Micro Econ Ch. 9 & 10

26) Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The accounting profit of Harvey's firm in the first year was A) $220,000. B) $60,000. C) $160,000. D) $825,000.

A) $220,000. Accounting profit is found by subtracting explicit costs from revenue. So annual revenue is $825,000 (= 11,000 × $75) and total explicit costs are $605,000 (= 11,000 × $55) accounting profit is $220,000 (= 825,000 − $605,000).

70) Suppose that Joe sells pork in a purely competitive market. The market price of pork is $3.50 per pound. Joe's marginal revenue from selling the 20th pound of pork would be A) $3.50. B) 20 lbs. C) $20. D) $70.

A) $3.50.

80) A purely competitive firm currently producing 30 units of output earns marginal revenues of $12 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be A) $360. B) $240. C) $120. D) indeterminate based on the information given

A) $360.

47) Reference Chart Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, at the profit-maximizing level of output, the firm's total revenue is A) $48. B) $64. C) $80. D) $32.

A) $48.

82) For Waldo's Widgets, a purely competitive firm, the total revenue from selling 12 units of output is $60. Based on this information, the unit price of the output must be A) $5. B) $72. C) $720. D) $60.

A) $5.

28) Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm earns an accounting profit of A) $500,000 and an economic profit of $200,000. B) $2,000,000 and an economic profit of $200,000. C) $200,000 and an economic profit of $2,000,000. D) $200,000 and an economic profit of $500,000.

A) $500,000 and an economic profit of $200,000 Accounting profit is found by subtracting explicit costs from revenue. So annual revenue is $2,000,000 and explicit costs are $1,500,000, accounting profit is $500,000 (= $2,000,000 − $1,500,000). Economic profit is found by subtracting total costs from revenue (or by subtracting implicit costs from accounting profits). So, accounting profits are $500,000 and implicit costs are $300,000, economic profit is $200,000 (= $500,000 − 300,000).

78) The total revenue of a purely competitive firm from selling 6 units of output is $48. Based on this information, total revenue for 7 units of output must be A) $56. B) $54. C) $55. D) $336

A) $56.

71) Suppose that Angelica sells corn in a purely competitive market. The market price of corn is $6 per bushel. Angelica's marginal revenue from selling the 20th bushel of corn would be A) $6. B) $20. C) $14. D) $120.

A) $6.

76) The total revenue of a purely competitive firm from selling 6 units of output is $48. Based on this information, the unit price of the output must be A) $8. B) $42. C) $288. D) $54.

A) $8.

2) Which of the following is an example of an opportunity cost to a firm? A) All of these are opportunity costs. B) the income the firm could have earned by leasing out its capital to another firm C) the payment the entrepreneur must receive to continue to operate the business D) payments to providers of raw materials

A) All of these are opportunity costs. All production costs, whether explicit or implicit, are opportunity costs, as they all represent payments for resources for which there were alternative uses.

30) Which of the following statements is false? A) The short run refers to a period of less than one year. B) In the long run, all inputs can vary in quantity. C) Firms may continue operating at a loss in the short run. D) In the long run, firms would not continue operating at a loss.

A) The short run refers to a period of less than one year.

38) Which of the following industries most closely approximates pure competition? A) agriculture B) farm implements C) clothing D) steel

A) agriculture

56) Which of the following is not a basic characteristic of pure competition? A) considerable non-price competition B) no barriers to the entry or exit of firms C) a standardized or homogeneous product D) a large number of buyers and sellers

A) considerable non-price competition

9) To the economist, total cost includes A) explicit and implicit costs. B) neither implicit nor explicit costs. C) implicit, but not explicit, costs. D) explicit, but not implicit, costs

A) explicit and implicit costs.

