eco test 2

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below: A) Average cost B) Average variable cost C) Marginal cost D) Average fixed cost

B) Average variable cost

In the long run, the typical firm in this market will produce a quantity equal to A) Q1. B) q2. C) q3. D) q1.

C) q3.

Refer to the above graph. At the profit-maximizing level of output, the firm earns profits given by th area: A) 0AHE B) BCFG C) ACFH D) ABGH

D) ABGH

Refer to the above graph for a purely competitive firm operating at a loss in the short run. Which are in the graph represents the amount of economic loss for the firm? A) abef B) 0beg C) acdf D) bcde

D) bcde

Answer the question on the basis of the following cost data: Refer to the data. The average total cost of producing 3 units of output is: A) $13.50. B) $16. C) $12. D) $14.

B) $16.

In the diagram below, the profit maximizing output level is A) 0C. B) 0A. C) 0B. D) It is impossible to say

B) 0A.

Refer to the above graph for a profit-maximizing monopolist. The firm will set its price at: A) 0K B) 0J C) 0G D) 0H

B) 0J

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profits or minimize losses, the firm should: A) Increase production to more than 1,000 units B) Continue producing 1,000 units C) Shut down D) Continue production, but produce less than 1,000 units

B) Continue producing 1,000 units

Refer to the above graph for a profit-maximizing monopolist. At equilibrium, the firm will be earning: A) Negative profits B) Positive profits C) Zero profits D) Profits that cannot be determined from the given graph

B) Positive profits

Marginal product is: A) the increase in total revenue attributable to the employment of one more worker. B) the increase in total output attributable to the employment of one more worker. C) total product divided by the number of workers employed. D) the increase in total cost attributable to the employment of one more worker.

B) the increase in total output attributable to the employment of one more worker.

Accounting profits equal total revenue minus: A) total implicit costs. B) total explicit costs. C) total economic costs. D) economic profits.

B) total explicit costs

Refer to the above graph. To maximize profits, the firm should produce the quantity: A) 0B B) 0A C) 0C D) 0K

C) 0C

Farmer Jones is producing wheat, and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $8.00 per bushel. Her average variable costs are $5 per bushel. In order to maximize profits or minimize losses, farmer Jones should: A) Produce zero output and close down B) Increase output C) Continue producing, but reduce output D) Increase selling price

C) Continue producing, but reduce output

A purely competitive firm does not try to sell more of its product by lowering its price below the market price because: A) This would be considered unethical price chiseling B) Its demand curve is inelastic, so total revenue will decline C) It can sell all it wants to at the market price D) Its competitors would not permit it

C) It can sell all it wants to at the market price

Refer to the graphs above for a purely competitive market in the short run. The graphs suggest that i the long run, assuming no changes in the given information: A) More buyers will come to the market B) Buyers will leave the industry C) New firms will be attracted into the industry D) Some firms will exit from this industry

C) New firms will be attracted into the industry

Which of the following is not a source of monopoly power? A) Exclusive control over inputs B) Patents C) Rapid low cost technological change in the industry D) Economies of scale

C) Rapid low cost technological change in the industry

Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect: A) New firms to enter causing the market price of corn to rise B) Some firms to exit causing the market price of corn to fall C) Some firms to exit causing the market price of corn to rise D) New firms to enter causing the market price of corn to fall

C) Some firms to exit causing the market price of corn to rise

One defining characteristic of pure monopoly is that: A) The monopolist uses advertising B) The monopolist is a price taker C) The monopolist produces a product with no close substitutes D) There is relatively easy entry into the industry, but exit is difficult

C) The monopolist produces a product with no close substitutes

The representative firm in a purely competitive industry: A) Will always earn an economic profit in the long run B) Will always earn a profit in the short run C) Will earn zero economic profit in the long run D) May earn either an economic profit or a loss in the long run

C) Will earn zero economic profit in the long run

According to the text, the most important of the five factors which give rise to monopoly is A) government licenses. B) exclusive control over important inputs. C) economies of scale. D) network economies. E) patents.

C) economies of scale.

If a firm's demand curve falls below its AVC curve, then the firm should A) shutdown in the long-run. B) operate in the short run but not the long run. C) shut down now. D) set price = marginal cost.

C) shut down now.

Refer to the diagram. The vertical distance between ATC and AVC reflects: A) the law of diminishing returns. B) marginal cost at each level of output. C) the average fixed cost at each level of output. D) the presence of economies of scale.

C) the average fixed cost at each level of output.

Refer to the above graph for a monopolist in short-run equilibrium. This monopolist has total cost equal to area: A) 0CFQ B) CADF C) ADFC D) 0ADQ

D) 0ADQ

Refer to the diagram. The profit-maximizing level of output for this firm: A) is at point b. B) is at point c. C) is at point a. D) cannot be determined from the information given.

D) cannot be determined from the information given.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the data. Creamy Crisp's economic profit is: A) $94,000. B) $80,000. C) $150,000. D) $230,000.

A) $94,000.

In the diagram below, the profit maximizing price level is A) 4. B) 3. C) 1. D) 2.

A) 4.

