Final Exam Study Guide Questions

Price discrimination adds to social welfare in the form of a) increased total surplus. b) decreased total surplus c) reduced costs of production. d) increased consumer surplus and decreased producer surplus.

a) increased total surplus.

When a firm experiences constant returns to scale, a) long-run average total cost is unchanged, even when output increases. b) long-run marginal cost is greater than long-run average total cost. c) long-run marginal cost is less than long-run average total cost. d) the firm is experiencing coordination problems.

a) long-run average total cost is unchanged, even when output increases.

If a firm uses labor to produce output, the firm's production function depicts the relationship between a) the number of workers and the quantity of output. b) marginal product and marginal cost. c) the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor. d) fixed inputs and variable inputs in the short run.

a) the number of workers and the quantity of output.

Which of the following statements is correct? a) Assuming that explicit costs are positive, economic profit is greater than accounting profit. b) Assuming that implicit costs are positive, accounting profit is greater than economic profit. c) Assuming that explicit costs are positive, accounting profit is equal to economic profit. d) Assuming that implicit costs are positive, economic profit is positive.

b) Assuming that implicit costs are positive, accounting profit is greater than economic profit.

Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? a) Shoe polish and wages Pete could earn delivering newspapers b) Shoe polish and rent on the shoe stand c) Wages Pete could earn delivering newspapers and interest that Pete's money was earning before he spent his savings to set up the shoe-shine business d) Rent on the shoe stand and interest that Pete's money was earning before he spent his savings to set up the shoe-shine business

b) Shoe polish and rent on the shoe stand

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? a) The $20 million payment that the firm pays each year for accounting services b) The cost of the steel that is used in producing automobiles c) The rent that the firm pays for office space in a suburb of St. Louis d) The cost of internet advertising incurred each year

b) The cost of the steel that is used in producing automobiles

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue a) increases if MR < ATC and decreases if MR > ATC. b) does not change. c) always increases. d) always decreases.

b) does not change.

For any competitive market, the supply curve is closely related to the a) preferences of consumers who purchase products in that market. b) firms' costs of production in that market. c) income tax rates of consumers in that market. d) interest rates on government bonds.

b) firms' costs of production in that market.

A firm cannot price discriminate if a) it has declining marginal revenue. b) it operates in a competitive market. c) buyers only reveal the price they are willing to pay for the product. d) it has a constant marginal cost.

b) it operates in a competitive market.

A firm that shuts down temporarily has to pay a) its variable costs but not its fixed costs. b) its fixed costs but not its variable costs. c) both its variable costs and its fixed costs. d) neither its variable costs nor its fixed costs.

b) its fixed costs but not its variable costs.

The minimum points of the average variable cost and average total cost curves occur where the a) marginal cost curve lies below the average variable cost and average total cost curves. b) marginal cost curve intersects those curves. c) average variable cost and average total cost curves intersect. d) slope of total cost is the smallest.

b) marginal cost curve intersects those curves.

When a factory is operating in the short run, a) it cannot alter variable costs. b) total cost and variable cost are usually the same. c) average fixed cost rises as output increases. d) it cannot adjust the quantity of fixed inputs.

b) total cost and variable cost are usually the same.

Lamar is an organic cauliflower farmer, but he also spends part of his day as a professional organizing consultant. As a consultant, Lamar helps people organize their houses. Due to the popularity of her home-organization services, Farmer Lamar has more clients requesting his services than he has time to help if he maintains his farming business. Farmer Lamar charges $35 an hour for his home-organization services. One spring day, Lamar spends 9 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of cauliflower. Refer to Scenario 13-3. Lamar's economic profit from farming equals a) −$130. b) −$145. c) $130. d) $170.

b) −$145.

Lamar is an organic cauliflower farmer, but he also spends part of his day as a professional organizing consultant. As a consultant, Lamar helps people organize their houses. Due to the popularity of her home-organization services, Farmer Lamar has more clients requesting his services than he has time to help if he maintains his farming business. Farmer Lamar charges $35 an hour for his home-organization services. One spring day, Lamar spends 9 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of cauliflower. Refer to Scenario 13-3.Lamar's accounting profit from farming equals a) $80. b) $130. c) $170. d) $260.

c) $170

When marginal cost is less than average total cost, a) marginal cost must be falling. b) average variable cost must be falling. c) average total cost is falling. d) average total cost is rising.

c) average total cost is falling.

For a firm, marginal revenue minus marginal cost is equal to a) profit. b) average total cost. c) change in profit. d) change in average revenue.

c) change in profit.

A benefit to society of the patent and copyright laws is that those laws a) help to keep prices down. b) help to prevent a single firm from acquiring ownership of a key resource. c) encourage creative activity. d) discourage the production of inefficient products.

c) encourage creative activity.

In a natural monopoly, a) society would be better off if antitrust laws were used to create many different firms in the market. b) the marginal cost curve is positively sloped. c) if the government requires marginal cost pricing, it will likely have to subsidize the firm. d) the marginal revenue curve is horizontal.

c) if the government requires marginal cost pricing, it will likely have to subsidize the firm.

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers a) both labor and capital to be fixed. b) both labor and capital to be variable. c) labor to be variable and capital to be fixed. d) capital to be variable and labor to be fixed.

c) labor to be variable and capital to be fixed.

Total cost is the a) amount a firm receives for the sale of its output. b) fixed cost less variable cost. c) market value of the inputs a firm uses in production. d) quantity of output minus the quantity of inputs used to make a good.

c) market value of the inputs a firm uses in production.

A government-created monopoly arises when a) government spending in a certain industry gives rise to monopoly power. b) the government exercises its market control by encouraging competition among sellers. c) the government gives a firm the exclusive right to sell some good or service. d) the government collects taxes in a particular industry.

c) the government gives a firm the exclusive right to sell some good or service.

The long-run market supply curve in a competitive market will a) always be horizontal. b) be the portion of the MC that lies above the minimum of AVC for the marginal firm. c) typically be more elastic than the short-run supply curve. d) be above the competitive firm's efficient scale.

c) typically be more elastic than the short-run supply curve.

Which of the following is not an example of price discrimination? a) A zoo charges a lower price for a child's ticket than for an adult's ticket. b) A college rebates part of the cost of tuition in the form of financial aid for underprivileged students. c) A local fast food chain offers a "buy three get one free" deal. d) A bakery charges a higher price for brownies than for cookies.

d) A bakery charges a higher price for brownies than for cookies.

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold? a) $5 and 50 units b) $5 and 100 units c) $100 and 10 units d) $10 and 100 units

d) $10 and 100 units

Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000, and she spent $1,000 on materials and supplies. Which of the following statements is correct? a) Bev's total explicit costs are $26,300. b) Bev's total implicit costs are $300. c) Bev's accounting profits exceed her economic profits by $300. d) Bev's economic profit is $3,700.

d) Bev's economic profit is $3,700.

Which of the following statements is true? a) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. b) Average revenue is the same as price for monopoly firms but not competitive firms. c) Average revenue is the same as price for competitive firms but not monopoly firms. d) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.

d) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.

A monopoly can earn positive profits because it a) can sell unlimited quantities at any price it chooses. b) takes the market price as given and can sell unlimited quantities. c) can set the price it charges for its output but faces a horizontal demand curve. d) can maintain a price such that total revenues will exceed total costs.

d) can maintain a price such that total revenues will exceed total costs.