micro chap 3

Technological advances will lead to A an increase in marginal utility B a decrease in average total costs C a decrease in net exports D an increase in marginal costs E diseconomies of scale

B a decrease in average total costs

If the marginal cost of producing the first unit of some good is $20 and the marginal cost of producing the second unit is $30, the average variable cost of producing 2 units is A $5 B $10 C $20 D $25 E $50

D $25

The average fixed cost of producing four units of output is equal to A $120 B $95 C $75 D $50 E $30

E $30

Which of the following statements about cost is always true for both monopolies and perfectly competitive firms? A Average total cost equals marginal cost when average total cost is a minimum. B Marginal cost decreases as production increases. C Average fixed cost is equal to marginal cost when average fixed cost is a minimum. D Average variable cost is equal to marginal cost when marginal cost is a minimum. E Average variable cost decreases as production increases.

A Average total cost equals marginal cost when average total cost is a minimum.

An increase in which of the following will cause a firm's marginal cost curve to shift upward? A The price of a variable input B The price of a fixed input C The level of output D Labor productivity E The demand for the firm's product

A The price of a variable input

Marginal cost is defined as the A change in total cost resulting from producing an additional unit of output B change in total cost resulting from using an additional unit of input C difference between total cost and total variable cost D difference between total variable cost and total fixed cost E difference between average total cost and average variable cost divided by output

A change in total cost resulting from producing an additional unit of output

The table above shows a firm's total cost of producing various units of output. What is the average variable cost of producing three units? A $4 B $7 C $10 D $17 E Cannot be determined from the given information

B $7

Ryan quit a job with a daily salary and opened a business. On a daily basis, the total revenue of the business is $200, and the explicit costs of the business are $120. If Ryan has zero economic profits, what must be the value of Ryan's implicit costs? A $0 B $80 C $120 D $200 E $280

B $80

Bruce is a talented writer and graphic artist who enjoys both types of work equally. Instead of earning $45,000 as a writer, Bruce now earns $25,000 in accounting profits as a graphic artist using the same computer equipment he would have used as a writer. What is Bruce's economic profit from choosing to work as a graphic artist? A -$45,000 B -$20,000 C $20,000 D $45,000 E $70,000

B -$20,000

Number of WorkersQuantity of Output0-0,1-10,2-25,3-35,4-40,5-42 Given the production schedule above, what is the maximum number of workers the firm can hire before the effects of diminishing marginal returns set in? A 1 B 2 C 3 D 4 E 5

B 2

Which of the following MUST be true of the long run? A It is at least one year in duration. B All factors of production are variable. C At least one factor of production is fixed. D Marginal costs are constant. E Average total costs are constant.

B All factors of production are variable.

Short-run marginal costs eventually increase because of the effects of A increasing marginal product B diminishing marginal product C diseconomies of scale D economies of scale E increasing fixed costs

B diminishing marginal product

At 100 units of output, a firm's total cost is $10,000. If the firm's total fixed cost is $4,000, its average variable cost is equal to A $140 B $100 C $60 D $40 E $0

C $60

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output? A $2 B $5 C $7 D $9 E $12

C $7

The table above shows the amount of labor inputs necessary to produce given levels of output. If the cost of a unit of labor is $20 and total fixed cost is $100, the average total cost of producing 20 units of output is A $1 B $2 C $7 D $40 E $120

C $7

Locotek produces toy trains and pays each worker $350 per week. Five workers can produce 40 trains per week and six workers can produce 45 trains per week. The marginal product per week of the sixth worker is A $70 B $350 C 5 trains D 7.5 trains E 42.5 trains

C 5 trains

If there is only one variable input, diminishing marginal returns first occur with the production of which unit of output? A 7th B 6th C 5th D 4th E 3rd

C 5th

Shelby is an entrepreneur who has decided to open a small advertising firm. She rents office space at a cost of $25,000 per year, she has employed an assistant at a salary of $30,000 per year, and she incurs annual utility and office supply expenses of $20,000. Her best alternative is to work elsewhere and to earn a salary of $50,000 per year. How much annual revenue must her firm receive so that Shelby earns zero economic profit? A $50,000 B $75,000 C $100,000 D $125,000 E $150,000

D $125,000

If the average variable cost of producing 5 units of a good is $100 and the average variable cost of producing 6 units is $150, then the marginal cost of increasing output from 5 to 6 units is A $50 B $250 C $300 D $400 E $500

D $400

In the short run, the firm will stop production when the price falls below A 0A B 0B C 0C D 0D E 0E

D 0D

A perfectly competitive firm operates with a fixed amount of capital that costs $1,000 per day. Labor is the only variable input. The firm hires labor in a perfectly competitive labor market at $100 per day per worker. The table below shows the firm's production function. Number of Workers HiredQuantity of Output (units)0-0, 1-10,2-30,3-54,4-75,5-85,6-90 What is the marginal product of the third worker? A 55 B 1010 C 2020 D 2424 E It cannot be determined from the information given.