4) Which of the following is most likely to be an implicit cost for Company X? A) forgone rent from the building owned and used by Company X B) rental payments on IBM equipment C) payments for raw materials purchased from Company Y D) transportation costs paid to a nearby trucking firm

A) forgone rent from the building owned and used by Company X

44) There would be some control over price within rather narrow limits in which market model? A) monopolistic competition B) pure competition C) pure monopoly D) oligopoly

A) monopolistic competition

40) An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of A) monopolistic competition. B) oligopoly. C) pure monopoly. D) pure competition.

A) monopolistic competition.

41) An industry comprising 40 firms, each with about 2-3 percent of the total market for a differentiated product, is an example of A) monopolistic competition. B) oligopoly. C) pure monopoly. D) pure competition.

A) monopolistic competition.

50) The fast-food restaurant industry in a small town with only three restaurants would be an example of which market model? A) oligopoly B) pure monopoly C) monopolistic competition D) pure competition

A) oligopoly

55) Which of the following is not a characteristic of pure competition? A) pricing strategies by firms B) a standardized product C) no barriers to entry D) a larger number of sellers

A) pricing strategies by firms

48) In which market model are the conditions of entry into the market easiest? A) pure competition B) pure monopoly C) monopolistic competition D) oligopoly

A) pure competition

62) In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, total revenue graphs as a A) straight, up-sloping line. B) straight line, parallel to the vertical axis. C) straight line, parallel to the horizontal axis. D) straight, downward-sloping line.

A) straight, up-sloping line.

11) Accounting profits equal total revenue minus A) total explicit costs. B) total implicit costs. C) total economic costs. D) economic profits.

A) total explicit costs

69) Xavier produces and sells tomatoes in a purely competitive market. This implies that Xavier's marginal revenue from an extra unit of tomatoes is always equal to the A) unit price. B) average cost. C) variable cost. D) unit profit.

A) unit price.

72) Suppose that Gus sells peanuts in a purely competitive market. The market price of peanuts is $400 per ton. Gus's marginal revenue from selling the 10th ton of peanuts A) would be $400. B) cannot be determined with the information given. C) would be $4,000. D) would be $40.

A) would be $400.

18) The following is cost and revenue information for Pasquale's Pizza Parlor. - Entrepreneur's potential earnings as a salaried worker = $40,000 - Annual lease on building = $28,000 - Payments to raw material suppliers = $50,000 - Annual revenue from operations = $400,000 - Payments to workers = $180,000 - Utilities (electricity, water, disposal) costs = $12,000 - Value of entrepreneur's talent in the next best entrepreneurial activity = $60,000 - Entrepreneur's forgone interest on personal funds used to finance the business = $5,000 - Pasquale's implicit costs, including a normal profit, are A) $270,000. B) $105,000. C) $375,000. D) $25,000.

B) $105,000. Implicit costs are those for which no monetary payment is made, but income is forgone. In this case, the entrepreneur's potential salary earnings, the value of the entrepreneur's talent in the next best alternative entrepreneurial activity, and the forgone interest are all implicit costs. The remaining items on the list are either revenue or explicit costs.

77) The total revenue of a purely competitive firm from selling 50 units of output is $300. Based on this information, the unit price of the output must be A) $15,000. B) $6. C) $250. D) $350.

B) $6.

79) The total revenue of a purely competitive firm from selling 5 units of output is $50. Based on this information, total revenue for 8 units of output must be A) $58. B) $80. C) $60. D) $400.

B) $80.

8) What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common? A) None are either implicit or explicit costs. B) All are opportunity costs. C) All are implicit costs. D) All are explicit costs.

B) All are opportunity costs.

12) An explicit cost is A) omitted when accounting profits are calculated. B) a money payment made for resources not owned by the firm itself. C) an implicit cost to the resource owner who receives that payment. D) always in excess of a resource's opportunity cost.

B) a money payment made for resources not owned by the firm itself

36) Economists would describe the U.S. market for patented pharmaceuticals as A) purely competitive. B) a pure monopoly. C) monopolistically competitive. D) an oligopoly.

B) a pure monopoly.

