Eco 303 T3
If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then a. a one-unit increase in output will increase the firm's profit b. a one-unit decrease in output will increase the firm's profit c. total revenue exceeds total cost d. total cost exceeds total revenue
ANSWER: a
If a firm uses labor to produce output, the firm's production function depicts the relationship between a. the number of workers and the quantity of output. b. marginal product and marginal cost. c. the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor d. fixed inputs and variable inputs in the short run.
ANSWER: a
Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $100 per child. In order to maximize profits, Robin should a. give riding lessons to more than 20 children per month b. give riding lessons to fewer than 20 children per month c. continue to give riding lessons to 20 children per month d. We do not have enough information to answer the question
ANSWER: a
The long-run average total cost curve is always a. flatter than the short-run average total cost curve but not necessarily horizontal b. horizontal c. falling as output increases d. rising as output increases
ANSWER: a
When comparing short-run average total cost with long-run average total cost at a given level of output a. short-run average total cost is typically above long-run average total cost b. short-run average total cost is typically the same as long-run average total cost c. short-run average total cost is typically below long-run average total cost d. the relationship between short-run and long-run average total cost follows no clear pattern
ANSWER: a
When entry and exit behavior of firms in an industry does not affect a firm's cost structure a. the long-run market supply curve must be horizontal b. the long-run market supply curve must be upward sloping c. the long-run market supply curve must be downward sloping d. we do not have sufficient information to determine the shape of the long-run market supply curve
ANSWER: a
A local playground equipment company plans to operate out of its current factory, which is estimated to last 30 years. All cost decisions it makes during the 30-year period a. are long-run decisions. b. are short-run decisions. c. involve only maintenance of the factory. d. are zero because the cost decisions were made at the beginning of the business
ANSWER: b
A restaurant that has market power can a. minimize costs more efficiently than its competitors b. influence the market price for the meals it sells c. reduce its marketing budget more than its competitors d. ignore profit-maximizing strategies when setting the price for its meals
ANSWER: b
Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is a. -$1,600. b. $1,600. c. $3,200. d. $8,000.
ANSWER: b
Economies of scale occur when a firm's a. marginal costs are constant as output increases b. long-run average total costs are decreasing as output increases c. long-run average total costs are increasing as output increases d. marginal costs are equal to average total costs for all levels of output
ANSWER: b
Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. shut down her business in the short run but continue to operate in the long run b. continue to operate in the short run but shut down in the long run c. continue to operate in both the short run and long run d. shut down in both the short run and long run
ANSWER: b
The analysis of competitive firms sheds light on the decisions that lie behind the a. demand curve. b. supply curve. c. way firms make pricing decisions in the not-for-profit sector of the economy d. way financial markets set interest rates
ANSWER: b
The marginal product of labor can be defined as the change in a. profit divided by the change in labor. b. output divided by the change in labor. c. labor divided by the change in output. d. labor divided by the change in total cost.
ANSWER: b
The nature of a firm's cost (fixed or variable) depends on the a. firm's revenues b. time horizon under consideration c. price the firm charges for output d. explicit but not implicit costs
ANSWER: b
The total cost to the firm of producing zero units of output is a. zero in both the short run and the long run b. its fixed cost in the short run and zero in the long run c. its fixed cost in both the short run and the long run d. its variable cost in both the short run and the long run
ANSWER: b
When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is a. downward sloping b. upward sloping. c. horizontal. d. vertical
ANSWER: b
A firm has market power if it can a. maximize profits b. minimize costs. c. influence the market price of the good it sells. d. hire as many workers as it needs at the prevailing wage rate
ANSWER: c
For any competitive market, the supply curve is closely related to the a. preferences of consumers who purchase products in that market b. income tax rates of consumers in that market. c. firms' costs of production in that market. d. interest rates on government bonds
ANSWER: c
If Bradley's Butcher Shop sells its product in a competitive market, then a. the price of that product depends on the quantity of the product that Bradley's Butcher Shop produces and sells because the firm's demand curve is downward sloping b. Bradley's Butcher Shop's total cost must be a constant multiple of its quantity of output c. Bradley's Butcher Shop's total revenue must be proportional to its quantity of output d. Bradley's Butcher Shop's total revenue must be equal to its average revenue
ANSWER: c
If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit then a. its total cost is more than $9,000. b. its marginal revenue is less than $10. c. its average total cost is less than $10. d. the firm cannot be a competitive firm because competitive firms cannot earn positive profits
