ECON 520 Test 2

Fixed costs are fixed with respect to changes in

Output

Consider the above diagram where a perfectly competitive firm faces a price of $40. The profitmaximizing output is

67

Short-run supply curves for perfectly competitive firms tend to be upward sloping because:

A and B are correct.

Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the:

A and C are correct.

Which of the following statements is true regarding the differences between economic and accounting costs?

Accounting costs include only explicit costs.

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.

Both I and II are false.

Use the following two statements to answer this question: I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output. II. The marginal cost of a given level of output is the slope of the line that is tangent to the variable cost curve at that level of output.

Both I and II are true.

Which of following is the best example of a homogeneous product?

Copper

In the long run, which of the following is considered a variable cost?

all of the above

Economies of scope refer to

multiproduct firms

Assume that a firm's production process is subject to increasing returns to scale over a broad range of outputs. Long-run average costs over this output will tend to

decline.

When a product transformation curve for a firm is bowed inward, there are ________ in production.

diseconomies of scope

According to the diagram below, where each isoquant's output level is marked to the right of the isoquant, production is characterized by

increasing returns to scale

Incremental cost is the same concept as ________ cost.

marginal

When an isocost line is just tangent to an isoquant, we know that

output is being produced at minimum cost

The cost-output elasticity equals 1.4. This implies that:

there are diseconomies of scale

If any of the assumptions of perfect competition are violated,

there may still be enough competition in the industry to make the model of perfect competition usable.

If managers do not choose to maximize profit, but pursue some other goal such as revenue maximization or growth,

they are more likely to become takeover targets of profit-maximizing firms.