Micro Ch 7-8

In Exhibit 7-6, the total fixed cost is:

$1,000

What is the average total cost at an output level of four units?

$1,500

By filling in the blanks in Exhibit 7-8, the fixed cost of producing 6 pizzas is shown to be equal to:

$100

In Exhibit 8-10, the maximum possible total profit is:

$12

Consider a firm with the following cost information: ATC = $15, AVC = $12, and MC = $14. If we know that this firm has decided to produce Q = 20 by following the rule to maximize profits or minimize losses, then the price of the output is:

$14

By filling in the blanks in Exhibit 7-8, the total cost of producing 5 pizzas is shown to be equal to:

$160

As shown in Exhibit 8-3, the price at which the firm earns zero economic profit in the short-run is:

$2 per unit

In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be:

$2,500

As shown in Exhibit 8-3, the firm will produce in the short run if the price is at least equal to:

$2.00 per unit (point C).

Suppose that a small business takes in monthly revenue of $100,000. Labor, rental, energy, and other purchased input costs are $70,000. The owner/entrepreneur could earn $5,000 per month in another job, and the owner/entrepreneur could get a return of $5,000 each month if she sold her business and invested the net proceeds in a financial asset, such as a treasury bond. Which of the following correctly describes her monthly economic profit?

$20,000.

As shown in Exhibit 8-18, the perfectly competitive firm is in long-run equilibrium at a price of:

$200

Sam quits his job as an airline pilot and opens his own pilot training school. He was earning $40,000 as a pilot. He withdraws $10,000 from his savings where he was earning 6 percent interest and uses the money in his new business. He uses a building he owns as a hanger and could rent it out for $5,000 per year. He rents a computer for $1,200, buys office supplies for $500, rents an airplane for $6,000, pays $1,300 for fuel and maintenance, and hires one worker for $30,000. Sam's total revenue from pilot training classes this year equaled $90,400. Sam's explicit costs this year equals:

$39,000.

By filling in the blanks in Exhibit 7-8, the variable cost of producing 4 pizzas is shown to be equal to:

$40

If a perfectly competitive firm sells 10 units of output at a market price of $5 per unit, its marginal revenue per unit is:

$5

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his explicit costs?

$52,000.

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be:

$6,000

Suppose a publisher faces the following costs of producing 10,000 newspapers each month: $5,500 cost of labor; $2,200 monthly mortgage payment; $250 cost of electricity to run the printing presses; $800 for ink and paper; and $200 in city property taxes (based on the value of the building and land). Its total variable costs are:

$6,550

In Exhibit 7-15, short-run average total cost, short-run marginal cost, and long-run average cost are all equal at which level of output per week?

1,000 units

Given the short-run average total cost curves in Exhibit 7-15, what level of output per week minimizes average total cost?

1,500 units.

In Exhibit 8-3, if the price of the firm's product is $2.00 per unit, the firm will produce:

15 units per day

Suppose that 1000 identical sellers each set their profit-maximizing output level at 18 units when price equals $10. Then what is market quantity supplied at a price of $10.

18,000

In Exhibit 7-14, economies of scale only exist for output levels up to:

2,000

In Exhibit 7-14, constant returns to scale only exist for output levels between:

2,000 and 3,000.

As shown in Exhibit 8-3, if the product price is either $1.00, $1.50, $2.00, or $4.00, the firm's economic profit is maximum at an output of:

20 units per day

In Exhibit 8-10, following the rule regarding MR and MC, the most profitable output level is:

3

As shown in Exhibit 8-18, the perfectly competitive firm is in long-run equilibrium at an output of:

400 units per week

If the firm represented in Exhibit 7-15 is operating with a plant whose size corresponds to short-run average total cost curve A, the level of output that would minimize its short-run average total cost is:

500 units per week

If two workers can produce 22 units of output, and the addition of a third worker increases output to 30 units, the marginal product of the third worker is:

8 units

As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D1 to D2, the adjustment sequence between points will be:

A to B, then to C.

