ECO 2023 Exam 3 Review (Mod 8-10)
In the table below, what is the marginal product of the third worker?
55 units
Assume that instead of the cost of the three computer workstations and space being $5,000 per month, it is $10,000 per month. Match the number of workers to the correct marginal cost.
A = $30.00, B = $25, C = $23.08
Using the table below, calculate the average cost of producing 80, 120, and 160 computers per month.
A = 197.50 , B = 150.00 , C = 128.13
Which of the following is an example of a long-run decision for a firm?
A car manufacturer builds a new factory
Assume that competitive firms in a competitive market are in long-run equilibrium. In the short run, what will be the effects of an increase in variable costs on the output of a typical firm in a competitive market?
A decrease in output
At a bakery, which of the following operating characteristics might result in economies of scale?
A giant mixing container costs twice as much to operate as a small one but can mix 6 times as much dough daily.
Fixed costs in the short run increase. The change will eventually result in ______________ (compared to the initial price) in the long-run market price in a competitive, constant cost industry.
An increase
In the short run, how will a decrease in variable costs affect the output of a typical firm in a competitive market?
An increase in output
In the short run, how will an increase in demand affect the output of a typical firm in a competitive market?
An increase in output
What does diminishing marginal productivity mean?
As you increase the amount of a variable input, its marginal product eventually gets smaller.
There is a cost function such that marginal cost is always less than average cost. What must be true about average cost?
Average cost is decreasing.
For the first few workers that a firm hires, marginal product and average product are both increasing. Which is greater, marginal cost or average cost?
Average cost is greater.
If average product is increasing as the variable input increases, which of the following is true?
Average cost must be decreasing
If a working environment becomes "toxic" the productivity of all workers will decline. What will happen to the average cost of production as a result?
Average cost will increase.
What is average fixed cost (AFC) in dollars at q = 5?
Average fixed cost (AFC) = Average total cost (ATC) - average variable cost (AVC) = $6.80 - $5.80 = $1.
The amount of time a firm operates with the ability to make long-run decisions is how long?
Differs by industry
A long-run average cost curve that keeps rising through all levels of possible outputs represents which effect?
Diseconomies of scale
When a firm gets so large that coordination, management of workers, and other inputs become costly and difficult, it is experiencing which of the following?
Diseconomies of scale
Consider a decrease in fixed costs in the short run. The change will eventually result in ______________ (compared to the initial price) in the long-run market price in a competitive, constant cost industry.
a decrease
For any firm, which of the following is true about the long-run average cost curve?
It is a function which shows the lowest average cost of producing any output level.
The owners of a firm find that for each worker they hire, the additional output increases by the same amount. What is the shape of the firm's marginal cost curve?
It is flat.
Why can't a single firm in a perfectly competitive industry influence the market price?
Its production level is too small to affect the market
See the table below. At a long-run chosen output level of 500, which firm size (amount of capital) would the firm want to use?
K = 3
The following table shows the cost of production for a perfectly competitive firm. If the market price is $6.80 per unit, what is the profit-maximizing level of output?
Output = 500
Which of the following is true for a single firm in a perfectly competitive industry?
P = MR
Accounting profits at a firm's economic profit break-even point are ________.
Positive
Given all the characteristics of perfect competition, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from?
Price
In the short run, perfectly competitive firms will produce where _____________?
Price equals marginal cost
If a perfectly competitive industry is in long-run equilibrium, then which of the following is true?
Price equals minimum average cost.
Assume a competitive industry is in long-run equilibrium. What are the short-run effects (on the typical firm) of a decrease in demand?
Prices decrease; firm output decreases.
Given the following data, what should a perfectly competitive firm do? Current production = 10,000 Total cost = $300,000 Fixed cost = $200,000 Marginal cost = $15 Current price = $15
Produce in the short run but close down in the long run.
Select all implicit costs from the list below.
Profit earned in similar businesses
A production function can best be described as which of the following?
The relationship between the quantity of inputs and quantity of outputs produced in a given amount of time.
Consider the market structure of perfect competition. What does the lack of entry barriers indicate?
