Micro - Economics : EXAM 3 MULTIPLE CHOICE QUESTIONS

Total Cost: $80,000 $100,000 $110,000 $140,000 $190,000 Output: 0 10,000 20,000 30,000 40,000 6. Based on this cost information, the firm's marginal cost between 10,000 and 20,000 units of output is A) 1$ B) 5.50$ C) 10,000$ D) 110,000$

A) $1

1. In perfect competition ... A) Marginal revenue = price because firms are price-takers B) The marker demand curve is horizontal C) Firms will shut down in the short run if they suffer losses unless they have no fixed costs D) All of the above

A) Marginal revenue = price because firms are price-takers

2. Suppose the price is $10 and the firm produces 1000 units. If at this level of output, its marginal cost is $8, then the firm ... A) Should decrease its level of output B) Should increase its level of output C) Is maximizing profits D) Is making a profit

B) Should increase its level of output

3. If average cost is decreasing then A) marginal cost is decreasing too B) marginal cost must be less than average cost C) marginal cost must be greater than average cost D) marginal cost must be at its lowest point

B) marginal cost must be less than average cost

5. Economic profits are generally __________ to/than accounting profits. A) equal B) greater C) lower

C) lower

Suppose a PC firm is suffering losses. The price of output is $10, the marginal cost is $10, the average total cost is $14 and the average variable cost is $12. What should the firm do? A) Increase output B) Decrease output C) Continue producing at this level in the short run D) Shut down

D) Shut down

2. In the short run, A) there is at least one fixed input B) there are fixed and variable costs C) marginal cost increases because of the law of diminishing marginal returns D) all of the above

D) all of the above

Total Cost: $80,000 $100,000 $110,000 $140,000 $190,000 Output: 0 10,000 20,000 30,000 40,000 7. Based on the above cost information, which of the following statements is TRUE? A) the firm's total fixed costs are $80,000 B) the average total cost of producing 40,000 units is $4.75 C) the total variable cost of producing 40,000 units is $110,000 D) all of the above

D) all of the above

4. The water-diamond paradox can be solved by understanding that, relative to diamonds, the marginal utility of water is _______ and the total ______ utility of water is ________. A) higher, higher B) higher, lower C) lower, higher D) lower, lower

D) lower, higher

1. On the graph of short-run cost curves, curve A is A) average variable cost B) average fixed cost C) average total cost D) marginal cost

D) marginal cost

Total Cost: $60,000 $80,000 $110,000 $150,000 $210,000 Output: 0 1,000. 2,000 3,000 4,000 2. The marginal cost of producing the 3000th unit (or MC at 3000 units) is a.) $40 b.) $5 c.) $40,000 d.) $50,000

a) $40

2. The water-diamond paradox is solved when one realizes that price reflects a) marginal value, not total value b) total value, not marginal value c) marginal value, not marginal cost d) average value, not marginal value

a) marginal value, not total value

4. In the long run, which would you expect to happen? a) the market price will go down b) firms will start exiting c) the market supply will shift inward d) profits will increase

a) the market price will go down

Which of the following statements about cost curves is FALSE? a. marginal cost = total cost / quantity b. total costs = total variable cost + total fixed cost c. average fixed cost = average total cost - average variable cost d. none of the above

a. marginal cost = total cost / quantity

6. Suppose a perfectly competitive firm is suffering losses. The price of output is $20, the marginal cost is $25, the average total cost is $25 and the average variable cost is $18. What should the firm do? a.) Decrease output b.) Increase output c.) Continue producing at this level in the short run d.) Shut down

a.) Decrease output

3. Assume that a perfectly competitive, constant cost industry is in long run equilibrium. Now suppose that the market demand for the good increases. Which of the following would you expect to see happen? a.) Price and profits will increase in the short-run, causing firms to enter, so that price and profits return to their original level in the long run. b.) Price and profits will decrease in the short-run, causing firms to exit, so that price and profits return to their original level in the long run. c.) Price and profits will decrease in both the short run and the long run. d.) Price and profits will decrease in the short run, but then prices will increase dramatically and firms will begin enjoying high profits in the long run.

a.) Price and profits will increase in the short-run, causing firms to enter, so that price and profits return to their original level in the long run.

1. According to the graph, which of the following is true? a.) We would expect the price of the good to increase in the long run. b.) The firm is earning profits. c.) The firm should shut down in the short run. d.) The firm is not operating at the profit-maximizing level.

a.) We would expect the price of the good to increase in the long run.

