Econ 102 Yang - Final
Suppose a monopoly pharmaceutical company produces a drug and sells 100 prescriptions for $100 each. In order to sell 101 prescriptions, the monopolist must lower the price to $99 per prescription. The marginal revenue of the 101st prescription is:
$-1
The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. The total cost to produce 50 cookies is
$20
A monopolist can sell 3,000 units at a price of $48. Lowering price by $3 raises the quantity demanded by 400 units. What is the change in total revenue that results from this price change?
$9,000
Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high.
(i) and (ii) only
In a perfectly competitive market economy, business failures can benefit society by causing:
A reallocation of resources to better uses.
Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the average product of labor?
AP = 5K
The marginal cost curve intersects the minimum of the curve representing:
ATC
The entry of additional firms into a market, ceteris paribus:
All of other choices: Shifts the market supply curve to the right. Reduces the equilibrium price. Forces the typical producer to reduce output.
What happens in a perfectly competitive industry when economic profit is greater than zero?
All other choices: Existing firms may get larger. New firms may enter the industry. Firms may move along their LRAC curves to new outputs. There may be pressure on prices to fall.
Profit:
All other choices: Is the difference between total revenue and total cost. Is the "residual" that the owners of a business receive. Motivates people to own and operate a business.
Technological improvements cause:
All other choices: ATC to shift down. MC to shift down. Output to increase.
Which of the following characterizes a competitive market?
All the firms sell at the equilibrium price for the market
Explicit costs:
Are the sum of actual monetary payments made for resources used to produce a good.
Implicit costs:
Are the value of resources used to produce a good but for which no monetary payment is actually made.
If a perfectly competitive firm wanted to maximize its total revenues, it would produce:
As much as it is capable of producing.
Monopolists set prices:
At the output where marginal revenue equals marginal cost.
In a competitive market, economic profits will:
Attract profit-maximizing entrepreneurs
The marginal revenue of a monopolist is:
Below price.
If a perfectly competitive firm can sell 200 computers at $700 each, in order to sell one more computer, the firm:
Can sell the 201st computer at $700
In making a production decision, an entrepreneur:
Decides the short-run rate of output.
Which of the following is a barrier to entry in a monopoly market?
Difficulty in obtaining resources
Every point on the production-possibilities curve is considered to be:
Efficient.
For the perfectly competitive firm, the marginal revenue is always:
Equal to the market price.
As new firms enter the market and market supply increases:
Equilibrium market price decreases.
In defining economic costs, economists recognize:
Explicit and implicit costs while accountants recognize only explicit costs.
Use the following statements to answer this question: I. An increase in the firm's fixed costs will also shift the firm's short-run supply curve to the left. II. An increase in the firm's fixed costs will not shift the firm's short-run supply curve to the right or left, but it may alter how much of the marginal cost curve is used to form the short-run supply curve.
I and II are false
Which of the following statement is true?
Increasing returns to scale cause economies of scale.
Which of the following is characteristic of the monopoly firm?
It produces the quantity of output at which MR = MC
Which of the following contributes to an upward-sloping long-run average total cost curve?
Long-run marginal cost above long-run average total cost law of diminishing returns
Total revenue of a competitive firm equals
MR × Q
Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit?
Marginal revenue increases but marginal cost remains the same
In monopoly and perfect competition, a firm should expand production when:
Marginal revenue is above marginal cost.
In which of the following cases would a firm exit from a market?
P < long-run ATC
A firm should shut down production when:
P < minimum AVC.
In which of the following cases would entry and exit cease?
P = long-run ATC
Total revenue for a firm is equal to:
P × Q
To maximize profits, a competitive firm will seek to expand output until:
Price equals marginal cost.
Which of the following situations is NOT possible?
SAC is increasing but LAC is decreasing for some output levels.
For a perfectly competitive firm in the short run, the profit maximization rule requires:
That price equal marginal cost.
Which of the following statements is true?Use the following two statements to answer this question: I. The average cost curve and the average variable cost curve reach their minima at the same level of output. II. The average cost curve and the marginal cost curve reach their minima at the same level of output.
