costs. C. equal to total revenue minus both explicit and implicit costs. D. greater than accounting profits.

C. equal to total revenue minus both explicit and implicit costs.

If a perfectly competitive firm produces an output level where price is greater than marginal costs, then the firm should A. pay more to its variable factors of production. B. contract output to earn greater profits or smaller losses. C. expand output to earn greater profits or smaller losses. D. leave its output decision unchanged.

C. expand output to earn greater profits or smaller losses.

A firm's output price is $5 and the firm is producing 37 units with a marginal cost of $3. The firm should A. lower its price. B. decrease production. C. increase production. D. raise its price.

C. increase production.

Explicit costs A. measure the opportunity costs of the business owners. B. are always fixed in the short run. C. measure the payments made to the firm's factors of production. D. are always variable in the short run.

C. measure the payments made to the firm's factors of production.

A profit maximizing perfectly competitive firm must decide A. only on what price to charge, taking output as fixed. B. both what price to charge and how much to produce. C. only on how much to produce, taking price of the good as fixed. D. only on which industry to join, taking price and output as fixed.

C. only on how much to produce, taking price of the good as fixed.

The short run is defined as A. one year or less. B. a period in which all factors of production are variable. C. the period of time between quarterly accounting reports. D. a period in which at least one factor of production is fixed.

D. a period in which at least one factor of production is fixed.