chpter8

The table below sets out the amount of capital needed for certain investment projects and the rate of return for each project. What is this firm's demand for physical capital if their hurdle rate is 8%? Quantity of Financial Capital for Physical Capital Investment Projects Estimated Rate of Return for the Firm $6 million 1% $5 million 3% $4 million 5% $1.5 million 7% $500,000 9%

$500,000

Refer to the diagram below. Based on the information illustrated in this graph, which of the following is an accurate statement? (GRAPH)

MC is initially downward sloping in the region of increasing MR at low output levels

In economics, labor demand is synonymous with

derived demand.

Which of the following can be thought of as an adjustment for the risks involved with respect to the cost of a firm acquiring financial capital?

imposition of hurdle rates of interest

A manufacturer would likely make an ___________ in a market following the long-run process of beginning and expanding production in response to ________________ .

entry; a sustained pattern of profits

In economics, the term "shutdown point" refers to the point where the

marginal cost curve crosses the average variable cost curve.

Idaho farmers can sell as large a quantity of their potato crop as they wish,

provided each is willing to accept the prevailing market price.

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is

preparing to exit operations.

If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ .

shutdown point

For a perfectly competitive firm, the marginal cost curve is identical to the firm's ________________ .

supply curve

Refer to the diagram above. In this instance, point e shown on the graph indicates GRAPH

the point where profits will increase by reducing output

Given the data provided in the table below, what will the fixed costs equal for production at quantity (Q) level 4? Q P TC TR MR MC Profit 0 $5 $9 1 $5 $10 2 $5 $12 3 $5 $15 4 $5 $19 5 $5 $24 6 $5 $30 7 $5 $45

$9.00

Given the data provided in the table below, what will the amount of profit be for production at quantity (Q) level 7? Q P TC TR MR MC Profit 0 $5 $9 1 $5 $10 2 $5 $12 3 $5 $15 4 $5 $19 5 $5 $24 6 $5 $30 7 $5 $45

-$10.00

______________________ refers to the additional revenue gained from selling one more unit.

Marginal revenue

In a perfectly competitive market setting, which of the following would be a true statement?

Wage rates trend toward marginal revenue product levels.

Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers

can also be interpreted as shifts of their respective marginal cost curves.

If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output,

expanding output levels at any given price will be profitable.

Why are some producers forced to sell their products at the prevailing market price?

high degree of similarity to competitor's products

Economic profit can be derived from calculating total revenues minus all of the firm's costs,

including its opportunity costs.

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should

keep the business open in the short-run, but plan to go out of business in the long-run.

Refer to the table below. In this instance, confirmation that this firm is operating in a perfectly competitive market can readily be ascertained by the fact that its Q P TR MR TC MC 0 $30 0 --- $15 --- 1 $30 $30 $30 $25 $10 2 $30 $60 $30 $40 $15 3 $30 $90 $30 $60 $20 4 $30 $120 $30 $85 $25 5 $30 $150 $30 $115 $30 6 $30 $180 $30 $150 $35

marginal revenue is constant.

What happens in a perfectly competitive industry when economic profit is greater than zero?

new firms may enter the industry and all of the above

What happens in a perfectly competitive industry when economic profit is greater than zero?

new firms may enter the industry and all of the above

In order to produce 100 pairs of oven gloves, Marcia incurs an average total cost of $2.50 per pair. Marcia's marginal cost is constant at $10.00 for every pair of oven gloves produced. The total cost to produce 50 pairs of oven gloves is

$200.00

Refer to the diagram below. At the point marked m, GRAPH

TR is exactly equal to TC, so profits equal zero.

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________ .

accounting profit; excluding opportunity cost

The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead

are two stark realities any business firm must recognize.

If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits.

average

If the price that a firm charges is lower than its ____________ of production, the firm will suffer losses.

average cost

If the average product for six workers is fifteen and the marginal product of the seventh worker is eighteen, then

average product is rising.

it is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, ____________________.

could likely result in a notable loss of sales to competitors

Refer to the diagram below. In this instance, the range of production possibilities at point d, GRAPH

is a steeper slope reflecting a return to losses due to diminishing returns.

I'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output

is dictated by the forces of demand and supply.

In the ________, the perfectly competitive firm will react to losses by __________________________ .

long run; reducing production or shutting down

If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then

marginal cost is below average variable cost.

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ________________ and ________________ .

marginal revenue; marginal cost

I'maGoldMiner has benefited from a record rise in gold prices in the global commodities market. While the price of its output is highly influenced by market speculation, if it wants to increase production to take advantage of the current profit-maximizing opportunity, the company

must accept market price for its physical capital inputs.

When a firm uses retained profits to invest in more energy efficient equipment, an economist would calculate the _________________ of investing in physical capital.

opportunity cost

Refer to the diagram below. Based on the information illustrated in this graph, which of the following is an accurate statement? GRAPH

profits will be reduced by production in the zone where MC exceeds MR

In Sam's greenhouse operation, labor is the only short term variable input. After completing a cost analysis, if the marginal product of labor is the same for each unit of labor, this will imply that

the average product of labor is always equal to the marginal product of labor.

Even when competitive firms are unable to calculate marginal revenue product directly, _________________________________________ will push wage rates toward the marginal revenue product of labor.

the pressures of competition in the labor market

Refer to the diagram below. Which of the following explains the slope of the total revenue curve illustrated in this graph?

the slope of the total revenue curve is explained by both a and b above.

Refer to the diagram below. In this instance, at the range of output represented at point b, GRAPH

total costs exceed total revenues.