ANSWER: c
In a competitive market, the actions of any single buyer or seller will a. discourage entry by competitors. b. influence the profits of other firms in the market c. have a negligible impact on the market price d. Both a and b are correct
ANSWER: c
Since the 80s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that a. consumers do not react to changing prices b. there are dis-economies of scale in retail sales c. there are economies of scale in retail sales d. there are diminishing returns to producing and selling retail goods
ANSWER: c
Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not? a. cotton and soybeans b. gasoline and corn c. #2 lead pencils and college textbooks d. electricity and cable television
ANSWER: c
Which of the following is not a characteristic of a competitive market? a. Buyers and sellers are price takers. b. Each firm sells a virtually identical product. c. Entry is limited. d. Each firm chooses an output level that maximizes profits
ANSWER: c
Which of the following represents the firm's long-run condition for exiting a market? a. exit if P < MC b. exit if P < FC c. exit if P < ATC d. exit if MR < MC
ANSWER: c
Which of the following statements is not correct? a. In the long run, there are no fixed costs b. Marginal cost is independent of fixed costs c. Economies of scale is a short-run concept d. Diminishing marginal product explains increasing marginal cost
ANSWER: c
A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's a. average total cost curve intersects the marginal cost curve at an output level of less than 200 units b. average variable cost curve intersects the marginal cost curve at an output level of less than 200 units c. profit is $400. d. All of the above are correct
ANSWER: d
If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station a. has little or no market power b. is small relative to the size of the gasoline market. c. is a competitive firm. d. All of the above are correct
ANSWER: d
In order to maximize profits in the short run, a firm should produce where a. marginal revenue exceeds marginal cost by the greatest amount b. marginal cost is minimized. c. average total cost is minimized. d. marginal cost equals marginal revenue
ANSWER: d
In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits a. dis-economies of scale because total cost is rising as output rises b. dis-economies of scale because average total cost is rising as output rises c. economies of scale because total cost is rising as output rises d. economies of scale because average total cost is falling as output rises
ANSWER: d
Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's a. total revenues exceed her total accounting costs. b. marginal revenue exceeds her total cost. c. marginal revenue exceeds her marginal cost. d. marginal cost exceeds her marginal revenue
ANSWER: d
LML sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not a. choose the quantity of butter to produce b. set marginal revenue equal to marginal cost to maximize profit c. have any fixed costs of production d. choose the price at which it sells its butter
ANSWER: d
Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold? a. $5 and 50 units b. $5 and 100 units c. $10 and 50 units d. $10 and 100 units
ANSWER: d
The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which a. total revenue is equal to variable cost b. total revenue is equal to fixed cost. c. total revenue is equal to total cost. d. profit is maximized
ANSWER: d
When a firm's only variable input is labor, then the slope of the production function measures the a. quantity of labor b. quantity of output c. total cost d. marginal product of labor
ANSWER: d
Which of the following is a characteristic of a competitive market? a. There are many buyers but few sellers. b. Firms sell differentiated products. c. There are many barriers to entry. d. Buyers and sellers are price takers.
ANSWER: d
Which of the following statements regarding a competitive firm is correct? a. Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output b. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units c. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price d. For all firms, average revenue equals the price of the good
ANSWER: d
Which of the following statements regarding a competitive market is not correct? a. There are many buyers and many sellers in the market b. Firms can freely enter or exit the market. c. Price equals average revenue. d. Price exceeds marginal revenue.
ANSWER: d
Firms may experience dis-economies of scale when a. they are too small to take advantage of specialization b. large management structures are bureaucratic and inefficient c. there are too few employees, and managers do not have enough to do d. average fixed costs begin to rise again
Answer: b
The things that must be forgone to acquire a good are called:
Opportunity costs
Patrice owns a travel agency. Her accountant most likely includes which of the following costs on her financial statements?
The cost of utilities for operating the storefront
The amount of money that a firm pays to buy inputs is called:
Total cost: Materials + Labor
Which of these assumptions is often realistic for a firm in the short run? a. The firm can vary both the size of its factory and the number of workers it employs. b. The firm can vary the size of its factory but not the number of workers it employs. c. The firm can vary the number of workers it employs but not the size of its factory. d. The firm can vary neither the size of its factory nor the number of workers it employs.
c. The firm can vary the number of workers it employs but not the size of its factory.