D 24

At a firm's current rate of output, the marginal cost is $65, the average variable cost is $35, the average fixed cost is $30, and the product price is $65. Which of the following statements is true for the firm? A Economic profits are zero because marginal revenue equals marginal cost. B Economic profits are negative because total revenue is less than total cost. C Economic profits are positive because total revenue is greater than total cost. D Economic profits are negative because price is greater than average variable cost. E Economic profits are zero because price equals average total cost.

E Economic profits are zero because price equals average total cost.

When marginal product exceeds average product, which of the following must be true? A Average product is increasing. B Average product is decreasing. C Marginal product is increasing. D Total product is decreasing. E Total product is at its maximum.

A Average product is increasing.

A firm produces 400 books and sells each book for $15. If the explicit cost of producing the books is $4,500 and the implicit cost is $1,000, the firm's economic profit is A $0 B $500 C $1,000 D $1,500 E $5,000

B $500

When the marginal cost curve lies below the average total cost curve, it is true that as output increases A marginal cost is decreasing B marginal cost is increasing C average total cost is decreasing D average total cost is increasing E average variable cost is decreasing

C average total cost is decreasing

Given the information above, the average variable cost of 25 units of output is A $2 B $6 C $25 D $50 E $75

A $2

Which of the following factors can cause a firm's cost curves to shift upward? A An increase in wages B An increase in the firm's output C An increase in the output price D A decrease in the firm's output E A decrease in the price of energy

A An increase in wages

A firm is producing 100 units of output at a total cost of $400. The firm's average variable cost is $3 per unit. What is the firm's total fixed cost? A $1 B $50 C $100 D $300 E $400

C $100

If labor is the only variable input and it costs $15 per hour and if the marginal product of labor is 3 units per hour, the short-run marginal cost of 1 unit of output is approximately A $0.20 B $3.00 C $5.00 D $15.00 E $45.00

C $5.00

The average total cost to the firm of producing 2 units of output is A $35.00 B $85.00 C $95.00 D $100.00 E $130.00

C $95.00

For a perfectly competitive, increasing-cost industry, an increase in the industry's demand will lead to which of the following in the long run? A An upward shift in each firm's long-run average cost curve B An increase in each firm's profit C A decrease in the price of an input and a decrease in total industry profits D A decrease in total industry sales E A decrease in total producer surplus and an increase in total consumer surplus

A An upward shift in each firm's long-run average cost curve

In the absence of barriers to entry, a typical firm is currently in long-run equilibrium. Assume there is an increase in the market demand for the good that the firm is producing. Which of the following will happen in the long run? A New firms will enter the market. B The market supply will decrease, but the quantity supplied will increase. C The firm will earn positive economic profit. D The firm's price will be greater than its average revenue. E The firm will continue to produce the same quantity of output.

A New firms will enter the market.

Assume a perfectly competitive firm is currently producing 100 units of output. Its marginal cost is $6 and rising at that output quantity. Its average variable cost is $7 and its average fixed cost is $3. If the product's price is $6, which of the following will the firm do in the short run to maximize its profit? A Shut down B Produce, but less than 100100 units of output C Produce more than 100100 units of output D Continue to produce at exactly 100100 units of output E Increase its price above $6

A Shut down

Assume that, for a perfectly competitive firm, marginal cost equals average variable cost at $10, marginal cost equals average total cost at $15, and marginal revenue equals marginal cost at $12. On the basis of this information, the firm should A close down in the short run B operate in the short run, even though it will sustain a loss C operate in the short run, because it will make an economic profit of $3 per unit D operate in the long run, because it will make an economic profit of $3 per unit E operate in the short run, but decrease output to decrease its cost

B operate in the short run, even though it will sustain a loss

JC pizzeria has a year remaining on an unbreakable lease on its building, requiring a payment of $20,000 a year. If JC operates over the next year, it estimates that its revenues will be $200,000 and that its expenses, in addition to the lease, will be $190,000. Which of the following statements is true? A JC should shut down, since it will incur a loss of $20,000. B JC should shut down to break even. C JC should operate, since its loss is less than its fixed cost. D JC should operate, since it will earn a profit of $10,000. E JC will break even, whether it operates or shuts down.

C JC should operate, since its loss is less than its fixed cost.

