Exam 2 Practice Exam
Jim left his previous job as a sales manager and started his own sales consulting business. He previously earned $70,000 per year, but he now pays himself $25,000 per year while he is building the new business. What is the economic cost of the time he contributes to the new business? $25,000 per year Zero $70,000 per year $45,000 per year
$45,000 per year
Maui Macadamia Inc. has a monopoly in the macadamia nut industry. The demand curve, marginal revenue and marginal cost curve for macadamia nuts are given as follows: P = 360 - 4Q MR = 360 - 8Q MC = 4Q What is the maximum amount that Maui Macadamia would be willing to spend in order to maintain its monopoly through rent seeking? $0 $1,800 $5,400 $10,800
$5,400
The production function is: Q = 4L1/2K1/2. What is the total cost of producing 200 units of output? 100 1000 1500 2000 None of the above
1000
If the isoquants in an isoquant map are downward sloping but bowed away from the origin (i.e., concave to the origin), then the production technology violates the assumption of: technical efficiency. free disposal. diminishing marginal returns. positive average product.
diminishing marginal returns.
An isoquant: must be linear. cannot have a negative slope. is a curve that shows all the combinations of inputs that yield the same total output. is a curve that shows the maximum total output as a function of the level of labor input. is a curve that shows all possible output levels that can be produced at the same cost.
is a curve that shows all the combinations of inputs that yield the same total output.
At the profit-maximizing level of output, marginal profit is also maximized. is zero. is positive. is increasing. may be positive, negative or zero.
is zero.
At the profit-maximizing level of output, marginal profit is also maximized. is zero. is positive. is increasing. may be positive, negative or zero.
is zero.
The supply curve for a competitive firm is its entire MC curve. the upward-sloping portion of its MC curve. its MC curve above the minimum point of the AVC curve. its MC curve above the minimum point of the ATC curve. its MR curve.
its MC curve above the minimum point of the AVC curve.
If the capital market is competitive, the user cost of capital equals: the rental rate of capital. the return in that market. the rate of return of investing elsewhere. all of the above.
all of the above.
Maui Macadamia Inc. has a monopoly in the macadamia nut industry. The demand curve, marginal revenue and marginal cost curve for macadamia nuts are given as follows: P = 360 - 4Q MR = 360 - 8Q MC = 4Q What is the profit maximizing level of output? 0 30 45 60 none of the above
30
Which of the following production functions exhibits constant returns to scale? q = KL q = KL0.5 q = K + L q = log(KL)
q = K + L
Refer to Figure 8.4.2 above. When the farmer's profit is maximized, total cost equals: $1.624 $3.696 $.6226 $264
$.6226
The demand curve and marginal revenue curve for red rubber balls are given as follows: Q = 16 - P MR = 16 - 2Q After the imposition of a tax of $2 per unit of output, what is the profit maximizing price? $11 $21 $31 $41 none of the above
$11
Refer to Figure 8.4.2. When the coffee farmer maximizes profit, how much is his profit? $116 $97 $1,624 $2,134
$2,134
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 Suppose that a tax of $5 for each unit produced is imposed by state government. How much profit does the monopolist earn? $4050 $4950 $450 $5
$4050
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 What is the profit maximizing price? $95.00 $5.00 $52.50 $10.00
$52.50
Refer to Figure 8.4.2. When profit is maximized, the total revenue of the farmer equals: $8.360. $5.320. $996. $2.170.
$8.360.
What is the value of the Lerner index under perfect competition? 1 0 infinity two times the price
0
The production function for earthquake detectors (Q) is given as follows: Q = 4K1/2L1/2 where K is the amount of capital employed and L is the amount of labor employed. The price of capital, PK, is $18 and the price of labor, PL, is $2. Suppose that you receive an order for 60 earthquake detectors. How much labor will you use to minimize the cost of 60 earthquake detectors? 1 5 10 45 None of the above
45
The production function is: Q = 4L1/2K1/2. When Q = 200, what is the marginal cost? 0 5 10 15 25
5
The total cost (TC) of producing computer software diskettes (Q) is given as: What is the average total cost? 500 5Q 5 5 + (200/Q) none of the above
5 + (200/Q)
Technological improvement: can hide the presence of diminishing returns. can be shown as a shift in the total product curve. allows more output to be produced with the same combination of inputs. All of the above are true.
