ECO2023 Exam 3

In a price-taker market, profits are Group of answer choices the result of consumers being charged arbitrarily high prices. a reward for creating value. the result of barriers to entry into the market. a signal that fewer resources are needed in a market.

a reward for creating value.

A downward-sloping portion of a long-run average total cost curve is the result of Group of answer choices economies of scale. diseconomies of scale. diminishing returns. the existence of fixed resources.

economies of scale.

In the short run, a firm will eventually experience rising average total costs because of Group of answer choices economies of scale. diseconomies of scale. the law of supply. the law of diminishing returns.

the law of diminishing returns.

The price-taker firm should discontinue production immediately if Group of answer choices the market price exceeds the firm's average total costs. the market price is less than the firm's average variable costs. the market price is less than the firm's average total costs but greater than its average variable cost. its accounting statement indicates that it is suffering losses.

the market price is less than the firm's average variable costs.

The owners of a firm are earning economic profit if Group of answer choices return on their capital is lower than the opportunity cost of employing that capital in their industry. their total revenues exceed the monetary payments to labor and other resources in the long run after all plant size adjustments are made. price exceeds average variable costs at the shutdown point. they are earning a return on their capital that is higher than what can generally be earned in other markets.

they are earning a return on their capital that is higher than what can generally be earned in other markets.

Competition as a dynamic process implies that individual firms in a market Group of answer choices seek to utilize a variety of techniques, such as product, style, and convenience of location, to win the dollar vote of consumers, but they never use price to compete. use price competition as well as other forms of competition to gain the dollar votes of consumers. produce a homogeneous product. cooperate, attempting to establish a price and output structure so each firm can survive and continue to serve the consumer.

use price competition as well as other forms of competition to gain the dollar votes of consumers.

A homeowner will be away from her house for six months. The monthly mortgage payment on the house is $1,000. The owner's cost of utilities is $100 if the house is unoccupied but $300 if the owner rents it out. If the owner wishes to minimize her losses from the house while away, she should rent the house for as much as the market will bear, as long as monthly rent is greater than which of the following? (Assume wear and tear to be zero regardless of whether the house is occupied.) Group of answer choices $200 $300 $1,100 $1,300

$200

Use the table below to answer the following question. Units of Output Total Fixed Cost Total Variable (dollars) (dollars) Cost 1 150 50 2 150 96 3 150 140 4 150 180 What is the marginal cost of producing the third unit of output? Group of answer choices $20 $44 $70 This cannot be determined from the data.

$44

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be Group of answer choices $40. $60. $6,000. $8,000.

$6,000.

Liam notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost (MC) is $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day? Group of answer choices $5 $7 $8 $15

$7

As output is expanded, if marginal cost (MC) is less than average total cost (ATC), Group of answer choices ATC must be at its minimum. ATC must be at its maximum. ATC must be decreasing. the firm must be earning economic profit.

ATC must be at its maximum.

There are 1,000 identical firms in a price-taker industry. In the short run, the total revenues of each firm are less than total costs. What will happen in the long run? Group of answer choices Nothing, because each firm is already maximizing its profits. Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business (cover its variable costs). Additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease. Firms will exit the market, and the product price will rise.

Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business (cover its variable costs).

Which of the following would cause a firm's cost curves to shift upward? Group of answer choices A reduction in resource prices. A decrease in taxes. An improvement in technology. An increase in government regulations.

An increase in government regulations.

Which of the following would increase a firm's average total costs? Group of answer choices Economies of scale. An increase in input prices. An improvement in technology. An increase in demand for the firm's product.

An increase in input prices.

A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do in order to increase profit? Group of answer choices Shut down. Increase output. Stay at its current output. Decrease output. Decrease price.

Decrease output.

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected? Group of answer choices The per-unit costs of production of the firms adopting the technology would increase. In the short run, economic profits would be earned by the earliest firms adopting the technology. Product price would immediately fall to the minimum average total cost of the firms quickly adopting the technology, thus retarding the rate at which firms enter the industry. Producers who adopt the technology will have short-run economic losses.

In the short run, economic profits would be earned by the earliest firms adopting the technology.

A fruit packing plant usually shuts down for three months each year. During that period, what happens to its costs? Group of answer choices Its fixed costs are greater than zero. Its variable costs are greater than zero. Its total costs are zero. Its fixed costs are zero.

Its fixed costs are greater than zero.

Which of the following provides the best explanation for diseconomies of scale? Group of answer choices The firm is too small to take advantage of specialization. Large management structures may be bureaucratic and inefficient. If there are too many employees, the work place becomes crowded and people become less productive. Average fixed costs are rising.

Large management structures may be bureaucratic and inefficient.

Which of the following must be true if average total costs are rising? Group of answer choices Average fixed costs must be rising. Total fixed costs must be rising. Average variable costs must be falling. Marginal costs must be greater than average total costs.

Marginal costs must be greater than average total costs.