35) Economists would describe the U.S. automobile industry as A) purely competitive. B) an oligopoly. C) monopolistically competitive. D) a pure monopoly.

B) an oligopoly.

52) Which of the following is not a basic market model? A) pure competition B) free enterprise C) oligopoly D) monopoly

B) free enterprise

21) To economists, the main difference between the short run and the long run is that A) the law of diminishing returns applies in the long run, but not in the short run. B) in the long run all resources are variable, while in the short run at least one resource is fixed. C) fixed costs are more important to decision making in the long run than they are in the short run. D) in the short run all resources are fixed, while in the long run all resources are variable.

B) in the long run all resources are variable, while in the short run at least one resource is fixed.?

51) The market for gym memberships such as Planet Fitness or Excel Fitness would best be described by which market model? A) oligopoly B) monopolistic competition C) pure competition D) pure monopoly

B) monopolistic competition

37) In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies? A) pure monopoly B) oligopoly C) monopolistic competition D) pure competition

B) oligopoly

6) Which of the following is most likely to be an explicit cost for the Vadnay Chocolate Company? A) rent that could have been received if the company-owned building wasn't used for production and storage B) payments to the firm's cocoa suppliers C) These are all explicit costs. D) the interest income forgone by the owners their money is tied up in the business

B) payments to the firm's cocoa suppliers Explicit costs represent monetary payments made to resource suppliers, implicit costs represent forgone income by using a resource that the firm already owns and could provide to outsiders in exchange for payment.

7) Production costs to an economist A) consist only of explicit costs. B) reflect opportunity costs. C) never reflect monetary outlays. D) always reflect monetary outlays.

B) reflect opportunity costs.

64) In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, A) marginal revenue will graph as an up-sloping line. B) the demand curve will be the marginal-revenue curve. C) the marginal revenue curve will lie above the demand curve. D) the demand and marginal-cost curves will coincide at all points.

B) the demand curve will be the marginal-revenue curve

Which of the following is not an example of an economic cost? A) wage payments to workers B) the sales of the firm C) the income the entrepreneur must receive to continue to operate the business D) All of these are economic costs.

B) the sales of the firm Economic costs include all payments necessary for a firm to obtain resources, whether they are explicit or implicit costs. Because sales of the firm are not payments by the firm, they are not part of the economic costs.

22) The amount of calendar time associated with the long run A) is less than that associated with the immediate market period. B) varies from industry to industry. C) is the same for all firms. D) is, by definition, any length of time greater than one year.

B) varies from industry to industry.

73) Suppose that Gus sells peanuts in a purely competitive market. The market price of peanuts is $400 per ton. Gus's total revenue from selling 10 tons of peanuts A) cannot be determined with the information given. B) would be $4,000. C) would be $40. D) would be $400.

B) would be $4,000.

87) Reference Chart Assume the price of a product sold by a purely competitive firm is $10. Given the data in the accompanying table, at what output level is total profit highest in the short-run? A) 40 B) 20 C) 30 D) 25

C

83) A purely competitive firm currently producing 360 units of output earns marginal revenues of $12 from each extra unit of output it sells. If it sells 360 units, then the product price would be A) $360. B) $30. C) $12. D) indeterminate based on the information given.

C) $12.

19) The following is cost and revenue information for Pasquale's Pizza Parlor. - Entrepreneur's potential earnings as a salaried worker = $46,000 - Annual lease on building = $34,000 - Payments to raw material suppliers = $56,000 - Annual revenue from operations = $406,000 - Payments to workers = $186,000 - Utilities (electricity, water, disposal) costs = $18,000 - Value of entrepreneur's talent in the next best entrepreneurial activity = $66,000 - Entrepreneur's forgone interest on personal funds used to finance the business = $11,000 - Pasquale's implicit costs, including a normal profit, are A) $285,000. B) $40,000. C) $123,000. D) $390,000.

C) $123,000.