All of the above are true.
What happens in a perfectly competitive industry when economic profit is greater than zero? Existing firms may get larger. New firms may enter the industry. Firms may move along their LRAC curves to new outputs. There may be pressure on prices to fall. All of the above may occur.
All of the above may occur.
Which of the following is NOT true for monopoly? The profit maximizing output is the one at which marginal revenue and marginal cost are equal. Average revenue equals price. The profit maximizing output is the one at which the difference between total revenue and total cost is largest. The monopolist's demand curve is the same as the market demand curve. At the profit maximizing output, price equals marginal cost.
At the profit maximizing output, price equals marginal cost.
Which of the following statements identifies a key difference between condominiums and cooperative housing? Condos tend to be less expensive. Condo owners are not responsible for maintaining the common spaces in the building. Co-op owners have more control over who can move into their building. Co-op owners generally commit less time to the building governance.
Co-op owners have more control over who can move into their building.
The production function is: Q = 4L1/2K1/2. Which of the following combinations of inputs is on the isoquant to produce 400 units of output? L = 0, K = 400 L = 400, K = 0 L = 100, K = 100 all of the above A and B, but not C
L = 100, K = 100
Which of the following ideas were central to the conclusions drawn by Thomas Malthus in his 1798 "Essay on the Principle of Population"? Short-run time period Shortage of labor Law of diminishing resource availability Law of diminishing returns
Law of diminishing returns
Positive Administrative Executive
Positive
A firm's short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding the firm's returns to scale? The firm experiences increasing returns to scale. The firm experiences increasing, constant, and decreasing returns in that order. The firm experiences first decreasing, then increasing returns to scale. The short-run average cost curve reveals nothing regarding returns to scale.
The short-run average cost curve reveals nothing regarding returns to scale.
Which of the following costs are always increasing as output increases? Marginal Cost only Fixed Cost only Total Cost only Variable Cost only Total Cost and Variable Cost
Total Cost and Variable Cost
A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function This production function exhibits: decreasing returns to scale for all output levels. constant returns to scale for all output levels. increasing returns to scale for all output levels. no clear pattern of returns to scale.
decreasing returns to scale for all output levels.
The law of diminishing returns refers to diminishing: total returns. marginal returns. average returns. all of these.
marginal returns.
The cost-output elasticity equals 1.4. This implies that: there are neither economies nor diseconomies of scale. there are economies of scale. there are diseconomies of scale. marginal cost is less than average cost.
there are diseconomies of scale.
In our analysis, it is best to treat capital as if it was: rented, even if it was purchased. purchased, even if it is just rented. purchased and also rented. rented first, then purchased.
rented, even if it was purchased.
Consider the following statements when answering this question: I. A firm's marginal cost curve does not depend on the level of fixed costs. II. As output increases the difference between a firm's average total cost and average variable cost curves cannot rise. I is true, and II is false. I is false, and II is true. I and II are both true. I and II are both false.
I and II are both true.
Use the following statements to answer this question: I. Markets that have only a few sellers cannot be highly competitive. II. Markets with many sellers are always perfectly competitive. I and II are true. I is true and II is false. II is true and I is false. I and II are false.
I and II are false.
Consider the following statements when answering this question: I. If the marginal product of labor falls whenever more labor is used, and labor is the only factor of production used by the firm, than at every output level the firm's short-run average variable cost exceeds marginal cost. II. If labor obeys the law of diminishing returns, and is the only factor of production used by the firm, then at every output level short-run average variable costs exceed marginal costs. I is true, and II is false. I is false, and II is true. I and II are both true. I and II are both false.
I is true, and II is false.
Use the following two statements to answer this question: I. If the marginal product of labor is zero, the total product of labor is at its maximum. II If the marginal product of labor is at its maximum, the average product of labor is falling. Both I and II are true. I is true, and II is false. I is false, and II is true. Both I and II are false.
I is true, and II is false.
Use the following two statements to answer this question: I. Isoquants cannot cross one another. II. An isoquant that is twice the distance from the origin represents twice the level of output. Both I and II are true. I is true, and II is false. I is false, and II is true. Both I and II are false.
I is true, and II is false.
