Economics Exam #3 - Chapters 8-9 Material

If a firm has total costs of $535,000 and its implicit costs are $165,000, how much are its explicit costs?

$370,000

When output is 100 units, the firm's total fixed cost is $500. What will this firm's total fixed cost be if output doubles to 200 units? a. $500 b. $1,000 c. $750 d. $125 e. $250

A. $500

If Firm A is making zero economic profits, a. Firm A is breaking even when opportunity cost is taken into consideration. b. Firm A wants to shut down in the short run. c. Firm A wants to leave the market. d. other firms want to enter the market. e. Firm A is also making negative accounting profits.

A. Firm A is breaking even when opportunity cost is taken into consideration.

The change in total cost given a change in output is also known as ________ cost. a. marginal b. average c. long-run d. short-run e. differential

A. Marginal cost

When firms grow larger, they sometimes add many additional layers of managers between the top executives and the entry-level employees. Because these managers do not actually produce any output themselves, we expect more layers of management to lead to... a. diseconomies of scale. b. constant returns to scale. c. economies of scale. d. increasing marginal returns. e. diminishing marginal returns.

A. diseconomies of scale

Calvin's Campgrounds is a firm conducting business in a competitive market. Calvin realizes he is making a loss and is trying to decide whether to shut down or stay open. He should stay open... a. if his revenues cover his variable costs. b. if the price being charged is less than his minimum average variable cost (AVC). c. regardless of the price being charged. d. if his revenues do not cover his variable costs. e. as long as he is making revenue.

A. if his revenues cover his variable costs.

If a firm hires another worker and her marginal product of labor is positive, we know that the firm's total output is... a. increasing. b. decreasing. c. zero. d. equal to the marginal product of that worker. e. unchanged.

A. increasing

If the marginal product of an input is falling, then what must be true? a. Marginal cost must be rising. b. Marginal cost must be falling. c. Marginal cost must be constant. d. Average fixed costs must be constant. e. Average total cost must be constant.

A. marginal cost must be rising.

When firms exit a market, the ________-run market supply curve shifts ________, causingindividual firms' profits to ________. a. short; left; increase b. long; right; decrease c. short; right; increase d. short; right; decrease e. short; left; decrease

A. short; left; increase

What needs to be done to ensure that a company is profitable? a. The company needs to both minimize costs and maximize revenue. b. The company needs to minimize costs. c. The company needs to maximize revenue. d. The company needs only to provide products that customers want. e. The company needs to both maximize costs and minimize revenue.

A. the company needs to both minimize costs and maximize revenue.

Under perfect competition what would happen to a firm that sets its price slightly above market price? a. The firm would lose all of its customers. b. It would earn lower profits than other firms, but the level of reduction would depend on the elasticity of demand. c. The firm would earn a lot of profit as long as the other firms charge the market price. d. The firm could sell as much as it wanted in the market. e. It would continue to earn a profit but revenue would be lower.

A. the firm would lose all of its customers.

Rebecca owns a fitness gym. If she increases the size of her fitness gym and experiences diseconomies of scale as a result, her long-run average total cost curve should be... a. upward sloping. b. horizontal. c. U-shaped. d. vertical. e. downward sloping.

A. upward sloping

An explicit cost for a business that manufactures bicycles would be the... a. wages paid to employees. b. value of the products that the firm's employees could produce at another company. c. salary that the owner of the business could earn elsewhere. d. goods and services provided by the government with the taxes the firm pays. e. various products that could be made with the steel used to make bicycles.

A. wages paid to employees

A firm's accounting profit is always greater than its economic profit because... a. accounting profit considers explicit costs, which economic profit does not. b. economic profit considers implicit costs, which accounting profit does not. c. accounting profit is always positive, no matter what kind of firm it is. d. accounting profit considers implicit costs, which economic profit does not. e. economic profit is always zero, no matter what kind of firm it is.

B. economic profit considers implicit costs, which accounting profit does not.

If firms in a competitive market are making positive economic profits, you would expect firms to ________ the market, causing the ________ curve to shift to the ________. a. enter; demand; left b. enter; market supply; right c. enter; demand; right d. enter; market supply; left e. to leave; market supply; left

B. enter; demand; left

According to the concept of the production function, if a firm is inefficient then it must mean... a. the achieved level of output is exactly the same as the production function would have calculated. b. for the same amount of inputs, the output is less than the production function would have calculated. c. for the same amount of output, the number of inputs required is less than the production function would have calculated. d. the inputs are being overused. e. the firm is producing too many outputs.

B. for the same amount of inputs, the output is less than the function would have calculated.

If a firm adds multiple layers of management as it increases its scale of production, thus adding to its costs, we would expect its long-run average cost curve to be... a. downward sloping. b. upward sloping. c. horizontal. d. U-shaped. e. vertical.

B. upward sloping

The production function for bookshelves includes... a. electric guitars, drums, microphones, musicians, and a stage. b. wood, nails, carpenters, saws, and hammers. c. foam cushions, fabric, wood, nails, and furniture makers. d. wool fabric, buttons, a zipper, a sewing machine, and a tailor. e. yeast, flour, pans, ovens, and bakers.