15) Which of the following definitions is correct? A) Accounting profit + economic profit = normal profit. B) Economic profit − accounting profit = explicit costs. C) Economic profit = accounting profit − implicit costs. D) Economic profit − implicit costs = accounting profits

C) Economic profit = accounting profit − implicit costs.

61) Which of the following is a feature of a purely competitive market? A) The industry's demand curve is perfectly elastic. B) Products may be either standardized or differentiated. C) Individual firms have no control over the market price. D) There are significant barriers to entry into the industry

C) Individual firms have no control over the market price.

20) Which of the following is a short-run adjustment? A) A local farmer buys additional acreage to expand production. B) Two hair salons close and leave the industry. C) The local coffee shop extends its store hours. D) Starbucks opens its fourth store in town

C) The local coffee shop extends its store hours. Changes in plant capacity, whether through entry, exit, or expansion, are long-run adjustments. Changing operating hours at an existing plant is a short-run adjustment.

54) A purely competitive seller is A) both a "price-maker" and a "price-taker." B) neither a "price-maker" nor a "price-taker." C) a "price-taker." D) a "price-maker."

C) a "price-taker."

58) Which of the following is not a basic characteristic of pure competition? A) an absence of non-price competition B) no barriers to the entry or exit of firms C) a differentiated or heterogenous product D) a large number of buyers and sellers

C) a differentiated or heterogenous product

24) The basic difference between the short run and the long run is that A) all costs are fixed in the short run, but all costs are variable in the long run. B) the law of diminishing returns applies in the long run but not in the short run. C) at least one resource is fixed in the short run, while all resources are variable in the long run. D) economies of scale may be present in the short run but not in the long run.

C) at least one resource is fixed in the short run, while all resources are variable in the long run.

68) In pure competition, the demand for the product of a single firm is perfectly A) elastic because the firm produces a unique product. B) inelastic because the firm produces a unique product. C) elastic because many other firms produce the same product. D) inelastic because many other firms produce the same product

C) elastic because many other firms produce the same product.

25) Maria's Mexican Cantina is a restaurant that has been around for 30 years. In that time they have remained in the same building and only changed inputs such as staff and the menu. Based on this, we can conclude that Maria's A) has only ever operated in the short run. B) experienced a long run change whenever it changed personnel. C) has operated in the long run, even though it chose to keep the building input fixed. D) only operated in the long run if other firms entered or left the industry at this time.

C) has operated in the long run, even though it chose to keep the building input fixed.

65) The marginal revenue curve of a purely competitive firm A) lies below the firm's demand curve. B) is downward-sloping because price must be reduced to sell more output. C) is horizontal at the market price. D) has all of these characteristics.

C) is horizontal at the market price.

23) Suppose it takes a particular company one year to change all of its inputs, including its plant capacity. If, over a two-year period, the firm makes no changes to its plant capacity A) the firm is operating in the short run, but not the long run. B) it is operating in the long run as long as it changed at least one input. C) it is still operating in the long run because the period of time is long enough for the firm to make those changes. D) it is operating in the long run as long as it changed its level of output.

C) it is still operating in the long run because the period of time is long enough for the firm to make those changes The long run is defined as a period of time long enough to adjust all inputs. It doesn't mean that any or all inputs must change, just that they all can be changed. Even if the firm makes no changes to its inputs or output, it's still operating in the long run if the period allows for everything to change.

32) If in the short run a firm's total product is increasing, then its A) marginal product must also be increasing. B) marginal product must be decreasing. C) marginal product could be either increasing or decreasing. D) average product must also be increasing.

C) marginal product could be either increasing or decreasing.