Assume that a profit-maximizing, perfectly competitive firm has economic losses in the short run. If the firm continues to produce and sell its goods, then which of the following must be true? A The firm is covering all of its fixed and variable costs of production. B The firm is covering all of its fixed costs but not all of its variable costs of production. C The firm is covering all of its variable costs but not all of its fixed costs of production. D The firm is covering all of its implicit costs but not all of its explicit costs. E The firm must have raised the price of its goods in order to minimize its losses.

C The firm is covering all of its variable costs but not all of its fixed costs of production.

In the short run, if a firm produces the level of output at which marginal revenue is equal to marginal cost but price is less than average total cost, the firm will A always shut down production B expand output to lower its average fixed cost C continue to operate if price is greater than its average variable cost D decrease output until price equals its average total cost E increase output to increase revenue

C continue to operate if price is greater than its average variable cost

A profit-maximizing firm will shut down in the short run any time the firm's total revenue is less than its A total cost B fixed cost C total variable cost D explicit cost E implicit cost

C total variable cost

In order to minimize short-run losses, a profit-maximizing firm will necessarily shut down production under which of the following conditions? A Total revenue is less than total cost. B Marginal cost is greater than average total cost. C Marginal cost is less than marginal revenue. D Average revenue is less than average variable cost. E Average revenue is less than average total cost.

D Average revenue is less than average variable cost.

At its current level of output, a firm's total revenue is greater than its total variable cost but less than its total cost. If the firm is producing at the point where marginal revenue is equal to marginal cost, what should the firm do to maximize profit in the short run? A Increase price to increase revenue. B Decrease price to increase quantity. C Exit the market to minimize losses. D Continue to produce at its current level of output to minimize losses. E Shut down.

D Continue to produce at its current level of output to minimize losses.

Which of the following MUST be true in the long run? A The equilibrium price will be P2, since that is where marginal cost equals minimum average variable cost. B The equilibrium price will be above P3, since firms must make an economic profit to stay in business. C If the price is above P2, new firms will enter the industry. D If the price is above P3, new firms will enter the industry. E If the price is above P4, firms will exit the industry.

D If the price is above P3, new firms will enter the industry.

Which of the following will the firm do in the long run if market conditions do not change? A It will increase output to Q2Q2 and lower price to P2P2 to minimize losses. B It will increase output to Q3Q3 and raise price to P4P4 to earn zero economic profit. C It will produce Q1Q1 and set price equal to marginal revenue. D It will exit the industry. E It will build a larger plant to achieve decreasing returns to scale.

D It will exit the industry.

In the short run, a profit-maximizing firm should shut down if which of the following is true? A It is not making an economic profit. B It is not making a normal profit. C Its total revenue is less than its total cost. D Its product price is less than its average variable cost. E Its product price is greater than its average variable cost but less than its average total cost.

D Its product price is less than its average variable cost.

In the short run, which of the following must be true for a perfectly competitive firm that is maximizing profits? A The firm will shut down if it has any economic losses. B The firm will produce at the minimum of average total cost. C The firm will produce where MR = MC, but price from the demand curve is greater than MCMC. D The firm will produce where MR = MC as long as P is greater than average variable cost. E The firm will produce the quantity that exhibits allocative and productive efficiency.

D The firm will produce where MR = MC as long as P is greater than average variable cost.

The short-run supply curve for a firm in a perfectly competitive industry is A its entire marginal cost curve B its average variable cost curve above its marginal cost curve C its average total cost curve above its marginal cost curve D its marginal cost curve above the minimum point of its average total cost curve E its marginal cost curve above the minimum point of its average variable cost curve

E its marginal cost curve above the minimum point of its average variable cost curve

Instead of being employed at a printing company at a salary of $25,000 per year, Sally starts her own printing firm. Rather than renting a building that she owns to someone else for $10,000 per year, she uses it as the location for her company. Her costs for workers, materials, advertising, and energy during her first year are $125,000. If the total revenue from her printing company is $155,000, her total economic profit is A -$5,000 B $5,000 C $20,000 D $30,000 E $120,000

A -$5,000

Which of the following must be true if at the tenth unit of output, marginal cost (MC) is $130 and average total cost (ATC) is $150 ? A ATC of producing the ninth unit is higher than $150 B ATC of producing the ninth unit is less than $150 C MC of producing the ninth unit is higher than $130 D The average variable cost of producing the tenth unit is higher than $150 E The average variable cost of producing the tenth unit is equal to $20

A ATC of producing the ninth unit is higher than $150

If a firm's production function exhibits diminishing marginal product of the variable input in the short run, which of the following about the firm's short-run marginal cost (MC) curve must be true? A As output increases, the MC curve slopes upward. B As output increases, the MC curve slopes downward and becomes flatter. C As output increases, the MC curve slopes downward and becomes steeper. D The MC curve is horizontal. E The MC curve is vertical.

