Managerial Economics FIN311

The firm is earning a a. profit equal to $5. b. profit equal to $250. c. loss equal to $15. d. loss equal to $750. e. loss equal to $250.

b. profit equal to $250.

What is the firm's profit if the price of its product is $5 and it produces 500 units of output at a total cost of $1,000? a. $5,000 b. $2,500 c. $1,500 d. −$1,500 e. −$2,500

c. $1,500

The firm's total revenue is equal to a. $14. b. $20. c. $560. d. $750. e. $1,000.

e. $1,000.

Which of the following is correct? a. AVC is the change in total cost generated by one additional unit of output. b. MC = TC/Q c. The average cost curve crosses at the minimum of the marginal cost curve. d. The AFC curve slopes upward. e. AVC = ATC − AFC

e. AVC = ATC − AFC

Which of the following is not a characteristic of the long-run equilibrium in perfect competition? A. Each firm is producing an efficient quantity. B. Price equals ATC for each firm. C. Each firm is earning zero economic profit. D. Each firm is producing at the minimum point on the MC curve.

D. Each firm is producing at the minimum point on the MC curve.

Which of the following is an example of differentiated products? a. Coke and Pepsi b. automobiles and bicycles c. trucks and gasoline d. stocks and bonds e. gold and silver

a. Coke and Pepsi

2. Which of the following is true for a monopoly? I. There is only one firm. II. The firm produces a product with many close substitutes. III. The industry has free entry and exit. a. I only b. II only c. III only d. I and II only e. I, II, and III

a. I only

A firm produces 200 units of output at an average total cost of $27 and an average variable cost of $24. What is the firm's level of total fixed cost? A. $3 B. $200 C. $600 D. $4800

C. $600

Why does economic theory predict that the perfectly competitive firm will produce at the point where price equals marginal cost? A. Because this point provides an efficient allocation of society's resources. B. Because this point results in zero economic profit. C. Because this point maximizes profit for the firm. D. Because this point will minimize ATC for the firm.

C. Because this point maximizes profit for the firm.

Suppose that firms in the perfectly competitive potato-growing industry are earning economic profits. According to economic theory, what is likely to happen? A. The costs of the firms will increase, eventually eliminating the profit. B. The existence of profits will lead to a drop in the demand for potatoes. C. More firms will enter the market, thereby increasing the industry supply and lowering the market price. D. More firms will enter the market, thereby decreasing the industry supply and raising the market price.

C. More firms will enter the market, thereby increasing the industry supply and lowering the market price.

Which of the following is true for a monopolistically competitive industry? I. There are many firms, each with a small market share. II. The firms in the industry produce a standardized product. III. Firms are price-takers. a. I only b. II only c. III only d. I and II only e. I, II, and III

a. I only

Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $2.50, marginal cost is $3 and the average total cost is $3.10. From this we know: A. the firm is not producing according to the optimal output rule. B. the firm is making a loss. C. the firm should shut down. D. the firm is making positive economic profits.

B. the firm is making a loss.

The demand curve for an individual firm in a perfectly competitive industry is: A. perfectly inelastic. B. unit elastic. C. perfectly elastic. D. zero elastic.

C. perfectly elastic.

Samir owns a coffee shop that has monthly variable costs equal to $8,560. If Samir sells 11,000 cups of coffee each month, what is the average variable cost per cup? A. $0.78 B. $0.85 C. $0.99 D. $1.30

A. $0.78

Luis operates a cherry orchard in Northern Oregon and sells the cherries in a perfectly competitive market at a price of $1.70 per pound. Last month Luis sold 2,000 pounds of cherries. His fixed cost of production was $800 and his average variable cost was $1.00 per pound. What was his profit? A. $600 B. $800 C. $2,600 D. $3,400

A. $600

Which of the following statements is true? A. In the long-run, the level of fixed costs is an important component of the entry/exit decision. B. In the short-run, the level of fixed costs is an important component of the entry/exit decision. C. The firm shuts down if it cannot cover its fixed costs in the short run. D. When price exceeds average variable cost, but is below average total costs, the firm shuts down.

