AP MICRO EXAM STUDY GUIDE

If the price elasticity of supply for pickles is 2 and the price of pickles increases by 10 percent, then the quantity supplied of pickles will increase by

20%

What is the marginal product of the third worker?

24

If there is only one variable input, diminishing marginal returns first occur with the production of which unit of output?

4th

Locotek produces toy trains paying each worker $350 per week. 5 workers can produce 40 trains per week and six producers can produce 45 trains per week. The marginal product of the sixth worker is

5 trains

Which of the following must be true if, at the tenth unit of output, marginal cost (MC) is $130 and average total cost (ATC) is $150?

ATC of producing the ninth unit is higher than $150.

Which of the following indicates that a firm is experiencing economies of scale?

The firm's long-run average total cost decreases as output increases.

At the current quantity that a firm is selling, the firm has marginal revenue of $750 and marginal cost of $800. Which of the following is true?

The firm's profits would increase if the firm decreased the quantity sold.

In the short run, if a firm produces the level of output at which marginal revenue is equal to marginal cost but the price is less than the average total cost, the firm will

continue to operate if the price is greater than its average variable cost

According to the cost schedule in the table above, the firm's total fixed cost is

$100

Question is based on the table below, which shows a firm's average variable cost (AVC) and average total cost (ATC).

$30

Question is based on the table below, which shows a firm's average variable cost (AVC) and average total cost (ATC). In the short run, the lowest price at which the firm will continue to produce is

$35

Is the firm in short-run or long-run equilibrium?

Short run, because the firm is earning a positive economic profit

Which of the following best explains why the short-run average total cost curve is U-shaped?

Spreading total fixed costs over a larger output, and eventually diminishing returns

Which of the following will shift the supply curve for apples to the right?

A decrease in the rental price for apple harvesting equipment

In microeconomics, the short run is defined as which of the following?

A period during which some inputs in a firm's production process cannot be changed

Which of the following would shift the short-run supply curve for strawberries?

A strike by all farmworkers

If a firm's production function exhibits diminishing marginal product of the variable input in the short run, which of the following about the firm's short-run marginal cost MC curve must be true?

As output increases, the MC curve slopes upward.

Marginal Cost

Change in total cost resulting from producing an additional unit of output

Economics of scale exists when

Long-run average total cost decreases as output increases

This question refers to the graph above, which shows the demand and cost curves for a profit-maximizing firm. Which of the following statements best describes the graph?

Economic losses are incurred, and exit of firms from the market will cause prices to increase in the long run.

Which of the following can give a firm market power?

Having economies of scale in production over the range of market output

A firm uses only 2 inputs. Capital (K) and labor (L) to produce output. The marginal product of capital MPk, the marginal product of labor would be PL. The least cost combination of capital and labor needed to produce a given level of output

MPL/PL=MPK/PK labor/labor = capital/capital

In the short run, a profit-maximizing firm, faced with U-shaped average cost curves, is producing a level of output at which the average total cost of production is minimized. At this level of output, which of the following is true for the firm?

Marginal cost equals average total cost.

Economies of scale can be illustrated by

a decreasing long-run average total cost curve as a firm produces more output

A firm is currently employing a cost-minimizing combination of labor and capital for a given level of output. The firm is employing 20 workers, and the marginal product of the last worker is 40 units of output. The firm is employing 100 units of capital, and the marginal product of the last unit of capital is 10 units of output. If the wage rate is $20 per hour, what is the price of capital?

$5

The table above shows a firm's total cost of producing various units of output. What is the average variable cost of producing three units?

$7

The table above shows the number of labor inputs necessary to produce given levels of output. If the cost of a unit of labor is $20 and the total fixed cost is $100, the average total cost of producing 20 units of output is

$7

Bruce is a talented writer and graphic artist who enjoys both types of work equally. Instead of earning $45,000 as a writer, Bruce now earns $25,000 in accounting profits as a graphic artist using the same computer equipment he would have used as a writer. What is Bruce's economic profit from choosing to work as a graphic artist?

-20,000

Given the production schedule above, what is the maximum number of workers the firm can hire before the effects of diminishing marginal returns set in?

2

Economic profit can be calculated as accounting profit minus which of the following?

Implicit Costs

Max employs both labor and capital to produce toy trains. Currently, the last unit of labor employed has a marginal product of 15 units, The last unit of capital employed has a marginal product of 40 units. The price of labor is $3 per unit, and the price of capital is $10 per unit. Which of the following employment decisions should Max follow to use the least-cost combination of labor and capital to produce the current quantity of toy trains? Employment Employment of Labor of Capital

Increase Decrease

F&D Manufacturing Company increases all its inputs by 50 percent each. If F&D's output increases by 100 percent, then F&D is experiencing.

Increasing returns to scale

Assume that labor is the only variable input. If a firm's short-run marginal cost is increasing as output rises, which of the following must be true?

Marginal product of labor is decreasing.

Assume that a firm uses only one variable input. If a firm is experiencing diminishing returns, which of the following is true as more of the variable input is used?

Marginal products will increase at a constant rate.

Assume that a firm is maximizing short-run profits and that price is greater than average variable cost. Which of the following must be true at the firm's level of output?

Marginal revenue is equal to marginal cost.

Answer the question based on the following graph which shows the cost and revenue curves for a profit-maximizing monopolistically competitive firm.What is the profit-maximizing price and quantity?

P5 Q1

The following question is based on the following graph which shows a firm's marginal cost(MC), average total cost (ATC), and average variable cost (AVC)

The MC curve above P2

When marginal product exceeds average product, which of the following must be true?

The average Product is increasing.

Which of the following best explains why a firm's short-run marginal cost curve shifts down when it purchases new, more efficient equipment and experiences an increase in its total cost?

The average variable cost curve shifts upward as a result of the equipment purchase, and the marginal cost curve shifts downward.

Which of the following conditions is necessary for productive efficiency?

The firm is producing a given level of output with a least-cost combination of inputs,

If the price of a firm's variable input increases, which of the following will occur?

The firm will decrease its level of production

Max Company produces electronic gadgets using labor and capital. If Max increases labor and decreases capital to produce the same quantity of gadgets, what will happen to the marginal product (MP) of labor and the (MP) of capital?

area 0P3JQ1

The firm's total revenue is equal to

area 0P3JQ1

The firm's economic profit is equal to

area P2P3JK

Beyond a certain level of output, the short-run marginal cost will rise because

at least one input is fixed and eventually diminishing returns will occur

If a single firm can produce and supply an entire market at a lower unit cost than many small firms can, the long-run average total cost must be

decreasing as the firm's output increases

The following question is based on the following graph which shows a firm's marginal cost(MC), average total cost (ATC), and average variable cost (AVC)

earn economic profits as long as the price is greater than P2

The table below shows the long-run total cost function of a firm. The firm's cost function

exhibits constant returns to scale

When the marginal cost curve lies below the average total cost curve, it is true that as output increases

marginal cost is increasing

A firm is producing an allocatively efficient level of output if

price is equal to marginal cost