Uni 3 Progress Check: MCQ

If a typical firm in a perfectly competitive market earns economic profit in the short run, what will most likely happen in the long run? A) Firms will enter the market and cause the price to fall. B) Firms will enter the market and cause the price to rise. C) Firms will exit the market and cause the price to fall. D) Firms will exit the market and the cause price to rise. E) There will be no change in the market because profit is maximized.

A) Firms will enter the market and cause the price to fall.

A profit-maximizing firm is currently producing a quantity at which price is less than average variable cost. To maximize profit, the firm will do which of the following in the short run and the long run? A) Shut down in the short run and exit the market in the long run. B) Produce less quantity in the short run and increase its scale of production in the long run. C) Produce more quantity in the short run and increase its scale of production in the long run. D) Continue producing the same quantity in the short run and in the long run. E) Continue producing the same quantity in the short and exit the market in the long run.

A) Shut down in the short run and exit the market in the long run.

Habib withdrew $100,000 from his bank account paying 5% interest to purchase equipment for his construction company. If Habib earns an accounting profit of $10,000 and he has no other opportunity costs, his economic profit will be equal to A) $0 B) $5,000 C) $15,000 D) $105,000 E) $115,000

B) $5,000

Quantity of Output Total Revenue Total Cost 0 $0 $10 1 $8 $13 2 $16 $14 3 $24 $17 4 $32 $22 5 $40 $29 6 $48 $38 7 $56 $49 The marginal revenue associated with selling the third unit of output is A) $3 B) $8 C) $10 D) $17 E) $24

B) $8

Number of Workers Total Product (units) 0 0 1 11 2 20 3 27 4 32 5 35 6 36 The table above shows a firm's short-run production function using labor as the only variable input. The marginal product of the third worker is A) 5 units B) 7 units C) 9 units D) 20 units E) 27 units

B) 7 units

The graph above shows the short-run cost curves for a perfectly competitive firm. Assume that the market price is P0 and the firm is producing at quantity Q0. To maximize profit, the firm should A) Increase production to quantity Q3Q3, where average total cost is at its minimum B) Increase production to quantity Q2Q2, where price is equal to marginal cost C) Increase production to quantity Q1Q1, where average variable cost is at its minimum D) Shut down and incur losses equal to fixed costs E) Shut down and incur zero losses Answer B

B) Increase production to quantity Q2Q2, where price is equal to marginal cost

A graph shows quantity of output produced on the horizontal axis and shows total variable cost and total cost on the vertical axis. Which of the following is true about the vertical distance between total variable cost and total cost as output increases? A) It decreases. B) It remains constant. C) It increases. D) It decreases and then increases. E) It increases and then decreases.

B) It remains constant.

Which of the following is true when total product is at its maximum? A) Marginal product is at its maximum. B) Marginal product is equal to zero. C) Marginal product is equal to average product. D) Average product is increasing. E) Average product is equal to zero.

B) Marginal product is equal to zero.

The graph above shows per unit cost information for firm X. At what quantity of output do diminishing returns begin for firm X? A) Q1 B) Q2 C) Q3 D) Q4 E) Q5

B) Q2

Kieran owns and operates his own bike shop. In the past week, he received two offers: one to work for a competitor for $50,000 per year and one to sell his bike shop for $100,000. Assume the annual interest rate is 6 percent, and Kieran is indifferent between owning his bike shop or working for the competitor. Kieran currently receives enough annual revenue to cover all explicit costs and has $60,000 left over. There are no additional implicit costs (excluding the items listed above). Under these circumstances, Kieran's economic profit is equal to which of the following? A) −$96,000−$96,000 B) −$90,000−$90,000 C) $4,000 D) $10,000 E) $60,000

C) $4,000

A competitive profit-maximizing firm is currently producing at an output level at which the marginal revenue is equal to marginal cost. Which of the following changes will NOT affect the profit-maximizing quantity? A) An increase in the price B) An increase in variable costs C) An increase in fixed costs D) An increase in labor productivity E) An increase in the firm's revenues