B. wood, nails, carpenters, saws, and hammers.

It's easy to determine if a firm is making long-run production decisions by looking at its cost structure because, in the long run, a firm does NOT have any ________ costs. a. sunk b. variable c. fixed d. opportunity e. marginal

C. Fixed

At the current level of output, the following data exists:Price = $20Marginal cost = $6Average variable cost = $10Average total cost = $13What must be true at this level of output? a. The firm should decrease output. b. The firm should shut down. c. The firm should increase output. d. The firm should lower the price. e. The firm should stay at the same level of output.

C. The firm should increase output.

In competitive markets... a. the individual firms are much stronger than the market forces are. b. firms are considered to be price makers. c. firms are at the mercy of market forces. d. the market forces set the quantity in the market but not the prices. e. firms set the prices for their products with little concern for the consumer.

C. firms are at the mercy of market forces.

In the short run, the cost of ________ is variable, whereas the cost of ________ is fixed. a. capital; labor b. capital; raw materials c. labor; capital d. electricity; wages e. raw materials; labor

C. labor; capital

The production function shows the relationship between the... a. quantity of the labor input needed for each unit of capital to minimize costs. b. level of outputs that maximize revenue. c. quantity of inputs and the quantity of outputs. d. costs of inputs and the price of the output. e. quantity of total outputs and total costs.

C. quantity of inputs and the quantity of outputs.

A firm's short-run cost curves show us... a. what will happen if the firm doubles its capital. b. how many employees the firm has. c. the lowest-cost level of output. d. how many other firms are in the industry. e. the highest-profit level of output.

C. the lowest-cost level of output.

Carmela's Churros is a perfectly competitive firm that sells desserts in Houston, Texas. Carmela's Churros currently is taking in $40,000 in revenues, and has $15,000 in explicit costs and $25,000 in implicit costs. Carmela's Churros' economic profits are a. $25,000. b. $80,000. c. $40,000. d. $0. e. $15,000.

D. $0

Ralph owns a pool store. His total costs are $225,000 per year, and his variable costs are $75,000 per year. This means that his fixed costs are... a. $75,000. b. $225,000. c. $300,000. d. $150,000. e. $50,000.

D. $150,000

which of the following statements are FALSE? a. Implicit costs are unique to the individual firm. b. Implicit costs are opportunity costs. c. An implicit cost is nonmonetary. d. An explicit cost is a nonmonetary opportunity cost. e. Explicit costs are easy to measure.

D. An explicit cost is a non-monetary opportunity cost.

In the short run, under what conditions should the firm shut down? a. average total cost at the minimum point b. marginal revenue greater than marginal cost c. price greater than average variable cost d. price less than average variable cost e. marginal revenue greater than average total cost

D. Price less than average variable cost

Explicit costs are a. never greater than implicit costs. b. always greater than implicit costs. c. what a business sacrifices in order to produce a good. d. always paid out of pocket. e. the opportunity cost of the means of production.

D. always paid out of pocket

Economists assume that the cost of ________ is fixed in the short run. a. labor b. legal expenses c. repairs d. capital e. raw materials

D. capital

Josephina owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Josephina know if she is experiencing economies of scale from increasing the size of her boxing gym? a. Her total cost increases. b. Her average cost per client remains the same. c. Her average cost per client increases. d. Her total cost remains unchanged. e. Her average cost per client decreases.

E. her average cost per client decreases.

If the price is greater than both the marginal cost and the average variable cost, what should the firm do? a. increase the price b. stop producing c. decrease its production level d. reduce the price e. increase its production level

E. increase its production level

What would cause a firm's production function to change? a. increasing the quantity of capital b. increasing the quantity of labor and capital c. expanding the size of the factories d. increasing the quantity of labor e. the adoption of new technology

E. the adoption of new technology.

In a competitive market, if one firm raises its price relative to the other firms in the market, consumers are willing to go to another firm because... a. consumers can set the price they want to pay. b. consumers can get more producer surplus by going to a different firm. c. there are many sellers in the market selling different items. d. the products are similar, which makes them complements. e. the products are similar, which makes them substitutes.

E. the products are similar, which makes them substitutes.

Marginal product is the change in... a. total output plus the change in input. b. total output times the change in input. c. total output minus the change in input. d. input divided by the change in total output. e. total output divided by the change in input.

E. total output divided by the change in input.

A firm's inputs are also known as its...

Factors of Production

The gap between the average total cost (ATC) and average variable cost (AVC) curves represents ________ cost.

average fixed

Signals

convey information about the profitability of various markets

Sunk Costs

costs that have already been incurred and cannot be recovered due to past decisions.

Lisette is the owner of a bakery that earns zero economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her total explicit costs were... a. $53,000. b. $77,000. c. $80,000. d. $15,000. e. $92,000.

e. $92,000

Economic Profit is equal to

total revenue minus the sum of explicit and implicit costs