Exam 2

B (more than $60)

A firm's average total cost is $80, its total fixed cost is $1,000, and its output is 100 units. Its average variable cost is A. between $40 and $60 B. more than $60 C. less than $40 D. cannot be determined without more information

D (decrease its output)

A perfectly competitive firm's marginal cost exceeds its marginal revenue at its current output. To increase its profit, the firm will A. increase its output B. raise its price C. lower its price D. decrease its output

A (produce more than 2000 units)

A price taker firm sells 2000 units per year at a price of $30 each. Marginal cost is $20 per unit. To maximize profits in the short run, the firm should: A. produce more than 2000 units B. produce exactly 2000 units C. produce less than 2000 units D. shut down and produce zero units

B (little if any economies of scale)

Assume that there is a large demand for product X and that it is produced by a very large number of small firms. This information would suggest that the long-run cost curve for firms in this industry exhibits: A. significant economies of scale B. little if any economies of scale C. constant economies of scale D. cannot be determined

C (the demand for the product is price inelastic)

Cigarette taxes cause tend to have low deadweight loss because A. they are regressive B. most of the burden of the tax rests with sellers of these products C. the demand for the product is price inelastic D. the yield no revenue

C (long- run average total cost curve is typically U-shaped)

Economies and diseconomies of scale explain why the: A. short-run average fixed cost curved declines so long as output increases B. marginal cost curve must intersect the minimum point of the firm's average total cost curve C. long-run average total cost curve is typically U-shaped D. short-run average variable cost curve is U-shaped

C (iii only)

Economists normally assume that the goal of a firm is to i. sell as much of their product as possible ii. set the price of their product as high as possible iii. maximize profit A. i and ii B. ii and iii C. iii only D. All of the above are correct

A (0.75) ((Xnew-Xold)/(Xaverage) (1060-940)/(1060+940/2) = .12 -> 9%/12% = 0.75)

Fred's income has just risen from $940 per week to $1,060 per week. As a result, he decides to purchase 9 percent more steak per week. Using the midpoints formula, the income elasticity for Fred's demand for steak is A. 0.75 B. 1.33 C. 0.90 D. 1.00

B (A and B are complements)

If the cross elasticity of demand between goods A and B is negative, A. the demands for A and B are both price elastic. B. A and B are complements. C. The demands for A and B are both price inelastic. D. A and B are substitutes.

A. (economic loss was $5,000)

Michael quits his $40,000 per year job to open a store. Last year he sold for $500,000 goods he bought for $400,000. He paid his sales clerks $45,000. Michael invested $200,000 in the business; he could earn 10 percent on another investment of equal risk. Michael's A. economic loss was $5,000 B. economic profit was $95,000 C. economic profit was $155,000 D. economic loss was $185,000

C (fifth worker is hired)

No. of workers : 1 2 3 4 5 6 7 8 9 10 Total output : 4 10 18 28 35 41 45 48 50 49 Diminishing marginal productivity begins when the: A. third worker is hired B. fourth worker is hired C. fifth worker is hired D. sixth worker is hired

B (demand curve for imported champagne is vertical)

The government proposes a tax on imported champagne. Buyers will bear the entire burden of tax if the A. Supply curve for imported champagne is vertical. B. demand curve for imported champagne is vertical. C. demand curve for imported champagne is horizontal. D. demand curve is downward sloping and the supply curve is upward sloping.

A (is reflected in the eventually rising marginal cost curve for the firm in the short run)

The law of diminishing returns A. is reflected in the eventually rising marginal cost curve for the firm in the short run B. is the result of the fact that in the long run at least one input is fixed C. is true for physical production activities but not for activities such as studying D. applies to a capitalist economy but would be irrelevant if the means of production were owned by the state

B (the quantity used of at least one factor of production is fixed)

The short run is a period of time in which A. output prices are fixed B. the quantity used of at least one factor of production is fixed C. factor of production prices are fixed D. the quantities used of all factors of production are fixed E. the quantities used of all factors of production can vary

E (Consumer surplus will be $14 at the new price) ((40-28)+(30-280)=$12. Harriet's does not count because at the new price it will be negative)

Tom is willing to pay $40 Dick is willing to pay $30 Harriet is willing to pay $25 The table above lists the highest prices three consumers are willing to pay for a short sleeved polo shirt. If the price increases from $20 to $28 A. consumer surplus increases from $14 to $35. B. Tom will buy two shirts; Dick and Harriet will each buy one shirt. C. Consumer surplus will decrease from $70 to $95. D. Harriet will receive more consumer surplus than Tom or Dick. E. Consumer surplus will be $14 at the new price.

C (The personal assets of the owners cannot be claimed if the business is bankrupt)

What does limited liability mean? A. The owners of the business are personally responsible for paying expenses incurred by the business. B. Only employees can have a claim on the assets of the business. C. The personal assets of the owners cannot be claimed if the business is bankrupt. D. Anybody with a liability against a firm can claim only what their liability refers to.

When supply is inelastic, when the supply has a horizontal line

When is producer surplus $0?

B (The price firms charge for their product is above the marginal cost to produce the product to maximize economic profit)

Which of the following is NOT characteristic of long-run equilibrium in a perfectly competitive market? A. Cost-efficient production B. The price firms charge for their product is above the marginal cost to produce the product to maximize economic profit C. Zero economic profit D. Resources are allocated to the industry up to the point where marginal benefit equals marginal cost

A (there are restrictions on entry and/or exit)

Which of the following is NOT true in the model of perfect competition? A. There are restrictions on entry and/or exit B. The output of each firm is a very small proportion of total market output C. The products of each firm are perfect subsitutes D. Each firm in the market is a price taker

B (The government grants licenses to taxicab drivers, without which it is illegal to operate a taxicab)

Which of the following is an example of a barrier to entry? A. A firm is open for business only at certain hours of the day, and has its doors locked at other times B. The government grants licenses to taxicab drivers, without which it is illegal to operate a taxicab C. A newspaper sellers advertising space to a business D. The need to take a risk when starting a new business

A (i, ii, and iii)

Which of the following is part of a firm's explicit costs: i. wages ii. utility costs iii. interest on a bank loan iv. interest forgone on funds used to buy capital equipment A. i, ii, and iii B. iii and iv C. i and ii D. i, iii, and iv

B (soybeans)

Which of the following is the best example of a perfectly competitive industry? A. fast food restaurants B. soybeans C. natural gas D. aerospace

B ("I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket")

Which of the following statements best describes the concept of consumer surplus? A. " Acme was having a sale on Dreyer's ice cream so I bought 3 quarts." B. " I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket." C. "I paid $130 for a printer last week. This week the same store is selling the same printer for $110." D. "I sold my Blu-ray copy of Be-Hur for $18 at a garage sale even though I was willing to sell it for $10."

B (as long as your marginal product is greater than zero)

You are cramming for a key economics exam and your only concern is to earn the maximum possible grade. Accordingly, you should study: A. until your marginal product starts to diminish B. as long as your marginal product is greater than zero C. only as long as your marginal product is greater than the average physical product D. only as long as average product is rising