A As output increases, the MC curve slopes upward.

Which of the following best describes the relationship between the average total cost curve and the marginal cost curve in the short run? A If the average total cost curve is rising, the marginal cost curve is above the average total cost curve. B If the average total cost curve is rising, the marginal cost curve is below the average total cost curve. C If the average total cost curve is above the marginal cost curve, the marginal cost curve is rising. D If the average total cost curve is below the marginal cost curve, the marginal cost curve is falling. E If the average and marginal cost curves intersect, the marginal cost curve is at a minimum.

A If the average total cost curve is rising, the marginal cost curve is above the average total cost curve.

Which of the following is true of the marginal cost curve? A It intersects the average variable cost curve and the average total cost curve at each curve's minimum point. B It intersects the average variable cost curve and the average fixed cost curve at each curve's minimum point. C It lies between the total cost curve and the total variable cost curve. D It increases initially, for a time, but begins to decline when the point of diminishing returns is reached. E It decreases, because average variable cost is less than marginal cost.

A It intersects the average variable cost curve and the average total cost curve at each curve's minimum point.

The following questions refer to the diagram below, which shows the short-run production function of a perfectly competitive firm that produces potatoes using one variable input, labor. Number of workers - potatoes: 0-0,1-3,2-7,3-10,4-12,5-13,6-12 After which worker does diminishing marginal product first occur? A Second worker B Third worker C Fourth worker D Fifth worker E Sixth worker

A Second worker

Assume a competitive firm is producing where price (P) and marginal revenue (MR) are greater than marginal cost (MC) and average variable cost (AVC). Which of the following is true regarding the firm's short-run output level? A The firm is producing too little and should increase its output level until P =MR=MC B The firm is producing too much and should reduce its output level until P =MR=AVC C The firm is not maximizing profits and should raise its price but not change its output level. D The firm should increase its marginal revenue to equal price and reduce its output level until MR = MC E The firm should reduce its price until P =MR=MC

A The firm is producing too little and should increase its output level until P =MR=MC

If the price of a firm's variable input increases, which of the following will occur? A The firm will decrease its level of production. B The price of the good will decrease in the short run. C The firm's marginal costs will decrease at every level of output. D The firm's average fixed cost will decrease. E More firms will enter the industry in the long run.

A The firm will decrease its level of production.

A merger of two firms may increase economic efficiency by A decreasing average total cost through an increase in economies of scale B decreasing output to reduce marginal cost and equalize price C increasing economic profits but decreasing consumer surplus D increasing consumer surplus by decreasing economic profits E increasing consumer surplus by shifting the demand curve for the product to the right

A decreasing average total cost through an increase in economies of scale

F&D Manufacturing Company increases all its inputs by 50 percent each. If F&D's output increases by 100 percent, then F&D is experiencing A increasing returns to scale B constant returns to scale C diseconomies of scale D increasing marginal cost E decreasing profits

A increasing returns to scale

An entrepreneur has earned enough total revenue to cover her accounting costs, but economic losses are being incurred. What must be true? A Her accounting costs are larger than her economic costs. B Her accounting profits are less than her implicit costs. C Her accounting profits are greater than her economic costs. D Her economic losses are less than her total fixed costs. E Her implicit costs are less than her accounting costs.

B Her accounting profits are less than her implicit costs.

Economic profit can be calculated as accounting profit minus which of the following? A Fixed costs B Implicit costs C Marginal costs D Explicit costs E Total costs

B Implicit costs

The graph above shows the marginal product (MP) and the average product (AP) of labor for a firm that uses labor as the only variable input and hires its labor in a perfectly competitive market. At which quantity of labor does marginal cost change from decreasing to increasing? A L1 B L2 C L3 D L4 E L5

B L2

Which of the following must be true if a firm is experiencing economies of scale? A All costs are explicit. B Long-run average total cost decreases as the firm's output increases. C Economic profits decrease as the firm's output increases. D Long-run average total cost remains constant as the firm's output decreases. E Proportionate increases in inputs result in less-than-proportionate increases in output.

B Long-run average total cost decreases as the firm's output increases.

