micro unit 2

In the absence of barriers to entry, a typical firm is currently in long-run equilibrium. Assume there is an increase in the market demand for the good that the firm is producing. Which of the following will happen in the long run? A. New firms will enter the market. B. The market supply will decrease, but the quantity supplied will increase. C. The firm will earn positive economic profit. D. The firm's price will be greater than its average revenue. E. The firm will continue to produce the same quantity of output.

A. New firms will enter the market.

Assume a competitive firm is producing where price (P)(P) and marginal revenue (MR)(MR) are greater than marginal cost (MC)(MC) and average variable cost (AVC)(AVC). Which of the following is true regarding the firm's short-run output level? A. The firm is producing too little and should increase its output level until P =MR=MCP =MR=MC. B. The firm is producing too much and should reduce its output level until P =MR=AVCP =MR=AVC. C. The firm is not maximizing profits and should raise its price but not change its output level. D. The firm should increase its marginal revenue to equal price and reduce its output level until MR = MCMR = MC. E. The firm should reduce its price until P =MR=MCP =MR=MC.

A. The firm is producing too little and should increase its output level until P =MR=MCP =MR=MC.

Ryan quit a job with a daily salary and opened a business. On a daily basis, the total revenue of the business is $200$200, and the explicit costs of the business are $120$120. If Ryan has zero economic profits, what must be the value of Ryan's implicit costs? A. $0 B. $80 C. $120 D. $200 E. $280

B. $80

Firm XYZ produces and sells corn in a perfectly competitive market and hires its workers in a perfectly competitive labor market. Which of the following best describes the demand curve for XYZ's corn and XYZ's demand curve for labor? A. Demand for XYZ's Corn: Horizontal, XYZ's Labor Demand: Horizontal B. Demand for XYZ's Corn: Horizontal, XYZ's Labor Demand: Downward sloping C. Demand for XYZ's Corn: Horizontal, XYZ's Labor Demand: Vertical D. Demand for XYZ's Corn: Downward sloping, XYZ's Labor Demand: Downward sloping E. Demand for XYZ's Corn: Downward sloping, XYZ's Labor Demand: Horizontal

B. Demand for XYZ's Corn: Horizontal, XYZ's Labor Demand: Downward sloping

Which of the following is true for a perfectly competitive, decreasing-cost industry? A. The price of inputs will decrease as the number of firms in the industry decreases. B. The long-run market supply curve will be downward sloping. C. Firms earn positive economic profit in the long run. D. Firms do not have a shutdown condition. E. There are no economies of scale.

B. The long-run market supply curve will be downward sloping.

The table below shows the long-run total cost function of a firm. Quantity of Output / Total Cost ($) 0 / 0 1 / 10 2 / 20 3 / 30 4 / 40 5 / 50 The firm's cost function exhibits A. diseconomies of scale B. constant returns to scale C. economies of scale D. decreasing marginal cost E. increasing marginal cost

B. constant returns to scale

If a perfectly competitive firm is producing where marginal cost is rising and greater than marginal revenue, to maximize profits it should A. increase the level of production B. decrease the level of production C. maintain current level of production D. increase price E. decrease price

B. decrease the level of production

Short-run marginal costs eventually increase because of the effects of A. increasing marginal product B. diminishing marginal product C. diseconomies of scale D. economies of scale E. increasing fixed costs

B. diminishing marginal product

Assume that, for a perfectly competitive firm, marginal cost equals average variable cost at $10, marginal cost equals average total cost at $15, and marginal revenue equals marginal cost at $12. On the basis of this information, the firm should A. close down in the short run B. operate in the short run, even though it will sustain a loss C. operate in the short run, because it will make an economic profit of $3 per unit D. operate in the long run, because it will make an economic profit of $3 per unit E. operate in the short run, but decrease output to decrease its cost

B. operate in the short run, even though it will sustain a loss

Raheem is currently working as a financial analyst earning $75,000 a year and is considering quitting his current job to start an art gallery. The estimated annual revenue from the art gallery is $175,000. The annual cost of labor, advertising, and acquiring the art inventory is $125,000. What are Raheem's accounting and economic profits if he opens the art gallery? A. Accounting profit is -$25,000, and economic profit is $50,000. B. Accounting profit is $100,000, and economic profit is $50,000. C. Accounting profit is $50,000, and economic profit is -$25,000. D. Accounting profit is $100,000, and economic profit is -$25,000. E. Accounting profit is $50,000, and economic profit is $100,000.

C. Accounting profit is $50,000, and economic profit is -$25,000.

Which of the following statements regarding accounting profits, opportunity costs, and economic profits is true? A. With positive opportunity costs, a firm can never earn economic profits. B. Accounting profits are equal to economic profits minus opportunity costs. C. If accounting profits are less than opportunity costs, there will be economic losses. D. Economic profits must always be greater than accounting profits. E. When economic profits are positive, accounting profits may be positive or negative.

C. If accounting profits are less than opportunity costs, there will be economic losses.

In the short run, which of the following is true of a firm's average total cost of production? A. It is equal to marginal cost plus average variable cost. B. It is equal to marginal cost plus average fixed cost. C. It is equal to average fixed cost plus average variable cost. D. It always increases when a firm increases production. E. It is zero if the firm shuts down.