What describes the graphical relationship between average product and marginal product? Average product cuts marginal product from above, at the maximum point of marginal product. Average product cuts marginal product from below, at the maximum point of marginal product. Marginal product cuts average product from above, at the maximum point of average product. Marginal product cuts average product from below, at the maximum point of average product. Average and marginal product do not intersect.
Marginal product cuts average product from above, at the maximum point of average product.
If current output is less than the profit-maximizing output, which must be true? Total revenue is less than total cost. Average revenue is less than average cost. Average revenue is greater than average cost. Marginal revenue is less than marginal cost. Marginal revenue is greater than marginal cost.
Marginal revenue is greater than marginal cost.
Which of following is an example of a homogeneous product? Gasoline Copper Personal computers Winter parkas both A and B
both A and B
A price taker is: a firm that accepts different prices from different customers. a consumer who accepts different prices from different firms. a perfectly competitive firm. a firm that cannot influence the market price. both C and D
both C and D
In an increasing-cost industry, expansion of output: causes input prices to rise as demand for them grows. leaves input prices constant as input demand grows. causes economies of scale to occur. occurs under conditions of increasing returns to scale. occurs without diminishing marginal product.
causes input prices to rise as demand for them grows.
With increasing returns to scale, isoquants for unit increases in output become: farther and farther apart. closer and closer together. the same distance apart. none of these.
closer and closer together.
A multiplant firm has equated marginal costs at each plant. By doing this: profits are maximized. costs are minimized given the level of output. revenues are maximized given the level of output. none of the above
costs are minimized given the level of output.
Two firms, each producing different goods, can achieve a greater output than one firm producing both goods with the same inputs. We can conclude that the production process involves: diseconomies of scope. economies of scale. decreasing returns to scale. increasing returns to scale.
diseconomies of scope.
Economic rents are typically counted as: accounting costs but not economic costs. accounting and economic costs. economic costs but not accounting costs. none of the above
economic costs but not accounting costs.
A production function in which the inputs are perfectly substitutable would have isoquants that are: convex to the origin. L-shaped. linear. concave to the origin.
linear.
For the firm's cost minimization problem, one of the key assumptions for each input is that: marginal product is constant. marginal product is increasing at a decreasing rate. marginal product is increasing at an increasing rate. marginal product is decreasing at an increasing rate.
marginal product is increasing at a decreasing rate.
Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly, Fizzle and Sizzle: would be perfectly competitive if their purification costs were equal; otherwise, not. would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land. may or may not be perfect competitors, but their position on the river has nothing to do with it. cannot be perfect competitors because they are not identical firms.
may or may not be perfect competitors, but their position on the river has nothing to do with it.
We manufacturer automobiles given the production function q = 5KL where q is the number of autos assembled per eight-hour shift, K is the number of robots used on the assembly line (capital) and L is the number of workers hired per hour (labor). If we use K = 10 robots and L = 10 workers in order to produce q = 450 autos per shift, then we know that production is: technologically efficient. technologically inefficient. maximized. optimal.
technologically inefficient.
When labor usage is at 12 units, output is 36 units. From this we may infer that: the marginal product of labor is 3. the total product of labor is 1/3. the average product of labor is 3. none of the above
the average product of labor is 3.
The total cost (TC) of producing computer software diskettes (Q) is given as: What is the fixed cost? 200 5Q 5 5 + (200/Q) none of the above
200
The demand curve and marginal revenue curve for red herrings are given as follows: Q = 250 - 5P MR = 50 - 0.4Q The marginal cost of red herrings is given as: MC = 0.6Q. What is the profit-maximizing level of output? 0 25 50 60 125
50
The demand for tickets to the Taylor Swift concert (Q) is given as follows: Q = 120,000 - 2,000P The marginal revenue is given as: MR = 60 - .001Q The stadium at which the concert is planned holds 60,000 people. The marginal cost of each additional concert goer is essentially zero up to 60,000 fans, but becomes infinite beyond that point. Given the information above, what are the profit maximizing number of tickets sold and the price of tickets? 0, $60 20,000, $50 40,000, $40 60,000, $30 80,000, $20
60,000, $30
Barbara is a producer in a monopoly industry. Her demand curve, total revenue curve, marginal revenue curve and total cost curve are given as follows: Q = 160 - 4P TR = 40Q - 0.25 MR = 40 - 0.5Q TC = 4Q MC = 4 How much output will Barbara produce? 0 22 56 72 none of the above
72
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 Suppose that in addition to the tax, a business license is required to stay in business. The license costs $1000. What is the profit maximizing level of output? 0 90 95 100 none of the above
90
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 What is the profit maximizing level of output? 0 90 95 100 none of the above
95
We typically think of labor as a variable cost, even in the very short run. However, some labor costs may be fixed. Which of the following items represents an example of a fixed labor cost? An hourly employee A temporary worker who is paid by the hour A salaried manager who has a three-year employment contract none of the above
A salaried manager who has a three-year employment contract
Which of the following events does NOT occur when market demand shifts leftward in an increasing-cost industry? Initially, the output produced by existing firms declines along the short-run market supply curve. The market price declines below the minimum LAC due to the short-run supply response. The market supply curve shifts leftward as some firms exit the market when the market price is below the minimum LAC. As firms exit, the market price rises and attracts other firms to enter the market. The LAC curve shifts downward as output falls.
