ECON 101 EXAM 3 Study Test

The average variable cost of producing 3 units of output is You Answered $10. $9.33. $38. $12.67.

$9.33.

Suppose that you could either prepare your own tax return in 15 hours or hire a tax specialist to prepare it for you in 2 hours. You value your time at $11 an hour; the tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is $110. $165. $40. $55.

$110

The marginal cost of producing the fourth unit of output is $25. $10. $15. $98.

$15.

Answer the next question on the basis of the following demand and cost data for a specific firm. Demand Data Cost Data (1) Price (2) Price (3) Quantity Total Output Total Cost $50 $35 2 2 $45 45 30 3 3 55 40 25 4 4 70 35 20 5 5 90 30 15 6 6 115 25 10 7 7 145 20 5 8 8 180 Suppose that entry of firms into the industry changes this firm's demand schedule from columns 1 and 3 to columns 2 and 3. Maximum economic profit will decrease to $25. $70. $35. zero.

$35.

Use the table below to answer the next question for a purely competitive firm. Output Total Revenue Total Cost 0 $ 0 $ 50 1 40 74 2 80 94 3 120 117 4 160 142 5 200 172 The market price of the product in the short run is $80. $120. $160. $40.

$40.

If you know that with 8 units of output average fixed cost is $12.50 and average variable cost is $81.25, then total cost at this output level is $97.78. $93.75. $750. $880.

$750.

Use the following table, which shows the demand schedule facing Nina, a monopolist selling baskets, to answer the next question. Price Number of Baskets Sold $20 3 18 5 16 7 14 10 12 15 10 30 What is the change in total revenue if she raises the price from $10 to $12? +$120 +$300 -$120 -$300

-$120

The average product of input 5 is 8. 50. 5. 10.

10

The firm's marginal costs are equal to average total cost somewhere between units 2 and 3. 3 and 4. 4 and 5. 1 and 2.

3 and 4.

Given the data in the table below, what is the short-run profit-maximizing level of output for the firm? Output Total Revenue Total Cost 1 $4 $ 2 2 8 3 3 12 6 4 16 9 5 20 14 4 units 3 units 2 units 5 units

4 units

Plant sizes get larger as you move from ATC-1 to ATC-4. In the long run, the firm should use plant size ATC-3 for what level of output? 5,000 to 5,500 Less than 3,000 4,000 to 4,500 3,000 to 3,500

4,000 to 4,500

If the market price for the firm's product is $180, the competitive firm will produce 8 units and earn economic profits of $278. 6 units and earn economic profits of $120. 7 units and earn economic profits of $238. 5 units and earn economic profits of $100.

7 units and earn economic profits of $238.

Which point is definitely not on the competitive firm's short-run supply curve? C A B D

A

Total fixed cost at output level Q2 is measured by DE. CD. 0B. AC.

CD

TFC = Total Fixed Cost MC = Marginal Cost TVC = Total Variable Cost Q = Quantity of Output P = Product Price Select the marginal cost.

Change in TVC / Change in Q

When the firm is in equilibrium in the short run, the amount of economic profit per unit is DE. DH. DB. EH.

EH.

Suppose that TC = $550, TVC = $500, and MC = $100. If the firm produces 10 units of output, then MC > AVC. AFC = AVC. AVC = MC. AVC > MC.

MC > AVC.

If curve (2) represents ATC and line (3) represents demand, then curve (1) and line (4) would be TC and TR, respectively. AVC and MR, respectively. MC and MR, respectively. MC and TR, respectively.

MC and MR, respectively.

Use the following graph for a pure monopoly to answer the next question. If the government regulated the monopoly and made it produce the level of output that would achieve allocative efficiency, what price and quantity levels would we observe in the short run? P2 and Q3 P4 and Q1 P1 and Q1 P3 and Q2

P2 and Q3

At what price would the firm face the same profit or loss whether it chooses to produce or not? P1 P4 P2 P3

P3

Use the following graph showing the revenue curves for a monopolist to answer the next question. What price should be charged in order to maximize total revenue? P2 P1 P4 P3

P3

What will happen in the long run to industry supply and the equilibrium price P of the product? S will increase, P will decrease. S will increase, P will increase. S will decrease, P will increase. S will decrease, P will decrease.

S will decrease, P will increase.

Use the following graphs for a competitive market in the short run to answer the next question. Which of the following statements is true? The firm is making economic profits. The firm will increase production. The firm is breaking even. The firm is experiencing economic losses.

The firm is experiencing economic losses.

A firm doubles the quantity of all resources it employs, and as a result, output doubles. Which of the following is correct? The example is for the short run rather than the long run. The long-run average total cost curve is flat. There are increasing returns to scale. The law of diminishing returns is proven wrong.

The long-run average total cost curve is flat.

The monopolistically competitive seller's demand curve will become more elastic with more significant barriers to entry. a smaller number of competitors. a larger number of competitors. a greater degree of product differentiation.

a larger number of competitors.

If you operated a small bakery, which of the following would be a variable cost in the short run? baking supplies (flour, salt, etc.) interest on business loans annual lease payment for use of the building baking ovens

baking supplies (flour, salt, etc.)

