Exam 2

For a firm operating in a competitive market, the price is? $45. $30. $15. $0.

$30

The marginal product of labor is equal to the incremental cost associated with a one unit increase in labor. incremental profit associated with a one unit increase in labor. increase in labor necessary to generate a one unit increase in output. increase in output obtained from a one unit increase in labor.

increase in output obtained from a one unit increase in labor.

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

inputs that were fixed in the short run become variable.

If the firm produces the profit-maximizing level of production, how much profit will the firm earn? $2 $4 $6 $8

$6

What is the marginal revenue from the sale of the 2nd unit? $-3 $3 $9 $24

$9

Competitive firms differ from monopolies in which of the following ways? (i) Competitive firms do not have to worry about the price effect lowering their total revenue. (ii) Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge. (iii) Monopolies must lower their price in order to sell more of their product, while competitive firms do not. (i) and (ii) only (ii) and (iii) only (i) and (iii) only (i), (ii), and (iii)

1 2 n 3

Marginal cost equals (i) change in total cost divided by change in quantity produced. (ii) change in variable cost divided by change in quantity produced. (iii) the average fixed cost of the current unit. (i) and (ii) only (ii) and (iii) only (i) only (i), (ii), and (iii)

1 n 2

Economists normally assume that the goal of a firm is to earn (i) profits as large as possible, even if it means reducing output. (ii) profits as large as possible, even if it means incurring a higher total cost. (iii) revenues as large as possible, even if it reduces profits. (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i), (ii), and (iii)

1 n 2 only

Which of the following characteristics of competitive markets is necessary for firms to be price takers? (i) There are many sellers. (ii) Firms can freely enter or exit the market. (iii) Goods offered for sale are largely the same. (i) and (ii) only (i) and (iii) only (ii) only (i), (ii), and (iii)

1 n 3 only

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold? $5 and 50 units $5 and 100 units $10 and 50 units $10 and 100 units

10 n 100

Pete owns a shoe-shine business. Which of the following costs would be implicit costs? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete's money was earning before he spent his savings to set up the shoe-shine business (i) and (ii) only (iv) only (iii) and (iv) only (i), (ii), (iii), and (iv)

3 and 4 only

If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit? 1 unit 2 units 3 units 4 units

3 units

What is the total fixed cost for this firm? $20 $30 $40 $50

40

The firm will not produce an output level beyond 4 units. 5 units. 6 units. 7 units.

5 units

In a long-run equilibrium, the marginal firm has price equal to average total cost. total revenue equal to total cost. economic profit equal to zero. All of the above are correct.

All of above

In the long run, a firm will enter a competitive industry if total revenue exceeds total cost. the price exceeds average total cost. the firm can earn economic profits. All of the above are correct.

All of above

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? the unemployment insurance premium that the firm pays to the state of Missouri that is calculated based on the number of worker-hours that the firm uses the cost of the steel that is used in producing automobiles the cost of the electricity of running the machines on the factory floor All of the above are correct.

All the above

Which of the following statements is not correct? Fixed costs are constant. Variable costs change as output changes. Average fixed costs are constant. Average total costs are typically U-shaped.

Average fixed costs are constant.

Which firm is experiencing diseconomies of scale? Firm A only Firm B only Firm C only Firm A and Firm B only

Firm C only

Why does a firm in a competitive industry charge the market price? If a firm charges less than the market price, it loses potential revenue. If a firm charges more than the market price, it loses all its customers to other firms. The firm can sell as many units of output as it wants to at the market price. All of the above are correct.

If a firm charges less than the market price, it loses potential revenue.

Which of the following statements is correct? If marginal cost is rising, then average total cost is rising. If marginal cost is rising, then average variable cost is rising. If average variable cost is rising, then marginal cost is minimized. If average total cost is rising, then marginal cost is greater than average total cost.

If average total cost is rising, then marginal cost is greater than average total cost.

How long does it take a firm to go from the short run to the long run? six months one year two years It depends on the nature of the firm.

It depends on the nature of the firm.

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often not in the best interest of society. one that fails to maximize total economic well-being. inefficient. All of the above are correct.

all of above

Antitrust laws allow the government to prevent mergers. break up companies. promote competition. All of the above are correct.

all the above

If marginal cost is equal to average total cost, then marginal cost is minimized. average total cost is minimized. average variable cost is minimized. marginal cost is zero.

average total cost is minimized.

The firm's efficient scale is the quantity of output that minimizes average total cost. average fixed cost. average variable cost. marginal cost.

average total cost.