As firms exit, the market price rises and attracts other firms to enter the market.
Which of the following costs always declines as output increases? Average cost Marginal cost Fixed cost Average fixed cost Average variable cost
Average fixed cost
Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift? Firm's short-run supply curve Average total cost curve Average variable cost curve Average fixed cost curve
Average fixed cost curve
Two isoquants, which represent different output levels but are derived from the same production function, cannot cross because: isoquants represent different utility levels. this would violate a technical efficiency condition. isoquants are downward sloping. additional inputs will not be used by profit maximizing firms if those inputs decrease output. Both B and D are true.
Both B and D are true.
Consider the following statements when answering this question: I. If a technology exhibits diminishing returns then it also exhibits decreasing return to scale. II. If a technology exhibits decreasing returns to scale then it also exhibits diminishing returns. I is true, and II is false. I is false, and II is true. Both I and II are true. Both I and II are false.
Both I and II are false.
Use the following two statements to answer this question: I. The average cost curve and the average variable cost curve reach their minima at the same level of output. II. The average cost curve and the marginal cost curve reach their minima at the same level of output. Both I and II are true. I is true, and II is false. I is false, and II is true. Both I and II are false.
Both I and II are false.
An effluent fee is imposed on a steel firm to reduce the amount of waste materials that it dumps in a river. Use the following two statements to answer this question: I. The more easily factors of production can be substituted for one another (for example, capital can be used to reduce waste water), the more effective the fee will be in reducing effluent. II. The greater the degree of substitution of capital for waste water, the less the firm will have to pay in effluent fees. Both I and II are true. I is true, and II is false. I is false, and II is true. Both I and II are false.
Both I and II are true.
Use the following two statements to answer this question: I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output. II The marginal cost of a given level of output is the slope of the line that is tangent to the total cost curve at that level of output. Both I and II are true. I is true, and II is false. I is false, and II is true. Both I and II are false.
Both I and II are true.
Bubba Burgers has discovered there are economies of scope available to the restaurant. Which is most likely to be a response to this discovery? Bubba adds more varied inputs to burger production. Bubba expands burger production, focusing on that one good. Bubba contracts burger production. Bubba adds grilled chicken sandwiches to the menu. Bubba cuts back on the diversity of the menu.
Bubba adds grilled chicken sandwiches to the menu.
The production function for earthquake detectors (Q) is given as follows: Q = 4K1/2L1/2 where K is the amount of capital employed and L is the amount of labor employed. The price of capital, PK, is $18 and the price of labor, PL, is $2. This production function is an example of which of the following types of production functions? Cobb-Douglas Leontief Fixed proportions Lagrange none of the above
Cobb-Douglas
Which scenario below would lead to lower profits as we double the inputs used by the firm? Increasing returns to scale with constant input prices Constant returns to scale with constant input prices Constant returns to scale with rising input prices (perhaps because the firm is not a price-taker in the input markets) all of the above
Constant returns to scale with rising input prices (perhaps because the firm is not a price-taker in the input markets)
Use the following statements to answer this question: I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule. II. The firm's supply decision is to generate zero output for all prices below the minimum AVC. I and II are true. I is true and II is false. II is true and I is false. I and II are false.