1. The law of diminishing marginal utility states that as one consumes more units of the good, the additional utility generated by the next unit will eventually ________, ceteris paribus. a) be positive. b) be negative. c) decrease. d) increase.

b) be negative

2. In a perfectly competitive market, the market demand curve is ____ and the demand for the individual firm's product is ______. a. Downward-sloping, downward-sloping b. Downward-sloping, horizontal (perfectly elastic) c. Horizontal (perfectly elastic), downward-sloping d. Horizontal (perfectly elastic), horizontal (perfectly elastic)

b. Downward-sloping, horizontal (perfectly elastic)

4. The situation where a firm sees its long-run average cost of producing the output decrease as the size of the plant (all inputs) increases is known as a.) the law of diminishing marginal returns. b.) economies of scale. c.) diseconomies of scale. d.) the law of diminishing marginal utility

b.) economies of scale.

2. Economies of Scale occurs when a.) the short-run average total cost declines as output increases. b.) the long-run average total cost declines as output increases c.) the long-run average total cost increases as output increases .d.) the firm has gotten too large to be efficient.

b.) the long-run average total cost declines as output increases

Total Cost: $60,000 $80,000 $110,000 $150,000 $210,000 Output: 0 1,000 2,000 3,000 4,000 1. Based on this cost information, the average total cost of producing 2000 units of output is a.) $110,000 b.) $40,000 c.) $55 d.) $30

c) $55

3. Using this graph, a PC firm will maximize profits by producing ______ units and will earn/suffer $______ in profits/losses a) 1100 units, zero b) 1300 units, $6 profits c) 1300 units, $7800 profits d) 1300 units, $10, 400 profits

c) 1300 units, $7800 profits

1. The firm's short-run supply curve is the a) average total cost above the marginal cost curve b) marginal cost curve above the average total cost curve c) marginal cost curve above the average variable cost curve d) marginal cost curve

c) marginal cost curve above the average variable cost curve

Which of the following states about short-run costs is TRUE? a. Total costs of production at first decrease as output increases but then increases (i.e., is u-shaped) b. There are no fixed costs c. Marginal cost increases because of the law of diminishing marginal utility d. all of the above

c. Marginal cost increases because of the law of diminishing marginal utility

8. Suppose that an increasing cost PC market is initially in LONG-RUN equilibrium. Now, suppose that market demand decreases (due to new reports good may be harmful). What would you expect to happen? a. Firms will earn profits in the short-run. b. The market price will eventually return to the same price as before. c. Market price will fall in the short-run and continue to be lower in the long-run. d. The number of firms in the market will increase.

c. Market price will fall in the short-run and continue to be lower in the long-run.

Which of the following statements is true? a. total cost increases as output increases, but then eventually begins to fall b. marginal cost is at its lowest point when it equals average cost c. marginal cost is the slope of both total cost and total variable cost d. none of the above

c. marginal cost is the slope of both total cost and total variable cost

1. Which of the following statements about short-run costs is TRUE? a.) Total costs of production at first decrease as output increases but then increase as output increases (i.e., is u-shaped). b.) There are no fixed costs. c.) Marginal cost increases because of the law of diminishing marginal returns. d.) all of the above.

c.) Marginal cost increases because of the law of diminishing marginal returns.

5. The long run, market supply curve for a constant cost, perfectly competitive industry is a.) downward-sloping. b.) upward-sloping. c.) horizontal. d.) vertical.

c.) horizontal.

7. The perfectly competitive firm's short-run supply curve is the a.) average total cost above the marginal cost curve. b.) marginal cost curve above the average total cost curve. c.) marginal cost curve above the average variable cost curved. d.) marginal cost curve.

c.) marginal cost curve above the average variable cost curved.

2. Suppose I observe firms are suffering losses in the bicycle industry, which im told is perfectly competitive. What should I expect? a) Firms will begin shutting down b) the price of bicycles will rise over time c) Firms will eventually quit losing money and return to normal profits, but there will be fewer bicycle companies and fewer bicycles sold. d) all of the above

d) all of the above

1. Which of the following is NOT a characteristic of perfect competition? a. Many Sellers b. Identical product c. Perfect information d. Large barriers to entering the market

d. Large barriers to entering the market

2. Which of the following is NOT a characteristic of perfect competition? a.) Many sellers b.) Perfect information c.) No barriers to entry d.) A unique product with few close substitutes

d.) A unique product with few close substitutes