A. In the long-run, the level of fixed costs is an important component of the entry/exit decision.

In today's U.S. economy, which of the following industries has firms that typically act as a monopoly for an extended period of time? A. Pharmaceuticals B. Fast food restaurants C. Accounting services D. Hair salons

A. Pharmaceuticals

The quantity supplied by a perfectly competitive firm at a given market price is determined by the: A. firm's marginal cost curve. B. firm's average total cost curve. C. firm's marginal revenue curve. D. number of firms in the market.

A. firm's marginal cost curve.

A firm experiencing constant returns to scale has a horizontal: A. long-run average total cost curve. B. marginal cost curve. C. marginal product curve. D. total product curve.

A. long-run average total cost curve.

The optimal output rule says that firms maximize profits by choosing output such that: A. marginal revenue = marginal cost. B. total revenue = total cost. C. price = minimum of the average cost. D. marginal revenue = average cost.

A. marginal revenue = marginal cost.

The existence of profit in a perfectly competitive industry means that: A. new producers will seek to enter the industry. B. consumers will switch to substitute goods. C. each producer is charging a different price. D. the current price exceeds marginal cost.

A. new producers will seek to enter the industry.

The U-shape of the average total cost curve is caused by the ___________ having a powerful effect at lower levels of output and the ___________ having a powerful effect at high level of output. A. spreading effect; diminishing returns effect B. diminishing returns effect; spreading effect C. specialization effect; spreading effect D. decreasing marginal productivity effect; diminishing returns effect

A. spreading effect; diminishing returns effect

A firm producing in the short run uses two inputs, capital and labor. The quantity of capital is fixed and generates a monthly cost of $6,000. The quantity of labor can be varied, and the wage rate per hour of labor is $20. If 400 hours of labor are hired for the month, and 140 units of output are produced, what is the firm's average total cost for the month? A. $123 B. $100 C. $43 D. $2

B. $100

For the perfectly competitive firm, economic profit equals: A. (Price - marginal cost) x quantity. B. (Price - average total cost) x quantity. C. (Price - average variable cost) x quantity. D. Total revenue - total fixed cost.

B. (Price - average total cost) x quantity.

The ______ says that a price-taking firm's profit is maximized by producing the quantity of output at which the ______ is equal to the marginal cost of the last unit produced. A. optimal output rule; market price B. A. price-taking firm's optimal output rule; market price C. A. optimal output rule; total cost D. A. price-taking firm's optimal output rule; total revenue

B. A. price-taking firm's optimal output rule; market price

Which of the following is not an example of a barrier to entry? A. A copyright B. An innovative product C. A patent D. Economies of scale

B. An innovative product

Which cost curve is continually upward-sloping? A. The average total cost curve B. The total cost curve C. The marginal cost curve D. The average variable cost curve

B. The total cost curve

If average cost is falling: A. average cost is less than marginal cost. B. average cost is greater than marginal cost. C. output is above the minimum cost level. D. the marginal cost curve lies above the average cost curve.

B. average cost is greater than marginal cost.

Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $2.50, marginal cost is $3 and the average total cost is $3.20. From this we know: A. the firm is not producing according to the optimal output rule. B. firms will exit the industry. C. firms will enter the industry. D. the firm is making zero economic profits.

B. firms will exit the industry.

The average fixed cost curve: A. is flat with zero slope. B. is downward sloping. C. is upward sloping. D. is U-shaped.

B. is downward sloping.

In the case of a price taking firm: A. marginal revenue < price. B. marginal revenue = price. C. average revenue > price. D. total revenue = price.

B. marginal revenue = price

Monopoly describes a market structure in which there is/are ________ producer(s) and the product(s) is/are ________. A. many; differentiated B. one; unique C. many; identical D. one; differentiated

B. one; unique

A perfectly competitive firm will shut down when: A. price < marginal revenue. B. price < average variable cost. C. price < average total cost. D. price < demand.

B. price < average variable cost.

A perfectly competitive firm earns an economic profit when: A. price is above average variable cost. B. price is above average total cost. C. total cost exceeds total revenue. D. total variable cost exceeds total revenue.

B. price is above average total cost.

A firm will choose to shut down in the short run when: A. price is above the minimum point of AVC but below the minimum point of ATC. B. price is below the minimum point of AVC. C. marginal cost begins to increase. D. total revenue is not sufficient to cover total cost.

B. price is below the minimum point of AVC.

A perfectly competitive firm is currently selling its product at the market price of $6. Its average total cost is $5.50. In this case: A. since average total cost is less than the price, the firm will shut down. B. the firm has positive economic profits. C. the firm is losing money but will continue to operate. D. the firm has zero economic profits.

