Econ 102 FINAL EXAM Review (Lessons 5-9) HW Answers

Refer to the data. The average total cost of producing 3 units of output is:

$16.

Refer to the data. The marginal revenue obtained from selling the third unit of output is:

$3

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are:

$5,000.

Refer to the data. The average fixed cost of producing 3 units of output is:

$8.

Refer to the diagram. At the profit-maximizing output, total revenue will be:

0AHE.

Refer to the diagram. At the profit-maximizing level of output, total revenue will be:

0AJE.

Refer to the diagram. At output level Q total cost is:

0BEQ + BCDE.

Refer to the diagram. At output level Q total variable cost is:

0BEQ.

Refer to the diagram. At the profit-maximizing level of output, total cost will be:

0BHE.

Refer to the data. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be:

3.

Refer to the short-run data. The profit-maximizing output for this firm is:

320 units.

Refer to the data. The average product (AP) when two units of labor are hired is:

9.

Which of the following is a short-run adjustment?

A local bakery hires two additional bakers.

Which of the following best expresses the law of diminishing returns?

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

Which of the following distinguishes the short run from the long run in pure competition?

Firms can enter and exit the market in the long run but not in the short run.

Which of the following is most likely to be an implicit cost for Company X?

Forgone rent from the building owned and used by Company X.

Which of the following is true concerning purely competitive industries?

In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

P = MC = minimum ATC.

Allocative efficiency is achieved when the production of a good occurs where:

P = MC.

In the short run, a purely competitive firm will always make an economic profit if:

P > ATC.

Which of the following will not hold true for a competitive firm in long-run equilibrium?

P equals AFC.

Which of the following is characteristic of a purely competitive seller's demand curve?

Price and marginal revenue are equal at all levels of output.

Which of the following is not a characteristic of pure competition?

Price strategies by firms.

In the short run:

TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.

What do economies of scale, the ownership of essential raw materials, and patents have in common?

They are all barriers to entry.

Which of the following holds true?

When AP is rising AVC is falling, and when AP is falling AVC is rising.

Refer to the diagram. At the profit-maximizing output, the firm will realize:

an economic profit of ABGH.

Refer to the diagram. At the profit-maximizing level of output, the firm will realize:

an economic profit of ABHJ.

A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing:

an economic profit that could be increased by producing more output.

The MR = MC rule:

applies both to pure monopoly and pure competition.

The MR = MC rule applies:

in both the short run and the long run.

The pure monopolist's demand curve is relatively elastic:

in the price range where marginal revenue is positive.

A pure monopolist should never produce in the:

inelastic segment of its demand curve because it can increase total revenue and reduce total cost by increasing price.

A decreasing-cost industry is one in which:

input prices fall or technology improves as the industry expands.

Refer to the diagram. At output level Q average fixed cost:

is measured by both QF and ED.

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation:

is realizing an economic profit of $40.

The nondiscriminating pure monopolist's demand curve:

is the industry demand curve.

If a purely competitive firm is maximizing economic profit:

it may or may not be maximizing per-unit profit.

If a purely competitive firm shuts down in the short run:

it will realize a loss equal to its total fixed costs.

If a pure monopolist is producing at that output where P = ATC, then:

its economic profits will be zero.

In the short run, the individual competitive firm's supply curve is that segment of the:

marginal cost curve lying above the average variable cost curve.

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating:

marginal revenue and marginal cost.

If a purely competitive firm is producing at some level less than the profit-maximizing output, then:

marginal revenue exceeds marginal cost.

Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will:

minimize its losses by producing in the short run.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then:

new firms will enter this market.

An industry comprised of four firms, each with about 25 percent of the total market for a product, is an example of:

oligopoly.

A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the:

price of the seventh unit is $11.

Refer to the data. If product price is $60, the firm will:

produce 6 units and realize a $100 economic profit.

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should:

produce because the resulting loss is less than its TFC.

If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by:

reducing output and raising price.

Long-run competitive equilibrium:

results in zero economic profits.

If marginal cost is:

rising, then average total cost could be either falling or rising.

Refer to the data. Marginal product becomes negative with the hiring of the __________ unit of labor.

seventh

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm:

should continue producing in the short run but leave the industry in the long run if the situation persists.

The diagram portrays:

the equilibrium position of a competitive firm in the long run.

The term productive efficiency refers to:

the production of a good at the lowest average total cost.

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's:

total cost is $270.

Accounting profits equal total revenue minus:

total explicit costs.

A firm reaches a break-even point (normal profit position) where:

total revenue and total cost are equal.

An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are:

underallocated because price exceeds marginal cost.

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:

will also be $5.

A pure monopolist:

will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

Refer to the diagram. At output level Q total fixed cost is:

BCDE.

Refer to the diagram. At the profit-maximizing output, total fixed cost is equal to:

BCFG.

Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth unit if its marginal cost is:

$.75 or less.

Refer to the data. The total variable cost of producing 5 units is:

$37.

Refer to the data. At the profit-maximizing output, the firm's total revenue is:

$48.

Refer to the diagram. At the profit-maximizing output, total variable cost is equal to:

0CFE.

Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?

AP continues to rise so long as TP is rising.

If a firm wanted to know how much it would save by producing one less unit of output, it would look to:

MC.

In the short run, which of the following statements is correct?

Total cost will exceed variable cost.

Which of the following is not correct?

Where total product is at a maximum, average product is also at a maximum.

In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs:

are $1,250.

The marginal revenue curve for a monopolist:

becomes negative when output increases beyond some particular level.

Refer to the diagram. By producing at output level Q:

both productive and allocative efficiency are achieved.

Marginal cost is the:

change in total cost that results from producing one more unit of output.

Total fixed cost (TFC):

does not change as total output increases or decreases.

The supply curve of a pure monopolist:

does not exist because prices are not "given" to a monopolist.

The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.

downsloping; perfectly elastic

Refer to the diagram. If this competitive firm produces output Q, it will:

earn a normal profit.

We would expect an industry to expand if firms in that industry are:

earning economic profits.

Refer to the data. Assuming total fixed costs equal to zero, the firm's:

economic profit is $16.

A constant-cost industry is one in which:

if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.

A natural monopoly occurs when:

long-run average costs decline continuously through the range of demand.

If in the short run a firm's total product is increasing, then its:

marginal product could be either increasing or decreasing.

Pure monopolists may obtain economic profits in the long run because:

of barriers to entry.

A purely competitive firm is precluded from making economic profits in the long run because:

of unimpeded entry to the industry.

When total product is increasing at an increasing rate, marginal product is:

positive and increasing.

When a purely competitive firm is in long-run equilibrium:

price equals marginal cost.

A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is:

producing less output than allocative efficiency requires.

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:

profits were zero and its economic losses were $500,000.

If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then:

the average variable cost of 9 units is $10.

In a purely competitive industry:

there may be economic profits in the short run but not in the long run.

Refer to the data. Diminishing returns begin to occur with the hiring of the _________ unit of labor.

third

Refer to the diagram. To maximize profit or minimize losses, this firm will produce:

E units at price A.