In most cases the supply curve for a perfectly competitive industry can be described as which of the following? A More elastic in the short run than in the long run B More elastic in the long run than in the short run C Downward sloping in the short run D Perfectly inelastic in the long run E Perfectly elastic in the short run

B More elastic in the long run than in the short run

Which of the following best explains why the short-run average total cost curve is U-shaped? A Spreading total fixed costs over a larger output, and constant returns B Spreading total fixed costs over a larger output, and eventually diminishing returns C Increasing total fixed costs and increasing returns D Increasing average variable costs and decreasing returns E Decreasing average variable costs and increasing returns

B Spreading total fixed costs over a larger output, and eventually diminishing returns

Under which of the following circumstances is a firm experiencing economics of scale? A The firm increases only its labor input, and output decreases. B The firm doubles its inputs, and output triples. C The firm builds a new plant, and the average cost of production increases. D The firm hires a new plant manager, and profits increase. E The product price increases, and the firm increases its output.

B The firm doubles its inputs, and output triples.

Beyond a certain level of output, the short-run marginal cost will rise because A there is no fixed input and costs will increase B at least one input is fixed and eventually diminishing returns will occur C the cost of the variable input increases when marginal product increases D the demand for the good decreases when production is limited E input prices increase when production increases and consumption is limited

B at least one input is fixed and eventually diminishing returns will occur

If a firm's long-run average total cost increases as output increases, the firm is experiencing A economies of scale B diseconomies of scale C increasing returns to scale D efficiency in plant size E maximum economic profit

B diseconomies of scale

A farmer grows wheat using two inputs: labor and land whose prices are constant. If she doubles her inputs, she finds that the quantity of wheat produced more than doubles. Therefore, it must be true that in this output range her long-run average total cost curve is A upward sloping B downward sloping C horizontal D vertical E U-shaped

B downward sloping

The most profitable level of output for any firm operating in the short run is the level of output at which A marginal revenue exceeds marginal cost by the highest amount B marginal revenue equals marginal cost C price exceeds average cost by the highest amount D price equals average cost E price equals marginal cost

B marginal revenue equals marginal cost

Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the firm hires additional workers, one would expect the marginal product to A fall initially, but eventually rise B rise initially, but eventually fall C rise consistently due to diminishing return D rise consistently due to the advantages of specialization E rise consistently due to economies of scale

B rise initially, but eventually fall

Which of the following explains the difference between short-run and long-run costs? A All costs are variable in the short run but not in the long run. B All costs are fixed in the long run but not in the short run. C All costs are variable in the long run but not in the short run. D All costs are fixed in the short run but not in the long run. E All costs are variable in the short run and fixed in the long run.

C All costs are variable in the long run but not in the short run.

If a new tax on capital increases a firm's fixed cost of production, which of the following will occur in the short run? A Marginal cost will increase. B Average variable cost will increase. C Average total cost will increase. D The profit-maximizing level of output will increase. E The profit-maximizing level of output will decrease.

C Average total cost will increase.

Which of the following is a result of increasing returns to scale? A Upward-sloping short-run marginal cost curve B Downward-sloping marginal physical product of labor curve C Downward-sloping long-run average total cost curve D Diseconomies of scale E Diminishing returns

C Downward-sloping long-run average total cost curve

Which of the following statements regarding accounting profits, opportunity costs, and economic profits is true? A With positive opportunity costs, a firm can never earn economic profits. B Accounting profits are equal to economic profits minus opportunity costs. C If accounting profits are less than opportunity costs, there will be economic losses. D Economic profits must always be greater than accounting profits. E When economic profits are positive, accounting profits may be positive or negative.

C If accounting profits are less than opportunity costs, there will be economic losses.

In the short run, which of the following is true of a firm's average total cost of production? A It is equal to marginal cost plus average variable cost. B It is equal to marginal cost plus average fixed cost. C It is equal to average fixed cost plus average variable cost. D It always increases when a firm increases production. E It is zero if the firm shuts down.

C It is equal to average fixed cost plus average variable cost.

If a firm's production process exhibits economies of scale, which of the following will occur when the firm's output increases? A Its short-run average total costs will rise. B Its long-run average total costs will rise. C Its long-run average total costs will fall. D Its short-run average total costs will fall. E Its long-run total costs will fall.

C Its long-run average total costs will fall.

If a firm is experiencing economies of scale, which of the following will decrease as output increases? A Fixed cost B Long-run total cost C Long-run average total cost D Marginal cost E Marginal revenue

C Long-run average total cost

In the short run, a profit-maximizing firm, faced with U-shaped average cost curves, is producing a level of output at which the average total cost of production is minimized. At this level of output, which of the following is true for the firm? A Marginal cost equals average fixed cost. B Marginal cost equals average variable cost. C Marginal cost equals average total cost. D Profit per unit equals average total cost. E Profit per unit equals marginal cost.

C Marginal cost equals average total cost.

Assume that a firm uses only one variable input. If a firm is experiencing diminishing returns, which of the following is true as more of the variable input is used? A Marginal cost will decrease at a constant rate. B Marginal cost will decrease at a diminishing rate. C Marginal cost will increase. D Marginal product will increase at a constant rate. E Marginal product will increase at a diminishing rate.