There are no significant obstacles preventing firms from entering and leaving the industry
If the long-run average cost curve is horizontal, it implies that the firm is experiencing _________.
constant returns to scale
Perfectly competitive firms will be technically efficient in a ______________ equilibrium and allocatively efficient in a ______________ equilibrium.
long run; short and a long run
Economies of scale happen when increases in output result in _________.
lower average costs
Use the information from the table. If the weekly wage is $200, the marginal cost of increasing weekly production from 10 to 22 scarves per week is ______________ than the marginal cost of increasing weekly production from 40 to 46 scarves per week because the marginal product of the second worker is ______________ than the fifth worker.
lower, higher
In a perfectly competitive industry, the industry demand curve is __________.
downward sloping
When a firm is experiencing economies of scale, the long-run average cost curve is _________.
downward sloping
In the case of an increase in demand, what will happen to the economic profits of the typical competitive firm? Economic profits will ________.
increase
Consider a perfectly competitive firm. When the market price is greater than both the firm's marginal cost and average variable cost, the firm ________.
should increase its level of output
What is total cost (TC) at q = 5?
Total cost (TC) = Average total cost (ATC) x q = $6.80 x 5 = $34.
What is total revenue (TR) in dollars at q=2.5?
Total revenue (TR) = Average Revenue (AR) x q = $5 x 2.5 = $12.50.
What is true about the long run for a firm?
All inputs can be changed
Economic profits are ______________ than accounting profits.
Always less
If the fixed cost of producing 50 units of output is $100,000 per year, the fixed cost of producing 100 units of output per year is _____.
$100,000
At 1,000 units of output, the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. The variable cost of producing 1,000 units of output per week is equal to _____.
$16,000
The fixed cost of producing wedding cakes is $10,000 per month. The variable cost for producing 10 wedding cakes per month is $12,000. The average cost of producing 10 wedding cakes per month is ____.
$2,200
If labor is the only variable input a firm owner uses and the wage rate is $200 per week, what is the firm owner's variable cost per week if she hires 12 workers?
$2,400
Juan wants to increase production at his confection shop. If he hires one more worker, he can increase output by 100 candies per week. A confection worker's weekly wage is $200. Juan's marginal cost of increasing output by 100 candies per week is ______.
$2.00
Alicia is currently spending $6,000 per week on total variable costs to produce 500 hats. To produce 505 hats per week, she would have to spend $6,100 per week. The marginal cost per hat is ______.
$20
Using the information from the table below, what is the marginal cost of increasing output from 32 to 40 knit scarves per week if the weekly wage is $200?
$25
If at 500 units of output, total fixed cost is equal to $10,000 and total variable cost is equal to $15,000. Total cost is equal to _____.
$25,000
If accounting profits equal $10 million for a firm and the owners could likely earn $7 million in a similar business, the firm's economic profit is ________.
$3 million
Peter can produce 50 lunches per hour for $1,250. If he hires one more cook for $15 an hour, he can produce 55 lunches per hour. The marginal cost of expanding hourly lunch production from 50 to 55 is _____.
$3.00
Samantha is evaluating whether to increase production at her book bindery. If she hires one more worker, she can increase output by 50 books per week. A book binder's weekly wage is $250. Samantha's marginal cost of increasing output by 50 books per week is ________.
$5.00
Consider this example: The total cost of producing 1,000 units of output is equal to $55,000 per week. The total cost of producing 1,010 units is equal to $55,500 per week. The marginal cost of increasing output from 1,000 units per week to 1,010 units per week is:
$50
Working from the table, assume that instead of the cost of the three computer workstations and space being $5,000 per month, it is $10,000 per month. Match the number of workers to the correct total cost.
0 - $10,000 1 - $13,000 2 - $16,000 3 - $19,000 4 - $22,000 5 - $25,000 6 - $28,000 7 - $31,000
Working from the table, assume that instead of the cost of the three computer workstations and space being $5,000 per month, it is $10,000 per month. Match the number of workers to the correct marginal cost.