A monopoly can set the price it charges for its output and earn unlimited profits. takes the market price as given and earns small but positive profits. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.

can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profit

The market demand curve for a monopolist is typically unit price elastic. downward sloping. horizontal. vertical.

downward sloping

In a competitive market with identical firms, an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run. firms cannot earn positive economic profit in either the short run or long run. firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping. free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.

free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.

Which of the following explains why long-run average cost at first decreases as output increases? diseconomies of scale less-efficient use of inputs fixed costs becoming spread out over more units of output gains from specialization of inputs

gains from specialization of inputs

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

large management structures are bureaucratic and inefficient.

In the short run, a firm operating in a competitive industry will shut down if price is less than average total cost. less than average variable cost. greater than average variable cost but less than average total cost. greater than marginal cost.

less than average variable cost

Economies of scale occur when a firm's marginal costs are constant as output increases. long-run average total costs are decreasing as output increases long-run average total costs are increasing as output increases. marginal costs are equal to average total costs for all levels of output.

long-run average total costs are decreasing as output increases

The average-total-cost curve intersects average fixed cost at the minimum of average total cost. average variable cost at the minimum of average total cost. marginal cost at the minimum of average total cost. marginal cost at the minimum of marginal cost.

marginal cost at the minimum of average total cost.

The minimum points of the average variable cost and average total cost curves occur where the marginal cost curve lies below the average variable cost and average total cost curves. marginal cost curve intersects those curves. average variable cost and average total cost curves intersect. slope of total cost is the smallest.

marginal cost curve intersects those curves.

One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where marginal cost equals price, while a monopolist produces where price exceeds marginal cost. marginal cost equals price, while a monopolist produces where marginal cost exceeds price. price exceeds marginal cost, while a monopolist produces where marginal cost equals price. marginal cost exceeds price, while a monopolist produces where marginal cost equals price.

marginal cost equals price, while a monopolist produces where price exceeds marginal cost.

Diminishing marginal product suggests that additional units of output become less costly as more output is produced. marginal cost is upward sloping. the firm is at full capacity. adding additional workers will lower total cost.

marginal cost is upward sloping.

At the profit-maximizing level of output, marginal revenue equals average total cost. marginal revenue equals average variable cost. marginal revenue equals marginal cost. average revenue equals average total cost.

marginal revenue equals marginal cost

The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure? ownership of a key resource by a single firm natural monopoly government-created monopoly a patent or copyright monopoly

natural monopoly

The marginal product of labor can be defined as the change in profit divided by the change in labor. output divided by the change in labor. labor divided by the change in output. labor divided by the change in total cost.

output divided by the change in labor.

Which of the following statements regarding a competitive market is not correct? There are many buyers and many sellers in the market. Firms can freely enter or exit the market. Price equals average revenue. Price exceeds marginal revenue.

price exceeds marginal revenue

The deadweight loss associated with a monopoly occurs because the monopolist maximizes profits. produces an output level less than the socially optimal level. produces an output level greater than the socially optimal level. equates marginal revenue with marginal cost.

produces an output level less than the socially optimal level.

A production function is a relationship between inputs and quantity of output. revenue. costs. profit.

quantity of output.

Price discrimination is the business practice of bundling related products to increase total sales. selling the same good at different prices to different customers. pricing above marginal cost. hiring marketing experts to increase consumers’ brand loyalty.

selling the same good at different prices to different customers.

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. short-run average total cost is typically the same as long-run average total cost. short-run average total cost is typically below long-run average total cost. the relationship between short-run and long-run average total cost follows no clear pattern.

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

When calculating a firm's profit, an economist will subtract only- explicit costs from total revenue because these are the only costs that can be measured explicitly. implicit costs from total revenue because these include both the costs that can be directly measured as well as the costs that can be indirectly measured. the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm. the marginal cost because the cost of the next unit is the only relevant cost.

the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm.

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run, output is not variable. the number of workers used to produce the firm's product is fixed. the size of the factory is fixed. there are no fixed costs.

the size of the factory is fixed.

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

total cost

For a monopoly, the level of output at which marginal revenue equals zero is also the level of output at which average revenue is zero. profit is maximized. total revenue is maximized. marginal cost is zero.

total revenue is maximized

In the short run, a firm incurs fixed costs only if it incurs variable costs. only if it produces no output. only if it produces a positive quantity of output. whether it produces output or not.

whether it produces output or not.