Econ 103 Exam 3 (HW 9/10)

Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are $150. $25. $125. $124.50.

$25.

Refer to Figure 14-2. If the market price is $10, what is the firm's total cost? $15 $30 $50 $35

$35

If marginal cost is rising, average variable cost must be falling. marginal product must be rising. marginal product must be falling. average fixed cost must be rising.

marginal product must be falling.

Refer to Figure 14-1. If the market price is $10, the firm will earn negative economic profits and shut down. negative economic profits in the short run but remain in business. zero economic profits in the short run. positive economic profits in the short run.

negative economic profits in the short run but remain in business.

When profit-maximizing firms in competitive markets are earning profits, new firms will enter the market. market supply must exceed market demand at the market equilibrium price. market demand must exceed market supply at the market equilibrium price. the most inefficient firms will be encouraged to leave the market.

new firms will enter the market.

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produced? $30 $25 $10 $35

$35

Refer to Figure 14-2. If the market price is $10, what is the firm's total revenue? $30 $15 $35 $50

$50

Refer to Figure 14-1. The firm's short-run supply curve is its marginal cost curve above. $6. $13. $10. $4.

$6.

Refer to Figure 13-6. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory? ATCD ATCA ATCB ATCC

ATCA

Refer to Figure 13-5. The efficient scale of production occurs at which quantity? D A C B

C

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market? Exactly $2.50 More than $2.50 The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm. Less than $2.50

Exactly $2.50

Refer to Figure 13-3. Which of the following can be inferred from the figure above? Marginal product is increasing at all levels of output. Marginal product is increasing at low level of output and decreasing at high level of output. Marginal cost is increasing at all levels of output, and marginal product is increasing at low levels of output. Marginal cost is increasing at all levels of output, and marginal product is decreasing at high level of output.

Marginal product is increasing at low level of output and decreasing at high level of output.

Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is less than $13 but more than. $6. above $13. less than $6. exactly $13.

above $13.

The average fixed cost curve always rises with increased levels of output. declines as long as it is below marginal cost. declines as long as it is above marginal cost. always declines with increased levels of output.

always declines with increased levels of output.

A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000, average total cost is 50 cents. average variable cost is $2. average fixed cost is 50 cents. average total cost is $2.50.

average fixed cost is 50 cents.

Average total cost is very high when a small amount of output is produced because average fixed cost is high. marginal cost is high. average variable cost is high. marginal product is high

average fixed cost is high.

Profit-maximizing firms enter a competitive market when existing firms in that market have average total costs that exceed average revenue. total revenues that exceed fixed costs. total revenues that exceed total variable costs. average total costs that are less than market price.

average total costs that are less than market price.

When firms are said to be price takers, it implies that if a firm raises its price, competitors will also raise their prices. buyers will pay the higher price in the short run. buyers will go elsewhere. firms in the industry will exercise market power.

buyers will go elsewhere.

For a firm, marginal revenue minus marginal cost is equal to average total cost. profit. change in average revenue. change in profit.

change in profit.

Refer to Figure 13-6. At levels of output between M and N, the firm experiences both the benefits of specialization and diminishing marginal productivity. economies of scale. diseconomies of scale. constant returns to scale.

constant returns to scale.

Tom produces commemorative t-shirts in a competitive market. If Tom decides to decrease his output, this will increase his revenue, since the output decrease leads to a higher market price. decrease his revenue, since the price falls as competitors increase their output to make up for his decrease in output. decrease his revenue, since his output has decreased and the price remains the same. increase his revenue, since Tom's competitors will also decrease their output, so that price rises to offset the drop in Tom's output.

decrease his revenue, since his output has decreased and the price remains the same.

As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters diminishing marginal product. economies of scale. increasing marginal product. diseconomies of scale.

diminishing marginal product.

Scenario 13-4 If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Refer to Scenario 13-4. Farmer Brown's production function exhibits The production function is unrelated to the marginal product. constant marginal product. increasing marginal product. diminishing marginal product.

diminishing marginal product.

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue does not change. always decreases. always increases. increases if MR < ATC and decreases if MR > ATC.

does not change.