The MC curve crosses the ATC and AVC curves at their lowest points.
Which of the following statements about a perfectly competitive firm is necessarily false?
There are few substitutes for the firm's product.
If the perfectly competitive firm is producing an output level at which price equals marginal cost, it is
There is not enough information to answer the question
Firm X is producing the quantity of output at which marginal revenue equals marginal cost. It is
There is not enough information to answer the question.
Economic losses are a signal to producers that:
They are not using society's scarce resources in the best way.
Which of the following is characteristic of a perfectly competitive market?
Zero economic profit in the long run.
Which of the following is not a characteristic of perfect competition?
a heterogeneous product
The short run is
a period of time in which some inputs are fixed.
A right granted to a firm by government that permits the firm to provide a particular good or service and excludes others from doing the same is called
a public franchise
When marginal cost exceeds average total cost,
average total cost must be rising.
If a monopolist is earning profits, then price is greater than
average total cost.
If a perfectly competitive firm is producing a rate of output for which price exceeds MC, then the firm:
can increase profit by increasing output.
When a firm earns zero economic profit, it has
definitely earned an accounting profit if implicit costs are positive.
In the theory of perfect competition, the market demand curve is __________ and the firm's demand curve is __________.
downward sloping; perfectly elastic
Suppose your firm has a U-shaped average variable cost curve and operates in a perfectly competitive market. If you produce where the product price (marginal revenue) equals average variable cost (on the upward sloping portion of the AVC curve), then your output will:
exceed the profit-maximizing level of output.
Which of the following is not an example of a legal barrier to entry?
exclusive ownership of raw materials
In the theory of perfect competition, the assumptions of many buyers and sellers, the production of a homogeneous product, and the possession of all relevant information by buyers and sellers imply that the perfectly competitive firm
has a demand curve that is perfectly elastic
Under what conditions would a perfectly competitive firm sell a product at a price less than its ATC?
if P>AVC and we are discussing the short run
A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function Q = L^0.5*M^0.75, where "^" is the exponential operator. This production function exhibits
increasing returns to scale
If a factory has a short-run capacity constraint (e.g., an auto plant can only produce 800 cars per day at maximum capacity), the marginal cost of production becomes ________ at the capacity constraint.
infinite
In the short run, a perfectly competitive firm earning negative economic profit
is on the upward-sloping portion of its AVC.
Which of the following is a short-run decision?
is on the upward-sloping portion of its AVC.
The supply curve for a competitive firm is
its MC curve above the minimum point of the AVC curve.
The perfectly competitive firm will shut down in the short run if price is
less than average variable cost
The average-marginal rule states that if the marginal magnitude is
less than the average magnitude, the average magnitude falls
When a perfectly competitive firm takes losses, it follows that price is
necessarily below ATC
A firm never operates
on the downward-sloping portion of its AVC curve
The demand for an individual competitive firm is
perfectly elastic
Competition is legally prohibited when barriers to entry take the form of
public franchises
Which of the following production functions exhibits constant returns to scale?
q = K + L
Equilibrium price is $8 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 150 units of output. At 150 units, ATC is $11, and AVC is $10. The best policy for this firm is to __________ in the short run. Also, total fixed cost equals __________ and total variable cost equals __________ for this firm.
shut down; $150; $1,500
The short run is the time period in which the amount(s) of
some inputs are fixed
If the marginal cost (MC) curve is rising and is above the average fixed cost (AFC) curve, then
the AFC curve is declining, although the MC curve has nothing to do with this.
If the average variable cost curve is falling,
the MC curve must be below it.
If the law of diminishing returns applies to labor then
the MPP of labor will eventually fall
When the output level increases from Q1 to Q2
the change in ATC less than that in AVC.
If the market price for a competitive firm's output doubles then
the marginal revenue doubles
Which of the following is probably the worst real-world example of a perfectly competitive market?
the market for automobiles
The demand curve facing a perfectly competitive firm is
the same as its average revenue curve and its marginal revenue curve.
Marginal revenue, graphically, is
the slope of the total revenue curve at a given point