B. the firm has positive economic profits.

Marginal cost is the slope of the: A. marginal product curve. B. total cost curve. C. total product curve. D. long-run average total cost curve.

B. total cost curve.

The firm incurs a loss when the firm produces a quantity at which: A. marginal revenue > marginal cost. B. total revenue = total cost. C. price = minimum of the average cost. D. total revenue < total cost.

B. total revenue = total cost.

A firm is producing 100 units of output at a total cost of $84,000. The firm's fixed cost is $24,000. What is the average variable cost? A. $840 B. $640 C. $600 D. $240

C. $600

Tara sells her organic carrots in a perfectly competitive market for a price that is just higher than her minimum average variable cost of production, but lower than her minimum average total cost of production. Which of the following statements is then true? A. Although she is currently incurring a loss, she could restore profitability by advertising her carrots. B. She can minimize her losses by shutting down her operations now. C. She is incurring a loss, because price is less than ATC. D. She is earning a profit, because price is above AVC.

C. She is incurring a loss, because price is less than ATC.

In what way does the spreading effect change average total cost as output rises? A. The spreading effect increases ATC, because it reflects the fact that workers are spread out across more tasks when output rises. B. The spreading effect increases ATC, because it reflects the fact that firms are less efficient when they operate on a larger scale. C. The spreading effect reduces ATC, because a given fixed cost can be spread across more units of output. D. The spreading effect reduces ATC, because a firm's total fixed cost will decline as more is produced.

C. The spreading effect reduces ATC, because a given fixed cost can be spread across more units of output.

Which of the following statements is true? A. Whenever marginal cost is below average total cost, marginal cost is decreasing. B. Whenever marginal cost is above average total cost, marginal cost is decreasing. C. Whenever marginal cost is above average total cost, average total cost is increasing. D. When marginal cost equals average total cost, marginal cost is minimized.

C. Whenever marginal cost is above average total cost, average total cost is increasing.

The U.S. beer industry is characterized by market power for only a few firms, with the largest one enjoying a fifty percent market share. One reason for this is economies of scale. This means that: A. as beer production increases, costs increase significantly. B. patents have allowed beer producers to have low costs of production. C. as beer production increases, the average total cost of production falls. D. if the industry were made perfectly competitive, the costs of production would fall.

C. as beer production increases, the average total cost of production falls.

The short-run individual supply curve of the perfectly competitive firm is: A. the upward-sloping portion of its average variable cost curve. B. its average total cost curve. C. its marginal cost curve above average variable cost. D. its marginal cost curve above average total cost.

C. its marginal cost curve above average variable cost.

Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $3.10, marginal cost is $3 and the average total cost is $3.50. From this we know: A. the firm is not producing according to the optimal output rule. B. the firm is breaking even. C. the firm should shut down. D. the firm is making positive economic profits.

C. the firm should shut down.

Which of the following statements about the marginal cost curve is incorrect? A. The marginal cost curve is equal to the slope of the total cost curve. B. The marginal cost curve slopes upward because of diminishing marginal returns. C. Marginal cost is equal to the change in total cost generated by producing one more unit of output. D. Marginal cost depends upon the level of fixed costs.

D. Marginal cost depends upon the level of fixed costs.

A perfectly competitive firm is charging the market price of $18 to sell its product. The firm is producing and selling the profit-maximizing quantity of 50 units at this price. Its average total cost is $17 and its average variable cost is $15. Which of the following statements is then true? A. This firm should shut down now. B. At this current level of production, the firm's marginal cost is $17. C. At this current level of production, the firm's marginal cost is $15. D. The firm is earning an economic profit of $50.

D. The firm is earning an economic profit of $50.

How does the long run differ from the short run in perfect competition? A. In the long run, some firms will charge higher prices than others. B. In the short run, the firm seeks to maximize profit; it the long run it seeks to minimize cost. C. In the short run, the firm seeks to maximize profit; it the long run it seeks to maximize revenue. D. The long run is long enough to allow for the entry of new firms into the industry.