C. It is equal to average fixed cost plus average variable cost.

Suppose a firm's production process exhibits diseconomies of scale. How and why will costs change if the firm reduces its output? A. Long-run average total cost will increase because it becomes more difficult for the firm to manage its workforce. B. Long-run average fixed costs will increase because the firm produces fewer units of output. C. Long-run average total cost will decrease because it becomes easier for the firm to manage its workforce. D. Long-run average fixed costs will decrease because the firm produces fewer units of output. E. Long-run average total cost will decrease because it becomes more difficult for the firm to manage its workforce.

C. Long-run average total cost will decrease because it becomes easier for the firm to manage its workforce.

Assume Nadia voluntarily leaves a job with a salary of $100 per day to open and run a restaurant instead. After deducting all explicit costs from the restaurant revenues, Nadia has a gain of $120. Assuming there are no additional implicit costs, which of the following statements is true? A. Nadia has an accounting profit of $20. B. Nadia has an accounting profit of $100. C. Nadia has an economic profit of $20. D. Nadia has an economic profit of $120. E. Nadia has an economic profit of −$20.

C. Nadia has an economic profit of $20$20.

Which of the following is true of both monopolistically competitive and perfectly competitive firms in long-run equilibrium? A. Marginal revenue equals average total cost. B. Marginal cost equals average total cost. C. Price equals average total cost. D. Price is greater than marginal cost. E. Production occurs at minimum average total cost.

C. Price equals average total cost.

Assume the marginal product of labor first rises, reaches a maximum, and then falls. If the average product of labor is falling, which of the following is true? A. The marginal product of labor is greater than the average product of labor. B. The level of output produced must be at its maximum. C. The marginal product of labor must be falling. D. The marginal product of labor must be negative. E. The average product of labor has not yet reached its maximum.

C. The marginal product of labor must be falling.

What does the minimum efficient scale measure? A. The smallest output level at which short-run average total cost is minimized. B. The smallest output level at which short-run total cost is minimized. C. The smallest output level at which long-run average total cost is minimized. D. The largest output level at which long-run average total cost is minimized. E. The largest output level at which long-run total cost is minimized.

C. The smallest output level at which long-run average total cost is minimized.

The graph above shows the cost curves for a competitive firm that produces 20 units of output. What are the total cost and the total fixed cost of producing 20 units of output? A. Total Cost: $10, Total Fixed Cost: $0 B. Total Cost: $120, Total Fixed Cost: 100 C. Total Cost: $120, Total Fixed Cost: $20 D. Total Cost: $200, Total Fixed Cost: $100 E. Total Cost: $200, Total Fixed Cost: $20

C. Total Cost: $120, Total Fixed Cost: $20

In the short run, assume diminishing marginal product of labor sets in with the hiring of the second worker. Which of the following will remain constant as a firm produces more output? A. Average product of labor B. Total cost C. Total fixed cost D. Total variable cost E. Marginal cost

C. Total fixed cost

Based on the short-run production function graph above showing the relationship between the quantity of labor and total product, which of the following statements is true? A. The marginal product of labor is always increasing. B. At L0L0 the marginal product of labor is at its maximum. C. Total product is maximized when marginal product is zero. D. At L0L0 the marginal product of labor exceeds the average product of labor. E. The marginal product of labor is always positive.

C. Total product is maximized when marginal product is zero.

As output of a firm increases, the difference between the firm's average total cost and its average variable cost gets smaller because the firm's A. total cost is increasing B. marginal cost is increasing C. average fixed cost is decreasing D. marginal product of labor is decreasing E. long-run average total cost is decreasing

C. average fixed cost is decreasing

If a firm experiences economies of scale over the entire range of output, the long-run average cost curve will be A. U-shaped B. upward sloping C. downward sloping D. horizontal E. below the marginal cost curve

C. downward sloping

If the average variable cost of producing 5 units of a good is $100 and the average variable cost of producing 6 units is $150, then the marginal cost of increasing output from 5 to 6 units is A. $50 B. $250 C. $300 D. $400 E. $500

D. $400

The following problems refer to the graph below for a representative firm in a perfectly competitive, constant-cost industry, which shows the firm's marginal cost (MC), average total cost (ATC), and average variable cost (AVC). Which of the following MUST be true in the long run? A. The equilibrium price will be P2, since that is where marginal cost equals minimum average variable cost. B. The equilibrium price will be above P3, since firms must make an economic profit to stay in business. C. If the price is above P2, new firms will enter the industry. D. If the price is above P3, new firms will enter the industry. E. If the price is above P4, firms will exit the industry.

D. If the price is above P3, new firms will enter the industry.

In the short run, which of the following must be true for a perfectly competitive firm that is maximizing profits? A. The firm will shut down if it has any economic losses. B. The firm will produce at the minimum of average total cost. C. The firm will produce where MR = MCMR = MC, but price from the demand curve is greater than MCMC. D. The firm will produce where MR = MCMR = MC as long as PP is greater than average variable cost. E. The firm will produce the quantity that exhibits allocative and productive efficiency.

D. The firm will produce where MR = MCMR = MC as long as PP is greater than average variable cost.