ECON Problem Set 3 Practice

What is the total cost at the profit-maximizing output level?

$1000

What is the profit-maximizing price for the firm?

$12

Calculate her economic costs

$126,000

What is the total revenue at the profit-maximizing output level?

$1600

What price will the monopolist charge?

$32

What is the total cost at the profit-maximizing output level?

$450

What is the total revenue at the profit-maximizing output level?

$540

What is the monopolist's profit?

$600

Joan quit her job as a home health aide earning $50,000 per year to start her own business. To save money she operates her business out of a small building she owns which, until she started her own business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which earned a market interest rate of 5% per year) in her business. Calculate her explicit (accounting) costs.

$65,000

What is the profit per unit (average profit) at the profit-maximizing output level?

12

What is the profit-maximizing quantity for the firm?

45

What is the profit-maximizing quantity?

50

What is the profit?

90

Which of the following is a fixed cost? A. Payments to hire a security worker to guard the gate to the factory around the clock. B. Wages to hire assembly line workers. C. Payments to an electric utility. D. Costs of raw materials.

A. Payments to hire a security worker to guard the gate to the factory around the clock.

Consider two industries, industry Q and industry Z. In industry Q there are 10 companies, each with a market share of 10% of total sales. In industry Z, there are eight companies. One company has a 65% market share and each of the other seven firms has a market share of 5%. Calculate the Herfindahl-Hirschman Index (HHI) for each industry. A. Q = 1,000; Z = 4,400 B. Q = 100; Z = 70 C. Q = 70; Z = 100 D. Q = 4,400; Z = 1,000

A. Q = 1,000; Z = 4,400

True, False, or Uncertain: Ceteris paribus, an increase in the number of firms in the market will lower the average revenue for the individual seller.

A. True.

After hearing the case, the Supreme Court granted the trademark in 2019. Which of the following statements is true? A. The trademark will expire in approximately 20 years after the Supreme Court ruling. B. Trademarks (generally) never expire. C. Trademarks are for a limited term lasting for 70 years after Erik Brunetti's death. D. Trademarks are for a limited term lasting for 20 years after Erik Brunetti's death.

B. Trademarks (generally) never expire.

Calculate the owner's average fixed cost per day when producing 50 widgets using two workers. A. $2.00 B. $2.40 C. $4.40 D. $6.80

B. $2.40

Julia can sell seven widgets at a price of $11,000. If the price of widgets is lowered to $10,500, then she will sell eight widgets. What is the marginal revenue of the sixth widget? A. $500 B. $7,000 C. $10,000 D. $21,500

B. $7,000

What is the average product of labor when the orchard employs five workers? A. 270 bushels B. 54 bushels C. 40 bushels D. 8 bushels

B. 54 bushels

If the 117th unit of output has a marginal cost of $79.13 and the average cost of producing 116 units of output is $80.03, what will happen to the average cost of production if the 117th unit is produced, ceteris paribus? A. Average cost increases as more is produced. B. Average cost will fall. C. Average cost could increase or decrease depending on what happens to variable cost. D. Average cost could increase or decrease depending on what happens to fixed cost.

B. Average cost will fall.

A characteristic of the long-run is A. there are fixed inputs. B. all inputs can be varied. C. plant capacity cannot be increased or decreased. D. there are both fixed and variable inputs.

B. all inputs can be varied.

If a widget manufacturing firm's long-run average cost (LRAC) curve shows it can produce 12,400 widgets at an average cost of $2.74 and 16,320 widgets at an average cost of $1.92, this indicates A. diminishing returns. B. economies of scale. C. diseconomies of scale. D. the law of supply.

B. economies of scale.

In 2012 the Federal Trade Commission (FTC) approved the merger of Facebook and Instagram, both in the social media industry. This is an example of A. collusion. B. horizontal integration. C. network externalities. D. vertical integration.

B. horizontal integration.

The data exhibits _______. A. economies of scale B. specialization then diminishing returns C. diminishing returns D. specialization

B. specialization then diminishing returns

One reason patent protection is vitally important to pharmaceutical firms is A. successful new drugs are not profitable. If firms are not granted patents many would go out of business and health care would be severely diminished. B. the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process. C. that taxes on profits from drugs are very high; profits from patent protection enable firms to pay these taxes. D. the high salaries pharmaceutical firms pay to scientists and doctors make their labor costs higher than for any other business. Profits from patents are needed to pay these labor costs.

B. the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process.

As output increases, A. average variable cost becomes smaller and smaller. B. the difference between average total cost and average variable cost decreases. C. marginal cost increases continuously. D. the difference between average total cost and average variable cost becomes greater and greater.

B. the difference between average total cost and average variable cost decreases.

A possible advantage of a horizontal merger for the economy is that A. the merging firms could avoid losses. B. the merged firm might reap economies of scale which could translate into lower prices. C. the degree of competition in the industry will be intensified. D. the government stands to collect more corporate income tax revenue.