D. The long run is long enough to allow for the entry of new firms into the industry.

Daisy incurs $7,200 per month in fixed costs operating her floral shop. She pays her employees $9.00 per hour and has three assistants each working 120 hours per month. Her other variable costs are $800 per month. What are Daisy's total variable costs and total costs each month? A. Total variable costs are $800; total costs are $8,000. B. Total variable costs are $800; total costs are $11,240. C. Total variable costs are $3,240; total costs are $11,240. D. Total variable costs are $4,040; total costs are $11,240.

D. Total variable costs are $4,040; total costs are $11,240.

All of the following curves are U-shaped except the: A. long-run average total cost. B. average total cost. C. average variable cost. D. average fixed cost.

D. average fixed cost.

The minimum-cost output is the quantity corresponding to the minimum point of the: A. marginal cost curve. B. marginal product curve. C. average variable cost curve. D. average total cost curve.

D. average total cost curve.

In order to maximize net gains, the perfectly competitive firm will seek to do which of the following? A. minimize average variable cost B. minimize average total cost C. minimize marginal cost D. maximize profit

D. maximize profit

A firm breaks even when: A. price = marginal cost. B. price = marginal revenue. C. marginal cost = average total cost. D. price = average total cost.

D. price = average total cost.

The swoosh-shape of the marginal cost curve is caused by the ___________ having a powerful effect at lower levels of output and the ___________ having a powerful effect at high levels of output. A. diminishing returns effect; specialization effect B. diminishing returns effect; spreading effect C. spreading effect; fixed cost effect D. specialization effect; diminishing returns effect

D. specialization effect; diminishing returns effect

Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $2.50, marginal cost is $3 and the average total cost is $3.00. From this we know: A. the firm is not producing according to the optimal output rule. B. the firm is not breaking even. C. the firm is making zero accounting profits. D. the firm is making zero economic profits.

D. the firm is making zero economic profits.

The perfectly competitive firm's short run supply curve is: A. the average total cost curve above the minimum of average total cost. B. the average variable cost curve above the minimum of average total cost. C. the marginal cost curve above the minimum of average total cost. D. the marginal cost curve above the minimum of average variable cost.

D. the marginal cost curve above the minimum of average variable cost.

Which of the following is true for a perfectly competitive industry? I. There are many firms, each with a large market share. II. The firms in the industry produce a standardized product. III. There are barriers to entry and exit. a. I only b. II only c. III only d. I and II only e. I, II, and III

b. II only

If a firm has a total cost of $200, its profit-maximizing level of output is 10 units, and it is breaking even (that is, earning a normal profit), what is the market price? a. $200 b. $100 c. $20 d. $10 e. $2

c. $20

When a firm is producing zero output, total cost equals a. zero. b. variable cost. c. fixed cost. d. average total cost. e. marginal cost.

c. fixed cost.

At prices that motivate the firm to produce at all, the short-run supply curve for a perfect competitor corresponds to which curve? a. the ATC curve b. the AVC curve c. the MC curve d. the AFC curve e. the MR curve

c. the MC curve

A firm is profitable if a. TR < TC. b. AR < ATC. c. MC < ATC. d. ATC < P. e. ATC > MC.

d. ATC < P.

Which of the following is correct for a perfectly competitive firm? I. The marginal revenue curve is the demand curve. II. The firm maximizes profit when price equals marginal cost. III. The market demand curve is horizontal. a. I only b. II only c. III only d. I and II only e. I, II, and III

d. I and II only

Which of the following is true for an oligopoly? I. There are a few firms, each with a large market share. II. The firms in the industry are interdependent. III. The industry experiences diseconomies of scale. a. I only b. II only c. III only d. I and II only e. I, II, and III

d. I and II only

. A perfectly competitive firm will maximize profit at the quantity at which the firm's marginal revenue equals a. price. b. average revenue. c. total cost. d. marginal cost. e. demand.

d. marginal cost.

A firm should continue to produce in the short run as long as price is at least equal to a. MR. b. MC. c. minimum ATC. d. minimum AVC. e. AFC.

d. minimum AVC.

Which of the following statements is true? I. Marginal cost is the change in total cost generated by one additional unit of output. II. Marginal cost is the change in variable cost generated by one additional unit of output. III. The marginal cost curve must cross the minimum of the average total cost curve. a. I only b. II only c. III only d. I and II only e. I, II, and III

e. I, II, and III

The slope of the total cost curve equals a. variable cost. b. average variable cost. c. average total cost. d. average fixed cost. e. marginal cost.

e. marginal cost.