econ test 3

22. Refer to Figure 14-1. The firm should shut down if the market price is

*d. less than $4.50.

Refer to Figure 13-5. Curve A represents which type of cost curve?

*d. average fixed cost

Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $600. (iii) Average revenue exceeds marginal revenue, but we don't know by how much.

*a. (i) only

Refer to Figure 13-9. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?

*a. ATCA

23. Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is

*a. above $6.30.

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

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

7. Refer to Figure 13-5. Curve D represents which type of cost curve?

*a. marginal cost

12. Refer to Figure 13-9. The firm experiences economies of scale at which output levels?

*a. output levels less than M

Refer to Table 14-3. For a firm operating in a competitive market, the price is

*b. $7.

6. Refer to Figure 13-5. Curve C represents which type of cost curve?

*b. average total cost

19. 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

*b. continue to operate in the short run but shut down in the long run.

25. Refer to Figure 14-1. If the market price is $5.00, the firm will earn

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

13. Refer to Figure 13-9. The firm experiences constant returns to scale at which output levels?

*b. output levels between M and N

8. Refer to Figure 13-5. Curve A is always declining because

*b. we are dividing fixed costs by higher and higher levels of output.

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

*c. $4.50.

15. Refer to Scenario 13-7. What are Wanda's total economic profits?

*c. $96

Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each.Refer to Scenario 13-7. What are Wanda's total accounting profits?

*c. $96

9. Refer to Figure 13-5. Curve D intersects curve C

*c. at the efficient scale.

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

*c. exit if P < ATC

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

*c. 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.

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers

*c. labor to be variable and capital to be fixed.

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

*c. sunk costs.

20. When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because

*c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price.

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

*c. total cost.

4. 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?

*d. $35

Refer to Figure 13-3. Which of the following is true of the production function (not pictured) that underlies this total cost function? (i) Total output increases as the quantity of inputs increases but at a decreasing rate. (ii) Marginal product is diminishing for all levels of input usage. (iii) The slope of the production function decreases as the quantity of inputs increases.

*d. (i), (ii), and (iii)

2. Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her sister Kate to work for her. Both she and Kate can make 35 pieces of pottery per week. What is Kate's marginal product?

*d. 15 pieces of pottery

11. Refer to Figure 13-9. Which curve represents the long-run average total cost?

*d. ATCD

18. Mrs. Smith operates a business in a competitive market. The current market price is $7.50. 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

*d. shut down in both the short run and long run.

24. Refer to Figure 14-1. If the market price is $6.30, the firm will earn

*d. zero economic profits in the short run.