In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits economies of scale because total cost is rising as output rises. diseconomies of scale because average total cost is rising as output rises. diseconomies of scale because total cost is rising as output rises. economies of scale because average total cost is falling as output rises.

economies of scale because average total cost is falling as output rises.

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will more than triple. exactly triple. be reduced by one third. less than triple.

exactly triple.

Refer to Figure 14-1. If the market price is $5, the firm will earn zero economic profits in the short run. positive economic profits in the short run. negative economic profits in the short run but remain in business. negative economic profits and shut down.

negative economic profits and shut down.

Refer to Figure 14-2. If the market price is $6, what is the firm's short-run economic profit? $18 $15 $0 $12

$0

Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal $2,000. $4. $2. $1,000.

$1,000.

If a firm produces nothing, which of the following costs will be zero? Fixed cost Variable cost Opportunity cost Total cost

Variable cost

Refer to Figure 14-2. If the market price is $10, what is the firm's short-run economic profit? $15 $50 $9 $30

$15

Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business? $300 $170 $30 $140

$170

In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run? $1 per unit $2 per unit $0 per unit $3 per unit

$2 per unit

The short-run supply curve for a firm in a perfectly competitive market is the portion of its marginal cost curve that lies above its average variable cost. horizontal. determined by forces external to the firm. likely to slope downward.

the portion of its marginal cost curve that lies above its average variable cost.

Cindy's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is $200. $100. $300. $500.

$500.

Refer to Figure 14-2. The firm will earn zero economic profit if the market price is $10. $6. $0. $7.

$7.

Refer to Figure 14-3. When market price is P7, a profit-maximizing firm's short-run profits can be represented by the area P7 × Q3. (P7 − P5) × Q3. We are unable to determine the firm's profits because the quantity that the firm would produce is not labeled on the graph. P7 × Q5.

(P7 − P5) × Q3.(P7 − P5) × Q3.

Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 181 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is 181 units of output. 11 units of output. 10 units of output. 16 units of output.

16 units of output.

Which of the following statements is correct? Assuming that explicit costs are positive, accounting profit is equal to economic profit. Assuming that implicit costs are positive, accounting profit is greater than economic profit. Assuming that implicit costs are positive, economic profit is positive. Assuming that explicit costs are positive, economic profit is greater than accounting profit.

Assuming that implicit costs are positive, accounting profit is greater than economic profit.

Refer to Figure 14-3. When market price is P2, a profit-maximizing firm's losses can be represented by the area At a market price of P2, the firm earns profits, not losses. (P2 − P1) × (Q2 − Q1). (P4 − P2) × Q2. At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses.

At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses.

Refer to Figure 13-5. Which of the following statements is correct? Marginal cost is rising for quantities higher than D because marginal cost is higher than average total cost. Average total cost is declining for quantities less than C because average variable cost is less than average total cost. Marginal cost is minimized at B because at that quantity, marginal cost equals average variable cost. Average variable cost is declining for quantities less than B because marginal cost is lower than average variable cost.

Average variable cost is declining for quantities less than B because marginal cost is lower than average variable cost.

Which of the following statements regarding a competitive firm is correct? By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. Because each firm faces a downward sloping demand, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. For all firms, average revenue equals the price of the good. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units.

For all firms, average revenue equals the price of the good.

Which of the following explains why long-run average total cost at first decreases as output increases? Fixed costs becoming spread out over more units of output Gains from specialization of inputs Diseconomies of scale Less-efficient use of inputs

Gains from specialization of inputs

Which of the following statements is correct? Marginal revenue can be calculated as total revenue divided by the quantity sold. Only for competitive firms does average revenue equal marginal revenue. For all firms, marginal revenue equals the price of the good.Only for competitive firms does average revenue equal marginal revenue. Only for competitive firms does average revenue equal the price of the good.

Only for competitive firms does average revenue equal marginal revenue.

Refer to Figure 14-3. Firms would be encouraged to enter this market for all prices that exceed P2. P4. P3. P1.

P4.