I and II are true.
Use the following two statements to answer this question: I. Production functions describe what is technically feasible when the firm operates efficiently. II. The production function shows the least cost method of producing a given level of output. Both I and II are true. I is true, and II is false. I is false, and II is true. Both I and II are false.
I is true, and II is false.
Use the following statements to answer this question: I. The scale economies index is positive if the cost-output elasticity that is greater than one. II. A negative scale economies index indicates the presence of diseconomies of scale. I and II are true. I is true and II is false. II is true and I is false. I and II are false.
II is true and I is false.
The cost-output elasticity can be written and calculated as: MC/AC. AC/MC. (AC)(MC). (AC)2(MC). (AC)(MC)2.
MC/AC.
Which of the following business combinations likely exhibit economies of scope? Banking services for individuals and banking services for other business Retail clothing stores and electronic (internet) clothing sales Hospitals that perform heart surgery and hospitals that perform cosmetic surgery all of the above
all of the above
Two small airlines provide shuttle service between Las Vegas and Reno. The services are alike in every respect except that Fly Right bought its airplane for $500,000, while Fly by Night rents its plane for $30,000 a year. If Fly Right were to go out of business, it would be able to rent its plane to another airline for $30,000. Which airline has the lower costs? Fly Right. Fly by Night Neither, the costs are identical. Neither, Fly by Night has lower costs at small output levels and Fly Right has lower costs at high output levels.
Neither, the costs are identical.
In Example 6.5 in the book, the authors use the observed production data from the U.S. carpet industry to show that small firms likely have constant returns to scale and that large firms likely have increasing returns to scale. Are returns to scale in this industry likely to continue increasing as these firms become even larger? Yes, the marginal products of labor and capital are known to be positive at all levels of output in the U.S. carpet industry, which implies continued increasing returns to scale. Yes, increasing returns are always observed in other countries that produce carpeting on large scale. No, the authors predict that returns to scale in carpet production will likely decline at some point. The authors do not provide any comments on this issue.
No, the authors predict that returns to scale in carpet production will likely decline at some point.
Roaring Lion Studios can produce DVDs at a constant marginal cost of $5 per disk, and the studio has just releasing the DVD for its latest hit film, Ernest Goes to the Hamptons. The retail price of the DVD is $25, and the elasticity of demand for this film is -2. Has the studio selected the profit-maximizing retail price for this DVD? Yes No, the retail price is too low No, the retail price is too high We do not have enough information to answer this question.
No, the retail price is too high
For many firms, capital is the production input that is typically fixed in the short run. Which of the following firms would face the longest time required to adjust its capital inputs? Firm that makes DVD players Computer chip fabricator Flat-screen TV manufacturer Nuclear power plant
Nuclear power plant
Which of the following relationship is NOT valid? Rising marginal cost implies that average total cost is also rising. When marginal cost is below average total cost, the latter is falling. When marginal cost is above average variable cost, AVC is rising. none of the above
Rising marginal cost implies that average total cost is also rising.
Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of $250 per year on all restaurants that operate in the city. How does this affect Ronny's profit maximizing decisions? No impact on the restaurant's decisions Ronny's will remain in business but will definitely produce less pizza. Ronny's will definitely shut down. Ronny's decision depends on the circumstances—if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down.
Ronny's decision depends on the circumstances—if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down.
Farmer Jones bought his farm for $75,000 in 1975. Today the farm is worth $500,000, and the interest rate is 10 percent. ABC Corporation has offered to buy the farm today for $500,000 and XYZ Corporation has offered to buy the farm for $530,000 one year from now. Farmer Jones could earn net profit of $15,000 (over and above all of his expenses) if he farms the land this year. What should he do? Sell to ABC Corporation. Farm the land for another year and sell to XYZ Corporation. Accept either offer as they are equivalent. Reject both offers.
Sell to ABC Corporation.
Which of the following is NOT related to the slope of isoquants? The fact that inputs have positive marginal product The fact that inputs have diminishing marginal product The fact that input prices are positive The fact that more of either input increases output The fact that there are diminishing returns to inputs
The fact that input prices are positive
If two different fuel sources (e.g., coal and natural gas) are perfect substitutes in the long-run production of energy. How will a profit maximizing firm choose between these two inputs? The firm will only use the input with lower cost The firm will use equal amounts of the two inputs, even if one of the inputs has a lower cost. The firm will only use the input with higher cost. The firm cannot achieve a profit maximizing level of output under these circumstances.
