micro chapter 11

Damien produces 400 gallons of milk a day in a very competitive industry. The market price for a gallon of milk is $2. Damien's marginal revenue per gallon of milk is: A. $2. B. $0. C. $800. D. $200.

A. $2.

(Table: Barrels of Oil 2) Refer to the table. The maximum profit available to the company is: A. $224. B. $210. C. $184. D. $266.

A. $224.

(Table: Barrels of Oil) Refer to the table. The change in profit from producing the second barrel of oil is ________, and the marginal cost from producing the seventh barrel of oil is ________. A. $60; $140 B. $140; $20 C. $100; $20 D. $140; $140

A. $60; $140

Julius builds dining chairs that he sells for $200 a chair. His fixed costs are $1,000 (for workshop equipment). Each chair costs him $50 in materials to produce plus an extra $25 for each previous chair made that day which reflects Julius' increasing exhaustion. (Thus, the first chair cost $50, the second costs $75, the third cost $100, etc.) Assume time requirements in producing a chair are not a factor. How many chairs should Julius produce each day? A. 7 B. 12 C. 2 D. 5

A. 7

As of July 2011, oil companies had a 6.5 percent profit margin (for each dollar of sales, 6.5 cents was profit), ranking 131 (profit margin is the far right column). Other industries making the same profit margin include packaging and containers, office supplies, farm and construction, and newspapers. If these profits are typical, what does this similar profit margin across very different industries suggest about oil companies' profits? A. They are making zero profits. B. They are making above-average profits and should expect entry. C. They are making above-average profits and should expect no entry or exit. D. Nothing because it is the total profits that matter, not profits per dollar of sales.

A. They are making zero profits.

When marginal cost is rising, the average total costs: A. could be rising or falling. B. must be falling. C. must be rising. D. must be constant.

A. could be rising or falling.

Firms should exit the market if: A. price falls below the average cost. B. producer surplus is just equivalent to recoverable costs. C. sunk costs are a significant portion of the total cost. D. marginal cost exceeds the average cost.

A. price falls below the average cost.

(Figure: Industry Firms) Use the figures. The market for a normal good is characterized by demand curve D 2 and supply curve S 2. A decrease in income will cause: A.the demand curve to shift D1 causing firms to earn economic losses. The supply curve will decrease to S1 as firms exit the industry. Eventually the market price will rise and firms will earn normal profits. B.the supply curve to shift S1 causing firms to earn economic losses. The demand curve will decrease to D1 as firms enter the industry. Eventually the market price will fall and firms will earn normal profits. C.the demand curve to shift D1 causing firms to earn economic profits. The supply curve will not change, so price will rise and firms will earn normal profits. D.the supply curve to shift D1 causing firms to earn economic profits. The supply curve will decrease to S1 as firms exit the industry. Eventually the market price will rise and firms will earn above-normal profits.

A.the demand curve to shift D1 causing firms to earn economic losses. The supply curve will decrease to S1 as firms exit the industry. Eventually the market price will rise and firms will earn normal profits. B.the sup

Marcie quit her job as a preschool teacher, which paid an annual salary of $28,000, and became a street food vendor. She used $8,000 out of her savings account that paid a 4% annual interest rate to buy a street cart to sell food. In her first year of operations, she spent $10,000 on food and supplies (napkins, cups, plates, etc.) and earned total revenue of $45,000. Marcie's accounting profit is ______ and economic profit is ______. A. $28,000; $20,000 B. $35,000; $6,680 C. $35,000; -$1,000 D. $27,000; $17,000

B. $35,000; $6,680

(Table: Competitive Firm) Refer to the table. The fixed cost for this firm is: A. $80. B. $50. C. $90. D. $100.

B. $50.

(Table: Competitive Firm) Refer to the table. The market price for the product is: A. $80. B. $90. C. A dollar amount, but it cannot be determined from the information in the table. D. $100.

B. $90.

A firm should exit an industry if: A. P - AC > 0. B. P- AC < 0. C. P < MC. D. P - AC = 0.

B. P- AC < 0.

Use the table. A firm is considering whether to enter an industry, with the conditions upon entry set forth in the table. Entering the industry would require the firm to pay $800 per day in fixed costs. This firm should ________ the industry because its profits would be ________ per day. A. enter; $700 B. enter; $150 C. not enter; -$1,350 D. not enter; -$800

B. enter; $150

Suppose there is a large and permanent increase in the demand for a good produced in a competitive industry. We should expect that: A. competition in the industry will decrease. B. firms will enter the industry because the market price will rise. C. existing firms will face lower sunk costs. D. existing firms' average cost curves will shift upward.

B. firms will enter the industry because the market price will rise.

More potential sellers ______ the elasticity of ______ firm-level demand. A. decrease; long-run B. increase; short-run C. decrease; short-run D. increase; long-run

B. increase; short-run

Price times quantity minus total cost equals: A. total revenue. B. profit. C. marginal revenue. D. fixed costs.