C Marginal cost will increase.

Assume Nadia voluntarily leaves a job with a salary of $100 per day to open and run a restaurant instead. After deducting all explicit costs from the restaurant revenues, Nadia has a gain of $120. Assuming there are no additional implicit costs, which of the following statements is true? A Nadia has an accounting profit of $20 B Nadia has an accounting profit of $100 C Nadia has an economic profit of $20 D Nadia has an economic profit of $120 E Nadia has an economic profit of −$20

C Nadia has an economic profit of $20

If the firm produces Q1 units of output with two inputs, the firm will be experiencing which of the following in the short run and in the long run? A Short Run / Long Run: Increasing marginal returns, Economies of scale B Short Run / Long Run: Increasing marginal returns, Diseconomies of scale C Short Run / Long Run: Diminishing marginal returns, Economies of scale D Short Run / Long Run: Diminishing marginal returns, Diseconomies of scale E Short Run / Long Run: Constant marginal returns, Diseconomies of scale

C Short Run / Long Run: Diminishing marginal returns, Economies of scale

Which of the following best explains why a firm's short-run marginal cost curve shifts down when it purchases new, more efficient equipment and experiences an increase in its total cost? A The situation represents an exception to the law of diminishing returns. B The average total cost curve shifts upward as a result of the equipment purchase, and there is a movement up along the marginal cost curve. C The equipment purchase is a fixed cost, and the new equipment will cause a reduction in the cost of producing each additional unit. D The average variable cost curve shifts upward as a result of the equipment purchase, and the marginal cost curve shifts downward. E The marginal cost curve shifts downward because of the law of diminishing returns.

C The equipment purchase is a fixed cost, and the new equipment will cause a reduction in the cost of producing each additional unit.

Which of the following indicates that a firm is experiencing economies of scale? A The firm's long-run supply curve is horizontal. B The firm's long-run marginal cost increases as output increases. C The firm's long-run average total cost decreases as output increases. D The firm's long-run total cost decreases as output increases. E The firm's total revenues increase as output sold increases.

C The firm's long-run average total cost decreases as output increases.

At the current quantity that a firm is selling, the firm has marginal revenue of $750 and marginal cost of $800. Which of the following is true? A The firm is maximizing profit. B The firm's profits would increase if the firm increased the quantity sold. C The firm's profits would increase if the firm decreased the quantity sold. D The firm earns negative economic profit. E The firm earns zero accounting profit.

C The firm's profits would increase if the firm decreased the quantity sold.

Assume the marginal product of labor first rises, reaches a maximum, and then falls. If the average product of labor is falling, which of the following is true? A The marginal product of labor is greater than the average product of labor. B The level of output produced must be at its maximum. C The marginal product of labor must be falling. D The marginal product of labor must be negative. E The average product of labor has not yet reached its maximum.

C The marginal product of labor must be falling.

All of the following can be concluded from the information in the table EXCEPT: A Diminishing marginal returns set in after the fourth unit of the variable input. B Marginal product is positive if total product is increasing. C This is a production function for a perfectly competitive firm. D A profit-maximizing firm would never voluntarily employ the eighth unit of the variable input. E Total product starts to decrease when marginal product changes from positive to negative.

C This is a production function for a perfectly competitive firm.

In the short run, assume diminishing marginal product of labor sets in with the hiring of the second worker. Which of the following will remain constant as a firm produces more output? A Average product of labor B Total cost C Total fixed cost D Total variable cost E Marginal cost

C Total fixed cost

Based on the short-run production function graph above showing the relationship between the quantity of labor and total product, which of the following statements is true? A The marginal product of labor is always increasing. B At L0L0 the marginal product of labor is at its maximum. C Total product is maximized when marginal product is zero. D At L0L0 the marginal product of labor exceeds the average product of labor. E The marginal product of labor is always positive.

C Total product is maximized when marginal product is zero.