When would sunk costs be irrelevant for current decision making? Group of answer choices When the sunk costs are computed using accounting methods. When the sunk costs are greater than variable costs. When the sunk costs have been incurred only a short time ago. Sunk cost are always irrelevant when making current decisions.

Sunk cost are always irrelevant when making current decisions.

Which of the following about costs is true? Group of answer choices The difference between the ATC and AVC curves will decline as output expands. The AFC will remain constant as output increases. If ATC is increasing, then AVC must be greater than ATC. Implicit costs and fixed costs are always the same.

The difference between the ATC and AVC curves will decline as output expands.

Suppose the equilibrium price in a competitive price-taker market is $10 and a firm in the industry charges $9. Which of the following is true? Group of answer choices The firm will not be able to sell any output. The firm will sell less output than its competitors. The firm will make more profit than it could at the $10 price. The firm will make less profit than it could at the $10 price.

The firm will make less profit than it could at the $10 price.

Which of the following is a primary difference between price takers and price searchers that operate in markets with low barriers to entry? Group of answer choices The price searchers will maximize profits in the short run, but price takers will not. Price takers can only maximize profits in the long run. The price searchers will have to search for the price, while price takers will have to take the price determined in the market. The price searchers will be able to earn profit in the long run, but the price takers will not. The price searchers may be able to earn profit in the short run, but the price takers will not be able to do so.

The price searchers will have to search for the price, while price takers will have to take the price determined in the market.

If you paid $100 for a truckload of cabbage on Monday, how much should you be willing to sell it for on Friday, the day before it spoils? Group of answer choices $100. $100 plus normal accounting profit. $50 because it has lost value since Monday. Whatever you can get for it.

Whatever you can get for it.

Which of the following about costs is always true? Group of answer choices When marginal costs are less than average total costs, average total costs will be decreasing. When average fixed costs are falling, marginal costs must be less than average fixed costs. When average fixed costs are rising, marginal costs must be greater than average total costs. When marginal costs are greater than average total costs, average total costs will be decreasing.

When marginal costs are less than average total costs, average total costs will be decreasing.

For most firms, the major difference between accounting profit and economic profit is that Group of answer choices explicit and implicit costs are included in the accounting profit while only explicit costs are included in economic profit. accounting profit omits the salaries of managers, and therefore, it is generally greater than economic profit. accounting profit is based on opportunity cost, whereas economic profit is based on market transactions. accounting profit does not consider the opportunity cost of the firm's equity capital and, therefore, generally overstates economic profit.

accounting profit does not consider the opportunity cost of the firm's equity capital and, therefore, generally overstates economic profit.

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because Group of answer choices larger firms always have lower per-unit costs than smaller firms. at small output rates, average fixed costs (AFC) will be high, while at large output rates, marginal cost (MC) will be high. diminishing returns will be present when output is small, while high AFC will push average total cost to high levels when output is large. diseconomies of scale will be present at both small and large output rates.

at small output rates, average fixed costs (AFC) will be high, while at large output rates, marginal cost (MC) will be high.

Economies of scale imply that within some range a firm can increase the size of operation and Group of answer choices total cost will decrease. fixed cost will decrease. average total cost will decrease. average total cost will increase. average variable cost will decrease.

average total cost will decrease.

If price is above average variable cost and below average total cost, a profit-maximizing price taker should Group of answer choices immediately shut down; failing to do so is contrary to the idea of profit maximization in a competitive market. continue producing as long as it expects the market price to rise above average total cost in the near future. attempt to push price upward by slowly reducing output. cut price so more units can be sold.

continue producing as long as it expects the market price to rise above average total cost in the near future.v

The exit of existing firms from a competitive market will Group of answer choices increase market supply and increase market prices. increase market supply and decrease market prices. decrease market supply and increase market prices. decrease market supply and decrease market prices.

decrease market supply and increase market prices.

When new firms have an incentive to enter a competitive price-taker market, their entry will Group of answer choices increase the price of the product. drive down profits of existing firms in the market. shift the market supply curve to the left. increase demand for the product.

drive down profits of existing firms in the market.

When new firms enter a competitive price-taker market, Group of answer choices economic profits of existing firms will continue to be zero. entering firms will earn zero economic profit upon entry into the market. existing firms may see their costs rise as more firms compete for limited resources. prices will rise as existing firms raise prices to keep new firms out of the market.

existing firms may see their costs rise as more firms compete for limited resources.

In a competitive price-taker market, the actions of any single buyer or seller will Group of answer choices have a negligible impact on the market price. have little effect on overall production but will ultimately change final product price. cause a noticeable change in overall production and a change in final product price. adversely affect the profitability of more than one firm in the market.

have a negligible impact on the market price.

If a firm competing in a price-taker market seeks to maximize profit, the firm should Group of answer choices increase output whenever marginal cost is less than average total cost. increase output whenever marginal revenue is less than marginal cost. choose the output where per-unit profit is greatest. increase output whenever price exceeds marginal cost.

increase output whenever price exceeds marginal cost.

