MICRO CH 6

A firm earns $600 of total revenue from selling its product at $200 per unit. If the per-unit cost of producing the good is $150, the firm sells ________ units(s) of the good. A) 1 B) 2 C) 3 D) 4

C

A firm produces 200 units of a good when it employs 7 workers. The marginal product of the eighth worker is 46 units. If the eighth worker is hired, the firm's total product will increase to: A) 208 units. B) 228 units. C) 246 units. D) 322 units.

C

A firm producing 10 units of output incurs a total cost of $800. When it produces 11 units, the total cost increases to $890. What is the marginal cost of producing the eleventh unit? A) $10 B) $80 C) $90 D) $100

C

Total revenue earned from the sale of a good is: A) the price at which the good is sold. B) the difference between price and cost of production of the good. C) the product of price and quantity of the good sold in the market. D) the product of cost of production and quantity of the good sold in the market.

C

The primary goal of a seller is to A) maximize sales. B) minimize costs. C) maximize profits. D) minimize consumer surplus.

C

A firm produced 376 units with 10 workers. When the eleventh worker was hired, the output increased to 398 units. The marginal product of the eleventh worker is: A) 22 units. B) 37.6 units. C) 36.18 units. D) 398 units.

A

A firm sells 30 units of its product at a price of $5 per unit. It incurs a fixed cost of $100 and a variable cost of $20. The firm's profit is: A) $30. B) $50. C) $100. D) $150.

A

A good with a perfectly inelastic supply has a price elasticity of supply A) equal to zero. B) between zero and one. C) equal to one. D) greater than one.

A

As the amount of inventories maintained by a firm increases: A) its elasticity of supply increases. B) its elasticity of supply decreases. C) the elasticity of demand for its product increases. D) the elasticity of demand for its product decreases.

A

If new firms are expected to enter an existing market, ________. A) the market price is likely to fall B) the market demand is likely to increase C) the market supply is likely to fall D) the profits of all firms are likely to increase

A

If the percentage change in the quantity supplied of a good is less than the percentage change in price of the good, the good is said to have a(n): A) inelastic supply. B) unit elastic supply. C) elastic supply. D) perfectly elastic supply.

A

In a perfectly competitive market: A) the sellers produce identical goods. B) there are restrictions on the entry of new firms. C) each seller charges a different price for its product. D) bargaining over prices is a common phenomenon.

A

In the long run, a firm should exit when: A) price is less than average total cost. C) price is equal to marginal cost. ID: micro1a 6.5-6 Topic: From the Short Run to the Long Run B) price is equal to average total cost. D) price is more than marginal cost.

A

Increases in the marginal product of labor can be attributed to: A) specialization of workers. B) depreciation of capital. C) diminishing returns to workers. D) congestion and thus better use of work space.

A

Marginal cost is the change in the: A) total cost associated with producing one more unit of output. B) average total cost associated with producing one more unit of output C) average variable cost associated with producing one more unit of output. D) opportunity cost associated with producing one more unit of output

A

Marginal revenue: A) is the change in total revenue associated with producing one more unit of output. B) is the product of the price of a good and its quantity sold minus the cost of production. C) is always greater than the total revenue. D) is always equal to the price of the good.

A

Sellers in a perfectly competitive market: A) are price takers. C) are not allowed to exit the market. B) sell differentiated goods and services. D) are small in number.

A

The Law of Diminishing Marginal Returns states that: A) successive increases in inputs eventually lead to less additional output. B) successive increases in product prices lead to a fall in revenue. C) the demand for a good decreases as the price of the good increases. D) the net benefits of a perfectly competitive firm decrease as more firms enter the market.

A

The change in the total output of a firm associated with using one more unit of an input is referred to as the: A) marginal product of the input. B) total product. C) average product of the input. D) variable product of the input.

A

The process by which inputs are turned into outputs A. production B.distribution C. depreciation D. absorption

A

Total cost of production refers to the: A) sum of variable costs and fixed costs. B) product of variable costs and fixed costs. C) difference between variable costs and fixed costs. D) ratio of variable costs to fixed costs.

A

When the price of a good increases by 300%, the quantity supplied of the good increases from 200 units to 900 units. The price elasticity of supply (use the midpoint method to compute per centage change) of the good is: A) 0.42. B) 1.5. C) 0.33. D) 1.67.