As output of a firm increases, the difference between the firm's average total cost and its average variable cost gets smaller because the firm's A total cost is increasing B marginal cost is increasing C average fixed cost is decreasing D marginal product of labor is decreasing E long-run average total cost is decreasing

C average fixed cost is decreasing

The vertical distance CF represents the A total cost of producing Q1 units of output B average total cost of producing Q1 units of output C average fixed cost of producing Q1 units of output D average variable cost of producing Q1 units of output E amount of the firm's loss resulting from producing Q1 units of output

C average fixed cost of producing Q1 units of output

If the output of a firm doubles when the firm doubles all of its inputs, the firm must be experiencing A economies of scale B increasing returns to scale C constant returns to scale D decreasing returns to scale E diseconomies of scale

C constant returns to scale

If a single firm can produce and supply an entire market at a lower unit cost than many small firms can, the long-run average total cost must be A increasing as firm size increases B remaining constant as firm size increases C decreasing as the firm's output increases D inelastic due to specialization E constant and equal to marginal cost

C decreasing as the firm's output increases

The relationship in the graph above best illustrates the economic concept of A opportunity cost B diminishing marginal utility in consumption C diminishing marginal returns in production D production possibilities E comparative advantage

C diminishing marginal returns in production

When total physical product is at its maximum, marginal physical product must be A greater than one B equal to one C equal to zero D less than zero E constant

C equal to zero

If a firm's average total cost decreases as the firm increases its output, the firm's marginal cost must be A greater than the average variable cost B less than the average fixed cost C less than the average total cost D decreasing E negative

C less than the average total cost

In microeconomics, the short run is defined as which of the following? A A period that is less than one year B A period that is between one year and four years C A period that is too short for a firm to be able to change its level of output D A period during which some inputs in a firm's production process cannot be changed E A period during which a firm's fixed costs exceed its variable costs

D A period during which some inputs in a firm's production process cannot be changed

Which of the following provides an example of the law of diminishing returns? A A farm doubles all its inputs and observes that output less than doubles. B A textile producer's output increases by 5 units when adding a fourth worker and by 7 units when adding a fifth worker. C If a fixed input increases, fewer additional units of a variable input will be needed to increase output by one unit. D As more of a variable input—for example, labor is used with a fixed number of machines— output increases but at a diminishing rate. E More cooks in a single kitchen will increase the number of meals produced by increasing amounts.

D As more of a variable input—for example, labor is used with a fixed number of machines— output increases but at a diminishing rate.

In the short run, which of the following costs must continuously decrease as output produced increases? A Total variable cost B Total fixed cost C Average variable cost D Average fixed cost E Average total cost

D Average fixed cost

Which of the following is always true of the relationship between average and marginal costs? A Average total costs are increasing when marginal costs are increasing. B Marginal costs are increasing when average variable costs are higher than marginal costs. C Average variable costs are increasing when marginal costs are increasing. D Average variable costs are increasing when marginal costs are higher than average variable costs. E Average total costs are constant when marginal costs are constant.

D Average variable costs are increasing when marginal costs are higher than average variable costs.

Assume a firm doubles its usage of each input, resulting in a doubling of the firm's output. Which of the following describes this result? A Increasing total cost B Diminishing marginal returns C Decreasing returns to scale D Constant returns to scale E Increasing returns to scale

D Constant returns to scale

Which of the following is true for a firm that uses labor as a variable input and capital as a fixed input in the short run? A If the marginal product of labor is negative, the average product of labor must also be negative. B If the marginal product of labor is rising, the average product of labor must be greater than the marginal product of labor. C If the average product of labor is rising, the marginal product of labor must be rising. D If the average product of labor is falling, the marginal product of labor must be less than the average product of labor. E The average product of labor can never be equal to the marginal product of labor.

D If the average product of labor is falling, the marginal product of labor must be less than the average product of labor.

Assume that the short-run marginal cost curve initially falls, and it then rises as quantity of output increases. Which of the following must be true? A The marginal product of labor is always falling. B At every output level, the short-run marginal cost curve is always above the average variable cost curve. C As output increases, the unit price of labor (the wage rate) is first falling and then rising. D Initially the marginal product of labor increases but eventually marginal product of labor decreases. E The average variable cost curve must always be rising.

D Initially the marginal product of labor increases but eventually marginal product of labor decreases.

The table above shows the short-run production function for picking apples. Based on the production data, which of the following statements about the marginal product of the fifth worker is true? A It is the maximum that can be attained. B It is greater than the marginal product of the first worker due to increasing returns. C It is greater than the combined marginal products of all the other workers. D It is less than the marginal product of the third worker due to diminishing returns. E It is rising due to increasing marginal returns.

D It is less than the marginal product of the third worker due to diminishing returns.

At the current output level, a firm finds that it has the potential to increase its profit by expanding output. If P = price, MR = marginal revenue, and MC = marginal cost, which of the following must hold at the current output for this firm? A P = MR < MC B P = MR = MC C MR = MC D MR > MC E MR < MC

D MR > MC

Assume that labor is the only variable input. If a firm's short-run marginal cost is increasing as output rises, which of the following must be true? A Average product of labor is constant. B Average product of labor is increasing. C Marginal product of labor is greater than average product of labor. D Marginal product of labor is decreasing. E Total product of labor is decreasing.

D Marginal product of labor is decreasing.