As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A and the demand curve shifts from D1 to D2. The result is a long-run supply curve drawn from point:

A to point C

Which of the following is true about average fixed cost?

Average fixed cost is total fixed cost divided by the quantity of output produced, and it declines steadily as output increases.

Suppose that when output is 20, marginal cost is $20, and average total cost is $30. Then which of the following is most likely to be true?

Average total cost is declining.

In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost.

A firm is currently operating where the MC of the last unit produced = $84, and the MR of this unit = $70. What would you advise this firm to do?

Decrease output.

Which of the following is most likely to be true of economic and accounting profits?

Economic profits are less than accounting profits.

In Exhibit 7-14, the U-shaped LRAC curve indicates which of the following as quantity increases from 0 to 4,000?

Economies of scale; constant returns to scale; diseconomies of scale.

Which of the following is not a characteristic of the structure of perfectly competitive markets?

Few sellers

Which firm in Exhibit 7-16 displays a long-run average cost curve with diseconomies beginning at 2,000 units of output per week?

Firm A

In Exhibit 7-16, which firm's long-run average cost curve experiences constant returns to scale?

Firm B

Which of the following is true of a perfectly competitive market?

If economic profits are earned then the price will fall over time. In long-run equilibrium P = MR = SRMC = SRATC = LRAC. A constant-cost industry exists when the entry of new firms has no effect on their cost curves. All of these.

Which of the following statements is true?

In long-run equilibrium, a competitive firm produces at the point of minimum average total cost.

Which of the following is an implication of the law of diminishing returns?

In the short run, expansion of output will eventually lead to increases in marginal cost and average total cost.

Which of the following represents the key difference between the short run and the long run?

In the short run, the firm makes commitments to a certain type of production technology, which are represented as fixed costs in the short run. For example, they have signed a lease on a particular production facility. These fixed costs do not exist in the long run.

Which of the following is true if the total variable cost curve is rising?

Marginal cost is increasing.

Profit is maximized when which of the following conditions occurs?

Marginal revenue equals marginal cost.

The total fixed cost remains constant as which of the following varies?

Output in a given period of time.

The long-run equilibrium condition for perfect competition is:

P = ATC = MR = MC.

In Exhibit 8-10, MR is the same as which column?

P.

Under long-run perfect competition, which of the following are the same (equal) at all levels of output?

Price and marginal revenue.

In short-run perfectly competitive equilibrium, which of the following is always true?

Profit can be negative, zero, or positive.

In Exhibit 8-4, this firm is currently producing 16 units of output. What would you advise this firm to do?

Remain at 16 units of output

Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25. What do you advise this firm to do?

Shut down operations.

Which of the following statements is true?

TFC = TC - TVC.

Paul's Plumbing is a small business that employs 12 people. Which of the following is the best example of an implicit cost incurred by this firm?

The accounting services provided free of charge to the firm by Paul's wife, who is an accountant.

Which of the following is not an explicit cost?

The firm owner's time.

As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A and the demand curve shifts from D1 to D2. Which of the following is a part of the industry adjustment process?

The price will temporarily rise at point B. New firms will enter the industry. Firms will temporarily make positive economic profits. All of these.

Which of the following best describes the law of diminishing returns?

The principle that beyond some point the marginal product decreases as additional units of a variable factor (ex: labor) are added to a fixed factor (ex: a restaurant kitchen).

Which of the following best describes a production function?

The relationship between the maximum amounts of output a firm can produce and various quantities of inputs.

Which of the following is a characteristic of a competitive price-taker market?

There are many firms in the market, each producing a small share of total market output.

In Exhibit 7-5, diminishing returns set in when the ____ worker is hired.

Third.

In Exhibit 8-9, product price in this market is fixed at $14. This firm is currently operating where MR = MC. What do you advise this firm to do?

This firm should continue to operate at its current output.

In Exhibit 8-9, product price in this market is fixed at $7. This firm is currently operating where MR = MC. What do you advise this firm to do?

This firm should shut down.

What is the shape of the average total cost curve for a firm in the short run?

U-shaped

Which of the following explains most accurately why the firm's short-run marginal cost curve will eventually rise?