A

Which of the following examples best describes the concept of free entry? A) Jack has an old cell phone that he wants to sell. He opens an account on eBay and auctions it off. B) Purecircuit Corp. wants to expand its production, so it doubles its annual recruitment. C) To increase its market share, System Corp. decides to charge a price lower than the market price. D) The government enters the market to correct any shortage or surplus in the market for gasoline.

A

Which of the following statements about the short run and long run is true? A) The number of firms in the industry is fixed in the short run, but in the long run the number can change. B) Free entry and exit of firms is possible in the short run, but entry and exit of firms is restricted in the long run. C) The short-run average cost curves lies below the long-run average cost curves. D) A firm can vary all of its factors of production in both the short run and the long run.

A

Which of the following statements is true of the long run? A) There are no fixed inputs in the long run. B) Capital cannot be changed in the long run. C) Labor cannot be changed in the long run. D) A firm cannot alter its level of output in the long run.

A

Which of the following statements is true of the short run? A) Only some of a firm's input can be varied. B) All firms earn zero economic profits. C) All factors of production can be changed. D) All the factors of production are fixed.

A

A business entity that produces goods or services A. market B. firm C. govt D. industry

B

A firm has an average total cost of $50. If it sells 20 units of its product at $80 each, what is its profit? A) $30 B) $600 C) $1,000 D) $1,600

B

A firm will maximize profit at the level of output where: A) its marginal revenue equals total cost. B) its marginal revenue equals marginal cost. C) its total cost equals total revenue. D) its average revenue equals average cost

B

A firm with a fixed cost of $300 every month and variable cost of $200 every month decides to shut down. In such a situation it would lose: A) $200 every month. C) $500 every month. B) $300 every month. D) $0 every month.

B

A short-run decision by a firm to not produce anything during a specific period is referred to as a(n): A) lockout. B) shutdown. C) buyout. D) exit.

B

A supply curve shows the relationship between: A) output and the total cost of production. B) output and prices. C) output and consumer income. D) output and revenue.

B

Exit of a firm refers to: A) a short-run decision by a firm to not produce anything. B) a long-run decision by a firm to leave the market. C) a refusal to work organized by a group of employees at the firm. D) an exclusion of employees of a firm from their place of work until certain terms are agreed upon by them.

B

Firm A and Firm B produce the same good but with different inputs. If the inputs used by firm A are more easily available than the inputs used by firm B, then which of the following statements is true? A) The elasticity of supply of firm A and firm B will be equal. B) The elasticity of supply of firm A will be higher than the elasticity of supply of firm B. C) The elasticity of supply of firm A will be lower than the elasticity of supply of firm B. D) The elasticity of supply of firm A and firm B cannot be compared without information on price change.

B

Free entry is said to exist in an industry when: A) all firms entering an industry enjoy economies of scale. B) entry is unfettered by any special legal or technical barriers. C) equal amounts of inputs are available to all firms entering an industry. D) the government subsidizes costs for all new firms entering an industry.

B

If a firm is a price taker, it A) can affect the market price of goods by changing its supply. B) can sell as much of any good as it wants at the prevailing market price. C) consults the government before fixing the price of its goods and services. D) is not free to enter a new market or exit from an existing market.

B

If the marginal cost of a perfectly competitive firm producing a good is $50 and the market price of the good is $100, the firm should: A) decrease its output. B) increase its output. C) try to increase the market price. D) try to decrease the market price.

B

Profits of sellers represent their A) revenue. B) net benefits. C) sales. D) inventory.

B

When price is less than the firms' minimum average total cost, ________. A) new firms will enter the market B) existing firms will leave the market C) prices are likely to fall further D) firms' profits are likely to be maximum

B

Which of the following is an example of a variable cost? A) The cost incurred on the installation of new software in all office computers B) The cost of electricity used in the office C) The cost incurred on the purchase of land for a new office space D) The annual rent paid for an office space

B

Which of the following is true about price elasticity of supply? A) Price elasticity of supply = Percentage change in quantity supplied / Absolute change in price B) Price elasticity of supply = Percentage change in quantity supplied / Percentage change in price C) Price elasticity of supply = Percentage change in quantity supplied × Absolute change in price D) Price elasticity of supply = Percentage change in quantity supplied × Percentage change in price

B

Which of the following refers to diminishing marginal returns? A) The revenue of a cell phone manufacturer decreased when it increased its product price. B) The additional output produced in a firm decreased as more workers were hired. C) The profits of an entrepreneur increased substantially after he fired a few of his employees. D) The total output of a firm decreased as more workers were hired.