Which area in the graph represents the amount of economic loss for the firm? acdf 0beg abef bcde

bcde

Mutual interdependence means that a firm's behavior is affected by other firms' actions. costs are affected by other firms' costs. profits are affected by other firms' entry or exit. revenues are affected by other firms' demand for its product.

behavior is affected by other firms' actions.

In a purely competitive industry, each firm determines its own price. engages in various forms of nonprice competition. produces a differentiated product. can easily enter or exit the industry.

can easily enter or exit the industry.

Barriers to entry are typically the result of wrongdoing on the part of a firm. can result from government regulation. usually result in pure competition. exist in economic theory but not in the real world.

can result from government regulation.

In the short run, total output in an industry * may be altered by varying the size of plant and equipment that now exist in the industry. * can vary as the result of using a fixed amount of plant and equipment more or less intensively. * is absolutely fixed. * can vary as the result of new firms entering or leaving the industry.

can vary as the result of using a fixed amount of plant and equipment more or less intensively.

Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will decide to increase advertising expenditures even if it means a reduction in profits. make no changes in advertising expenditures because advertising is effective in the short run, but not the long run. increase the price of the product to improve profits and then increase advertising expenditures. pursue a strategy to reduce advertising expenditures to maintain profits.

decide to increase advertising expenditures even if it means a reduction in profits.

The larger the diameter of a natural gas pipeline is, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of one reason for economies of scale. diminishing marginal returns. diminishing returns to scale. increasing marginal cost.

economies of scale.

In long-run equilibrium, a purely competitive firm will operate where price is greater than MR but equal to MC and minimum ATC. greater than MC and minimum ATC, but equal to MR. greater than MR and MC, but equal to minimum ATC. equal to MR, MC, and minimum ATC.

equal to MR, MC, and minimum ATC.

In the long run, the representative firm in monopolistic competition tends to have economic profits a perfectly elastic demand curve. excess capacity. no product differentiation.

excess capacity.

"The bigger the volume, the lower the cost, and we pass these savings on to you" is a familiar slogan. Its idea is illustrated in which of the above graphs? graph D graph C graph A graph B

graph A

Suppose that a monopolist calculates that at its present output level, marginal revenue is $1 and marginal cost is $2. He or she could maximize profits or minimize losses by decreasing price and increasing output. increasing price and decreasing output. decreasing price and leaving output unchanged. decreasing output and leaving price unchanged.

increasing price and decreasing output.

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

it can sell all it wants to at the market price.

If a price-discriminating monopolist sells the same product in two markets but charges a higher price in market X and a lower price in market Y, the pricing difference indicates that demand is the same in both market X and Y. less elastic in market Y than market X. less elastic in market X than market Y. more elastic in market X than market Y.

less elastic in market X than market Y.

When compared with the purely competitive industry with identical costs of production, a monopolist will produce more output and charge the same price. more output and charge a higher price. less output and charge a higher price. less output and charge the same price.

less output and charge a higher price.

A monopolistically competitive industry is like a purely competitive industry in that firms in both industries face a horizontal demand curve. each industry produces a standardized product. nonprice competition is a feature in both industries. neither industry has significant barriers to entry.

neither industry has significant barriers to entry.

In which set of market models are there the most significant barriers to entry? oligopoly and monopolistic competition oligopoly and pure monopoly monopolistic competition and pure monopoly monopolistic competition and pure competition

oligopoly and pure monopoly

Which idea is inconsistent with pure competition? a large number of buyers and sellers product differentiation price-taking behavior freedom of entry or exit for firms

product differentiation

Which of the following is not a barrier to entry in an industry? profit maximization strategic pricing economies of scale government licensing

profit maximization

Answer the next question on the basis of the following demand and cost data for a pure monopolist. Demand Data Cost Data Price Quantity Demanded Output Total Cost $2.75 3 3 $4.00 2.50 4 4 4.50 2.25 5 5 4.75 2.00 6 6 5.75 1.75 7 7 7.75 At equilibrium, the monopolist will realize a loss of $7.25. profit of $10. profit of $6.50. profit of $4.50.

profit of $6.50.

If the demand curve faced by an individual firm is downward-sloping, the firm cannot be a(n) purely competitive firm. monopolistically competitive firm. monopoly firm. oligopolistic firm.

purely competitive firm.

In which industry is monopolistic competition most likely to be found? retail trade agriculture mining utilities

retail trade

The short-run supply curve for a competitive firm is the entire MC curve. segment of the MC curve lying above the AVC curve. segment of the AVC curve lying to the right of the MC curve. segment of the MC curve lying below the AVC curve.

segment of the MC curve lying above the AVC curve.

Economic profits are equal to total revenues minus the opportunity costs of all inputs. gross profit minus selling and operating expenses. total revenues minus fixed costs. total revenues minus the costs of raw materials.

total revenues minus the opportunity costs of all inputs

Use the following graph showing the average total cost curve for a purely competitive firm to answer the next question. At the long-run equilibrium level of output, this firm's economic profit is $400. is $200. cannot be determined from the information provided. zero.

zero