Micro Test 3

The value of a business owner's time is an example of a. An opportunity cost b. Total revenue c. A fixed cost d. An explicit cost

a. An opportunity cost

Before considering any public project, the government should (i) compare the total cost and total benefits of the project (ii) conduct a cost-benefit analysis (iii) infer that citizens who vote for a project are willing to pay equally for it a.(i) only b.(i), (ii), and (iii) c.(ii) only d.(i) and (ii) only

d. (i) and (ii) only

If a firm notices that its average revenue equals the current market price, that firm must be participating in a competitive market. a. True b. False

b. False

The deadweight loss that arises from a monopoly is a consequence of the fact that the monopoly a. Quantity is lower than the socially-optimal quantity b. Earns positive profits c. Price equals marginal revenue d. Price is the same as average revenue

a. Quantity is lower than the socially-optimal quantity

At all levels of production higher than the point where the marginal cost curve crosses the average total cost curve, average total cost a. Rises b. Falls c. Remains unaffected d. All of the above are possible depending on the shape of the marginal cost curve

a. Rises

A popular resort restaurant will maximize profits if it chooses to stay open during the less-crowded "off season" when its total revenues exceed its variable costs. a. True b. False

a. True

If the marginal cost of producing the tenth unit of output is $3, and if the average total cost of producing the tenth unit of output is $2, then at ten units of output, average total cost is rising. a. True b. False

a. True

Scenario 15-3 A monopoly firm maximizes its profit by producing Q = 500 units of output. At the level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 15-3. At Q = 500, the firm's total revenue is a. $13,000 b. $30,000 c. $15,000 d. $17,000

b. $30,000

Constant returns to scale occur when a firm's a. Marginal costs are constant as output increases b. Long-run average total costs do not vary as output increases c. Long-run average total costs are decreasing as output increases d. Long-run average total costs are increasing as output increases

b. Long-run average total costs do not vary as output increases

Which of the following statements is correct? a. For all firms, marginal revenue equals the price of the good b. Only for competitive firms does average revenue equal marginal revenue. c. Only for competitive firms does average revenue equal the price of the good d. Marginal revenue can be calculated as total revenue divided by the quantity sold

b. Only for competitive firms does average revenue equal marginal revenue.

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as a. Average revenue is greater than average total cost b. Price is above or below marginal cost c. Average revenue is equal to marginal cost d. Marginal cost is greater than average total cost

b. Price is above or below marginal cost

Scenario 15-4 Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist's marginal revenue curve can be expressed as MR=90-2Q. The monopolist has constant marginal costs and average total costs of $10. Refer to Scenario 15-4. The profit-maximizing monopolist will produce an output level of a. 80 units b. 10 units c. 40 units d. 20 units

c. 40 units

An example of a private good would be a. A local fire department. b. A national park. c. A pair of pants. d. A streetlight.

c. A pair of pants.

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: Quantity Total Revenue Total Cost 0 $0 $10 1 $9 $14 2 $18 $19 3 $27 $25 4 $36 $32 5 $45 $40 6 $54 $49 7 $63 $59 8 $72 $70 9 $81 $82 Refer to Table 14-9. If the firm's marginal cost is $5, it should a. Reduce fixed costs by lowering production. b. Maintain its current level of production to maximize profit. c. Increase production to maximize profit. d. Decrease production to maximize profit

c. Increase production to maximize profit.

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should a. Make more than 20 wedding cakes per month b. Continue to make 20 wedding cakes per month c. Make fewer than 20 wedding cakes per month d. We do not have enough information with which to answer the question.

c. Make fewer than 20 wedding cakes per month

Table 13-8 Output Fixed Cost Variable Cost 0 $20 $0 1 $20 $10 2 $20 $40 3 $20 $80 4 $20 $130 5 $20 $200 6 $20 $300 Refer to Table 13-8. What is the shape of the marginal cost curve for this firm? a. Constant b. U-shaped c. Upward-sloping d. Downward-sloping

c. Upward-sloping

Consider a good for which the number of people who benefit from the good is large and the exclusion of any one those people is impossible. In this case, the market for this good will likely a. be provided by a private firm rather than the government. b. be limited to a small number of units of production c. have a free-rider problem d. not exist

c. have a free-rider problem

Table 13-8 Quantity of Output Fixed Cost Variable Cost 0 $20 $0 1 $20 $10 2 $20 $40 3 $20 $80 4 $20 $130 5 $20 $200 6 $20 $300 Refer to Table 13-8. What is the shape of the marginal cost curve for this firm? a. constant b. U-shaped c. upward-sloping d. downward-sloping

c. upward-sloping

Table 13-7 The Flying Elvis Copter Rides Q TC FC VC MC AFC AVC ATV 0 $50 $50 $0 -- -- -- -- 1 $150 A B C D E F 2 G H I $120 J K L 3 M N O P Q $120 R Refer to Table 13-7. What is the value of C? a. $25 b. $200 c. $50 d. $100

d. $100

Table 15-5 A monopolist faces the following demand curve: Price Quantity $51 1 $47 2 $42 3 $36 4 $29 5 $21 6 $12 7 Refer to Table 15-5. The monopolist has total fixed costs of $60 and has a constant marginal cost of $15. What is the profit-maximizing level of production? a. 2 units b. 5 units c. 3 units d. 4 units

d. 4 units

When firms in a perfectly competitive market face the same costs, in the long run they must be operating a. Under diseconomies of scale b. Where price is equal to average fixed cost c. With small, but positive, levels of profit d. At their efficient scale

d. At their efficient scale

Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. Shut down her business in the short run but continue to operate in the long run b. Shut down in both the short run and long run c. Continue to operate in the short run but shut down in the long run d. Continue to operate in both the short run and long run

d. Continue to operate in both the short run and long run

Listed in the table are the long-run TOTAL costs for three different firms. Quantity 1 2 3 4 5 Firm A 100 100 100 100 100 Firm B 100 200 300 400 500 Firm C 100 300 600 1,000 1,500 Refer to Table 13-14. Which firm is experiencing diseconomies of scale? a. Firm A only b. Firm A and Firm B only c. Firm B only d. Firm C only

d. Firm C only

Diseconomies of scale occur when a firm's a. Marginal costs are constant as output increases b. Marginal costs are equal to average total costs for all levels of output c. Long-run average total costs are decreasing as output increases d. Long-run average total costs are increasing as output increases

d. Long-run average total costs are increasing as output increases

In order to sell more of its product, a monopolist must a. Sell to the government b. Use its market power to force up the price of complementary products c. Sell in international markets d. Lower its price

d. Lower its price