45) In which two market models would advertising be used most often? A) pure competition and monopolistic competition B) pure competition and pure monopoly C) monopolistic competition and oligopoly D) pure monopoly and oligopoly

C) monopolistic competition and oligopoly

59) If a firm has at least some control over the price of its product, then the firm cannot be in which market model? A) oligopoly B) pure monopoly C) pure competition D) monopolistic competition

C) pure competition

43) Which market model assumes the least number of firms in an industry? A) monopolistic competition B) pure competition C) pure monopoly D) oligopoly

C) pure monopoly

49) In which market model are the conditions of entry the most difficult? A) monopolistic competition B) pure competition C) pure monopoly D) oligopoly

C) pure monopoly

57) Which of the following is not a basic characteristic of pure competition? A) no control over price B) a large number of buyers and sellers C) significant obstacles to the entry of firms D) a standardized product

C) significant obstacles to the entry of firms

29) The long run is a period of time, or a time frame, in which A) all resources are fixed in quantity. B) the level of output is variable. C) the amount of all resources can be varied. D) the capacity of the production plant is fixed.

C) the amount of all resources can be varied

31) If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes A) economies and diseconomies of scale. B) X-inefficiency. C) the law of diminishing returns. D) the law of diminishing marginal utility

C) the law of diminishing returns.

3) Which of the following constitutes an implicit cost to the Johnston Manufacturing Company? A) payments of wages to its office workers B) rent paid for the use of equipment owned by the Schultz Machinery Company C) use of savings to pay operating expenses instead of generating interest income D) economic profits resulting from current production

C) use of savings to pay operating expenses instead of generating interest income

34) Reference Chart

D)

84) A purely competitive firm currently producing 32 units of output earns marginal revenue of $14 from each extra unit of output it sells. If it sells 32 units, then its average revenue would be A) $280. B) $140. C) $32. D) $14.

D) $14.

17) The following is cost and revenue information for Pasquale's Pizza Parlor. - Entrepreneur's potential earnings as a salaried worker = $46,000 - Annual lease on building = $34,000 - Payments to raw material suppliers = $56,000 - Annual revenue from operations = $406,000 - Payments to workers = $186,000 - Utilities (electricity, water, disposal) costs = $18,000 - Value of entrepreneur's talent in the next best entrepreneurial activity = $66,000 - Entrepreneur's forgone interest on personal funds used to finance the business = $11,000 - Pasquale's explicit costs are A) $40,000. B) $120,000. C) $390,000. D) $294,000

D) $294,000 Explicit costs are those for which a monetary payment must be made. In this case, the annual lease on the building, payments to raw material suppliers, payments to workers, and utilities are the only costs for which a payment is made. The remaining items on the list are either revenue or implicit costs.

86) Reference Chart Assume the price of a product sold by a purely competitive firm is $8. Given the data in the accompanying table, what is total profit when this firm is producing the profit-maximizing level of output? A) $58 B) $295 C) $310 D) $322

D) $322

81) A purely competitive firm currently producing 30 units of output earns marginal revenues of $12 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be A) $240. B) indeterminate based on the information given. C) $120. D) $360.

D) $360.

85) For Waldo's Widgets, a purely competitive firm, the total revenue from selling 16 units of output is $96. Based on this information, the unit price of the output must be A) $1,120. B) $112. C) $96. D) $6.

D) $6.

33) Which of the following is correct? A) When total product is rising, both average product and marginal product must also be rising. B) When marginal product is falling, total product must be falling. C) When marginal product is falling, average product must also be falling. D) Marginal product rises faster than average product and also falls faster than average product

D) Marginal product rises faster than average product and also falls faster than average product

60) Which of the following is a feature of a purely competitive market? A) Price differences exist between firms producing the same product. B) There are significant barriers to entry into the industry. C) The industry's demand curve is perfectly elastic. D) Products are standardized or homogeneous.

D) Products are standardized or homogeneous.

74) Unit price and average revenue are the same or equal in A) pure competition only. B) pure monopoly only. C) monopolistic competition only. D) all market structures.

D) all market structures.

27) Normal profits are A) the profits reported by accountants on a firm's annual financial statement. B) identical to economic profits. C) determined by subtracting total costs from total revenues. D) considered an implicit cost by economists.