C) An increase in fixed costs

Which of the following is true about economies of scale and increasing returns to scale? A) Economies of scale and increasing returns to scale are the same thing. B) Economies of scale refers to the relationship between inputs and output. Increasing returns to scale refers to the relationship between long-run average total cost and the size of the firm. C) Economies of scale refers to the relationship between long-run average total cost and the size of the firm. Increasing returns to scale refers to the relationship between inputs and output. D) Economies of scale is a long-run concept, while increasing returns to scale is a short-run concept. E) Increasing returns to scale is a long-run concept, while economies of scale is a short-run concept.

C) Economies of scale refers to the relationship between long-run average total cost and the size of the firm. Increasing returns to scale refers to the relationship between inputs and output.

Which of the following is ignored when calculating accounting profit? A) Total revenue B) Variable costs C) Implicit costs D) Fixed costs E) Total costs

C) Implicit costs

The graph shows a firm in a perfectly competitive industry. Assume all the firms in the industry have identical costs. Given the price P4, what is a firm's profit-maximizing quantity of output? A) Q1 B) Q2 C) Q3 D) Q4 E) 0

C) Q3

A firm has only five possible factory (plant) sizes to choose from, represented by the short-run average total cost (SRATC) curves on the long-run average total cost (LRATC) curve shown on the graph below. The firm's minimum efficient scale occurs on A) SRATC1 B) SRATC2 C) SRATC3 D) SRATC4 E) SRATC5

C) SRATC3

Quantity of Output Total Revenue Total Cost 0 $0 $10 1 $8 $13 2 $16 $14 3 $24 $17 4 $32 $22 5 $40 $29 6 $48 $38 7 $56 $49 The firm's profit maximizing quantity is A) 2 B) 3 C) 4 D) 5 E) 6

D) 5

At a firm's current output level, average fixed cost is $10, average variable cost is $30, average total cost is $40, and marginal cost is $55. Which of the following must be true? A) Average fixed cost, average variable cost, and average total cost are all decreasing. B) Average fixed cost, average variable cost, and average total cost are all increasing. C) Average fixed cost and average total cost are both decreasing, while average variable cost is increasing. D) Average fixed cost is decreasing, and both average variable cost and average total cost are increasing. E) Average fixed cost and average variable cost are both decreasing, while average total cost is increasing.

D) Average fixed cost is decreasing, and both average variable cost and average total cost are increasing.

The graph shows a firm in a perfectly competitive industry. Assume all the firms in the industry have identical costs. Firms will have no incentive to exit or enter this market if the price in this market is A) Above P4P4 B) Below P2P2 C) Between P2P2 and P3P3 D) Equal to marginal cost E) Equal to average total cost

E) Equal to average total cost

Given a short-run production function, which of the following is true when total product is increasing at a decreasing rate? A) Average product must be positive and increasing. B) Average product must be negative and decreasing. C) Marginal product must be negative and decreasing. D) Marginal product must be positive and increasing. E) Marginal product must be positive and decreasing.

E) Marginal product must be positive and decreasing.

In a comparison of a perfectly competitive firm's short-run equilibrium to its long-run equilibrium, which of the following is true? A) Price must equal marginal cost in the long run, but not necessarily in the short run. B) Economic profit must be positive in the long run, but not necessarily in the short run. C) The firm can set price in the short run, but not necessarily in the long run. D) The firm must produce at minimum average total cost in the short run, but not necessarily in the long run. E) Price equals average total cost in the long run, but not necessarily in the short run.

E) Price equals average total cost in the long run, but not necessarily in the short run.

A firm has only five possible factory (plant) sizes to choose from, represented by the short-run average total cost (SRATC) curves on the long-run average total cost (LRATC) curve shown on the graph below. Which of the following ranges of output illustrates diseconomies of scale? A) Q1 to Q2 B) Q1 to Q3 C) Q2 to Q3 D) Q2 to Q4 E) Q3 to Q5

E) Q3 to Q5