The firm will only use the input with lower cost
The authors explain that a firm earning a zero economic profit in the long run has earned a competitive return on their investment. What do they mean by "competitive" return in this context? The firm's return could only be earned under perfect competition and would be smaller under imperfect competition. The firm's return is at least as larger as the returns earned by other firms. The firm's return is at least as larger as could be earned in another investment. The firm's return is negative, which initiates stronger competition among firms in the market.
The firm's return is at least as larger as could be earned in another investment.
Which of the following is true at the output level where P = MC? The monopolist is maximizing profit. The monopolist is not maximizing profit and should increase output. The monopolist is not maximizing profit and should decrease output. The monopolist is earning a positive profit.
The monopolist is not maximizing profit and should decrease output.
Suppose the market demand curve is perfectly elastic in an increasing-cost industry. If an output tax of t per unit is imposed on all producers of the good, what happens to the market equilibrium outcome? The price paid by buyers increases and output declines. The price paid by buyers does not change and output decrease. The price paid by buyers and output increase. The price paid by buyers and output decrease.
The price paid by buyers does not change and output decrease.
In 1985, Alice paid $20,000 for an option to purchase ten acres of land. By paying the $20,000, she bought the right to buy the land for $100,000 in 1992. When she acquired the option in 1985, the land was worth $120,000. In 1992, it is worth $110,000. Should Alice exercise the option and pay $100,000 for the land? Yes No It depends on what the rate of inflation was between 1985 and 1992. It depends on what the rate of interest was.
Yes
The short run is: less than a year. however long it takes to produce the planned output. a time period in which at least one input is fixed. a time period in which at least one set of outputs has been decided upon.
a time period in which at least one input is fixed.
The short run is: less than a year. three years. however long it takes to produce the planned output. a time period in which at least one input is fixed. a time period in which at least one set of outputs has been decided upon.
a time period in which at least one input is fixed.
A cubic cost function implies: a U-shaped average variable cost curve. a U-shaped marginal cost curve. a U-shaped average cost curve. all of the above
all of the above
In the long run, which of the following is considered a variable cost? Expenditures for wages Expenditures for research and development Expenditures for raw materials Expenditures for capital machinery and equipment all of the above
all of the above
If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called: the total product. an isoquant. the average product. the marginal product. none of the above
an isoquant.
Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should: close her doors immediately. continue producing in the short and long run. continue producing in the short run, but plan to go out of business in the long run. raise her prices above the perfectly competitive level. lower her output.
continue producing in the short run, but plan to go out of business in the long run.
An improvement in technology would result in: upward shifts of MC and reductions in output. upward shifts of MC and increases in output. downward shifts of MC and reductions in output. downward shifts of MC and increases in output. increased quality of the good, but little change in MC.
downward shifts of MC and increases in output.
The demand curve and marginal revenue curve for red herrings are given as follows: Q = 250 - 5P MR = 50 - 0.4Q At the profit-maximizing level of output, demand is: completely inelastic. inelastic, but not completely inelastic. unit elastic. elastic, but not infinitely elastic. infinitely elastic.
elastic, but not infinitely elastic.
The demand curve and marginal revenue curve for red rubber balls are given as follows: Q = 16 - P MR = 16 - 2Q At the profit-maximizing level of output, demand is: completely inelastic. inelastic, but not completely inelastic. unit elastic. elastic, but not infinitely elastic. infinitely elastic.
elastic, but not infinitely elastic.
Suppose your firm has a U-shaped average variable cost curve and operates in a perfectly competitive market. If you produce where the product price (marginal revenue) equals average variable cost (on the upward sloping portion of the AVC curve), then your output will: exceed the profit-maximizing level of output. be smaller than the profit-maximizing level of output. equal the profit-maximizing level of output. generate zero economic profits.
exceed the profit-maximizing level of output.
The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. For 100 cookies, the average total cost is: falling. rising. neither rising nor falling. less than average fixed cost.
falling.