0 - 0 1 - $30 2 - $25 3 - $23 4 - $30 5 - $40 6 - $120 7 - $150
At 1,000 units of output, the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. If labor is the only variable input and the weekly wage is $1,600, how much labor is being used to produce 1,000 units of output?
10.0
Calculate the economic losses for Firm 1 if they decide not to produce -$____.
10.0
Calculate the economic losses for Firm 2 if they decide to produce -$____.
100.0
In the scenario presented in Question M9.07, what is Gita's yearly explicit cost? $_____.
100000.0
In the scenario presented in Question M9.07, what is Gita's yearly economic profit? $_____.
101000.0
If the average product of labor is seven units of output per worker per day, the total output of 15 workers will be ______________ units per day.
105
Fill in the missing value for A in the table below.
12
Calculate the economic losses for Firm 2 if they decide not to produce -$____.
120.0
Consider two students, each earning 1300 on the quantitative and verbal portions of the SAT. The average SAT score for our group of two is 1300, of course. (1300 + 1300)/2. Suppose we add one more student to the group and calculate the new average. What will the new average be if the third student has an SAT that is equal to 1300?
1300.0
Calculate the economic losses for Firm 1 if they decide to produce: $____.
15.0
Suppose that a factory is producing two automobiles per hour. The total fixed cost is $20,000. The total variable cost is $10,000. The average cost is $______________.
15000.0
In the scenario presented in Question M9.07, what is Gita's accounting profit? $_____.
150000.0
A grocery store is trying to figure out how many delivery trucks it should purchase for the delivery of online grocery purchases. It currently has one delivery truck but business is expanding, so the company is considering adding up to 3 more trucks. The fixed and variable costs of owning a fleet of 2, 3 or 4 delivery trucks for 100, 200 or 300 grocery orders per week is shown in the table below. If the company has to deliver 100 orders per week, how many delivery trucks should they have?
2.0
Given the following data, calculate profit as an economist would measure it (give your answer in millions of dollars). $____ million.
2.0
See the table below. Suppose the firm has firm size K = 1. If the firm was attempting to minimize average costs with this level of capital, what output level would they choose?
200
The production of 12,000 candy bars per day requires 60 workers. The average product of each worker is ______________ candy bars per day.
200
Fill in the missing value for B from the table below.
240
Fill in the missing value for A from the table below.
80
Given the following data, calculate profit as an accountant would measure it (give your answer in millions of dollars). $ ____ million.
3.0
Fill in the missing value for C in the table below.
30
A grocery store is trying to figure out how many delivery trucks it should purchase for the delivery of online grocery purchases. It currently has one delivery truck but business is expanding, so the company is considering adding up to 3 more trucks. The fixed and variable costs of owning a fleet of 2, 3 or 4 delivery trucks for 100, 200 or 300 grocery orders per week is shown in the table below. If the company has to deliver 300 orders per week, how many delivery trucks should they have?
4.0
In the scenario presented in Question M9.07, what is Gita's yearly variable cost? $_____.
40000.0
Using the information from the table below, what is the marginal product of the 4 worker?
45.00 office chairs
In the scenario presented in Question M9.07, what is Gita's yearly implicit cost? $_____.
49000.0
The production of 75 sofas per week requires 15 workers. The average product of each worker is ______________ sofas per week.
5
Marcus has four employees. The four employees produce 55 floral arrangements in a day. Marcus hires a fifth employee. The five employees produce 60 floral arrangements in a day. The fifth employee's marginal product is __________.
5 floral arrangements in a day
Gita is an auto mechanic and runs a small repair shop. She hires one mechanic at $20,000 per year, pays a monthly rent of $5,000 towards the lease of the premises where her repair shop is located, and spends $20,000 per year on materials needed for repairing cars and trucks. She has invested $40,000 of her own savings in heavy equipment (air and strut compressors, brake lathes, heavy-duty lifts etc.) that could earn her $4,000 per year if invested elsewhere. She has been offered $40,000 per year by a competitor to work as a mechanic for them and she estimates the value of income she could earn in her spare time to be $5,000. The repair shop's total annual revenue is $250,000. What is Gita's yearly fixed cost? $_____.
