AP Micro Test Unit 3 Q2

Which of the following is true if a perfectly competitive market is in long-run equilibrium?

Marginal revenue is equal to average total cost.

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.

In most cases the supply curve for a perfectly competitive industry can be described as which of the following?

More elastic in the long run than in the short run

If this were a perfectly competitive industry with the same costs as shown on the graph, the equilibrium price and output would be which of the following?

Price 0T, Output Q3

A market is clearly NOT perfectly competitive if which of the following is true in equilibrium?

Price exceeds marginal cost.

The following questions refer to the graph below, which shows the cost curves of a firm. If the firm produces Q1 units of output with two inputs, the firm will be experiencing which of the following in the short run and in the long run?

Short Run-Diminishing marginal returns, Long Run-Economies of sale

For a perfectly competitive firm, assume the price equals a rising marginal cost at 200 units of output. At this output, average total cost is $8 and average variable cost is $5. If the price is $4, by how much can this firm reduce its losses by shutting down?

$200

The chart below gives a firm's total cost of producing different levels of output. The total variable cost of producing five units of output is

$30

The chart below gives a firm's total cost of producing different levels of output. The marginal cost of producing the fourth unit of output is

$4

If labor is the only variable input and it costs $15 per hour and if the marginal product of labor is 3 units per hour, the short-run marginal cost of 1 unit of output is approximately

$5.00

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output?

$7

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

$7

The average total cost to the firm of producing 2 units of output is

$95.00

In the short run, the firm will stop production when the price falls below

0D

If the market price is $10, how many widgets should this profit-maximizing firm produce?

16,000

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is

20.00

If the product price is $85, how many units of output must the firm produce in order to maximize profits?

5

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

5 trains

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

At the price 0A, economic profits are

ABKH

At 100 units of a firm's output, average total cost is $10, average variable cost is $8, average fixed cost is $2, and marginal cost is $12. How will each of the following change as the firm's output further increases?

ATC-Increase, AVC-Increase, AFC-Decrease

Which of the following factors can cause a firm's cost curves to shift upward?

An increase in wages

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

Average product is increasing.

Which of the following statements about cost is always true for both monopolies and perfectly competitive firms?

Average total cost equals marginal cost when average total cost is a minimum.

Which of the following is always true of the relationship between average and marginal costs?

Average variable costs are increasing when marginal costs are higher than average variable costs.

The following questions refer to the graph below, which shows the cost curves of a firm. Which of the following will be true if the firm is in a perfectly competitive market and the price is P1 ?

In the long run, existing firms in the industry will produce an output level greater than Q1.

The following question refers to the diagram below, 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 statements is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run profit-maximizing equilibrium?

Economic profits equal zero, and marginal revenue equals marginal cost.

If a perfectly competitive industry is in long-run equilibrium, which of the following is most likely to be true?

Firms are earning a return on investment that is equal to their opportunity costs.

Which of the following are characteristics of a perfectly competitive industry? New firms can enter the industry easily. There is no product differentiation. The industry's demand curve is perfectly elastic. The supply curve of an individual firm in the industry is perfectly elastic.

I and II only

Which of the following best describes the relationship between the average total cost curve and the marginal cost curve in the short run?

If the average total cost curve is rising, the marginal cost curve is above the average total cost curve.

The table above shows the various units of output that can be produced with different combinations of capital and labor. Which of the following statements is correct according to the information in the table?

In the long run, there are constant returns to scale.

At the current production level of good X, price is greater than marginal cost. Which of the following actions would lead to greater efficiency?

Increasing the production of good X

In the short run in perfect competition, the industry's demand curve and a firm's demand curve have which of the following slopes?

Industry's Demand Curve-Downward sloping, Firm's Demand Curve- Horizontal

Which of the following is true for a perfectly competitive firm in long-run equilibrium?

It is allocatively efficient.

Which of the following is true about a firm's average variable cost?

It will equal average total cost when fixed costs are zero.

If a perfectly competitive firm increases its price above the market equilibrium price, which of the following will be true for this firm?

It will not be able to sell any output.

In the short run, a profit-maximizing firm should shut down if which of the following is true?

Its product price is less than its average variable cost.