Which of the following represents the firm's short-run condition for shutting down? Shut down if TR < FC Shut down if TR < TC Shut down if TR < VC Shut down if P < ATC

Shut down if TR < VC

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? The $20 million payment that the firm pays each year for accounting services The cost of the steel that is used in producing automobiles The cost of internet advertising incurred each year The rent that the firm pays for office space in a suburb of St. Louis

The cost of the steel that is used in producing automobiles

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product? The farmer is able to produce 6,200 bushels of wheat when he hires 4 workers. The farmer is able to produce 5,800 bushels of wheat when he hires 4 workers. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers. The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers.

The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.

For an individual firm operating in a competitive market, marginal revenue equals average revenue, which is greater than the price for all levels of output. marginal cost, which is greater than average revenue for all levels of output. average revenue and the price for all levels of output. average revenue, the price, and marginal cost for all levels of output.

average revenue and the price for all levels of output.

Marginal cost is equal to average total cost when marginal cost is at its minimum. , Not Selected average fixed cost is rising. , Not Selected average variable cost is falling. , Not Selected Correct answer: average total cost is at its minimum.

average total cost is at its minimum.

A key characteristic of a competitive market is that firms minimize total costs. firms have price setting power. producers sell nearly identical products. government antitrust laws regulate competition.

producers sell nearly identical products.

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. not fall in the short run because firms will exit to maintain the price. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

In the short run, a firm that produces and sells house paint can adjust where to produce along its long-run average-total-cost curve. how many workers to hire. the location of its factory. the size of its factories.

how many workers to hire.

Scenario 13-4 If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Refer to Scenario 13-4. Farmer Brown's total-cost curve is increasing at a constant rate. increasing at a decreasing rate. increasing at an increasing rate. decreasing.

increasing at an increasing rate.

In the long run, inputs that were variable in the short run become fixed. inputs that were fixed in the short run become variable. inputs that were fixed in the short run remain fixed. variable inputs are rarely used.

inputs that were fixed in the short run become variable.

A firm that shuts down temporarily has to pay both its variable costs and its fixed costs. its fixed costs but not its variable costs. its variable costs but not its fixed costs. neither its variable costs nor its fixed costs.

its fixed costs but not its variable costs.

Firms may experience diseconomies of scale when average fixed costs begin to rise again. there are too few employees, and managers do not have enough to do. they are too small to take advantage of specialization. large management structures are bureaucratic and inefficient.

large management structures are bureaucratic and inefficient.

Average total cost is increasing whenever total cost is increasing. marginal cost is greater than average total cost. marginal cost is increasing. marginal cost is less than average total cost. marginal cost is greater than average total cost.

marginal cost is greater than average total cost.

Refer to Figure 13-1. As the number of workers increases, marginal product increases but at a decreasing rate. marginal product decreases. total output decreases. total output increases at an increasing rate.

marginal product decreases.

Refer to Figure 14-3. In the short run, if the market price is higher than P4 but less than P6, individual firms in a competitive industry will earn losses and will shut down. positive profits. zero profits. losses but will remain in business.

positive profits.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which total revenue is equal to total cost. total revenue is equal to variable cost. profit is maximized. total revenue is equal to fixed cost.

profit is maximized.

If there is an increase in market demand in a perfectly competitive market, then in the short run profits will rise. the demand curves facing firms will shift downward. the demand curves facing firms will become more elastic. there will be no change in the demand curves faced by individual firms in the market.

profits will rise.

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called opportunity costs. explicit costs. implicit costs. sunk costs.

sunk costs.

If a firm uses labor to produce output, the firm's production function depicts the relationship between marginal product and marginal cost. fixed inputs and variable inputs in the short run. the number of workers and the quantity of output. the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor.

the number of workers and the quantity of output.

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average total cost. revenue. fixed cost. variable cost.

total cost.

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is downward sloping. horizontal. vertical. upward sloping.

upward sloping.

Refer to Figure 14-1. If the market price is $13, the firm will earn... zero economic profits in the short run. negative economic profits and shut down. negative economic profits in the short run but remain in business. positive economic profits in the short run.

zero economic profits in the short run.