60000.0
Fill in the missing value for B in the table below.
64
Fill in the missing value for C from the table below.
70
Suppose you are earning $50,000 accounting profit in your current laundromat business. If your other options were to earn $50,000 accounting profit running a yogurt shop, or $45,000 being a florist, or $60,000 running a beauty shop, what is your economic profit?
A loss of $10,000.
Using the table below, calculate the marginal cost of the 4, 6, and 8 units of output
A=90, B=110, C=125
If the goal is to produce 200 web pages each day for the foreseeable future, which size of office should the firm build, AC1, AC2, or AC3?
AC1 & AC2
Which of the following most likely represents a short-run business decision?
Aaron hires two additional workers to help cover the holiday rush at his shop.
Over what range of output does this farmer experience constant returns to scale?
Between the third and fourth bushels
A small shirt factory in Taiwan doubles its labor inputs and experiences a tripling in output. A large catering kitchen in Tokyo increases its inputs by 30% and experiences a 50% increase in production. Which of the following is true?
Both firms enjoy economies of scale.
Which of the following is a characteristic of perfect competition?
Easy entry for firms
A paper company doubles its factory size as well as its workforce. After the expansion, its output triples. The paper company is experiencing:
Economies of scale
An electric power plant most likely experiences which of the following?
Economies of scale
The marginal product of labor is 100 boxes of software and wages are $10 per hour. A machine that does the same work rents for $200 per hour and packages 1000 boxes per hour. If the firm is currently producing the amount it wishes, what should it do?
Expand labor and reduce capital, as the additional output for each dollar spent is greater for labor than for capital
The table below shows a company's long-run total cost associated with producing 12,000, 22,000 and 30,000 units of a good in factories of varying sizes. If market demand is 10,000 units, which factory size should the company choose?
Factory Size 1
The table below shows a company's long-run total cost associated with producing 12,000, 22,000 and 30,000 units of a good in factories of varying sizes. If market demand is 22,000 units, which factory size should the company choose?
Factory Size 2
What is fixed cost (FC) in dollars at q = 5?
Fixed cost (FC) = Average fixed cost (AFC) x q = $1 x 5 = $5.
What are two of the reasons that average cost tends to have a "bowl" shape?
Fixed costs tend to dominate low levels of output and variable costs tend to dominate high levels of output
When a firm earns zero economic profits, it does which of the following?
Has a positive accounting profit
A car assembly line uses workers and robots. The marginal product of a worker is currently one automobile per month. The wage and benefits of that typical worker are currently $4,000 per month. The firm could hire another robot that would cost $20,000 per month with a marginal product of four automobiles per month. If the automobile company wants to continue producing its current level of output, which of the following should it do?
Hire more labor and buy fewer robots
An efficient Nebraska corn farm would decide to hire more workers and use fewer harvesting machines after which of the following events? I. an increase in corn commodity prices II. a decrease in fuel prices III. an increase in worker productivity IV. an increase in harvesting machine maintenance costs
III and IV
When can diseconomies of scale occur?
In the long run
Which of the following is a cause of diminishing marginal productivity?
In the short run, labor runs out of available capital as more labor gets added to the production process.
Consider the effect on costs of an increase in wages in an economy. What is the increase likely to do?
Increase short-run average costs and long-run average costs.
Suppose that the cost of capital decreases and the firm must now adjust its inputs accordingly. As the firm adjusts, which of the following best describes the effect on inputs? The marginal product of labor will ; the marginal product of machines will .
Increase; decrease
A paper company doubles its workforce in the short run. After the expansion, its output triples. The paper company is experiencing:
Increasing marginal returns
The clothing and attire retail market has seen an increased number of firms entering the industry. Thus, there is a lot of competition in markets for many types of clothing. What is the result of this high amount of competition?
Individual buyers and sellers cannot affect the market price.
Match the input to its correct category.
Laptop Computer - Capital Salmon - Land Janitor - Labor Accountant - Labor Corner Lot - Land Office Building - Capital
What is the main source of diseconomies of scale?