B. profit.

(Table: Oil Production) Refer to the table. What are the fixed costs of production for this firm? A. $4 B. $34 C. $30 D. $50

C. $30

(Table: Oil Production) Refer to the table. What is the profit of producing 10 barrels of oil? A. $180 B. $154 C. $80 D. $194

C. $80

Refer to the figure. If you are one of literally thousands of maple syrup producers and you wanted to increase your maple syrup production from 100 gallons to 110 gallons, what price would you charge? A. $10 B. $110 C. $96 D. $100

C. $96

The marginal revenue ( MR) for a firm is a constant $45, and the firm's marginal cost ( MC) is given by MC = 1.5 Q (where Q is quantity of output). What is the firm's profit-maximizing level of output? A. 15 B. 45 C. 30 D. 67.5

C. 30

Which statement about cost is correct? A. Average total cost always declines. B. Marginal cost is always falling. C. Average total cost is U-shaped. D. Marginal cost is constant.

C. Average total cost is U-shaped.

A perfectly competitive industry exists under which of the following conditions? I.The product sold is similar across firms. II. There are many sellers, each small relative to the total market. III. There are many sellers, each with total assets less than $2 million. IV. The threat of competition exists from potential sellers that have not yet entered the market. A. I, II, and III only B. I and II only C. I, II, and IV only D. I, III, and IV only

C. I, II, and IV only

Profit is positive whenever: A. P > MC. B. P < AC. C. P > AC. D. P < MC.

C. P > AC.

(Figure: Profits and Competitive Firms) Refer to the four panels in the figure. Which panel shows a competitive firm making an economic loss? A. Panel C B. Panel B C. Panel A D. Panel D

C. Panel A

When the level of production is relatively low, the average cost per unit of output would ________ if output increased. A. either increase or decrease depending on marginal cost B. remain constant C. decrease D. increase

C. decrease

The demand curve for oil from OPEC is: :A. vertical. B. flat. C. downward-sloping. D. upward-sloping.

C. downward-sloping.

Programs such as Steam distribute more and more video games. Purchasers buy the game and download it immediately to their computer. If the entire system is automated, estimate the marginal cost of producing and selling video games this way (ignore electricity costs). A. None of the answers is correct. B. the price of the game C. zero D. proportional to the cost to make the game

C. zero

(Table: Competitive Firm) The marginal cost of the fifth unit of output is: A. $90. B. $450. C. $300. D. $70.

D. $70.

(Table: Competitive Firm 2) Refer to the table that shows the revenue and cost schedules for a competitive firm. What is the average fixed cost at the profit-maximizing quantity? A. $54.30 B. $80 C. $50 D. $4.28

D. $4.28

(Figure: Two-Firm Industry) Refer to the figures. At a market price of $20, the total quantity supplied in the industry is: A. 45 units. B. 25 units. C. 32 units. D. 15 units.

D. 15 units.

Refer to the figure. If an industry consists of two firms, Firm 1 and Firm 2, as shown in the diagram, what is the industry's quantity supplied at a price of $7 and $9? A. 8 and 10 units, respectively B. 4 and 5 units, respectively C. 0 and 5 units, respectively D. 4 and 10 units, respectively

D. 4 and 10 units, respectively

(Table: Competitive Firm) Refer to the table. The profit maximizing output for this firm is: :A. 8. B. 5. C. 6. D. 7.

D. 7.

Refer to the figure. How much profit is the firm making at the profit-maximizing quantity? A. The firm is not making a profit—it is making a loss of $200. B. The firm is not making a profit—it is making a loss of $320. C. a profit of $200 D. The firm is not making a profit—it is making a loss of $220.

D. The firm is not making a profit—it is making a loss of $220.

Which of the following statements is FALSE? A. A firm that produces 100 units at a total cost of $500 has an average cost of $5 per unit. B. AC = TC/Q C. Firms will earn positive profits if price exceeds average cost. D. When marginal cost is below average cost, average cost is rising.

D. When marginal cost is below average cost, average cost is rising.

When opportunity cost is positive, economic profit ______ accounting profit. A. is greater than B. eliminates C. equals D. is less than

D. is less than

As the price of a good fluctuates, a profit-maximizing firm will expand or contract production along its: A. average cost curve. B. average product curve. C. marginal product curve. D. marginal cost curve

D. marginal cost curve

In the short run, if price is less than average cost, a firm: A. is earning positive profits. B. will certainly shut down. C. is earning normal profits. D. might shut down, but might stay open.

D. might shut down, but might stay open.

At any price above $60 in this diagram, firms already in this market will be making an economic: A. loss (P < AC) and will exit the industry in the long run. B. profit (P > AC), causing other firms to enter the industry in the short run. C. loss (P < AC) and will exit the industry in the short run. D. profit (P > AC), causing other firms to enter the industry in the long run.

D. profit (P > AC), causing other firms to enter the industry in the long run.

Which of the following best describes a competitive industry? A. Its firms have little control over the price of their product; the demand curve for each firm's product is downward sloping; there are many firms. B.Its firms sell similar products and have direct control over their prices; there are many buyers and sellers and each is relatively small compared with the overall market. C.Its firms sell differentiated products and there are few potential sellers. They have little control over the price of their product; there are many relatively small buyers. D.Its firms sell similar products and have little control over their prices; there are many buyers and sellers and each is relatively small compared with the overall market.

D.Its firms sell similar products and have little control over their prices; there are many buyers and sellers and each is relatively small compared with the overall market.

In a constant cost industry, P = AC = $20. Which sequence of events follows an increase in demand? A.P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts left, price falls until profits return to $0 B.P < AC, firms suffer an economic loss, existing firms reduce output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits exceed $0 C. P = AC, firms make no economic profit, existing firms leave output unchanged, new firms enter the industry, profits remain normal, P = AC = $20 D.P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits return to $0

D.P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits return to $0