Micro economics exam 2
Competitive firms that earn a loss in the short run should
shut down if P < AVC.
A profit-maximizing firm will shut down in the short run when
price is less than average variable cost.
If the market price is $4, this firm will
produce 3 units in the short run and exit in the long run.
If the market price is $16, this firm will
produce 5 units of output in the short run and face competition from new market entrants in the long run.
The average variable cost of producing 240 units is
$0.19.
The average total cost of producing 240 units is
$0.32
Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal
$1,000
In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run?
$2 per unit
A firm has a fixed cost of $200 in its first year of operation. When the firm produces 99 units of output, its total costs are $4,000. The marginal cost of producing the 100th unit of output is $700. What is the total cost of producing 100 units?
$4,700
Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?
0.3
The marginal product of the fourth worker is
10 units.
If the firm can sell its output for $1 per unit, what is the profit-maximizing level of output?
230 units
In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15
In the short run firms will shut down, and in the long run firms will leave the market.
Jennifer is a junior in college. Her current cumulative grade point average (GPA) is 3.5 out of a 4.0 scale. Jennifer is hoping that by the time she graduates, she can raise her cumulative GPA to a 3.7. Which of the following statements is correct?
Jennifer must earn above a 3.7 GPA in her senior year in order to raise her cumulative GPA to a 3.7.
The firm experiences diseconomies of scale if it changes its level of output from
Q4 to Q5.
A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?
The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.
For a particular good, a 5 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
There are many substitutes for this good.
When demand is elastic, a decrease in price will cause
an increase in total revenue.
At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the
average total cost of 21 pairs of boots is $23.
A firm produces 400 units of output at a total cost of $1,200. If fixed costs are $200
average variable cost is $2.50.
Suppose an airline determines that its customers traveling for business have inelastic demand and its customers traveling for vacations have an elastic demand. If the airline's objective is to increase total revenue, it should
decrease the price charged to vacationers and increase the price charged to business travelers
There are very few, if any, good substitutes for motor oil. Therefore, the
demand for motor oil would tend to be inelastic.
For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the
firm's profit-maximizing level of output is less than 100 units.
A good will have a more elastic demand, the
greater the availability of close substitutes
A difference between explicit and implicit costs is that
implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is
inelastic.
In the long run,
inputs that were fixed in the short run become variable.
If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then
its average total cost is less than $10.
Diseconomies of scale occur when a firm's
long-run average total costs are increasing as output increases.
Economies of scale occur when
long-run average total costs fall as output increases
In order to maximize profits in the short run, a firm should produce where
marginal cost equals marginal revenue
For which of the following goods is the price elasticity of demand most inelastic?
pizza
A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its
variable costs
Suppose a firm currently produces 325 units of output per day with 15 workers. The firm is able to produce 340 units of output with a 16th worker. What is the marginal product of the 16th worker?
15 units of output
If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit?
3 units
A firm will shut down in the short run if, for all positive levels of output,
All of the above are correct.
In the long run, a firm will enter a competitive industry if
All of the above are correct.
What is variable cost when output equals 30 units?
90
Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?
Lower the price to increase total revenue.
In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50.
New firms will likely enter this market to capture some of the economic profits