Limited ability to manage and coordinate larger amounts of inputs
Accountants tell a franchise owner that she earned $30,000 in profits last year. The owner knows that most of her business acquaintances earned at least $70,000 in profits in comparable franchises. Which of the following is true? Her firm earned an economic __________.
Loss of $40,000
A perfectly competitive firm, that chooses to produce, will maximize profits at the output level where which of the following is true?
Marginal cost is equal to marginal revenue
For the first few workers that a firm hires, marginal product and average product are both increasing. Which is greater, marginal product or average product?
Marginal product is greater.
In a market with firms experiencing large economies of scale, we will likely see which of the following?
Most of the firms will tend to be large.
Which of the following would be most likely in a market with firms experiencing economies of scale?
Most of the firms will tend to be large.
Will a change in fixed costs change marginal cost?
No
Will a change in fixed costs change total variable cost?
No
Assume that competitive firms in a competitive market are in long-run equilibrium. In the short run, what will be the effects of an increase in fixed costs on the output of a typical firm in a competitive market?
No change in output
In the short run, how will an increase in fixed costs affect the output of a typical firm in a competitive market?
No change in output
Assume the following data. The marginal product of labor is 150 washed cars per day. The daily wage is $60. If the marginal product of machines that would wash cars is 200 per day and the rent for the machines is $80, what will the firm do?
Not change the number of machines or workers
In a perfectly competitive market, a single firm that sets its price a small amount above the market price will do which of the following?
Not sell any units at all
Which of the following is an example of a short run decision for a firm?
Reducing the number of workers at the firm
Which of the following describes the relevance of diminishing marginal returns in the long run?
Relevant if one input is changed while the other input is held constant or changed in the opposite direction
Assume an additional waiter can increase the number of customers served in a restaurant by 100 customers per day. The waiter will cost the restaurant $50 per day. On the other hand, a new microwave oven will speed up the cooking process and allow each customer to be served more quickly. The microwave will allow 200 more customers to be served with no additional labor. The microwave can be rented for $75 per day. What should the restaurant do?
Rent a microwave, because the increase in output per dollar spent is greater than the increase in output per dollar spent from hiring another worker
A perfectly competitive firm is experiencing the following short-run price and costs: P = $0.80, ATC = $2.20, AVC = $1.30, MC = $0.80. What short-run decision should this firm make?
Shut down production
The marginal product of labor (MPL) can be defined as which of the following?
The change in output level as the result of hiring another worker
Suppose in the long run a firm's capital costs increase. What will happen regarding the LRAC?
The entire LRAC function will shift upward.
In the previous question, what will happen if the wage increases to $75 per day and the rent of the machines increases to $100 per day?
The firm should expect that its average costs will increase.
Suppose an additional worker can handle an additional 10 orders per hour, at a cost of $15 per hour. A telephone answering machine will handle an additional 20 calls per hour, at a cost of $10 per hour. Which of the following is correct?
The firm should increase capital and decrease labor because labor produces less per dollar spent.
See the table below. Suppose the firm chooses a permanent output level of 500 units but remains in firm size K = 2. What is the result of this?
The firm will be operating inefficiently at higher-than-optimal costs, therefore not maximizing profits.
Regarding input choices, which of the following most fully describes how a firm would respond to an increase in the wage rate in the long run?
The firm would use less labor and more capital.
Regarding perfect competition, what does it mean when the goods sold by the firms in a market are homogeneous?
The good sold by one firm is a perfect substitute of the good sold by another firm in the same market.
Consider the supply of goods in a perfectly competitive industry. Will supply in the short run be more elastic or less elastic than in supply in the long run?
The long run supply will be more elastic
A market price is greater than marginal cost in a perfectly competitive market. What will allocative efficiency be at that level of production?
The market will produce too little for allocative efficiency.
Why are perfectly competitive markets considered economically efficient?
The opportunity cost of society for making the good is equal to society's value of the good.
A firm finds that as it adds workers, each worker is adding less and less output to the production process. What must be true about average cost?
There isn't enough information.
Suppose a firm doubles its inputs in the long run and as a result, output doubles. Which of the following is true?