When diminishing marginal returns set in, it will take ever-larger quantities of the variable resources to produce an additional unit of output.

During the short-run period of the production process, a firm will be:

able to vary some of its factors of production.

In order for the law of diminishing returns to be present, we must have:

at least one factor of production to be fixed.

In Exhibit 7-14, a firm finds that it is experiencing numerous managerial and information problems. The position of its short- and long-run average total cost curves suggest that it is operating at a production level:

between 3,000 and 4,000.

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be a(n):

constant cost industry.

Fixed costs are best defined as:

costs that do not vary with output.

In Exhibit 8-6, if this firm is currently producing 20 units of output, this firm:

could increase profits by increasing output.

In the long run, total fixed cost:

does not exist

In long-run equilibrium, the typical perfectly competitive firm will:

earn zero economic profit.

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

economic profits become zero.

If both the marginal cost and the average variable cost curves are U-shaped. At the minimum point on the average variable cost curve, the marginal cost must be:

equal to the average variable cost

Assume that a firm's marginal revenue just barely exceeds marginal cost. Under these conditions the firm should:

expand output.

In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will:

have a positive slope.

The opportunity costs associated with the use of resources owned by a firm are:

implicit costs

In Exhibit 8-4, this firm is currently producing 14 units of output. What would you advise this firm to do?

increase output to 16

Economies of scale can be caused by all of the following except:

increases in the firm's average total cost.

The minimum point on the marginal cost curve corresponds to the:

inflection point on the total variable cost curve.

In Exhibit 8-6, if this firm is currently producing 20 units of output, this firm:

is earning a profit of $10.

During the course of a week, McDonald's has enough time to hire or layoff workers, but it does not have enough time to expand its kitchen or add an additional seating area. In this situation, McDonald's:

is in the short run.

Jerome, the florist, sold 500 bridesmaid's bouquets in June. He estimates his costs that month were ATC = $10, AVC = $6, and MC = $9. If he sold each bouquet at the constant market price of $9,

made a loss of $500.

A perfectly competitive firm in the short-run maximizes its profit by producing the output where:

marginal cost equals price. marginal cost equals marginal revenue. total revenue minus total cost is at a maximum. all of these.

A firm operating in a perfectly competitive market is a price taker because:

no firm has a significant market share. no firm's product is perceived as different. setting a price higher than the going price results in zero sales. all of these.

Consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10. This firm is:

perfectly competitive in long-run equilibrium.

The supply curve of a price-taker firm in the short run is the:

portion of the firm's marginal cost curve that lies above average variable cost curve.

If a firm decreases output when MR < MC, then:

profit will increase

Which of the following is most likely to be a fixed cost for a business?

property taxes on the firm's buildings.

Explicit costs would include:

rent

A sandwich shop owner has the following information: P = MR = $4, ATC = $2, AVC = $1, MC = 4, and Q = 500. From this, she can determine:

she has earned economic profits of $1,000.

In Exhibit 8-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

short-run marginal cost curve B.

If a competitive firm is losing money then it should:

shut down if its losses are greater than total fixed costs.

If resource prices rise and the per-unit cost of producing a product increases as the firms in an industry expand output in response to an increase in demand, the long-run market supply curve for the product will:

slope upward to the right.

If the price of the firm's product in Exhibit 8-3 is $1.50 per unit, which intersects AVC at point B, the firm should:

stay in operation for the time being even though it is making a pure economic loss.

If there is a permanent increase in demand for the product of a perfectly competitive industry, the process of transition to a new long-run equilibrium will include:

the entry of new firms. temporarily higher profits. both a and b.

If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run:

the firm's per-unit cost will increase.

Normal profit is a term for:

the minimum profit to keep a firm in operation.

The primary source of scale diseconomies appears to be:

the organizational difficulties of managing an ever larger enterprise.

An economist left her $100,000-a-year teaching position to work full-time in her own consulting business. In the first year, she had total revenue of $200,000 and business expenses of $100,000. She made a(n):

zero economic profit.