Which of the following indicates the presence of economies of scale as the quantity of output increases?

Long-run average total cost decreases.

At the current output level, a firm finds that it has the potential to increase its profit by expanding output. If P = price, MR = marginal revenue, and MC = marginal cost, which of the following must hold at the current output for this firm?

MR > MC

Which of the following best describes a perfectly competitive market?

Many small firms producing a homogeneous product and facing no significant barriers to entry

For a firm where labor is the only variable input, which of the following happens when diminishing returns set in?

Marginal cost begins to increase.

Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?

Short-Run Price:Decrease, Short-Run Industry Output:Decrease, Movement Firms:Exit

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 statements is true for a perfectly competitive firm but not true for a monopoly?

The firm cannot affect the market price for its good.

Under which of the following circumstances is a firm experiencing economics of scale?

The firm doubles its inputs, and output triples.

Which of the following is true for a perfectly competitive firm?

The firm is a price taker.

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

The firm will decrease its level of production.

Which of the following statements is true about a firm that sells its output in a perfectly competitive market?

The firm will earn zero economic profits in long-run equilibrium.

The following questions refer to the graph below, which shows the cost curves for a profit maximizing, perfectly competitive firm. If marginal revenue is equal to P1, all of the following statements are true EXCEPT:

The firm will increase production in the long run.

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?

The firm's marginal costs will increase at each level of output.

A perfectly competitive firm is currently in long-run equilibrium. Its total revenue is $100,000, and the average total cost of production is $100. Which of the following can be concluded from this information?

The firm's output is 1,000 units, and its profit is zero.

An increase in which of the following will cause a firm's marginal cost curve to shift upward?

The price of a variable input

A constant-cost, perfectly competitive industry is in long-run equilibrium. If the demand for the good increases, which of the following will occur in the long run?

The price will remain unchanged.

A perfectly competitive firm, earning economic profits, produces and sells 100 units of output at a price of $20 per unit. If its marginal cost of increasing output to a rate of 101 units is $18, which of the following statements is correct?

The total profit from selling 101 units is $2 greater than the total profit from selling 100 units.

Technological advances will lead to

a decrease in average total costs

One characteristic of perfectly competitive markets is that individual firms

are free to enter or exit an industry in the long run

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

The following questions refer to the graph below, which shows the cost curves for a profit maximizing, perfectly competitive firm. The vertical distance CF represents the

average fixed cost of producing Q1 units of output

Marginal cost is defined as the

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

A farmer produces peppers in a perfectly competitive market. If the price falls, in the short run the farmer should

continue to produce only if the new price covers average variable costs

In a perfectly competitive industry, the market price of the product is $12. A firm produces at a level of output where average total cost is $16, marginal cost is $16, and average variable cost is $8. To maximize its profit, the firm should

decrease output but keep producing

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

A merger of two firms may increase economic efficiency by

decreasing average total cost through an increase in economies of scale

The relationship in the graph above best illustrates the economic concept of

diminishing marginal returns in production

As its output increases, a firm's short-run marginal cost will eventually increase because of

diminishing returns

The long-run average cost curve will be sloping downward if a firm experiences

economies of scale

Given the cost and demand schedules depicted above, if the firm increased output from q1 to q2, it would

experience a decline in profits

If there are many firms in an industry and each firm's product is indistinguishable from the products of all other firms, the individual firm's demand curve will be

horizontal and identical for every firm

The chart below gives a firm's total cost of producing different levels of output. The profit-maximizing level of output for this firm is

impossible to determine from the information given

The diagram above shows a perfectly competitive firm's short-run cost curves. If the price of the output increases from $8 to $10, the profit-maximizing firm will

increase output to 18 units because this is the output at which price equals marginal cost

When a perfectly competitive firm sells additional units of output, its total revenue will

increasing at a constant rate

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

Economies of scale exist when

long-run average total cost decreases as output increases

In the short run, a perfectly competitive firm should shut down whenever

minimum average variable cost exceeds price

At market price $6, the profit-maximizing rate of output will result in

normal profits

If a perfectly competitive firm wishes to maximize profits and is producing where price exceeds both marginal cost and average variable cost, then the firm is

producing too little output