This firm is experiencing constant returns to scale.
Assume firms have adjusted their hiring to be at optimum. A college-educated worker has a marginal product twice that of a worker with only a high-school education. The college-educated worker should expect that her wages will be ...
Twice the amount of the high-school graduate
What is variable cost (VC) in dollars at q = 5?
Variable cost (VC) = Average variable cost (AVC) x q = $5.80 x 5 = $29.
Select all explicit costs from the list below.
Wages Raw Materials Rent
In the scenario presented in Question M9.07, is Gita making the best use of her resources (time and money) in terms of economic profit?
Yes
Will a change in fixed costs change average cost?
Yes
Will a change in fixed costs change total cost?
Yes
What are economic profits at a firm's break-even point?
Zero
For a firm, the short run is defined as being __________.
a period of time in which at least one of the firm's inputs is unchangeable
The following graph represents the weekly costs of production for a small firm making office chairs. If the short-run market price for an office chair is $60 per chair, (roughly) how many chairs should the firm make to either maximize profits or minimize losses?
about 60 chairs per week in the short run, and the firm is making zero economic profit
Think about the characteristics of firms and the products in a perfectly competitive model. Which of the markets is most likely to be considered perfectly competitive?
agricultural commodities such as corn or wheat
In the long run, firms can vary _________.
all inputs
A profit-maximizing perfectly competitive industry will be ______________ in the short run.
allocatively efficient alone
A competitive, constant cost market is in long-run equilibrium. What will an increase in demand cause in the short run and in the long run?
an initial increase in the typical firm's output; from that short-run point, a decrease in the typical firm's output in the long run
With increasing marginal cost, if marginal cost is equal to average cost, average cost at this point must be ______________.
at its minimum point
In the long run, marginal cost will be ___________ average cost if the firm is experiencing economies of scale.
below
Use the numbers to build the firm's LRAC function. In other words, assume that at any level of output the firm uses the proper factory size to get the lowest average cost of production. As this firm grows from 8,000 to 10,000 units, it will be experiencing:
constant returns to scale.
Given the following data, what should the perfectly competitive firm do? Current production = 1,000 Total costs = $15,000 Fixed costs = $6,000 Marginal cost = $10 Current price = $10
continue to produce in the short run, but close down in the long run
In the case of an increase in fixed costs, what will happen to the economic profits of the typical competitive firm? Economic profits will ________.
decrease
The slope of a firm's production function will ______ as the amount of a variable input used increases if the input experiences diminishing marginal productivity.
decrease
Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change? A decrease in variable costs in the short run will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.
decrease; increase
Assume a decreasing-cost industry in a competitive market. What are the long term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.
decrease; increase
When the cost of inputs is constant, diminishing marginal returns means that marginal product will eventually ______ and marginal cost will eventually _______.
decrease; increase
Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? A decrease in variable costs in the long run will cause the equilibrium price to ______________ and the equilibrium quantity in the market to ______________.
decrease; increase by more than in the short run
The law of diminishing marginal returns is the cause of ______________ marginal product and ______________ marginal cost.
decreasing; increasing
The Andersen family operates a bakery that sells donuts. Last year, most production was done by hand. This year, the family was able to move into a larger facility with specialized and automated production equipment. What is most likely the result? The firm experienced _______ and average costs _______.
economies of scale, decreased
The following graph represents the weekly costs of production for a small firm making office chairs in a perfectly competitive market. If the market price for office chairs is currently $100 per chair we expect firms to ________ the market and the market price to ________.
enter; decrease
Assume that competitive firms in a competitive market are in long-run equilibrium. What will happen in the LONG RUN as a result of the increase in variable costs in the previous question? Firms will ______________ because profits have ______________.
exit; decreased
Assume that competitive firms in a competitive market are in long-run equilibrium. What will happen in the long run if fixed costs increase? Firms will ______________ because economic profits have ______________.
exit; decreased
Currently, the marginal product of labor is 32 units per week. The average product of labor at the current level of output is 48 units per week. If the employer hires one more worker, the marginal product of labor will be 30 units per week. The average product of labor will ______________.
fall
As a firm increases output, long-run average costs typically _________.
fall, hit a minimum, then rise
In the short run, average cost may fall as output increases, due to:
falling average fixed costs fall or increasing marginal product.