B

Which of the following statements identifies the difference between variable costs and fixed costs? A) Variable costs are the costs incurred on variable factors of production, whereas fixed costs are the costs incurred on all factors of production. B) Variable costs of a firm are zero after it shut downs, whereas it continues to incur the fixed costs of production in the short run. C) Variable costs exist even when the production is zero, whereas fixed costs exist only when there is some positive production. D) Variable costs are incurred only in the long run, whereas a firm incurs some fixed costs in both the short run and the long run.

B

Which of the following statements is true of a perfectly competitive market? A) Sellers in the market produce differentiated goods. B) There is free entry and exit in the market. C) There are only a few buyers and sellers in the market. D) Sellers and buyers both set prices to compete in the market.

B

Which of the following statements is true? A) In the long run, a firm cannot vary any of its inputs. B) In the long run, a firm can vary all its inputs. C) In the short run, a firm cannot vary any of its inputs. D) In the short run, a firm can vary all its inputs.

B

In a perfectly competitive market: A) price is greater than marginal revenue to sellers. B) price is equal to marginal revenue to sellers. C) price is greater than marginal cost to sellers. D) price is equal to marginal cost to sellers.

B,D

A firm sells 20 units of a good at a price of $5 per unit. If the average cost of production of the good equals $3 per unit, the firm's revenue is: A) $40. B) $60. C) $100. D) $120.

C

A firm should shut down in the short run if the price is less than the: A) average fixed cost. B) average total cost. C) average variable cost. D) marginal cost.

C

A production function establishes the relationship between: A) the market price of a good and the sales revenue generated. B) the quantity of output produced and the firm's profit. C) the quantity of inputs used and the quantity of output produced. D) the market price of a good and the quantity of output supplied.

C

Entry of new firms into an existing market causes: A) an upward movement along the market supply curve. B) a downward movement along the market supply curve. C) a rightward shift of the market supply curve. D) a leftward shift of the market supply curve.

C

In a perfectly competitive market, all firms in the long run earn: A) positive economic profit. B) positive accounting profit. C) zero economic profit. D) zero accounting profit.

C

In a perfectly competitive market, because an individual seller tends to sell only an insignificant fraction of the total amount of the good produced: A) he can independently determine the market price. B) he can charge prices above the equilibrium price. C) his individual choices do not affect market price. D) he always earns positive profit

C

In a perfectly competitive market, the price in the long run: A) will always be more than the minimum average total cost of the industry. B) will always be less than the minimum average total cost of the industry. C) will always equal the minimum average total cost of the industry. D) will always equal the average fixed cost of the industry.

C

Price in a perfectly competitive market: A) is affected by government policies. B) is determined by the dominant seller. C) is affected by the combined decision of all sellers and buyers. D) is determined by buyers alone.

C

Profits equal: A) total revenue minus variable costs. B) revenue minus fixed costs. C) total revenue minus total costs. D) total revenue.

C

Specialization is the result of: A) hiring experienced workers. B) paying higher wages to workers that motivates them to work hard. C) division of labor where workers develop a certain skill set. D) increased demand for a firm's commodity.

C

The entry and exit of firms in a perfectly competitive market is mostly dependent on: A) the number of firms in the market. B) government regulations. C) profitability. D) the number of consumers in the market.

C

The equilibrium price of a good sold in a competitive market is $10. If an individual firm decides to sell its product at a price higher than $10, ________. A) the firm's profits will increase B) the firm's revenue will increase C) the firm will lose all its consumers D) the firm's cost of production will decrease

C

The long-run supply curve of a firm is: A) its marginal cost curve. B) its average total cost curve. C) the portion of its marginal cost curve that lies above its average total cost curve. D) the portion of its marginal cost curve that lies below its average total cost curve.