B. the merged firm might reap economies of scale which could translate into lower prices.

A firm sells widgets for $2.00 each. The owner pays employees $60 per day. Additionally the owner faces a fixed cost of $120 per day. [Questions 18-21 are related.] Calculate the owner's variable cost per day when producing 50 widgets using two workers. A. $100 B. $124.40 C. $220 D. $240

C. $220

Which of the following is true for a monopolist? A. Being the only seller in the market, the monopolist faces a perfectly inelastic demand curve. B. Being the only seller in the market, the monopolist faces a perfectly elastic demand curve. C. Being the only seller in the market, the monopolist faces the market demand curve. D. Being the only seller in the market, the monopolist faces a downward-sloping demand curve that lies below the marginal revenue curve.

C. Being the only seller in the market, the monopolist faces the market demand curve.

What is the difference between "diminishing marginal returns" and "diseconomies of scale"? A. Both concepts explain why marginal cost increases after some point but diminishing marginal returns applies only in the short-run when there is at least one fixed factor, while diseconomies of scale applies in the long-run when all factors are variable. B. Both concepts explain why average total cost increases after some point but diminishing marginal returns applies only in the short-run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable. C. Diminishing marginal returns, which applies only in the short-run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long-run when all factors are variable, explains why average cost increases. D. Diminishing marginal returns, which applies only in the long-run when all factors are variable, explains why average variable cost increases, while diseconomies of scale, which applies in the short-run when at least one factor is fixed, explains why average total cost increases.

C. Diminishing marginal returns, which applies only in the short-run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long-run when all factors are variable, explains why average cost increases.

In long-run perfectly competitive equilibrium, which of the following is false? A. There is efficient, low-cost production at the minimum efficient scale. B. Economic surplus is maximized. C. Firms earn economic profit. D. Economies of scale are exhausted.

C. Firms earn economic profit.

In the long-run which of the following is true? A. Total cost equals fixed cost plus variable cost. B. The size of a firm's physical plant can be changed but the firm cannot adopt new technology. C. There are no fixed costs. D. The firm can vary its explicit costs but not its implicit costs.

C. There are no fixed costs.

Wells Fargo, an American multinational financial services company, reported a profit of $5.86 billion in the first quarter of 2019. This implies A. an accounting profit of less than $5.86 billion. B. an accounting profit of $5.86 billion with a higher economic profit. C. an accounting profit of $5.86 billion with a lower economic profit. D. an economic profit of more than $5.86 billion.

C. an accounting profit of $5.86 billion with a lower economic profit.

Some economists argue that Microsoft became a monopoly during the 1980s in the market for computer software by developing MS-DOS, an operating system used for the first IBM personal computers. The more people who used MS-DOS-based programs, the greater the usefulness of a using a computer with an MS-DOS operating system. The explanation for Microsoft's monopoly is A. the development of new technology that other firms could not copy. B. control of a key resource which, in this case, is the MS-DOS operating system. C. network externalities. D. patents Microsoft obtained when it developed the MS-DOS operating system.

C. network externalities.

Calculate the owner's total cost per day when not producing widgets and not hiring workers. A. $0 B. $2 C. $60 D. $120

D. $120

Calculate the owner's total cost per day when producing 50 widgets using two workers. A. $100 B. $124.40 C. $220 D. $340

D. $340

If a monopolist's price is $50 at 63 units of output and marginal revenue equals marginal cost, and average total cost equals $42, then the firm's total profit is A. $3,150. B. $2,709. C. $441. D. $504.

D. $504.

Which of the following is an example of positive technological change? A. A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of brake pads. B. A firm buys an additional machine that it uses to make brake pads. As a result, the firm is able to increase its weekly production of brake pads. C. A firm conducts a new advertising campaign. As a result, the demand for the firm's brake pads increases. D. A firm's workers participate in a training program designed to increase the number of brake pads they can produce per day.

D. A firm's workers participate in a training program designed to increase the number of brake pads they can produce per day.

A natural monopoly is most likely to occur in which of the following industries? A. The pharmaceutical industry because the development and approval of new drugs through the Food and Drug Administration can take more than 10 years. B. The diamond mining and marketing industry because one firm can control a key resource. C. The software industry because of the importance of network externalities. D. An industry where fixed costs are very large relative to variable costs.

D. An industry where fixed costs are very large relative to variable costs.

Which of the following is an example of a long-run adjustment? A. Your university offers Saturday morning classes next fall. B. General Motors lays off 2,000 assembly line workers. C. A green bean farmer turns on the irrigation system after a month long dry spell. D. Costco builds another store.

D. Costco builds another store.

Use the table to answer the question. What is the marginal product of the fifth worker? A. 230 bushels B. 57.4 bushels C. 50 bushels D. None of the above

D. None of the above

Average fixed costs of production A. remain constant. B. will rise at a fixed rate as more is produced. C. graph as a U-shaped curve. D. fall as long as output is increased.

D. fall as long as output is increased.

If total revenue exceeds fixed cost, a firm A. should produce in the short-run. B. has covered its variable cost. C. is making short-run profits. D. may or may not produce in the short-run, depending on whether total revenue covers variable cost.

D. may or may not produce in the short-run, depending on whether total revenue covers variable cost.

If this industry was organized as a perfectly competitive industry, what would be the profit-maximizing price and quantity?

P= $28, Q= 60