"Diminishing marginal productivity starts to occur when the total productivity line starts to decrease." This statement is:
false. Marginal product represents the change in output as labor input increases. So if output is increasing but by smaller amounts, then marginal product is decreasing.
For a firm in a perfectly competitive industry, the demand curve for its own product is _________.
horizontal at the market price
An increase in the prices of an input will cause long-run average costs to _________.
increase
If the quantity of an input is variable in the short run, its total cost will ______________ as output increases.
increase
An increase in technology will cause the total product function to ______________ and average costs to ______________.
increase; decrease
Assume that competitive firms in a competitive market are in long-run equilibrium. Assume a constant cost industry. In the short-run, an increase in demand will cause firm output to ______________ and the market price to ______________.
increase; increase
In the short run, an increase in wages (the price of the variable input) will cause average cost to ______________ and marginal cost to ______________.
increase; increase
In the short run, an increase in the price of one of the fixed inputs will cause average cost to ______________ and marginal cost to ______________.
increase; not change
Assume the price of coffee increases. If the market for tea is perfectly competitive and a constant cost industry, what will happen to the tea market in the long run? Output will ______________; prices will ______________; and economic profits will ______________Indicate whether increase, decrease, cannot tell, or no change as before the price shift is correct for each blank space.
increase; not change; not change
Which of the following is a common cause of diseconomies of scale in large firms?
increased communication and management costs of a large business operation
In the short run, the law of diminishing marginal product is the cause of _________.
none of the above
Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.
not change; increase
Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change? An increase in fixed costs will ______________ the equilibrium price and ______________ equilibrium quantity in the market.
not change; not change
Suppose a firm doubles its inputs (therefore doubling its total costs as well). If this firm is experiencing diseconomies of scale, then __________.
output will increase, but less than double
In perfect competition, the demand curve for an individual's firm product is _________.
perfectly elastic
In the short run, a perfectly competitive firm that is maximizing profits will produce where:
price is equal to marginal cost
A single firm in a perfectly competitive market is a _________.
price-taker
Consider a single firm in perfect competition. The short-run effects of an increase in fixed cost are which of the following?
prices do not change; firm output does not change
Assume that competitive firms in a competitive market are in long-run equilibrium. What will happen in the long run in that same constant cost industry? Prices will ______________ and the market output will ______________ when compared to the levels prior to the increase in demand.
remain the same; have increased
Currently, the marginal product of labor is 45 units per week. The average product of labor at the current level of output is 32 units per week. If the employer hires one more worker, the marginal product of labor will be 47 units per week. The average product of labor will ______________.
rise
Variable cost ______________ while fixed cost ______________ as output ______________ in the short run.
rises; stays the same; increases
Suppose that the cost of all inputs (both labor and capital) decreases. What will happen to the long-run cost curve? The curve will _____, illustrating that _______.
shift downward; any level of output can now be produced at a lower average cost
A firm producing where price equals marginal cost that has variable costs equaling $60 million; fixed costs equaling $40 million; and revenues equaling $50 million should:
shut down now and leave the industry in the long run.
If the quantity of an input is fixed in the short run, its total cost will ______________ as output increases.
stay the same
The addition of a single firm in a competitive market will cause the market ______________ to ______________.
supply; increase
For a firm in a perfectly competitive market, average revenue equals ________.
the market price
Marginal cost is the slope of ___________.
the total cost curve
In the theory of firm behavior, we assume that firms attempt to maximize _________.
total economic profits
A firm's long-run total cost curve is ________.
upward sloping
In perfect competition, the individual firm cannot affect the price of the good it produces and sells. As a result, the total revenue (TR) function for an individual firm in perfect competition is:
upward sloping and linear.
If all firms in a perfectly competitive industry are required to adopt antipollution devices, the long-run results would be that the firms would be earning ______________ and the industry will be producing ______________ amounts of output.
zero economic profits; smaller