C

When the marginal cost curve lies above the average cost curve, ________. A) the marginal cost curve slopes upward, while the average cost curve slopes downward B) the marginal cost curve slopes downward, while the average cost curve slopes upward C) both the marginal cost curve and the average cost curve slope upward D) both the marginal cost curve and the average cost curve slope downward

C

When the marginal cost curve lies below the average cost curve, ________. A) the marginal cost curve is vertical B) the marginal cost curve is horizontal C) the average cost curve slopes downward D) the average cost curve slopes upward

C

Which of the following best describes a good with perfectly elastic supply? A) An increase in the price of the good leads to an increase in the seller's revenue. B) An increase in the price of the good decreases the quantity supplied of the good by more than the price change. C) An increase in the price of the good will induce the firm to supply its maximum possible quantity of the good. D) An increase in the price of the good increases the quantity supplied of the good exactly by the amount of the price change.

C

Which of the following is an example of specialization? A) The output of workers in a chocolate factory doubled when a new manager was appointed. B) The cost of production of a light bulb making factory decreased as its capacity increased. C) Instead of a worker making an entire shoe, the total productivity increased when different workers were allotted different jobs in the production process. D) Import of better technology and machinery from developed countries greatly increased the number of laser printers that a company was manufacturing.

C

Which of the following relationships correctly identifies the profit maximization condition of a firm in a perfectly competitive market? A) Marginal cost < Price = Marginal revenue B) Marginal cost > Price = Marginal revenue C) Marginal cost = Price = Marginal revenue D) Marginal cost = Price < Marginal revenue

C

Which of the following statements is true of the marginal product of an input? A) The marginal product of an input is given by the ratio of the firm's total output to the units of the input used. B) The marginal product of an input increases as more and more inputs are used. C) The marginal product of an input can take negative values. D) The marginal product of the first unit of a variable input is zero.

C

Which of the following statements is true? A) In the short run, a firm can vary all its inputs. B) In the long run, a firm cannot vary any of its inputs. C) Short-run cost curves lie above long-run cost curves. D) Short-run cost curves lie below long-run cost curves.

C

A firm uses workers, land, and machinery for its production process. Which of the following statements is then true? A) The only way the firm can change its output level in the long run is by changing the number of workers. B) The only way the firm can change its output level in the long run is by changing the amount of land it owns. C) The only way the firm can change its output level in the long run is by changing the amount of machinery. D) The firm can change its output level in the long run by changing any or all of its three inputs.

D

A good is said to have an elastic supply if its price elasticity of supply is: A) equal to zero. B) between zero and one. C) equal to one. D) greater than one.

D

If the price elasticity of supply of a good is 2, a 2% increase in the price of the good, will change the quantity supplied by: A) 0.5%. B) 1%. C) 2%. D) 4%.

D

If the quantity supplied falls to zero with a small decrease in the price of a good , the supply of the good is said to be A) unit elastic. C) perfectly inelastic. B) inelastic. D) perfectly elastic.

D

In a competitive market, there are a ________ number of buyers and a ________ number of sellers. A) large; small B) small; large C) small; small D) large; large

D

In a perfectly competitive market: A) the long-run market price is equal to the average fixed cost of the industry. B) the long-run market price is less than the minimum average cost of the industry. C) the long-run market price is more than the minimum average cost of the industry because of free entry and exit of firms. D) the long-run market price is equal to the minimum average cost of the industry because of free entry and exit of firms.

D

In the long run: A) all factors of production are fixed. B) only some inputs of a firm can be changed. C) all firms earn positive economic profits. D) all factors of production can be changed.

D

In the short run, when a firm is about to begin production it pays only: A) variable costs. B) opportunity costs. C) sunk costs. D) fixed costs.

D

The marginal cost curve intersects: A) the total cost curve at its minimum. B) the average fixed cost curve at its maximum. C) the average fixed cost curve at its minimum. D) both the average variable cost curve and the average total cost curve at their minimum.

D

When the marginal product ________, the marginal cost ________. A) increases; remains the same B) remains the same; increases C) increases; increases D) increases; decreases

D

Which of the following inputs can be most readily changed in the short run? A) Machinery B) Land owned C) Office Space D) Labor employed

D

Which of the following is NOT an element of a seller's decision-making process in a perfectly competitive market? A) The relationship between the inputs and outputs B) The cost of the inputs C) The price of the output D) The demand curve of consumers

D