Suppose our firm produces chartered business flights with capital (planes) and labor (pilots) in fixed proportion (i.e., one pilot for each plane). The expansion path for this business will: increase at a decreasing rate because we will substitute capital for labor as the business grow. follow the 45-degree line from the origin. not be defined. be a vertical line.
follow the 45-degree line from the origin.
The perfectly competitive firm's marginal revenue curve is: exactly the same as the marginal cost curve. downward-sloping, at twice the (negative) slope of the market demand curve. vertical. horizontal. upward-sloping.
horizontal.
At a given level of labor employment, knowing the difference between the average product of labor and the marginal product of labor tells you: whether increasing labor use raises output. whether increasing labor use changes the marginal product of labor. whether economies of scale exist. whether the law of diminishing returns applies. how increasing labor use alters the average product of labor.
how increasing labor use alters the average product of labor.
A production function defines the output that can be produced: at the lowest cost, given the inputs available. for the average firm. if the firm is technically efficient. in a given time period if no additional inputs are hired. as technology changes over time.
if the firm is technically efficient.
Generally, economies of scope are present when: economies of scale are present in the production of two or more goods. economies of scale are constant in the joint production of two products. joint output is less from a single firm than could be achieved from two different firms each producing a single product (assuming equivalent production inputs in both situations). joint output is greater from a single firm producing two goods than could be achieved by two different firms each producing a single product (assuming equivalent production inputs in both situations).
joint output is greater from a single firm producing two goods than could be achieved by two different firms each producing a single product (assuming equivalent production inputs in both situations).
The total cost of producing a given level of output is: maximized when a corner solution exists. minimized when the ratio of marginal product to input price is equal for all inputs. minimized when the marginal products of all inputs are equal. minimized when marginal product multiplied by input price is equal for all inputs.
minimized when the ratio of marginal product to input price is equal for all inputs.
Suppose the state legislature in your state imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax: increases marginal cost. decreases marginal cost. increases marginal revenue. decreases marginal revenue. none of the above
none of the above
When a per unit tax is imposed on the sale of a product of a monopolist, the resulting price increase will: always be less than the tax. always be more than the tax. always be less than if a similar tax were imposed on firms in a competitive market. not always be less than the tax.
not always be less than the tax.
When a per unit tax is imposed on the sale of a product of a monopolist, the resulting price increase will: always be less than the tax. always be more than the tax. always be less than if a similar tax were imposed on firms in a competitive market. not always be less than the tax.
not always be less than the tax. Which of the following equations based on capital (K) and labor (L) inputs does not represent a plausible production function? F(K,L) = 3KL F(K,L) = 3K F(K,L) = K + L - 1 F(K,L) = 10(KL)0.5* F(K,L) = K + L - 1
The textbook for your class was not produced in a perfectly competitive industry because: there are so few firms in the industry that market shares are not small, and firms' decisions have an impact on market price. upper-division microeconomics texts are not all alike. it is not costless to enter or exit the textbook industry. of all of the above reasons.
of all of the above reasons.
Fixed costs are fixed with respect to changes in: output. capital expenditure. wages. time.
output.
The demand curve facing a perfectly competitive firm is the same as the market demand curve. downward-sloping and less flat than the market demand curve. downward-sloping and more flat than the market demand curve. perfectly horizontal. perfectly vertical.
perfectly horizontal.
If a monopolist sets her output such that marginal revenue, marginal cost and average total cost are equal, economic profit must be: negative. positive. zero. indeterminate from the given information.
positive.
Revenue is equal to: price times quantity. price times quantity minus total cost. price times quantity minus average cost. price times quantity minus marginal cost. expenditure on production of output.
price times quantity.
As the manager of a firm you calculate the marginal revenue is $152 and marginal cost is $200. You should: expand output. do nothing without information about your fixed costs. reduce output until marginal revenue equals marginal cost. expand output until marginal revenue equals zero. reduce output beyond the level where marginal revenue equals zero.
reduce output until marginal revenue equals marginal cost.
The link between the productivity of labor and the standard of living is: tenuous and changing. inverse. that over the long run, consumers as a whole can increase their rate of consumption only by increasing labor productivity. that over the long run, consumers' rate of consumption is not related to labor productivity. that the productivity of labor grows much more erratically than the standard of living.
that over the long run, consumers as a whole can increase their rate of consumption only by increasing labor productivity.
