econ test #3

A long-run supply curve is flatter than a short-run supply curve because

firms can enter and exit a market more easily in the long run than in the short run.

For any competitive market, the supply curve is closely related to the

firms' costs of production in that market.

Some costs do not vary with the quantity of output produced. Those costs are called

fixed costs

Total cost can be divided into two types of costs:

fixed costs and variable costs.

Competitive markets are characterized by

free entry and exit by firms

Which of the following explains why long-run average cost at first decreases as output increases?

gains from specialization of inputs

Foregone investment opportunities are an example of

implicit cost

The marginal product of any input is the

increase in total output obtained from one additional unit of that input.

At all levels of production higher than the point where the marginal cost curve crosses the average variable cost curve, average variable cost

rises

The long-run average total cost curve is always

rising as output increases

When comparing short-run average total cost with long-run average total cost at a given level of output,

short-run average total cost is typically above long-run average total cost

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

think at the margin.

The market value of the inputs a firm uses is called

total cost

A firm's opportunity costs of production are equal to its

explicit costs + implicit costs

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

Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

#2 lead pencils and college textbooks

Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the average variable cost of production when the firm hires 7 workers?

$.75

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

$1,000

Doreen's Dairy produces and sells Swiss cheese. Last year, it produced 7,000 pounds and sold each pound for $6. In producing the 7,000 pounds, the dairy incurred variable costs of $28,000 and a total cost of $40,000.

$1.71

Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500. Refer to Scenario 13-9. According to Ellie's accountant, which of the following revenue totals will yield her business $50,000 in profits?

$105,200

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current market price?

$12

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?

$170

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be

$2400

Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie jars is $90,000. The annual explicit costs of the materials used to make the cookie jars are $54,000. Refer to Scenario 13-13. Christine used $5,000 from her personal savings account to buy pottery tools for her business. The savings account paid 1% annual interest. Christine could earn $6,000 per year as a tax preparer. What is the annual economic profit of her cookie jar business?

$29,950

The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55.

$3,675.00.

When a profit-maximizing firm is earning profits, those profits can be identified by

(P - ATC) × Q.

Average total cost equals

(fixed costs + variable costs) divided by quantity produced.

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product?

15 bouquets

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

16 units of output

If there are 400 identical firms in this market, what level of output will be supplied to the market when price is $2.00?

80000

Which of the following measures of cost is best described as "the cost of a typical unit of output if total cost is divided evenly over all the units produced?"

ATC

Average total cost (ATC) is calculated as follows:

ATC = (total cost)/(quantity of output)

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible

ATC of production

Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?

ATCA

At low levels of production, the firm

All of the above are correct.

Firms operating in competitive markets produce output levels where marginal revenue equals

All of the above are correct.

In the long run, a firm will enter a competitive industry if

All of the above are correct.

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

All of the above are correct.

Which of the following statements about costs is correct?

As the quantity of output increases, marginal cost eventually rises.

Which firm's long-run marginal cost decreases as output increases?

Firm 1

Which firm has constant returns to scale over the entire range of output?

Firm 3

Which of the following represents the firm's long-run condition for exiting a market?

P<ATC

Which of these assumptions is often realistic for a firm in the short run?

The firm can vary the number of workers it employs but not the size of its factory.

Assume that fixed costs are $500, and variable costs are $100 per worker. For this firm, what are the shapes of the production function and the total-cost curve?

The production function is increasing at a decreasing rate, whereas the total-cost function is increasing at an increasing rate.

Which of the following firms is the closest to being a perfectly competitive firm?

a wheat farmer in Kansas

If all firms have the same costs of production, then in long-run equilibrium,

all firms have zero economic profits and just cover their opportunity costs

Assume that the market starts in equilibrium at point W in panel (b). An increase in demand from D0 to D1 will result in

an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z.

The graph illustrates a typical production function. Based on its shape, what does the corresponding total cost curve look like?

an upward-sloping curve that increases at an increasing rate

A local playground equipment company plans to operate out of its current factory, which is estimated to last 30 years. All cost decisions it makes during the 30-year period

are short run decisions.

For a competitive firm,

average revenue equals marginal revenue.

When a firm is experiencing economies of scale, long-run

average total cost is greater than long-run marginal cost.

If marginal cost is greater than average total cost, then

average total cost is increasing.

When a firm is experiencing diseconomies of scale, long-run

average total cost is less than long-run marginal cost.

A firm that has little ability to influence market prices operates in a

competitive market

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

continue to operate in the short run but shut down in the long run

Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely to be considered fixed costs?

cost of bookeeping services

In the long run the market supply

could be upward sloping if the cost of production rises as new firms enter the market.

The exit of existing firms from a competitive market will

decrease market supply and increase market price.

In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits

economies of scale

If long-run average total cost decreases as the quantity of output increases, the firm is experiencing

economies of scale.

For a firm in a perfectly competitive market, the price of the good is always

equal to marginal revenue

If there is an increase in market demand in a perfectly competitive market, then in the short run prices will

rise.

Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3 bags, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost.

increasing at an increasing rate.

A firm has market power if it can

influence the market price of the good it sells

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

is still 1000 pounds

The total cost to the firm of producing zero units of output is

its fixed cost in the short run and zero in the long run.

When a firm experiences constant returns to scale,

long-run average total cost is unchanged, even when output increases.

Economies of scale occur when a firm's

long-run average total costs are decreasing as output increases.

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should

make fewer than 20 wedding cakes per month

Which of the following measures of cost is best described as "the increase in total cost that arises from an extra unit of production?"

marginal cost

The minimum points of the average variable cost and average total cost curves occur where the

marginal cost curve intersects those curves.

If firms are competitive and profit maximizing, the price of a good equals the

marginal cost of production

If marginal cost is rising,

marginal product must be falling.

Total cost is the

market value of the inputs a firm uses in production

The efficient scale of the firm is the quantity of output that

minimizes average total cost

Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit-maximizing output level, then in the long run

more firms will enter the marke

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

more firms will enter the market

Free entry means that

no legal barriers prevent a firm from entering an industry.

In a competitive market,

no single buyer or seller can influence the price of the product.

In calculating accounting profit, accountants typically don't include

opportunity costs that do not involve an outflow of money

When buyers in a competitive market take the selling price as given, they are said to be

price takers

A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will

rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium.

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should

shutdown because staying open would cost more

When firms in a competitive market have different costs, it is likely that

some firms will earn positive economic profits in the long run.

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called

sunk costs

If a firm uses labor to produce output, the firm's production function depicts the relationship between

the number of workers and the quantity of output

When new firms enter a perfectly competitive market,

the short-run market supply curve shifts right.

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand

will be infinite.

Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22. Given this information, what should the firm do?

​Increase output beyond 200 units, since a higher output will yield the profit maximizing output level.

​Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22. Given this information, what should the firm do?

​Increase output beyond 200 units, since a higher output will yield the profit maximizing output level.