D) considered an implicit cost by economists.

14) Economic profits are calculated by subtracting A) explicit costs from total revenue. B) implicit costs from total revenue. C) implicit costs from normal profits. D) explicit and implicit costs from total revenue.

D) explicit and implicit costs from total revenue.

13) Accounting profits are typically A) greater than economic profits because the former do not take explicit costs into account. B) equal to economic profits because accounting costs include all opportunity costs. C) smaller than economic profits because the former do not take implicit costs into account. D) greater than economic profits because the former do not take implicit costs into account.

D) greater than economic profits because the former do not take implicit costs into account.

66) The demand curve faced by a purely competitive firm A) yields constant total revenues even when price changes. B) has unitary elasticity. C) is identical to the market demand curve. D) is perfectly elastic.

D) is perfectly elastic.

67) The demand curve faced by a purely competitive firm A) has unitary elasticity. B) yields constant total revenues even when price changes. C) is identical to the market demand curve. D) is the same as its marginal revenue curve.

D) is the same as its marginal revenue curve.

16) The following is cost information for the Creamy Crisp Donut Company. - Entrepreneur's potential earnings as a salaried worker = $40,000 - Annual lease on building = $25,000 - Annual revenue from operations = $420,000 - Payments to workers = $150,000 - Utilities (electricity, water, disposal) costs = $8,000 - Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 - Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 - If, other things equal, Creamy Crisp's revenue fell to $309,000, A) its implicit costs would exceed its economic costs. B) its accounting profit would fall to $0. C) it would suffer an economic loss. D) it would earn a normal profit but not an economic profit.

D) it would earn a normal profit but not an economic profit. Economic profit is found by subtracting total costs from revenue. If, for example, annual revenue is $420,000 and total costs (the sum of all the cost items on the list) are $309,000, economic profit is $111,000 (= $420,000 − $309,000). If, Creamy Crisp's revenue fell to $309,000, economic profit is zero as annual revenue and total costs are equal.

53) Suppose that a fast-food restaurant, Wendy McJack's, opens a restaurant just off of an interstate highway exit. There are no other restaurants within 70 miles in any direction. Which market model best describes the local market in which this location of Wendy McJack's operates? A) pure competition B) monopolistic competition C) oligopoly D) monopoly

D) monopoly

46) All firms in the market selling standardized products would tend to limit control over price in which market model? A) oligopoly B) pure monopoly C) monopolistic competition D) pure competition

D) pure competition

42) An industry comprising a very large number of sellers producing a standardized product is known as A) monopolistic competition. B) oligopoly. C) pure monopoly. D) pure competition.

D) pure competition.

63) In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, A) marginal revenue will graph as an up-sloping line. B) the demand curve will lie above the marginal-revenue curve. C) the marginal-revenue curve will lie above the demand curve. D) the demand and marginal-revenue curves will coincide.

D) the demand and marginal-revenue curves will coincide.

10) Implicit and explicit costs are different in that A) explicit costs are opportunity costs; implicit costs are not. B) implicit costs are opportunity costs; explicit costs are not. C) the latter refer to non-expenditure costs and the former to monetary payments. D) the former refer to non-expenditure costs and the latter to monetary payments.

D) the former refer to non-expenditure costs and the latter to monetary payments.

5) Which of the following is most likely to be an implicit cost for the Vadnay Chocolate Company? A) rent paid for the building space used by Vadnay Chocolate B) payments to the firm's cocoa suppliers C) shipping costs for the finished products D) the interest income the owners are not receiving because their money is tied up in the business

D) the interest income the owners are not receiving because their money is tied up in the business

39) Economists use the term imperfect competition to describe A) all industries that produce standardized products. B) any industry in which there is no non-price competition. C) a pure monopoly only. D) those markets that are not purely competitive.

D) those markets that are not purely competitive.

75) In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is A) downward-sloping. B) horizontal. C) vertical. D) upward-sloping.

D) upward-sloping.