Micro Exam 4 Chapter 9

The phrase "don't cry over spilt milk" could be rephrased in economic terms by saying: "Sunk costs are irrelevant to a decision." "Real resources have opportunity costs." "The law of diminishing returns applies to everything." "There are economies and diseconomies of scale."

"Sunk costs are irrelevant to a decision."

If you know that total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be: $800 $250 $3200 $200

$200

If you know that with 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then total cost at this output level is: $93.75 $880 $750 $97.78

$750

If you know that with 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then total cost at this output level is: $97.78 $750 $93.75 $880

$750

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone 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. Refer to the above information. The total revenues of Harvey's firm in the first year were: $825,000 $50,000 $605,000 $100,000

$825,000

The Zebra, Inc. is selling in a purely competitive market. Its output is 250 units, which sell for $2 each. At this level of output, marginal cost is $2 and average variable cost is $2.25. The firm should A) produce zero units of output B) decrease output to 200 units C) continue to produce 250 units D) increase output to maximize profits

A

Which industry comes closest to being purely competitive? A) agriculture B) retail trade C) electricity D) automobile

A

In a purely competitive industry, A) each existing firm will engage in various forms of nonprice competition B) new firms are free to enter and existing firms are able to leave the industry very easily C) individual firms have a price policy D) each firm produces a differentiated (nonstandardized) product

B

In pure competition, product price is A) greater than marginal revenue B) equal to marginal revenue C) equal to total revenue D) greater than total revenue

B

In which market model is the individual seller of a product a price taker? A) pure competition B) pure monopoly C) monopolistic competition D) oligopoly

B

Suppose that when 2,000 units of output are produced, the marginal cost of the 2,001st unit is $5. This amount is equal to the minimum of average total cost, and marginal cost is rising. If the optimal level of output in the short run is 2,500 units, then at that level, A) marginal cost is greater than $5 and marginal cost is less than average total cost B) marginal cost is greater than $5 and marginal cost is greater than average total cost C) marginal cost is less than $5 and marginal cost is greater than average total cost D) marginal cost is equal to $5 and marginal cost is equal to average total cost

B

The individual firm's short-run supply curve is that part of its marginal-cost curve lying above its A) average-total-cost curve B) average-variable-cost curve C) average-fixed-cost curve D) average-revenue curve

B

Which statement is true of a purely competitive industry in short-run equilibrium? A) Price is equal to average total cost. B) Total quantity demanded is equal to total quantity supplied. C) Profits in the industry are equal to zero. D) Output is equal to the output at which average total cost is a minimum.

B

If other factors are held constant, an increase in wages for a purely competitive firm would result in a shift A) downward in the marginal-cost curve B) downward in the average-fixed-cost curve C) upward in the marginal-cost curve D) upward in the average-fixed-cost curve

C

The demand schedule or curve confronted by the individual purely competitive firm is A) perfectly inelastic B) inelastic but not perfectly inelastic C) perfectly elastic D) elastic but not perfectly elastic

C

Total revenue for producing 10 units of output is $6. Total revenue for producing 11 units of output is $8. Given this information, the A) average revenue for producing 11 units is $2. B) average revenue for producing 11 units is $8. C) marginal revenue for producing the 11th unit is $2. D) marginal revenue for producing the 11th unit is $8.

C

In the short run, total output in an industry: Can vary as the result of new firms entering or leaving the industry May be altered by varying the size of plant and equipment which now exist in the industry Can vary as the result of using a fixed amount of plant and equipment more or less intensively Is absolutely fixed

Can vary as the result of using a fixed amount of plant and equipment more or less intensively

Marginal cost can be defined as the: Change in average total cost resulting from one more unit of production Change in total fixed cost resulting from one more unit of production Change in total cost resulting from one more unit of production Change in average variable cost resulting from one more unit of production

Change in total cost resulting from one more unit of production

Because of the law of diminishing marginal returns, marginal costs eventually A) fall as fewer units of output are produced; thus higher prices are required to motivate producers to supply less B) fall as fewer units of output are produced; thus higher prices are required to motivate producers to supply more C) rise as more units of output are produced; thus lower prices are required to motivate producers to supply less D) rise as more units of output are produced; thus higher prices are required to motivate producers to supply more

D

For which market model are there a very large number of firms? A) monopolistic competition B) oligopoly C) pure monopoly D) pure competition

D

A given level of consumer demand will support a large number of producers in an industry if: Diseconomies of scale are already encountered even at low levels of output The long-run ATC curve decreases as output levels increase Minimum efficient scale (MES) is very large Exclusive patents and high government license fees are prevalent in the industry

Diseconomies of scale are already encountered even at low levels of output

The ability of Intel to spread product development costs over a larger number of units of output arises from: Diseconomies of scale Economies of scale Minimum efficient scale Constant returns to scale

Economies of scale

When a firm doubles its inputs and finds that its output has more than doubled, this is known as: Economies of scale Constant returns to scale A violation of the law of diminishing returns Diseconomies of scale

Economies of scale

Over the range of output where the slope of the short-run total cost curve becomes steeper: Fixed costs are increasing Marginal cost is lower than average variable cost Marginal cost is increasing Marginal cost is positive, but decreasing

Marginal cost is increasing

If the short-run average variable cost of production for a firm is decreasing, then it follows that: Average variable cost must be above average fixed cost Marginal cost must be decreasing Marginal cost must be below average variable cost Average fixed cost must be constant

Marginal cost must be below average variable cost

At the point where diminishing marginal returns of an input sets in, the: Marginal product starts to decrease Total product starts to decrease Average product starts to decrease Average product exceeds the marginal product

Marginal product starts to decrease

At the Amarillo Piano Company, the average product of labor stays constant at 5, regardless of how much labor is employed. This implies that: There are no fixed costs The marginal product of labor is constant This firm can never maximize its profits Labor exhibits diminishing marginal returns

The marginal product of labor is constant

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

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

The law of diminishing returns explains why: Total cost eventually reaches a maximum point Total cost eventually rises more and more slowly Total cost eventually rises faster and faster Total cost eventually falls

Total cost eventually rises faster and faster

A firm with fixed costs produces at the lowest point on its U-shaped average variable cost curve. If it raises output by 1 unit, then average: Fixed cost will necessarily be below average variable cost Total cost will decrease Total cost will be less than average variable cost Fixed cost will increase

Total cost will decrease