When an economist states that a firm is earning zero economic profit, this statement implies that the firm Group of answer choices will be forced out of business unless market conditions change. is doing as well as it could in any other line of business. is earning a zero rate of return on its assets. could earn a higher rate of return in other industries.

is doing as well as it could in any other line of business.

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because Group of answer choices it would find it too difficult to exit from the industry in the long run. accounting profit would be negative. it is covering all costs, including the opportunity cost of capital and labor. its sunk costs would prevent it from leaving the industry.

it is covering all costs, including the opportunity cost of capital and labor.

If a firm has a U-shaped long-run average cost curve, Group of answer choices its fixed cost rises as output rises. it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production. it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production. the firm can maximize its output by operating at the point of minimum long-run average cost.

it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production.

If long-run equilibrium is present in a competitive market, the typical firm in the market will be Group of answer choices making economic losses. making zero economic profit. making economic profit. making a rate of return that is higher than the rate earned in other industries. both c and d are correct.

making zero economic profit.

A price-taker firm will tend to expand its output so long as its Group of answer choices marginal revenue is positive. marginal revenue is greater than the market price. marginal revenue is less than the market price. marginal cost is less than the market price.

marginal cost is less than the market price.

A local doughnut shop produces about 600 dozen doughnuts daily. If flour prices increase 20 percent Group of answer choices only marginal cost will shift up. only marginal cost and average total cost will shift up. marginal cost, average variable cost, and average total cost will shift up. marginal cost, average total cost, and average fixed cost will shift up.

marginal cost, average variable cost, and average total cost will shift up.

The most important implicit cost generally omitted from the accounting statement of a firm is the Group of answer choices rental cost of machinery. cost of compliance with government regulations. opportunity cost of the equity capital invested by the owners. accounting cost incurred as the result of tax compliance.

opportunity cost of the equity capital invested by the owners.

The costs of a firm indicate the desire of consumers for Group of answer choices the product produced by the firm. other goods that might have been produced with the same resources. goods that can be easily substituted for the good produced by the firm. goods that are complementary with the good produced by the firm.

other goods that might have been produced with the same resources.

If profit-seeking entrepreneurs are going to be successful, they must Group of answer choices produce a product that the consumers value more than the resources required for its production. produce the product more cheaply than their rivals regardless of quality. maximize the salaries of high-level management so they will be able to attract people who will work hard. charge a higher price than their competitors so they can make economic profits in the long run.

produce a product that the consumers value more than the resources required for its production.

If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should Group of answer choices go out of business immediately, because no firm should continue to operate if it is losing money; doing so is contrary to the idea of profit maximization. go out of business as soon as the summer is over; losses should never be tolerated. operate during all months of the year as long as its profits during the summer exceed its losses during the winter. shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs) during the winter shutdown period.

shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs) during the winter shutdown period.

Suppose a typical firm in a particular industry is making positive economic profits. These economic profits Group of answer choices reflect a waste of society's scarce resources and reflect inefficient production. signal owners of factors of production to move their resources out of that industry. imply that accounting costs are greater than economic costs in this industry. signal owners of factors of production to move resources into this industry.

signal owners of factors of production to move resources into this industry.

In a price-taker market, economic losses indicate that Group of answer choices some firms are using unfair tactics to harm others. some firms have miscalculated, producing goods that are less valuable than the resources used to make them. the situation is normal and firms need to make no adjustments. the firms in the industry are not minimizing their cost; they should expand output in order to fully realize the economies of scale in the industry.

some firms have miscalculated, producing goods that are less valuable than the resources used to make them.

When making choices, suppliers should not allow sunk costs to directly affect their current decisions because Group of answer choices sunk costs do not reflect foregone opportunities accompanying current choices. sunk costs will not influence the accounting costs of a firm. sunk costs influence the demand for products, not the supply. past choices fail to provide any information relevant to current decision making.

sunk costs do not reflect foregone opportunities accompanying current choices.

The relationship between average and marginal variables can be stated as follows: if the marginal is greater than the average, Group of answer choices the average is increasing. the average is decreasing. the marginal is increasing. the marginal is decreasing. the total is decreasing.

the average is increasing.

If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then Group of answer choices the law of diminishing returns is in effect. long-run average costs must be decreasing. the firm is experiencing diseconomies of scale. the firm should increase production. the firm is experiencing constant returns to scale.

the firm is experiencing diseconomies of scale.

Competition as a dynamic process implies that the individual firms in an industry Group of answer choices face a perfectly elastic demand curve. utilize a variety of techniques, such as product, style, and price, to win the dollar votes of consumers. produce a homogeneous product. cooperate, attempting to establish a price and output structure so each firm can survive and continue to serve the consumer.

utilize a variety of techniques, such as product, style, and price, to win the dollar votes of consumers.

If a profit-maximizing firm shuts down in the short run, it must be true that before the shutdown, at all positive output levels, Group of answer choices average total cost was less than average variable cost. fixed cost was greater than total revenue. variable cost was greater than total revenue. profit was zero. total cost plus total revenue was less than profit.

variable cost was greater than total revenue.