Refer to the above graph. Which point is definitely not on the competitive firm's short-run supply curve? A) A B) B C) C D) D

A) A

Economic profits are: A) Equal to the difference between accounting profits and implicit costs B) Always larger than accounting profits C) The sum of accounting profits and implicit costs D) Equal to the difference between total revenues and implicit costs

A) Equal to the difference between accounting profits and implicit costs

Which of the following is a reason why individual firms under pure competition would not find it gainful to advertize their product? A) Firms produce a homogeneous product B) The market demand curve cannot be increased C) Firms do not make long-run profits D) The quantity of the product demanded is very large

A) Firms produce a homogeneous product

A profit maximizing monopolist sets output where A) MC = MR. B) MC = demand. C) MC = P. D) it depends on the average costs in each case

A) MC = MR.

Refer to the above graphs for a competitive market in the short run. Which of the following statements is true? A) The firm is experiencing economic losses B) The firm is making economic profits C) The firm will increase production D) The firm is breaking even

A) The firm is experiencing economic losses

Consider the purely competitive firm pictured above. At its short-run equilibrium point, the firm is earning: A) Zero economic profits B) Zero accounting profits C) Zero normal profits D) We can say nothing about this firm's profit or loss situation

A) Zero economic profits

Fixed cost is: A) any cost that does not change when the firm changes its output. B) the cost of producing one more unit of capital, for example, machinery. C) average cost multiplied by the firm's output. D) usually zero in the short run.

A) any cost that does not change when the firm changes its output.

To economists, the main difference between the short run and the long run is that: A) in the long run all resources are variable, while in the short run at least one resource is fixed. B) in the short run all resources are fixed, while in the long run all resources are variable. C) the law of diminishing returns applies in the long run, but not in the short run. D) fixed costs are more important to decision making in the long run than they are in the short run.

A) in the long run all resources are variable, while in the short run at least one resource is fixed.

Which idea is inconsistent with pure competition? A) Freedom of entry or exit for firms B) Product differentiation C) A large number of buyers and sellers D) Price-taking behavior

B) Product differentiation

Monopoly is characterized by A) a horizontal demand curve. B) a downward sloping demand curve. C) many close substitutes. D) no barriers to entry

B) a downward sloping demand curve.

Answer the question on the basis of the following cost data: Refer to the data. The average fixed cost of producing 3 units of output is: A) $7.40. B) $5.50. C) $8. D) $6.

C) $8.

Refer to the above graph. It shows the cost curves for a competitive firm. If the market price falls to $0.55, the optimal output rate is: A) 15 B) 20 C) 0 D) More than 20, but less than 35

C) 0

Cash expenditures a firm makes to pay for resources are called: A) Opportunity costs B) Normal profit C) Explicit costs D) Implicit costs

C) Explicit costs

Natural monopolies result from: A) Pricing strategies B) Control over an essential natural resource C) Extensive economies of scale in production D) Patents and copyrights

C) Extensive economies of scale in production

Refer to the above graph. It shows short-run cost curves for a competitive firm. At what minimum price would the firm be willing to product some output in the short run? A) P1 B) P2 C) P3 D) P4

C) P3

Marginal cost: A) is the difference between total cost and total variable cost. B) rises for a time, but then begins to decline when diminishing returns set in. C) equals both average variable cost and average total cost at their respective minimums. D) declines continuously as output increases.

C) equals both average variable cost and average total cost at their respective minimums.

The marginal revenue curve of a single price monopolist A) lies above the demand curve. B) lies along the demand curve. C) lies below the demand curve. D) is a horizontal line.

C) lies below the demand curve.

Price is taken to be a "given" by an individual firm selling in a purely competitive market because: A) There are no good substitutes for the firm's product B) The firm's demand curve is downward-sloping C) Product differentiation is reinforced by extensive advertising D) Each seller supplies a negligible fraction of total market

D) Each seller supplies a negligible fraction of total market

Which of the following is most likely to be a variable cost? A) Interest on business loans. B) Rental payments on IBM equipment. C) Real estate taxes. D) Fuel and power payments.

D) Fuel and power payments.

The profit maximizing output level for a perfectly competitive firm is always where A) MC = AVC. B) MC = ATC. C) P = AVC. D) P = MC.

D) P = MC.

If the market demand for the product increases, in the short run a purely competitive firm: A) Will experience no change in costs as it steps up production in response to the change in the market B) Will not change its output quantity because there are so many firms that the individual firm will not be affected by the change C) Can employ more inputs and increase the size of its plant, to respond to the change in the market D) Will earn higher profits or experience smaller losses as a result of the change in the market

D) Will earn higher profits or experience smaller losses as a result of the change in the market

The law of diminishing returns indicates that: A) the demand for goods produced by purely competitive industries is downsloping. B) beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction. C) because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped. D) as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

D) as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

To the economist, total cost includes: A) neither implicit nor explicit costs. B) implicit, but not explicit, costs. C) explicit, but not implicit, costs. D) explicit and implicit costs.

D) explicit and implicit costs.

Answer the question on the basis of the following output data for a firm. Assume that the amounts o all nonlabor resources are fixed. Number of Workers: 0, 1, 2, 3, 4, 5, 6 Units of Output: 0, 40, 90, 126, 150, 165, 180 Refer to the data. Diminishing marginal returns become evident with the addition of the: A) fourth worker. B) second worker. C) sixth worker. D) third worker.

D) third worker.