Assume that a firm is maximizing short-run profits and that price is greater than average variable cost. Which of the following must be true at the firm's level of output? A Marginal revenue is equal to average total cost. B Marginal revenue is greater than total variable cost. C Marginal revenue is equal to price, which is greater than average total cost. D Marginal revenue is equal to marginal cost. E Price is equal to average total cost.

D Marginal revenue is equal to marginal cost.

Which of the following is true about a firm's average variable cost? A It will rise if marginal cost is less than average variable cost. B It will never equal the firm's marginal cost. C It will decline when the firm's marginal product declines. D It will be negative if marginal revenue declines. E It will equal average total cost when fixed costs are zero.

E It will equal average total cost when fixed costs are zero.

If labor is the only variable input in the production process, the short-run marginal cost curve is upward sloping because which of the following occurs as more and more labor is added? A Output decreases, and thus marginal cost increases. B Output increases, and thus marginal cost increases. C Output increases at an increasing rate, and thus the cost of producing each additional unit of output increases. D Output increases at a decreasing rate, and thus the cost of producing each additional unit of output increases. E Output increases at a decreasing rate, and thus the cost of producing each additional unit of output decreases.

D Output increases at a decreasing rate, and thus the cost of producing each additional unit of output increases.

Which of the following statements about short-run costs is true? A Average fixed cost plus variable cost equals total cost. B Average total cost plus average fixed cost equals average variable cost. C Total fixed cost increases in constant increments as output produced increases. D Total fixed cost plus total variable cost equals total cost. E At low output levels, as output increases, total fixed cost and total variable cost decrease, reducing average total cost.

D Total fixed cost plus total variable cost equals total cost.

Economies of scale can be illustrated by A an increasing short-run marginal cost curve as a firm produces more output B a decreasing short-run average total cost curve as a firm produces more output C a downward-sloping long-run supply curve for an industry D a decreasing long-run average total cost curve as a firm produces more output E an increasing long-run average total cost curve as a firm produces more output

D a decreasing long-run average total cost curve as a firm produces more output

When a competitive firm maximizes short-run economic profits, it produces at the output level where A average cost is at its minimum B price equals zero C price equals average variable cost D marginal revenue equals marginal cost E marginal revenue equals average variable cost

D marginal revenue equals marginal cost

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is A 5.00 B 11.67 C 13.33 D 15.00 E 20.00

E 20.00

Assume that a profit-maximizing firm is perfectly competitive in both the output and the factor markets and is at its long-run equilibrium. The firm's output is 100 units, its total revenue is $600.00, and the fixed cost of production is $50.00. Based on this information, which of the following is true for the firm? A Its marginal cost is $5.50, and its average total cost is $5.50. B Its marginal cost is $5.50, and its average variable cost is $5.50. C Its marginal cost is $6.00, and its average total cost is $5.50. D Its marginal cost is $6.00, and its average fixed cost is $5.50. E Its marginal cost is $6.00, and its average variable cost is $5.50.

E Its marginal cost is $6.00, and its average variable cost is $5.50.

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur? A The demand curve for the product will shift to the left. B The firm's demand curve for plastic will shift to the left. C The firm will increase the number of units offered for sale. D The firm will definitely go out of business, since competitive firms earn zero economic profits in equilibrium. E The firm's marginal costs will increase at each level of output.

E The firm's marginal costs will increase at each level of output.

As its output increases, a firm's short-run marginal cost will eventually increase because of A diseconomies of scale B a lower product price C inefficient production D the firm's need to break even E diminishing returns

E diminishing returns

The long-run average cost curve will be sloping downward if a firm experiences A diminishing marginal returns B decreasing returns to scale C constant returns to scale D diseconomies of scale E economies of scale

E economies of scale

If total revenue is increasing as output increases, marginal revenue is always A equal to average revenue B less than average revenue C increasing D decreasing E greater than zero

E greater than zero

Economies of scale exist when A the doubling of all inputs doubles the output produced B short-run average total cost decreases as output increases C short-run average total cost remains constant as output increases D long-run average total cost increases as output increases E long-run average total cost decreases as output increases

E long-run average total cost decreases as output increases

Jamal quits a job that was paying him $30,000 per year and decides to start his own business. He runs his business out of his house in a room he had been renting to his colleague for $12,000 a year. Jamal withdraws the $20,000 in his savings account that had been earning him a 10 percent annual interest to purchase computers and related accessories and equipment for the business. During the first year of operation, Jamal's business incurred $30,000 in explicit costs and generated $60,000 in total sales. Jamal's economic profit is A $30,000 B $17,000 C $0 $0 D −$2,000 E −$14,000

E −$14,000