The marginal product of an input is: total product divided by the amount of the input used to produce this amount of output. the addition to total output that adds nothing to total revenue. the addition to total output that adds nothing to profit. the addition to total output due to the addition of one unit of all other inputs. the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.
the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.
In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that: the average product of labor is always greater that the marginal product of labor. the average product of labor is always equal to the marginal product of labor. the average product of labor is always less than the marginal product of labor. as more labor is used, the average product of labor falls. there is no unambiguous relationship between labor's marginal and average products.
the average product of labor is always equal to the marginal product of labor.
The more elastic the demand facing a firm, the higher the value of the Lerner index. the lower the value of the Lerner index. the less monopoly power it has. the higher its profit.
the lower the value of the Lerner index.
According to the law of diminishing returns: the total product of an input will eventually be negative. the total product of an input will eventually decline. the marginal product of an input will eventually be negative. the marginal product of an input will eventually decline. none of the above
the marginal product of an input will eventually decline.
If the isoquants are straight lines, then: inputs have fixed costs at all use rates. the marginal rate of technical substitution of inputs is constant. only one combination of inputs is possible. there are constant returns to scale.
the marginal rate of technical substitution of inputs is constant.
Suppose our firm produces chartered business flights with capital (planes) and labor (pilots) in fixed proportion (i.e., one pilot for each plane). If the wage rate paid to the pilots increases relative to the rental rate of capital for the airplanes, then: the optimal capital-labor ratio should increase. the optimal capital-labor ratio should decrease. the optimal capital-labor ratio remains the same. We do not have enough information to answer this question.
the optimal capital-labor ratio remains the same.
If a competitive firm has a U-shaped marginal cost curve then: the profit-maximizing output will always generate positive economic profit. the profit-maximizing output will always generate positive producer surplus. the profit-maximizing output is found where MC = MR and MC is decreasing. the profit-maximizing output is found where MC = MR and MC is constant. the profit-maximizing output is found where MC = MR and MC is increasing.
the profit-maximizing output is found where MC = MR and MC is increasing.
At every output level, a firm's short-run average cost (SAC) equals or exceeds its long-run average cost (LAC) because: diminishing returns apply in the short run. returns to scale only exist in the long run. opportunity costs are taken into account in the short run. there are at least as many possibilities for substitution between factors of production in the long run as in the short run. none of the above
there are at least as many possibilities for substitution between factors of production in the long run as in the short run.
If any of the assumptions of perfect competition are violated, supply-and-demand analysis cannot be used to study the industry. graphs with flat demand curves cannot be used to study the firm. graphs with downward-sloping demand curves cannot be used to study the firm. there may still be enough competition in the industry to make the model of perfect competition usable. one must use the monopoly model instead.
there may still be enough competition in the industry to make the model of perfect competition usable.
If any of the assumptions of perfect competition are violated, supply-and-demand analysis cannot be used to study the industry. graphs with flat demand curves cannot be used to study the firm. graphs with downward-sloping demand curves cannot be used to study the firm. there may still be enough competition in the industry to make the model of perfect competition usable. one must use the monopoly model instead.
there may still be enough competition in the industry to make the model of perfect competition usable.
Higher input prices result in: upward shifts of MC and reductions in output. upward shifts of MC and increases in output. downward shifts of MC and reductions in output. downward shifts of MC and increases in output. increased demand for the good the input is used for.
upward shifts of MC and reductions in output.
A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should: use five fewer units of capital. use 0.8 fewer units of capital. use 1.25 fewer units of capital. add 1.25 units of capital.
use 0.8 fewer units of capital.
A few sellers may behave as if they operate in a perfectly competitive market if the market demand is: highly inelastic. very elastic. unitary elastic. composed of many small buyers.
very elastic.
If current output is less than the profit-maximizing output, then the next unit produced will decrease profit. will increase cost more than it increases revenue. will increase revenue more than it increases cost. will increase revenue without increasing cost. may or may not increase profit.
will increase revenue more than it increases cost.
A straight-line isoquant: is impossible. would indicate that the firm could switch from one output to another costlessly. would indicate that the firm could not switch from one output to another. would indicate that capital and labor cannot be substituted for each other in production. would indicate that capital and labor are perfect substitutes in production.
would indicate that capital and labor are perfect substitutes in production.